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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under § 240.14a-12
Cyclerion Therapeutics, Inc.
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):

No fee required

Fee paid previously with preliminary materials.

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

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CYCLERION THERAPEUTICS, INC.
245 First Street, 18th Floor
Cambridge, MA 02142
(857) 327-8778
June 20, 2023
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of Cyclerion Therapeutics, Inc. (the “Company”) to be held on July 19, 2023, at 8:00 a.m., Eastern Time, in a virtual meeting format via live webcast. Shareholders will only be able to participate in the special meeting online, vote shares electronically and submit questions during the special meeting by visiting www.virtualshareholdermeeting.com/CYCN2023SM.
We have designed the virtual meeting format for ease of shareholder access and participation. Using online shareholder tools, shareholders may vote and submit questions online during the meeting by following the instructions in the accompanying materials.
Information regarding each of the matters to be voted on at the special meeting is contained in the accompanying Notice of Special Meeting of Shareholders and Proxy Statement. The Company’s board of directors recommends that you vote “for” each of the proposals to be presented at the meeting.
It is important that you be represented at the special meeting regardless of the number of shares you own. Whether or not you plan to attend the meeting, we urge you to vote as soon as possible. The matters to be considered by shareholders at the special meeting are described in the accompanying materials. You may vote by marking, signing and dating your proxy card and returning it in the envelope provided. Alternatively, you may vote over the Internet or by telephone. Voting over the Internet, by telephone or by written proxy will not prevent you from attending the special meeting and voting online but will ensure that your vote is counted if you are unable to attend. Please review the instructions on the proxy card regarding each of these voting options.
Your continued support of and interest in Cyclerion Therapeutics, Inc. are sincerely appreciated.
 
Sincerely,
 
/s/ Errol De Souza
 
Errol De Souza, Ph.D.
 
Chair of the Board of Directors

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CYCLERION THERAPEUTICS, INC.
245 First Street, 18th Floor
Cambridge, MA 02142
(857) 327-8778
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DATE & TIME:
July 19, 2023, at 8:00 a.m., Eastern Time.
 
 
 
PLACE:
The special meeting of shareholders of Cyclerion Therapeutics, Inc. (the “Company,” or “Cyclerion,” “we,” us,” or “our”) will be a virtual meeting, which will be conducted only via live webcast. Shareholders will only be able to attend and participate in the special meeting online, vote shares electronically and submit questions during the special meeting by visiting www.virtualshareholdermeeting.com/CYCN2023SM. Instructions on how to attend the special meeting online and vote shares are described in the accompanying materials.
 
 
 
ITEMS OF BUSINESS:
The purposes of the meeting are to consider and vote upon the following proposals, which are described in more detail in the accompanying proxy statement:
 
 
(1)
A proposal to authorize and approve the Asset Purchase Agreement, dated as of May 11, 2023 (the “Asset Purchase Agreement”), by and among JW Celtics Investment Corp., a Delaware corporation, JW Cycle Inc., a Delaware corporation (“Buyer”), and the Company, regarding the sale to Buyer of substantially all of the assets comprising the Company’s zagociguat (previously known as CY6463) and CY3018 programs, which may be deemed under Massachusetts law to be a sale of substantially all of our property and assets otherwise than in the usual and regular course of business, as contemplated by the Asset Purchase Agreement, and the other transactions contemplated by the Asset Purchase Agreement. We will retain the assets comprising our olinciguat, praliciguat and preclinical programs, and intend to maximize the value of these assets via out-licensing following the closing of the transaction;
 
 
(2)
To approve, for purposes of complying with the Nasdaq Listing Rules, the potential issuance of shares of common stock of the Company, without par value (the “Common Stock”), upon conversion of the shares of the Company’s Series A Convertible Preferred Stock, without par value, issued by us to Peter M. Hecht, Ph.D., our Chief Executive Officer and member of the Company’s board of directors, pursuant to the terms of a Stock Purchase Agreement, dated as of March 31, 2023, to the extent that following such conversion Dr. Hecht would hold 20% or more of our outstanding Common Stock;
 
 
 
(3)
To authorize the Company’s board of directors to adjourn and postpone the special meeting to a later date or dates, if necessary, to allow time for further solicitation of proxies if there are not sufficient votes present in person or represented by proxy at the special meeting to approve Proposal No. 1; and
 
 
 
 
(4)
To transact any other business which properly may be brought before the special meeting or any adjournment or postponement thereof, including matters incidental to its conduct.
 
 
 

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RECORD DATE:
You are entitled to vote at the special meeting or any adjournment of that meeting only if you were a shareholder at the close of business on June 15, 2023.
 
 
 
VOTING BY PROXY:
Please submit a proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You may submit your proxy (1) over the Internet, (2) by telephone, or (3) by mail. For specific instructions, please refer to the information in the proxy statement and the instructions on the proxy card.
 
 
 
SHAREHOLDER LIST:
A list of record shareholders as of the record date will be available for inspection by any shareholder during the period from two business days after the date hereof through the special meeting at www.virtualshareholdermeeting.com/CYCN2023SM.
 
 
APPRAISAL RIGHTS:
The Company has concluded that shareholders may be entitled to assert appraisal rights under Part 13 of the Massachusetts Business Corporation Act with respect to Proposal No. 1. To assert appraisal rights, a shareholder must deliver, before the vote is taken on Proposal No. 1, written notice of the shareholder’s intent to demand payment and must not vote the shareholder’s shares in favor of Proposal No. 1. A copy of Part 13 is attached as Annex D to the accompanying proxy statement.
This proxy statement, including the form of proxy, is first being mailed to shareholders on or about June 20, 2023.
 
BY ORDER OF THE BOARD OF DIRECTORS,
 
/s/ Anjeza Gjino
 
Anjeza Gjino
 
Chief Financial Officer and Corporate Secretary
Cambridge, MA
 
June 20, 2023
 
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF SHARES YOU OWN. THE BOARD OF DIRECTORS URGES YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. RETURNING THE PROXY CARD WILL NOT PREVENT YOU FROM ATTENDING THE SPECIAL MEETING AND VOTING ONLINE. IF YOU ATTEND THE SPECIAL MEETING AND VOTE YOUR SHARES, YOUR PROXY WILL NOT BE USED. PLEASE REVIEW THE INSTRUCTIONS ON EACH OF YOUR VOTING OPTIONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AS WELL AS ON THE PROXY CARD.

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CYCLERION THERAPEUTICS, INC.
245 First Street, 18th Floor
Cambridge, MA 02142
(857) 327-8778

PROXY STATEMENT

FOR THE SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON JULY 19, 2023

GENERAL INFORMATION
Why did you furnish me this proxy statement?
This proxy statement and the enclosed proxy card are furnished in connection with the solicitation of proxies by the board of directors (the “Board of Directors” or “Board”) of Cyclerion Therapeutics, Inc., a Massachusetts corporation (the “Company,” or “Cyclerion,” “we,” us,” or “our”), for use at the special meeting of the Company’s shareholders to be held on July 19, 2023, at 8:00 a.m., Eastern Time via live webcast at www.virtualshareholdermeeting.com/CYCN2023SM, and at any adjournments or postponements of the special meeting. This proxy statement summarizes the information that you need to make an informed vote on the proposals to be considered at the special meeting. However, you do not need to attend the special meeting to vote your shares. Instead, you may simply complete, sign, and return the enclosed proxy card using the postage-prepaid envelope provided, or you may grant a proxy to vote your shares by means of the Internet or telephone. The approximate date on which this proxy statement and the enclosed proxy card were sent to the Company’s shareholders is June 20, 2023.
What proposals will be addressed at the special meeting?
Shareholders will be asked to consider the following proposals at the special meeting:
1.
To authorize and approve the Asset Purchase Agreement, dated as of May 11, 2023 (the “Asset Purchase Agreement”), by and among JW Celtics Investment Corp., a Delaware corporation (“Buyer Parent”), JW Cycle Inc., a Delaware corporation (“Buyer” and collectively with Buyer Parent, the “Buyers”), and the Company, regarding the sale to Buyer of substantially all of the assets comprising the Company’s zagociguat (previously known as CY6463) and CY3018 programs, as contemplated by the Asset Purchase Agreement, and the other transactions contemplated by the Asset Purchase Agreement (the “Asset Sale Proposal”). We will retain the assets comprising our olinciguat, praliciguat and preclinical programs, and intend to maximize the value of these assets via out-licensing following the closing of the transaction;
(2)
To approve, for purposes of complying with the Nasdaq Listing Rules, the issuance of shares of common stock of the Company, without par value (the “Common Stock”) upon potential conversion of the shares of the Company’s Series A Convertible Preferred Stock, without par value (the “Cyclerion Preferred Stock”) issued by us to Peter M. Hecht, Ph.D., our Chief Executive Officer and member of the Board, pursuant to the terms of a Stock Purchase Agreement, dated as of March 31, 2023, to the extent that following such conversion Dr. Hecht would hold 20% or more of our outstanding Common Stock (the “Nasdaq Proposal”);
(3)
To authorize the Board of Directors to adjourn and postpone the special meeting to a later date or dates, if necessary, to allow time for further solicitation of proxies if there are not sufficient votes present in person or represented by proxy at the special meeting to approve the Asset Sale Proposal (the “Adjournment Proposal”); and
(4)
To transact any other business which properly may be brought before the special meeting or any adjournment or postponement thereof, including matters incidental to its conduct.
The Board of Directors has taken unanimous affirmative action with respect to each of the foregoing proposals, without the participation of Dr. Hecht and Mr. McGuire (due to their interests in Buyer Parent as described in the Section entitled “Summary Term Sheet — Interests of Certain Persons in the Asset Sale Transaction and the Nasdaq Proposal” beginning on page 7), and recommends that the shareholders vote as set forth in the following pages of this proxy statement with respect to each proposal.

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SUMMARY TERM SHEET
This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the Asset Purchase Agreement, the transactions contemplated by the Asset Purchase Agreement, the Nasdaq Proposal (each as defined herein), and the other matters being considered at the special meeting of the Company’s shareholders to which this proxy statement relates. We urge you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. For additional information on the Company included in documents incorporated by reference into this proxy statement, see the section entitled “Where You Can Find More Information” beginning on page 64. We have included page references in this summary to direct you to a more complete description of the topics presented below.
Any reference in this proxy statement to:
“Asset Purchase Agreement” refers to the Asset Purchase Agreement, dated as of May 11, 2023, by and among Buyer Parent, Buyer, and the Company, a copy of which is attached as Annex A;
“Buyer” refers to JW Cycle Inc., a Delaware corporation;
“Buyer Parent” refers to JW Celtics Investment Corp., a Delaware corporation;
“Buyer Parent Stock Purchase Agreement” means the Series A Preferred Stock Purchase Agreement, dated May 11, 2023 (the date of the Asset Purchase Agreement), by and among Buyer Parent, the Company and the investors set forth on the signature pages thereto, pursuant to which such investors have agreed to subscribe for up to $81.0 million of shares of Series A Preferred Stock in Buyer Parent and the Company has a contractual right, exercisable at the times set forth therein, to subscribe for up to $5.0 million of Series A Preferred Stock in Buyer Parent (in excess of the foregoing $81.0 million of Series A Preferred Stock);
“Buyers” refers to Buyer Parent and Buyer, collectively;
“Closing Common Shares” means the 225,000 shares of Common Stock issued by the Company to Peter M. Hecht, Ph.D. pursuant to the Stock Purchase Agreement, dated as of March 31, 2023, between the Company and Dr. Hecht;
“Consideration Shares” refers to a number of shares of common stock, par value $0.0001 of Buyer Parent comprising 10% of the issued and outstanding shares of Buyer Parent immediately following the closing of the Asset Sale Transaction;
“Cyclerion,” the “Company,” we,”us,” or “our” refer to Cyclerion Therapeutics, Inc., a Massachusetts corporation; and
“IND” refers to an Investigational New Drug application required pursuant to 21 C.F.R. Part 312 or any comparable filings outside of the United States required to commence human clinical trials in such country or region, and all supplements or amendments that may be filed with respect to the foregoing.
Capitalized terms that are not otherwise defined in this proxy statement have the definitions as stated in the Asset Purchase Agreement.
Information about the Parties to the Asset Purchase Agreement
The Company
The Company is a biopharmaceutical company on a mission to develop treatments for serious diseases. The business address of the Company is 245 First Street, 18th Floor, Cambridge, Massachusetts 02142.
The Company’s portfolio includes novel soluble guanylate cyclase (“sGC”) stimulators that modulate a key node in a fundamental signaling network in both the central nervous system (“CNS”) and the periphery. The multidimensional pharmacology elicited by the stimulation of sGC has the potential to impact a broad range of diseases. Zagociguat is a CNS-penetrant sGC stimulator that has shown rapid improvements across a range of endpoints reflecting multiple domains of disease activity, including mitochondrial disease-associated biomarkers. CY3018 is a CNS-targeted sGC stimulator in preclinical development that preferentially localizes to the brain and has a pharmacology profile that suggests its potential for the treatment of neuropsychiatric diseases and disorders. Praliciguat is a systemic sGC stimulator that is licensed to Akebia Therapeutics, Inc. (“Akebia”) and being advanced
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in rare kidney disease. Olinciguat is a vascular sGC stimulator that the Company intends to out-license for cardiovascular diseases. For more information about Cyclerion, please visit https://www.cyclerion.com/.
Buyer
Buyer is a wholly owned subsidiary of Buyer Parent and was formed on April 12, 2023, solely for the purpose of engaging in the transactions contemplated by the Asset Purchase Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Asset Purchase Agreement and the Buyer Parent Stock Purchase Agreement.
The mailing address of Buyer’s principal executive office is 1820 Calistoga Rd., Santa Rosa, CA 95404.
Buyer Parent
Buyer Parent was formed on October 18, 2022, solely for the purpose of engaging in the transactions contemplated by the Asset Purchase Agreement and the Buyer Parent Stock Purchase Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Asset Purchase Agreement and the Buyer Parent Stock Purchase Agreement.
The mailing address of Buyer Parent’s principal executive office is 1820 Calistoga Rd., Santa Rosa, CA 95404.
The Asset Purchase Agreement
The Company has entered into the Asset Purchase Agreement with Buyers pursuant to which the Company has agreed, subject to certain conditions, including the authorization and approval of the Asset Purchase Agreement by its shareholders, to sell to Buyer specified assets relating to the Company’s zagociguat (previously known as CY6463) and CY3018 programs (the “Purchased Programs”, and such assets, the “Purchased Assets”), and Buyer has agreed to assume certain liabilities relating to the Purchased Programs, including, but not limited to (i) liabilities, costs and expenses arising after the date of the Asset Purchase Agreement relating to the employment of certain individuals prior to the Employee Expenses End Date (as defined in the Asset Purchase Agreement) (“Employee Expenses”) and the conduct of certain preclinical and clinical trial activities prior to the closing of the transactions contemplated by the Asset Purchase Agreement (“R&D Expenses”), and (ii) liabilities relating to the Purchased Assets or the Purchased Programs to the extent relating to the period after the closing of the transaction, in each case, subject to the terms and conditions of the Asset Purchase Agreement (the “Asset Sale Transaction”). Cyclerion will retain the assets comprising the olinciguat, praliciguat and preclinical programs (the “Retained Programs”), and the Company intends to maximize the value of these assets via out-licensing following the closing of the Asset Sale Transaction.
For additional information on the Asset Purchase Agreement, see the section entitled “Proposal No. 1: The Asset Sale Proposal” beginning on page 21.
Buyer Parent Stock Purchase Agreement
Simultaneously with the execution of the Asset Purchase Agreement, we entered into the Buyer Parent Stock Purchase Agreement, pursuant to which, among other things and subject to the terms and conditions set forth therein, Buyer Parent shall issue to the investors party thereto shares of Buyer Parent’s Series A Preferred Stock at multiple closings for an aggregate consideration of up to $81.0 million and which also provides the Company with a contractual right, exercisable at the times set forth in the Buyer Parent Stock Purchase Agreement, to subscribe for up to $5.0 million of Buyer Parent’s Series A Preferred Stock (in excess of the foregoing $81.0 million of Series A Preferred Stock).
For additional information on the Buyer Parent Stock Purchase Agreement, see the section entitled “Proposal No. 1: The Asset Sale Proposal – The Other Transaction Agreements – Buyer Parent Stock Purchase Agreement” beginning on page 55.
Voting and Support Agreements
Simultaneously with the execution of the Asset Purchase Agreement, Buyer Parent entered into voting and support agreements in the form attached as Annex B to this proxy statement (each, a “Voting and Support Agreement”) with certain equityholders (and certain affiliates of such equityholders) of Buyer Parent or any
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subsidiary of Buyer Parent that are also shareholders of the Company, which shareholders held approximately 28.6% of the total outstanding voting shares of the Company as of the Record Date and include Dr. Hecht, our Chief Executive Officer, as well as certain funds managed by Polaris Partners, an affiliate of Mr. McGuire.
For additional information on the Voting and Support Agreements, see the section entitled “Proposal No. 1: The Asset Sale Proposal – The Other Transaction Agreements – Voting and Support Agreements” beginning on page 54.
Buyer Parent Shareholder Agreements
At the closing of the Asset Sale Transaction, the Company intends to enter into the following agreements with Buyer Parent and the other parties thereto, all of which relate to the Company’s and such other parties’ equity interests in Buyer Parent:
Buyer Parent Voting Agreement;
Buyer Parent Investor Rights Agreement;
Cyclerion Stockholder Letter; and
Buyer Parent Right of First Refusal and Co-Sale Agreement.
The Buyer Parent Voting Agreement, the Buyer Parent Investor Rights Agreement, the Cyclerion Stockholder Letter and the Buyer Parent Right of First Refusal and Co-Sale Agreement, which we hereinafter refer to as the “Buyer Parent Shareholder Agreements”, are summarized in the section entitled “Proposal No. 1: The Asset Sale Proposal — The Other Transaction Agreements — Buyer Parent Shareholder Agreements” beginning on page 55.
Consideration for the Asset Sale Transaction
As consideration for the Asset Sale Transaction, Buyers agreed to:
pay the Company (i) $8.0 million at the closing, plus (ii) the amount of any Employee Expenses or R&D Expenses for which Buyers are obligated to reimburse the Company pursuant to the Asset Purchase Agreement to the extent such amounts remain unpaid as of the closing of the Asset Sale Transaction; and
deliver to the Company a number of shares of common stock, par value $0.0001 per share, of Buyer Parent, such that following the issuance thereof, such shares comprise 10% of the issued and outstanding shares of Buyer Parent immediately following the closing of the Asset Sale Transaction, subject to certain protections against dilution specified in the Cyclerion Stockholder Letter.
Use of Proceeds and Future Operations
We currently intend to utilize the cash proceeds from the sale of the Purchased Programs, net of expenses, and any value we receive from the Consideration Shares in the form of dividends or a sale of such shares to maximize the value of our Retained Programs via out-licensing and for other working capital purposes. Our Board of Directors will also continue to evaluate other activities aimed at enhancing shareholder value, which may potentially include collaborations, licenses, mergers, acquisitions and/or other targeted investments. No such activities are currently pending.
Expected Timing of the Asset Sale Transaction
We expect to complete the Asset Sale Transaction in the third quarter of 2023, promptly following the special meeting, if the Asset Sale Proposal is approved by our shareholders and the various other conditions to closing are satisfied or waived. However, there can be no assurance that the Asset Sale Transaction will be completed as currently anticipated. Certain factors, including factors outside of our control and the control of Buyers, could result in the Asset Sale Transaction being delayed or not occurring at all. Please refer to the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 13.
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Conditions to Closing
The completion of the Asset Sale Transaction is dependent upon the satisfaction of a number of conditions, including, among other things, the following:
the absence of any law or government order of any nature that restrains, enjoins or otherwise prohibits, or has the effect of restraining, enjoining or otherwise prohibiting, the transactions contemplated by the Asset Purchase Agreement and the Buyer Parent Shareholder Agreements (the “Transaction Agreements”) from being consummated;
the Company obtaining the requisite shareholder approval for the Asset Sale Proposal;
the Novation and Waiver Agreement, dated May 2, 2023, among Cyclerion, Buyer and the Alzheimer’s Association, with respect to the Part the Cloud Grant dated August 15, 2021 between Cyclerion and the Alzheimer’s Association, being in full force and effect;
the Buyer Parent Shareholder Agreements being duly executed by the parties thereto;
the parties having delivered letters to the United States Food and Drug Administration (“FDA”) with respect to the transfer from Cyclerion to Buyer of (i) the INDs relating to the Purchased Programs and (ii) the orphan drug designations relating to the Purchased Programs;
the accuracy of the representations and warranties of Buyers and the Company set forth in the Asset Purchase Agreement as of the date of closing, subject, in certain circumstances, to certain materiality thresholds;
the performance by Buyers and the Company of their obligations and covenants under the Asset Purchase Agreement;
the absence of a material adverse effect with respect to the Company;
Cyclerion having received evidence of the consummation of the closing of the second tranche as contemplated by the Buyer Parent Stock Purchase Agreement; and
the delivery of certain certificates and other documentation in connection with the Asset Sale Transaction.
For additional information on the parties’ conditions to closing, see “Proposal No. 1: The Asset Sale Proposal — The Asset Purchase Agreement — Closing Conditions” beginning on page 51.
Exclusivity
The Asset Purchase Agreement requires that Cyclerion, from signing until the earlier of the termination of the Asset Purchase Agreement or closing of the Asset Sale Transaction, not initiate contact with or solicit any inquiry or proposal or engage in any discussions with third parties in connection with possible proposals regarding a sale or licensing of the Purchased Assets and certain other strategic transactions involving the Company. The Company has agreed to promptly provide notice to Buyer of any solicitation or offer made by any third party in connection with such alternative transaction.
If Buyers terminate the Asset Purchase Agreement because there is a Cyclerion Adverse Recommendation Change (as defined in the Asset Purchase Agreement), the Company must pay a termination fee of $0.5 million as well as reimburse out-of-pocket expenses of Buyers in an amount equal to $1.0 million and pay Employee Expenses and R&D Expenses actually reimbursed or paid by Buyers, as described in the Section entitled “Proposal No. 1: The Asset Sale Proposal — The Asset Purchase Agreement — Exclusivity” beginning on page 52.
Termination of the Asset Purchase Agreement
The Asset Purchase Agreement may be terminated prior to closing as follows:
by the mutual written agreement of the Company and Buyer;
by either party upon notice to the other if the transactions contemplated by the Asset Purchase Agreement have not been consummated by September 11, 2023, unless such date is extended by the mutual written agreement of the Company and Buyer (the “Termination Date”); provided, however, that such right to terminate is not available to any party whose breach of any provision of the Asset Purchase Agreement has primarily caused or primarily resulted in the failure of the transactions to be consummated by such time;
by Buyer if neither Buyer Parent nor Buyer is then in breach of any provision of the Asset Purchase Agreement that would lead any closing condition for the benefit of the Company not to be satisfied, if any
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representation or warranty made by the Company shall have become untrue or the Company shall have failed to perform any covenant or agreement set forth in the Asset Purchase Agreement, such that any closing condition for the benefit of Buyers would not be satisfied and such condition is incapable of being satisfied by the Termination Date, and the Company has not cured such breach within 20 days of Buyer’s written notification of such breach;
by the Company if the Company is not then in breach of any provision of the Asset Purchase Agreement that would lead any closing condition for the benefit of Buyers not to be satisfied, if any representation or warranty made by Buyer or Buyer Parent shall have become untrue or either of them shall have failed to perform any covenant or agreement set forth in the Asset Purchase Agreement, such that any closing condition for the benefit of the Company would not be satisfied and such condition is incapable of being satisfied by the Termination Date, and Buyer or Buyer Parent has not cured such breach within 20 days of the Company’s written notification of such breach;
by either party if the special meeting to which this proxy statement relates (including any adjournment or postponement thereof in accordance with the terms of the Asset Purchase Agreement) has concluded, our shareholders have voted, and the approval for the Asset Sale Proposal was not obtained;
by either party if any law or government order of any nature has been promulgated or issued that enjoins or otherwise prohibits, or has the effect of enjoining or otherwise prohibiting, the Asset Sale Transaction from being consummated, unless such party’s failure to fulfill or comply with any obligation or covenant under the Asset Purchase Agreement has been the cause of, or resulted in, such law or order;
by the Company if, after the sixth business day following the public announcement of the execution of the Asset Purchase Agreement, certain payments pursuant to the Stock Purchase Agreement, dated as of March 31, 2023 between Cyclerion and Dr. Peter M. Hecht have not been made (which termination right is no longer available given such payments were made);
by the Company if all closing conditions for the benefit of Buyers have been satisfied on the date the closing should have been consummated by Buyers pursuant to the Asset Purchase Agreement, the Company has notified Buyer in writing thereof and that it stands ready, willing and able to close, and Buyer or Buyer Parent has failed to consummate the closing within two business days after the delivery of such notification; or
by Buyer if a Cyclerion Adverse Recommendation Change has been made, by delivering notice of such termination to the Company within 10 business days of such Cyclerion Adverse Recommendation Change.
The Parties’ Obligations Upon Termination
We will be required to pay Buyer a termination fee in the amount of $0.5 million if (i) Buyer validly terminates the Asset Purchase Agreement pursuant to the last bullet above, or (ii) prior to our special meeting, an Acquisition Proposal is publicized and not withdrawn, Buyer validly terminates the Asset Purchase Agreement in accordance with the second, third or fifth bullet above, and within twelve months of such termination, the Company enters into a definitive agreement with respect to, or consummates, such Acquisition Proposal.
In addition, we will be required to reimburse Buyer for certain out-of-pocket expenses in the amount of (i) $1.0 million plus any Employee Expenses and R&D Expenses that shall have been reimbursed by Buyers to the Company if (A) (x) Buyer validly terminates the Asset Purchase Agreement pursuant to the third or last bullet above or (y) either party validly terminates the Asset Purchase Agreement pursuant to the second bullet above at a time when Buyer has a right to terminate pursuant to the third bullet above, or (B) under the circumstances described in clause (ii) of the immediately foregoing paragraph, Buyer validly terminates the Asset Purchase Agreement pursuant to the second bullet above, and (ii) 50% of any Employee Expenses and R&D Expenses that shall have been reimbursed by Buyers to the Company if Buyer validly terminates the Asset Purchase Agreement pursuant to the fifth bullet above.
Buyer will be required to pay the Company a termination fee in the amount of $1.0 million if (i) the Company validly terminated the Asset Purchase Agreement pursuant to the fourth or eighth bullet above, or (ii) either party validly terminated the Asset Purchase Agreement pursuant to the second bullet above at a time when the Company had a right to terminate pursuant to clause (i) of this sentence.
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For additional information on the parties’ obligations upon termination, see “Proposal No. 1: The Asset Sale Proposal — The Asset Purchase Agreement — The Parties’ Obligations Upon Termination” beginning on page 53.
Post-Closing Arrangements
The Asset Purchase Agreement contains certain covenants that will survive the closing of the Asset Sale Transaction, including the following:
Subject to the limitations in the Asset Purchase Agreement, we have agreed to indemnify Buyer Parent and each subsidiary of Buyer Parent and other related persons for any damages incurred by any of them in connection with (i) the Excluded Liabilities, including our failure to discharge any Excluded Liability, (ii) our breach of any covenants or agreements under the Asset Purchase Agreement or any other transaction agreement which require performance following the closing, and (iii) certain matters with respect to the deferred transfer of assets to Buyer.
Subject to the limitations in the Asset Purchase Agreement, Buyers have agreed to indemnify us and other related persons for any damages incurred by us or any of them in connection with (i) the Assumed Liabilities, including their failure to discharge any Assumed Liability, (ii) Buyers’ breach of any covenants or agreements under the Asset Purchase Agreement or any other transaction agreement which require performance following the closing, (iii) certain matters with respect to the deferred transfer of assets to Buyer and (iv) certain licensing matters.
Generally, the parties will each perpetually maintain in confidence, and cause their respective representatives to maintain in confidence, any confidential information of the other party or obtained from the other party (with certain limited exceptions).
The parties will provide each other with certain information relevant to the transaction, subject to the terms, conditions and limitations set forth in the Asset Purchase Agreement.
The Company will not and will cause its affiliates not to, (i) directly or indirectly, for the period of five years from the closing of the Asset Sale Transaction, initiate IND-enabling preclinical development, develop, commercially manufacture, commercialize, or otherwise exploit any compound or product (including any compound or product that is part of an Excluded Program) that is (A) a CNS-penetrant sGC Stimulator, (B) developed for the treatment of any neuropsychiatric, neurodegenerative and primary mitochondrial genetic disease or disorder, as well as stroke and stroke recovery (each, a “Program Indication”), and (C) reasonably expected to compete with any compound or product in a Purchased Program for the treatment of a Program Indication (any such compound or product, a “Cyclerion Competing Product”) anywhere in the world, or (ii) license, convey, grant, or otherwise transfer any rights to any third party (including any rights under any Intellectual Property included in the Excluded Assets) to initiate IND-enabling preclinical development, develop, commercially manufacture, commercialize, or otherwise exploit a Cyclerion Competing Product anywhere in the world; provided, however, if there is a change of control of Cyclerion, the foregoing restrictions generally do not apply to affiliates of Cyclerion’s acquiror if Cyclerion segregates confidential information it has with respect to the Purchased Programs.
Each of Buyer and Cyclerion, effective as of the closing, grant to the other a perpetual, irrevocable, worldwide, non-exclusive, royalty-free license to any know-how included in the Purchased Assets and Excluded Assets, respectively, in each case, solely to develop, manufacture, commercialize, or otherwise exploit, the Excluded Programs existing as of the closing of the Asset Sale Transaction and the Purchased Programs, respectively.
Opinion of the Company’s Financial Advisor on the Asset Sale Transaction
In connection with the Asset Sale Transaction, on May 10, 2023, the Company’s financial advisor, Stifel, Nicolaus & Company, Incorporated (“Stifel”) delivered to the independent and disinterested members of the Board, solely in their capacities as such members (collectively, the “Independent Board”), its oral opinion, subsequently confirmed in writing by delivery of a written opinion dated May 10, 2023 (the “Stifel Opinion”), that, as of that date and based upon and subject to the various limitations, matters, qualifications and assumptions set forth therein, the cash consideration of $8.0 million and the Consideration Shares (collectively, the “Consideration”) to be received by the Company from Buyer in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to the Company, from a financial point of view. The full text of the opinion, which describes, among other things, the
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assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated herein by reference in its entirety. The Stifel Opinion was for the information of, and directed to, the Independent Board for its information and assistance in connection with its consideration of the financial terms of the Asset Sale Transaction and only addresses the fairness, from a financial point of view and as of the date of the Stifel Opinion, of the Consideration to be received by the Company from Buyer pursuant to the Asset Purchase Agreement. The Stifel Opinion did not constitute a recommendation to the Independent Board or any other person as to how the Independent Board or any other person should vote or otherwise act with respect to the Asset Sale Transaction or any other matter, or to any shareholder of the Company as to how any such shareholder should vote or act with respect to the Asset Sale Transaction or any other matter, including, without limitation, whether or not any shareholder of Company should enter into a voting, shareholders’ or affiliates’ agreement with respect to the Asset Sale Transaction or exercise any dissenters’, appraisal or similar rights that may be available to such shareholder. Shareholders are encouraged to read the opinion carefully and in its entirety. See “Proposal No. 1: The Asset Sale Proposal — Opinion of the Company’s Financial Advisor” beginning on page 34.
The Subscription Agreement
On May 19, 2023, we issued to Peter M. Hecht, Ph.D., our Chief Executive Officer and member of the Board, 225,000 shares of Common Stock and 351,037 shares of Cyclerion Preferred Stock, pursuant to the stock purchase agreement, dated as of March 31, 2023, between the Company and Dr. Hecht (the “Subscription Agreement”) in exchange for Dr. Hecht’s payment of $5.0 million, representing a per share purchase price of $8.68, the last closing price as reported on Nasdaq immediately preceding the execution of the Subscription Agreement as adjusted for our reverse stock split, which became effective on May 15, 2023. Each share of Cyclerion Preferred Stock issued to Dr. Hecht is convertible into one share of Common Stock; however, in accordance with Nasdaq Listing Rules, Dr. Hecht has agreed that the shares of Cyclerion Preferred Stock issued to him will not be convertible, unless and until such conversion is approved by the holders of Common Stock as required by the Nasdaq Listing Rules to the extent it would result in his owning or having the right to acquire 20% or more of the outstanding Common Stock at the time of conversion. The Subscription Agreement further provides Dr. Hecht with certain registration rights with respect to the shares he acquired pursuant thereto.
The Subscription Agreement is summarized in the section entitled “Proposal No. 2: The Nasdaq Proposal” beginning on page 57.
Interests of Certain Persons in the Asset Sale Transaction and the Nasdaq Proposal
In considering the recommendation of the Board to vote in favor of the Asset Sale Transaction and the Nasdaq Proposal, shareholders should be aware that, aside from their interests as shareholders, Dr. Hecht, our Chief Executive Officer and a member of the Board, and Mr. McGuire, a member of the Board, have interests in the Asset Sale Transaction that are different from, or in addition to, those of the Company’s shareholders. In addition, Dr. Hecht has a direct interest in the Nasdaq Proposal, as it relates directly to his ability to convert his shares of Cyclerion Preferred Stock into Common Stock. The Board was aware of such interests during its deliberations on the merits of the Asset Sale Proposal and the Nasdaq Proposal and in deciding to approve the Asset Sale Proposal and recommend that Company shareholders vote in favor of the Asset Sale Proposal and the Nasdaq Proposal. These interests include, among other things, the following:
Mr. McGuire is a Founding Partner of Polaris Partners. He currently beneficially owns, including through his interests in entities affiliated with Polaris Partners, 1.6% of our Common Stock. Investment funds affiliated with Polaris Partners have subscribed for shares of Series A Preferred Stock in Buyer Parent pursuant to the Buyer Parent Stock Purchase Agreement, which, following the closing of the Asset Sale Transaction, would result in investment funds affiliated with Polaris Partners holding approximately 4.0% of the fully diluted shares of Buyer Parent.
Dr. Hecht currently beneficially owns approximately 19.9% of our Common Stock, which includes shares he has (or will have within 60 days of June 15, 2023) the right to acquire through conversion or exercise of stock options and Cyclerion Preferred Stock. He owns 351,037 shares of our non-voting Cyclerion Preferred Stock, constituting all of the outstanding shares of that class. He has subscribed for shares of Series A Preferred Stock in Buyer Parent pursuant to the Buyer Parent Stock Purchase Agreement, which, following the closing of the Asset Sale Transaction, would result in Dr. Hecht holding approximately 7.8% of the fully diluted shares of Buyer Parent.
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Dr. Hecht will become the Chief Executive Officer and a member of the Board of Directors of Buyer Parent upon the closing of the Asset Sale Transaction and will receive equity securities in Buyer Parent as part of his compensation. Dr. Hecht will resign as the Company’s Chief Executive Officer but will remain a member of the Board upon the closing of the Asset Sale Transaction.
As of the Record Date, Dr. Hecht owned 327,384 shares of our Common Stock directly, corresponding to 13.6% of the total voting power of our Common Stock. In addition to 110,364 stock options that are vested or scheduled to vest within 60 days of the Record Date, he also had the right to acquire an additional 82,354 shares of our Common Stock upon conversion of the shares of Cyclerion Preferred Stock that are not subject to conversion limits under the Nasdaq Listing Rules. All of Dr. Hecht’s Common Stock, including the 225,000 shares of Common Stock purchased under the Subscription Agreement, will be voted in favor of the Asset Sale Proposal. The 225,000 shares of Common Stock Dr. Hecht purchased under the Subscription Agreement may not be voted in connection with the Nasdaq Proposal. Any shares of Common Stock that Dr. Hecht may receive on conversion of Cyclerion Preferred Stock prior to the special meeting will not be eligible to vote on either proposal at the special meeting. If the Nasdaq Proposal is approved, Dr. Hecht will own, or have the right to acquire upon conversion of the Cyclerion Preferred Stock in full, an aggregate of 678,421 shares of our Common Stock, corresponding to 24.6% of the total voting power of our Common Stock, in addition to stock options. Such ownership would significantly increase Dr. Hecht’s influence on strategic decisions of the Company and his ability to impact voting results in future shareholder meetings, including elections of nominees to our Board.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
How do I virtually attend the special meeting?
We will host the special meeting online via live webcast. To attend the special meeting, go to www.virtualshareholdermeeting.com/CYCN2023SM shortly before the special meeting time and follow the instructions. We encourage you to access the meeting a reasonable time prior to the start time. Online check-in will begin at 7:45 a.m., Eastern Time, and you should allow ample time for the check-in procedures. You do not need to attend the special meeting in order to vote. Instructions on how to vote shares are described herein.
Who may vote at the special meeting?
Shareholders who owned shares of Common Stock as of the close of business on June 15, 2023 (the “Record Date”) are entitled to vote at the special meeting on all matters properly brought before the special meeting.
As of the Record Date, there were 2,407,796 shares of Common Stock outstanding and entitled to vote at the special meeting.
Shareholder of Record: Shares Registered in Your Name
If on June 15, 2023, your shares were registered directly in your name with Cyclerion’s transfer agent, Computershare Trust Company, N.A., then you are a shareholder of record. As a shareholder of record, you may vote by proxy or by attending the special meeting and voting online. Whether or not you plan to attend the meeting, we urge you to fill out and return the enclosed proxy card or vote by proxy over the telephone or on the Internet as instructed below to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on June 15, 2023, your shares were held, not in your name, but rather in an account at a brokerage firm, bank or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the shareholder of record for purposes of voting at the special meeting. As a beneficial owner, you have the right to direct your broker, bank or other agent regarding how to vote the shares in your account. You are also invited to attend the special meeting. However, since you are not the shareholder of record, you may not vote your shares online at the meeting unless you request and obtain a valid proxy from your broker, bank or other agent.
How many votes do I have?
Each share of Common Stock is entitled to one vote on each matter that comes before the special meeting.
Why might the special meeting be adjourned or postponed?
The Board intends to adjourn and postpone the special meeting if the number of shares of voting stock anticipated to be present at the special meeting, in person or represented by proxy, is insufficient to constitute a quorum. The special meeting may also be adjourned in the circumstances contemplated by the Adjournment Proposal, described below.
What constitutes a quorum?
In accordance with Massachusetts law (the law under which we are incorporated) and our bylaws, the presence at the special meeting, by proxy or by attending in person, of the holders of a majority of the votes entitled to be cast at the special meeting constitutes a quorum, thereby permitting the shareholders to conduct business at the special meeting. Abstentions will be counted for the purpose of establishing a quorum at the special meeting, but broker non-votes will not be counted for this purpose.
How do I vote?
You are entitled to attend and participate in the special meeting only if you were a shareholder as of the Record Date or if you hold a valid proxy for the special meeting. We encourage shareholders to vote well before the special meeting, even if you plan to attend the special meeting in person.
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If you are a shareholder of record and your shares are registered directly in your name, you may vote:
By Internet. You may vote by proxy via the Internet at www.proxyvote.com by following the instructions provided on the proxy card. You must have the control number that is on the proxy card when voting.
By Telephone. If you live in the United States or Canada, you may vote by proxy by calling toll-free 1-800-690-6903 and by following the instructions provided on the proxy card. You must have the control number that is on the proxy card when voting.
By Mail. Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Your proxy will be voted in accordance with your instructions. If you sign and return the enclosed proxy but do not specify how you want your shares voted, they will be voted in accordance with the recommendations of the Board and will be voted according to the discretion of the named proxy holders on the proxy card upon any other business that may properly be brought before the special meeting and at all adjournments and postponements thereof.
At the Virtual Special Meeting. The special meeting will be held entirely online. To participate in the special meeting, you will need the control number included on the proxy card. The special meeting webcast will begin promptly at 8:00 a.m., Eastern Time. We encourage you to access the special meeting prior to the start time. Online check-in will begin at 7:45 a.m., Eastern Time, and you should allow ample time for the check-in procedures.
If your shares of Common Stock are held by a bank, broker or other nominee, you may vote:
By Internet or By Telephone. You will receive instructions from your bank, broker or other nominee if you are permitted to vote by Internet or telephone.
By Mail. You will receive instructions from your bank, broker or other nominee explaining how to vote your shares by mail.
At the Virtual Special Meeting. The special meeting will be held entirely online. To participate in the special meeting, you will need to contact the bank, broker or other nominee who holds your shares to obtain a broker’s proxy card and use the control number found on the broker’s proxy card. The special meeting webcast will begin promptly at 8:00 a.m., Eastern Time. We encourage you to access the special meeting prior to the start time. Online check-in will begin at 7:45 a.m., Eastern Time, and you should allow ample time for the check-in procedures.
Will my shares be voted if I do not return my proxy?
If your shares are registered directly in your name, your shares will not be voted if you do not vote over the Internet, by telephone, by returning your proxy or by attending the special meeting and voting online.
Stock exchange rules allow brokers to vote on behalf of their customers for certain routine matters if customers do not provide voting instructions with respect to their shares, but brokers are not permitted to vote on non-routine matters. Broker non-votes are shares represented at the special meeting held by banks, brokers or other nominees for which instructions have not been received from the beneficial owners or persons entitled to vote such shares and such banks, brokers or other nominees do not have the discretion to vote such shares.
Because each proposal being considered at the special meeting is a non-routine matter, shares of our Common Stock as to which brokers have not received any voting instructions will not be deemed present for any purpose at the special meeting.
The inspector of elections will treat broker non-votes as shares that are not present and entitled to vote for the purpose of determining the presence of a quorum. Because the vote required to approve the Asset Sale Proposal is based on a percentage of the total number of shares entitled to vote on the proposal, broker non-votes will have the effect of a vote “AGAINST” the Asset Sale Proposal. However, broker non-votes, if any, will have no effect on the outcome of any vote on the Nasdaq Proposal or the Adjournment Proposal.
We encourage you to vote using one of the methods described above or to provide voting instructions to your bank, broker or other nominee in accordance with their directions. This ensures that your shares will be voted at the special meeting according to your instructions.
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Our Board does not currently know of any other matter that may come before the special meeting. However, your proxies are authorized to vote on your behalf, using their discretion, on any other business that properly comes before the special meeting.
How does our Board of Directors recommend that I vote?
Our Board of Directors recommends that you vote:
1.
FOR the authorization and approval of the Asset Purchase Agreement, regarding the sale to Buyer of substantially all of the assets comprising the Company’s zagociguat (previously known as CY6463) and CY3018 programs, which may be deemed under Massachusetts law to be a sale of substantially all of our property and assets otherwise than in the usual and regular course of business, as contemplated by the Asset Purchase Agreement, and the other transactions contemplated by the Asset Purchase Agreement;
2.
FOR the approval, for purposes of complying with the Nasdaq Listing Rules, of the issuance of shares of Common Stock upon potential conversion of the shares of the Cyclerion Preferred Stock issued by us pursuant to the terms of a Stock Purchase Agreement, dated as of March 31, 2023, to the extent that following such conversion Dr. Hecht would hold 20% or more of our outstanding Common Stock;
3.
FOR the Board authorization to adjourn and postpone the special meeting to a later date or dates if there are insufficient votes to approve the Asset Sale Proposal; and
4.
In the proxy’s discretion with respect to any other business which is properly brought before the special meeting or any adjournment or postponement thereof, including matters incidental to its conduct.
As of the date of this proxy statement, we are not aware of any matters other than those set forth in proposals 1 through 3 that will be brought before the special meeting.
May I revoke my proxy?
If you submit a proxy, then you may revoke it at any time before it is exercised, as follows:
1.
You may send in another proxy bearing a later date;
2.
You may send written notice (if the shareholder is an entity, by an officer or other authorized person of the entity) addressed to the Corporate Secretary at the Company’s principal executive and administrative offices before the special meeting that you are revoking your proxy; or
3.
You may attend the special meeting and vote online.
What vote is required to approve each proposal?
The Asset Sale Proposal: The authorization and approval of the Asset Sale Proposal require the affirmative vote of the holders of a majority of all shares entitled to vote on the Asset Sale Proposal. You may vote “FOR,” “AGAINST” or “ABSTAIN.” Failures to vote, abstentions and broker non-votes, if any, will have the same effect as a vote “AGAINST” the Asset Sale Proposal.
The Nasdaq Proposal: The approval of the Nasdaq Proposal requires that the number of votes cast for the Nasdaq Proposal at the special meeting exceed the number of votes cast against the Nasdaq Proposal (with none of the Closing Common Shares being entitled to vote thereon). You may vote “FOR,” “AGAINST” or “ABSTAIN.” Failures to vote, abstentions and broker non-votes, if any, will have no effect on the outcome of the vote on the Nasdaq Proposal.
The Adjournment Proposal: The approval of the Adjournment Proposal requires that the number of votes cast for the Adjournment Proposal at the special meeting exceed the number of votes cast against the Adjournment Proposal. You may vote “FOR,” “AGAINST” or “ABSTAIN.” Failures to vote, abstentions and broker non-votes, if any, will have no effect on the outcome of the vote on the Adjournment Proposal.
Are there any dissenters’ rights of appraisal?
If the Asset Sale Transaction were to be deemed to constitute a sale of substantially all of the property and assets of Cyclerion otherwise than in the usual and regular course of business within the meaning of Section 12.02 of the Massachusetts Business Corporation Act (the “MBCA”), Cyclerion’s shareholders that do not vote in favor of the
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transaction and otherwise properly assert their appraisal rights with respect to their shares would have the right to obtain a cash payment in an amount equal to the “fair value” of their shares, as determined in accordance with the MBCA. Whether appraisal rights may apply to a given transaction is a matter of some judicial interpretation. Any shareholder of Cyclerion believing he, she or it is entitled to appraisal rights and wishing to preserve such rights should carefully review Sections 13.01 through 13.31 of Chapter 156D of the Massachusetts General Laws (the “Massachusetts Appraisal Rights Statutes”), which set forth the procedures to be complied with in exercising and perfecting any such rights. Failure to strictly comply with these procedures will result in the loss of any appraisal rights to which such shareholders otherwise may be entitled. In light of the complexity of the Massachusetts Appraisal Rights Statutes, any Company shareholder wishing to dissent from the Asset Sale Transaction and pursue appraisal rights may wish to consult his, her or its legal advisors. See “Proposal No. 1: The Asset Sale Proposal — Appraisal Rights” beginning on page 42, and the applicable provisions of the MBCA, which are included as Annex D to this proxy statement.
What happens if the Asset Sale Transaction is not completed?
If the Asset Sale Transaction is not completed, and if the Company were unable to secure an alternative source of working capital or to enter into an alternative strategic transaction, the Company likely would be forced to curtail operations or resort to bankruptcy protection. In this event, it is extremely unlikely that the Company would be able to pay, or provide for the payment of, all of its liabilities and obligations, and, therefore, there would be no assets available for distribution to the Company’s shareholders.
Who bears the cost of soliciting proxies?
The Company will bear the cost of soliciting proxies in the accompanying form and will reimburse brokerage firms and others for expenses involved in forwarding proxy materials to beneficial owners or soliciting their execution. In addition to solicitations by mail, the Company, through its directors and officers, may solicit proxies in person, by telephone or by electronic means. Such directors and officers will not receive any special remuneration for these efforts.
Where are the Company’s principal executive and administrative offices?
The principal executive and administrative offices of the Company are located at 245 First Street, 18th Floor, Cambridge, Massachusetts 02142, and the telephone number is (857) 327-8778.
How can I obtain additional information about the Company?
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires that it file reports, proxy statements and other information with the United States Securities and Exchange Commission (the “SEC”). The SEC maintains a website on the Internet that contains reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the SEC. The SEC’s website address is http://www.sec.gov.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and the attached annexes contain “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include statements concerning our outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could,” “anticipates,” “projects,” “targets”, “optimistic,” “intends,” or “aims,” or the negative thereof or other variations thereon or other comparable terminology. The forward-looking statements included in this proxy statement or the attached annexes are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict and could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statement. These risks and uncertainties include, but are not limited to, the following:
our shareholders failing to approve the Asset Sale Proposal and/or the Nasdaq Proposal;
the failure of one or more conditions to the closing of the Asset Sale Transaction to be satisfied or waived by the applicable party;
an increase in the amount of costs, fees, expenses and other charges related to the Asset Purchase Agreement or Asset Sale Transaction, including in connection with any litigation;
the occurrence of any event, change or other circumstances that could give rise to the termination of the Asset Purchase Agreement;
risks arising from the diversion of management’s attention from our ongoing business operations;
risks associated with our ability to monetize the Retained Programs and/or to identify and realize business opportunities following the Asset Sale Transaction;
risks of losing key personnel or suppliers; and
the matters discussed under “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as amended and updated from time to time in the Company’s subsequent filings with the SEC.
Readers are cautioned not to place undue reliance on forward-looking statements. Any forward-looking statement speaks only as of the date that it was made and we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
We are providing the following information to aid you in your financial analysis of the proposed Asset Sale Transaction. The following unaudited pro forma condensed consolidated financial data gives effect to the sale of the Purchased Programs.
Unaudited Pro Forma Financial Information
The following unaudited pro forma condensed consolidated balance sheet data as of March 31, 2023 is presented to show how the Asset Sale Transaction might have affected the historical financial statements of Cyclerion if the Asset Sale Transaction had occurred on March 31, 2023. The following unaudited pro forma condensed consolidated statements of operations data for the year ended December 31, 2021, December 31, 2022 and the three months ended March 31, 2023 are presented as if the Asset Sale Transaction occurred on January 1, 2021. The Asset Sale Transaction is expected to meet the criteria in ASC 205-20 to begin being presented as a discontinued operation in the third quarter of 2023 due to the effect of the transaction on our operations and the shift in strategy that the transaction represents. As a disposal that meets the criteria for discontinued operations, we are required to present an unaudited pro forma condensed consolidated statement for each historical period presented in the Company’s Annual Report on Form 10-K. The unaudited pro forma condensed consolidated financial statements are derived from, and should be read in conjunction with our historical financial statements and notes thereto, as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023, as previously filed with the SEC. The unaudited pro forma condensed consolidated financial information has been prepared in accordance with Article 11 of Regulation S-X.
Article 11 of Regulation S-X requires that pro forma financial information include pro forma adjustments to the historical financial statements of the registrant that reflect only the application of required accounting to the transaction.
The transaction accounting adjustments to reflect the Asset Sale Transaction in the unaudited pro forma condensed consolidated financial statements include:
the sale of the operations, assets and liabilities of the Company’s zagociguat (previously known as CY6463) and CY3018 programs pursuant to the Asset Purchase Agreement;
adjustments required to record the estimated impact of the proceeds received in connection with the Asset Sale Transaction, net of transaction costs; and
an adjustment to record the 10% equity investment in the Buyer that will be received pursuant to the Asset Purchase Agreement.
In addition, Regulation S-X permits registrants to reflect adjustments that depict synergies and dis-synergies of the disposition for which pro forma effect is being given. The unaudited pro forma condensed consolidated financial statements do not reflect any such adjustments.
The Company expects to execute a transition services agreement at closing of the Asset Sale Transaction, which will include services that may be provided to the Company for up to 18 months following the closing date. The unaudited pro forma condensed consolidated statements of operations are required to present the impact of the transition services agreement for the three months ended March 31, 2023 and year ended December 31, 2022 but those amounts are not expected to be material.
The unaudited pro forma condensed consolidated financial statement information is presented for informational purposes only and is based upon estimates by Cyclerion’s management, which are based upon available information and certain assumptions that Cyclerion’s management believes are reasonable as of the date of this proxy statement. The unaudited pro forma condensed consolidated financial statements are not intended to be indicative of the actual financial position or results of operations that would have been achieved had the Asset Sale Transaction been consummated as of the dates and for the periods indicated above, nor does it purport to indicate results which may be attained in the future. Actual amounts could differ materially from these estimates.
The unaudited pro forma condensed consolidated balance sheet as of March 31, 2023 and the unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2023 and years ended December 31, 2022 and December 31, 2021 should be read in conjunction with the notes thereto.
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CYCLERION THERAPEUTICS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2023
 
As of March 31, 2023
(in thousands, except per share data)
Historical
Cyclerion
Therapeutics,
Inc. (a)
Transaction
Accounting
Adjustments (b)
Notes
Pro Forma
Cyclerion
Therapeutics,
Inc.
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$7,169
$5,100
(ii)
$12,269
Accounts receivable
96
 
96
Prepaid expenses
567
(182)
(i)
385
Other current assets
503
(20)
(i)
483
Total current assets
8,335
4,898
 
13,233
Investment in equity
5,350
(iv)
5,350
Property and equipment, net
 
Operating lease right-of-use asset
1,171
 
1,171
Other assets
1,950
 
1,950
Total assets
$11,456
$10,248
 
$21,704
Liabilities and Stockholders' Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$3,925
$(2,779)
(i)
$1,146
Accrued research and development costs
1,605
(1,568)
(i)
37
Accrued expenses and other current liabilities
2,001
(554)
(i)
1,447
Total current liabilities
7,531
(4,901)
 
2,630
Commitments and contingencies
 
 
 
 
Stockholders' equity:
 
 
 
 
Common stock, without par value, 400,000,000 shares authorized and 43,524,894 issued and outstanding at March 31, 2023
 
Paid-in capital
270,052
 
270,052
Accumulated deficit
(266,108)
15,149
(ii)
(250,959)
Accumulated other comprehensive loss
(19)
 
(19)
Total stockholders' equity
3,925
15,149
 
19,074
Total liabilities and stockholders' equity
$11,456
$10,248
 
$21,704
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CYCLERION THERAPEUTICS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2023
 
Three months ended March 31, 2023
(in thousands, except per share data)
Historical
Cyclerion
Therapeutics,
Inc. (a)
Transaction
Accounting
Adjustments (b)
Notes
Pro Forma
Cyclerion
Therapeutics,
Inc.
Cost and expenses:
 
 
 
 
Research and development
3,773
(3,201)
(iii)
572
General and administrative
3,269
(566)
(iii)
2,703
Total cost and expenses
7,042
(3,767)
 
3,275
Loss from operations
(7,042)
3,767
 
(3,275)
Interest and other income (expenses), net
88
 
88
Net income (loss) from continuing operations
$(6,954)
$3,767
 
$(3,187)
Earnings (loss) per share:
 
 
 
 
Basic and diluted net loss per share
$(0.16)
0.09
 
$(0.07)
Weighted average shares used in calculating:
 
 
 
 
Basic and diluted net loss per share
43,521
43,521
 
43,521
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CYCLERION THERAPEUTICS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2022
 
Twelve months ended December 31, 2022
(in thousands, except per share data)
Historical
Cyclerion
Therapeutics,
Inc. (a)
Transaction
Accounting
Adjustments (b)
Notes
Pro Forma
Cyclerion
Therapeutics,
Inc.
Revenues:
 
 
 
 
Revenue from development agreement
297
 
297
Revenue from grants
1,328
(1,328)
(iii)
Total Revenue
1,625
(1,328)
 
297
Cost and expenses:
 
 
 
 
Research and development
31,493
(25,505)
(iii)
5,988
General and administrative
14,504
(1,631)
(iii)
12,873
Loss on lease termination
 
Total cost and expenses
45,997
(27,136)
 
18,861
Loss from operations
(44,372)
25,808
 
(18,564)
Gain on extinguishment of debt
 
Interest and other income (expenses), net
294
 
294
Net income (loss) from continuing operations
$(44,078)
$25,808
 
$(18,270)
Earnings (loss) per share:
 
 
 
 
Basic and diluted net loss per share
$(1.01)
0.59
 
$(0.42)
Weighted average shares used in calculating:
 
 
 
 
Basic and diluted net loss per share
43,469
43,469
 
43,469
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CYCLERION THERAPEUTICS, INC
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2021
 
Twelve months ended December 31, 2021
(in thousands, except per share data)
Historical
Cyclerion
Therapeutics,
Inc. (a)
Transaction
Accounting
Adjustments (b)
Notes
Pro Forma
Cyclerion
Therapeutics,
Inc.
Revenues:
 
 
 
 
Revenue from license agreement
$3,000
$
 
$3,000
Revenue from development agreement
320
 
320
Revenue from grants
622
(622)
(iii)
Total Revenue
3,942
(622)
 
3,320
Cost and expenses:
 
 
 
 
Research and development
37,636
(23,174)
(iii)
14,462
General and administrative
20,620
(1,742)
(iii)
18,878
Loss on lease modification
881
 
881
Total cost and expenses
59,137
(24,916)
 
34,221
Loss from operations
(55,195)
24,294
 
(30,901)
Gain on extinguishment of debt
3,564
 
3,564
Interest and other income (expenses), net
(16)
 
(16)
Net income (loss) from continuing operations
$(51,647)
$24,294
 
$(27,353)
Earnings (loss) per share:
 
 
 
 
Basic and diluted net loss per share
$(1.32)
0.62
 
$(0.70)
Weighted average shares used in calculating:
 
 
 
 
Basic and diluted net loss per share
39,144
39,144
 
39,144
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CYCLERION THERAPEUTICS, INC
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
On May 11, 2023, Cyclerion entered into an Asset Purchase Agreement to sell certain assets relating to the Company’s zagociguat (previously known as CY6463) and CY3018 programs to Buyers. Pursuant to the terms of the Asset Purchase Agreement, Buyers agreed to pay to Cyclerion (i) $8.0 million in cash payable upon closing, plus (ii) the amount of any employee expenses or R&D expenses for which Buyers are obligated to reimburse the Company to the extent such amounts remain unpaid as of the closing of the Asset Sale Transaction, plus (iii) a number of shares of common stock, par value $0.0001 per share of Buyer Parent comprising 10% of the issued and outstanding shares of Buyer Parent immediately following the closing of the Asset Sale Transaction.
The unaudited pro forma combined financial statements reflect the following transaction accounting adjustments to the condensed consolidated balance sheet as of March 31, 2023 and consolidated statements of operations for the three months ended March 31, 2023 and the years ended December 31, 2022 and 2021 to show how the Asset Sale Transaction might have affected Cyclerion’s historical financial statements if the Asset Sale Transaction had been completed at an earlier time. The unaudited pro forma combined financial statements do not reflect proceeds from the PIPE transaction and their impact on share count:
i.
Eliminate the assets and liabilities disposed of in the Asset Sale Transaction, which includes prepaid expenses, other current assets, accrued expenses, and accounts payable (in thousands):
 
Amount
Prepaid expenses
$182
Other current assets
20
Accounts payable
(2,779)
Accrued research and development costs
(1,568)
Accrued expenses and other current liabilities
(554)
Assets and liabilities transferred
$(4,699)
ii.
Record (i) the expected net consideration received, (ii) the expected gain on the sale of the Purchased Assets, and (iii) impact of cash and cash equivalents pursuant to the terms of the Asset Purchase Agreement (in thousands):
 
Amount
Cash received from Buyer upon closing
$8,000
Add: fair value of investment (footnote iv)
5,350
Expected consideration received from sale of Program Assets
$ 13,350
Gross consideration from the sale of Program Assets
$13,350
Less: Estimated closing and transaction costs
2,900
Expected net proceeds from sale of assets
10,450
Less: Assets and liabilities transferred (footnote ii)
(4,699)
Estimated gain on sale of the Program Assets
15,149
Estimated income tax expense
Expected net gain on sale of Program Assets after income taxes(*)
$15,149
(*)
The expected net gain on the sale of the Program Assets has not been reflected in the pro forma consolidated statements of operations as this amount relates to discontinued operations and does not impact income from continuing operations.
The actual net gain on the disposition is expected to be recorded in the Company’s financial statements for the third quarter of 2023 and may differ from the current estimate.
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The expected income tax expense is zero due to the gain being fully offset by current year losses and net operating losses from prior years. As all net operating losses are fully offset by a valuation allowance, no pro forma adjustment for income tax expense has been reflected.
 
Amount
Cash received from Buyer upon closing
$ 8,000
Less: Estimated closing and transaction costs
2,900
Expected impact on cash and cash equivalents(**)
$ 5,100
(**)
The consideration from the sale of Program Assets includes reimbursement from the Buyers for research and development expenses related to the Program Assets. Pro forma adjustments have not been reflected because there is no net effect on cash and cash equivalents.
iii.
To eliminate the operating activity directly attributable to the Program Assets, which includes revenue from grants, general and administrative, and research and development costs (in thousands):
 
Three Months Ended
March 31, 2023
Year Ended
December 31, 2022
Year Ended
December 31, 2021
Revenue from grants
$
$1,328
$622
General and administrative
566
1,631
1,742
Research and development
3,201
25,505
23,174
iv.
To record the 10% equity investment in Buyer. The investment is expected to be accounted for under ASC 321. The investment has been initially measured at the expected fair value and subsequently measured at cost less impairment using the measurement alternative. No subsequent adjustments to the fair value have been assumed or reflected in the condensed consolidated statements of operations presented.
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PROPOSALS RECOMMENDED FOR CONSIDERATION BY SHAREHOLDERS
PROPOSAL NO. 1
THE ASSET SALE PROPOSAL
Information about the Parties
The Company
The Company is a biopharmaceutical company on a mission to develop treatments for serious diseases. The business address of the Company is 245 First Street, 18th Floor, Cambridge, Massachusetts 02142.
The Company’s portfolio includes novel soluble guanylate cyclase (“sGC”) stimulators that modulate a key node in a fundamental signaling network in both the central nervous system (“CNS”) and the periphery. The multidimensional pharmacology elicited by the stimulation of sGC has the potential to impact a broad range of diseases. Zagociguat is a CNS-penetrant sGC stimulator that has shown rapid improvements across a range of endpoints reflecting multiple domains of disease activity, including mitochondrial disease-associated biomarkers. CY3018 is a CNS-targeted sGC stimulator in preclinical development that preferentially localizes to the brain and has a pharmacology profile that suggests its potential for the treatment of neuropsychiatric diseases and disorders. Praliciguat is a systemic sGC stimulator that is licensed to Akebia and being advanced in rare kidney disease. Olinciguat is a vascular sGC stimulator that the Company intends to out-license for cardiovascular diseases. For more information about the Company, please visit https://www.cyclerion.com/.
Buyer
Buyer is a wholly owned subsidiary of Buyer Parent and was formed on April 12, 2023, solely for the purpose of engaging in the transactions contemplated by the Asset Purchase Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Asset Purchase Agreement and the Buyer Parent Stock Purchase Agreement.
The mailing address of Buyer’s principal executive office is 1820 Calistoga Rd., Santa Rosa, CA 95404.
Buyer Parent
Buyer Parent was formed on October 18, 2022, solely for the purpose of engaging in the transactions contemplated by the Asset Purchase Agreement and the Buyer Parent Stock Purchase Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Asset Purchase Agreement and the Buyer Parent Stock Purchase Agreement.
The mailing address of Buyer Parent’s principal executive office is 1820 Calistoga Rd., Santa Rosa, CA 95404.
General Description of the Asset Sale Transaction
The Company has entered into the Asset Purchase Agreement with Buyers pursuant to which the Company has agreed, subject to certain conditions, including the authorization and approval of the Asset Purchase Agreement by its shareholders, to sell to Buyer the Purchased Assets, and Buyer has agreed to assume certain liabilities relating to the Purchased Programs, including, but not limited to (i) Employee Expenses and R&D Expenses, and (ii) liabilities relating to the Purchased Assets or the Purchased Programs to the extent relating to the period after the closing of the Asset Sale Transaction, in each case, subject to the terms and conditions of the Asset Purchase Agreement. Cyclerion will retain the assets comprising the Retained Programs, and the Company intends to maximize the value of these assets via out-licensing following the closing of the Asset Sale Transaction.
Simultaneously with the execution of the Asset Purchase Agreement, we entered into the Buyer Parent Stock Purchase Agreement, pursuant to which, among other things and subject to the terms and conditions set forth therein, Buyer Parent shall issue to the investors party thereto shares of Buyer Parent’s Series A Preferred Stock at multiple closings for an aggregate consideration of up to $81.0 million and which also provides the Company with a contractual right, exercisable at the times set forth in the Buyer Parent Stock Purchase Agreement, to subscribe for up to $5.0 million of shares of Buyer Parent’s Series A Preferred Stock.
Simultaneously with the execution of the Asset Purchase Agreement, Buyer Parent entered into Voting and Support Agreements with certain equityholders (and certain affiliates of any such equityholder) of Buyer Parent or
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any subsidiary of Buyer Parent that are also shareholders of the Company, which shareholders collectively held approximately 28.6% of the total outstanding voting shares of the Company as of the Record Date and include Dr. Hecht, our Chief Executive Officer, as well as certain funds managed by Polaris Partners, an affiliate of Mr. McGuire.
At the closing of the Asset Sale Transaction, the Company intends to enter into the following agreements with Buyer Parent and the other parties thereto, all of which relate to the Company’s and such other parties’ equity interests in Buyer Parent:
Buyer Parent Voting Agreement;
Buyer Parent Investor Rights Agreement;
Cyclerion Stockholder Letter; and
Buyer Parent Right of First Refusal and Co-Sale Agreement.
The discussion set forth below in the sections entitled “The Asset Purchase Agreement” and “The Other Transaction Agreements” starting on pages 47 and 54, respectively, of the principal terms of the Asset Purchase Agreement and the form of Voting and Support Agreement is not complete and is qualified in its entirety by reference to the complete text of the agreements, copies of which are attached as Annexes A and B, respectively, to this proxy statement and are incorporated herein by reference. The rights and obligations of the parties are governed by the express terms and conditions of these agreements and not by this discussion, which is summary in nature. You are encouraged to read the Asset Purchase Agreement and the form of Voting and Support Agreement carefully and in their entirety, as well as this proxy statement and any documents incorporated by reference herein, before making any decisions regarding the proposals being brought before the special meeting.
Background of the Asset Sale Transaction
The following chronology summarizes certain key events and contacts that led to the execution of the Asset Purchase Agreement. It does not purport to catalogue every conversation among the members of the Board, members of Cyclerion’s management or their respective representatives or advisors, and other parties.
On April 1, 2019, Ironwood Pharmaceuticals, Inc. (“Ironwood”) spun off its non-gastrointestinal (“GI”) sGC research and development effort from its commercial GI business. The spin-off consisted of the separation of Ironwood’s non-GI sGC research and development, and certain other assets and liabilities, into a separate, independent, publicly-traded company by way of a pro-rata distribution of all the outstanding shares of common stock of Cyclerion through a dividend distribution to Ironwood stockholders. As a result, Cyclerion became an independent public company and commenced regular way trading on the Nasdaq Global Select Market.
Cyclerion’s portfolio currently consists of sGC stimulators that modulate a key node in a fundamental signaling network in both the CNS and the periphery. The multidimensional pharmacology elicited by the stimulation of sGC has the potential to impact a broad range of diseases.
This portfolio consists of:
Zagociguat, previously known as CY6463, which is a CNS-penetrant sGC stimulator that has shown rapid and positive results in two different patient populations – improvements across a range of biomarkers reflecting multiple domains of disease activity, including mitochondrial disease-associated biomarkers, in patients with a primary mitochondrial disease as well as improvements in cognitive endpoints in cognitively impaired patients with schizophrenia.
CY3018, which is a CNS-targeted sGC stimulator in preclinical development that preferentially localizes to the brain and has a pharmacology profile that may suggest its potential for the treatment of neuropsychiatric diseases and disorders.
Praliciguat, which is discussed above and is now licensed to Akebia for advancement in rare kidney disease.
Olinciguat, which is a vascular sGC stimulator that Cyclerion intends to out-license for cardiovascular and/or cardiopulmonary diseases.
Cyclerion regularly considered potential strategic initiatives and the feasibility of and available resources for those initiatives, including capital raising opportunities. In this context, in early 2022 management and the Board
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began considering the engagement of a financial advisor to assist in those strategic efforts. On May 1, 2022, Cyclerion engaged Torreya Capital, which subsequently became part of Stifel and which we refer to herein as Stifel, as financial advisor with respect to a potential strategic transaction involving the Company.
The Board and management, including Dr. Hecht, as the Chief Executive Officer of Cyclerion, regularly reviewed and evaluated potential collaborations and other strategic opportunities, including to advance the clinical development of zagociguat and Cyclerion’s other product candidates and preclinical programs, finance Cyclerion’s clinical development efforts and to expand the range of financial resources available for product candidates and enhance value for Cyclerion’s shareholders, and regularly consulted Cyclerion’s key shareholders. Members of the management team regularly apprised the Board of progress on these matters and potential product development and other strategic opportunities at regularly scheduled and special Board meetings and through informal updates with individual directors.
During May 2022, following its engagement, Stifel, at the direction of the Board, began reaching out on behalf of Cyclerion and ultimately it contacted 65 potential counterparties for a strategic transaction, and management, at the instruction of the Board, contacted an additional 25 potential counterparties for such a transaction. At the same time, Cyclerion continued to explore capital raising opportunities and other potential strategic initiatives. By early September 2022, 30 potential counterparties had signed non-disclosure agreements with Cyclerion to begin considering such a transaction. Prior to the commencement of such outreach, Cyclerion had established a comprehensive data room, which data room was made available to parties that executed non-disclosure agreements. The Board held regular meetings during which it discussed with representatives of Stifel, management and counsel the status of such outreach and the due diligence review being conducted by various potential counterparties that may have been interested in a transaction with the Company.
As of July 2022, Cyclerion’s principal strategic focus was on the development of zagociguat. At that time, management advised the Board and the Board concluded that demonstrating the full potential of zagociguat across several indications would require significant resource capabilities and capital not then possessed by Cyclerion. That conclusion reinforced the determination of the Board and management that Cyclerion needed to partner with or sell itself to a larger organization having such capabilities and resources in order to continue the zagociguat program, or otherwise very significantly narrow and compromise development work on that program. The conclusion was based on a detailed consideration of available cash, burn rate, time frames and other factors with respect to various development opportunities, and the extent of available qualified personnel and third parties (and the cost thereof) for Cyclerion to pursue such opportunities entirely on its own. As disclosed in its Form 10-Q for the period ended June 30, 2022, at such date Cyclerion only had approximately $30.0 million in cash, as compared with approximately $54.0 million and $41.0 million on December 31, 2021, and March 31, 2022, respectively. This indicated a cash burn rate that without significant new capital (which was not expected to be available due to, among other reasons, adverse market conditions, particularly in the public equity markets for early-stage biotech companies) was not sustainable or sufficient to conclusively demonstrate the potential of Cyclerion’s product candidates, including zagociguat.
The Board met from time to time with management, counsel, and representatives of Stifel to discuss the status of Cyclerion’s strategic initiatives. In July 2022, a representative of Stifel discussed with the Board its and management’s outreach efforts and noted that, while approximately 30 potential counterparties were in active evaluation of a potential strategic transaction with Cyclerion, approximately 20 of the other parties contacted had expressly declined to consider a potential transaction with Cyclerion and the remainder were unresponsive. For companies that declined, feedback included a variety of reasons, such as lack of strategic fit, earliness of program, general disinterest in sGC as a mechanism and lack of conviction regarding the existing data package. When asked by the Board whether additional outreach was likely to yield more interested parties, a representative of Stifel responded that he was not aware of any other strategic parties to be contacted that would likely be more interested in a potential transaction with the Company other than the strategic parties Stifel and management had already contacted.
With the approval of the Board, Dr. Hecht explored several alternatives to raise capital for Cyclerion or find another strategic alternative that would permit ongoing development of zagociguat that would be in the best interests of Cyclerion’s shareholders. As part of those efforts, he contacted a representative of J. Wood Capital Advisors LLC (hereafter along with its affiliates referred to as “JWCA”) to determine JWCA’s interest in investing in Cyclerion or pursuing an alternative transaction. On August 25, 2022, a representative of Stifel, at the direction of the Board, followed up with an introductory call with a representative of JWCA, during which the latter expressed JWCA’s interest in a potential strategic transaction with Cyclerion.
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On August 30, 2022, a representative of Stifel received from a representative of JWCA a non-binding indicative proposal (the “Initial JWCA Buyout Proposal”) for a transaction to acquire all the outstanding shares of common stock of Cyclerion by an entity formed by JWCA in which certain existing Cyclerion shareholders would have the opportunity to invest, consistent with maintaining the new entity’s status as a private company. The Initial JWCA Buyout Proposal did not contain any financial terms but stated that any offer price would be at a premium to the Company’s recent trading prices. Accompanying the Initial JWCA Buyout Proposal was JWCA’s proposed confidentiality agreement. In addition, JWCA requested permission to work with Cyclerion’s management to engage in outreach to certain of Cyclerion’s existing shareholders that might be interested in investing in the entity JWCA would use to acquire Cyclerion.
On August 31, 2022, the Board met, with management, counsel, and representatives of Stifel attending, to preliminarily consider the Initial JWCA Buyout Proposal and certain other matters. The Board first received presentations from Foley Hoag LLP, Cyclerion’s Massachusetts counsel (“Foley Hoag”), regarding applicable fiduciary duties and from Hughes Hubbard & Reed LLP, Cyclerion’s general outside counsel (“Hughes Hubbard”), regarding applicable U.S. federal securities law and transactional matters, particularly in the context of the Initial JWCA Buyout Proposal. During such meeting, each member of the Board was asked whether they would consider participating in any way with JWCA or any other interested party in connection with any strategic transaction. Each of Peter Hecht and Terry McGuire, on behalf of Polaris Partners, indicated that they might be interested in participating in a yet to be determined manner, while each other Board member answered they would not. At that time, the Board formally determined that the consideration of the Initial JWCA Buyout Proposal and any other possible strategic transaction with Cyclerion should be managed entirely and exclusively by the fully disinterested and independent members of the Board, thus excluding Dr. Hecht and Mr. McGuire, who then departed the meeting. The Board acting solely through the members other than Dr. Hecht and Mr. McGuire is sometimes hereafter referred to as the “Independent Board” and references below to “management” exclude Dr. Hecht unless otherwise indicated. The Independent Board then discussed the Initial JWCA Buyout Proposal and a strategy for responding to JWCA, as well as other potential counterparties.
At the same meeting, Cheryl Gault, Cyclerion’s Chief Operating Officer, summarized her recent discussion with a large non-U.S. pharmaceutical company (the “Licensing Party”) that had expressed interest in a licensing transaction involving zagociguat and planned to submit a proposal by September 16, 2022. After discussion, the Independent Board determined that Cyclerion should permit JWCA to engage in limited due diligence in order to determine its interest in a potential acquisition of Cyclerion but to reject its other requests, including access to Cyclerion’s shareholders, until a more detailed, definitive and attractive proposal was received and considered by the Independent Board. The Independent Board also directed Stifel and management to reach out to the 16 parties that were then engaging in due diligence, notify them that the Company had received an acquisition proposal, and request proposals by September 16, 2022 from these parties if they were still interested in a strategic transaction with Cyclerion so that the Independent Board could review all proposals, if submitted, at the same time. Over the course of several days beginning on September 1, 2022, representatives of Stifel and management contacted the 16 parties and requested each to deliver a proposal by September 16, 2022 as directed by the Independent Board.
Also on August 31, 2022, JWCA, through Ropes & Gray LLP (“Ropes & Gray”), its outside counsel, began negotiating a proposed confidentiality agreement with the Company, represented by Hughes Hubbard. During discussions over the next few days regarding such agreement, representatives of JWCA expressed its view that it required permission to speak to Dr. Hecht and other Cyclerion shareholders regarding their interest in participating in a potential acquisition.
On September 16, 2022, the Independent Board approved limitations on the access of Dr. Hecht to certain Cyclerion transactional information and activities, and these were communicated to and accepted by him.
By early September 2022, Cyclerion’s operating strategy further focused on zagociguat as a unique clinical profile in the development pipeline for mitochondrial disease, with other programs largely expected to be complementary mechanisms. Cyclerion focused on the potential of zagociguat to provide meaningful benefits in mitochondrial encephalomyopathy, lactic acidosis and stroke-like episodes (“MELAS”), which is a mitochondrial disease primarily affecting the nervous system and muscles. Management reported that to reach an inflection point on zagociguat for MELAS would require an estimated $60.0 million, of which approximately $35.0 million would be required for research and development. It was noted that, based on, among other reasons, efforts to date and the continuing adverse market conditions of the equity markets, Cyclerion would not be able to access such capital.
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During a call between representatives of Hughes Hubbard and Ropes & Gray on September 3, 2022, Hughes Hubbard outlined certain responsive conditions, including that, at that time, JWCA might be permitted to speak to Dr. Hecht solely for due diligence purposes (expressly excluding any transaction terms), but not any other shareholders, and that any such discussion with Dr. Hecht would have to be chaperoned by a representative of the Independent Board. Hughes Hubbard also advised Ropes & Gray that the Independent Board would not consider any proposal that did not have indicative pricing.
On September 4, 2022, JWCA and Cyclerion entered into a confidentiality agreement in customary form consistent with Cyclerion’s confidentiality agreements with other interested parties during its strategic alternatives process.
On September 8, 2022, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending. Representatives of Stifel and management discussed the progress of the ongoing strategic alternatives process, including the feedback from the 16 potential counterparties that Stifel and management had reached out to the week prior. At the same meeting, management summarized the status of the Licensing Party’s due diligence review and noted that it was still expected to submit a proposal by September 16, 2022.
Following interim discussions, on September 12, 2022, JWCA submitted a revised, non-binding indicative proposal (the “Second JWCA Buyout Proposal”), among other things, (i) proposing a transaction to acquire all the outstanding shares of common stock of Cyclerion for all cash at the price of $1.04 per share (without giving effect to the reverse stock split effected on May 15, 2023 (the “Reverse Split”)), referencing a premium of approximately 35% over the closing price of the then-most recent three-month period, and (ii) requiring immediate access to management and several significant shareholders who might participate, along with others, in funding the transaction.
The Independent Board met the next day, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending. At the meeting, following discussions with Stifel and counsel, the Independent Board, among other things, authorized a limited agreement pursuant to which JWCA’s representatives would be permitted to (i) conduct due diligence on Cyclerion, and (ii) solely in connection with such due diligence, speak to Dr. Hecht, with the only exceptions being that it may ask Dr. Hecht about his conceptual willingness to participate in a rollover of his Cyclerion shares into an investment in JWCA’s acquisition vehicle and possibly provide additional funding to such acquisition vehicle, without discussing any transaction terms, and his views on whether there may be other shareholders who might do the same (without yet permitting any outreach to any such other shareholders). Noting that the proposal of $1.04 per share was at a discount to Cyclerion’s closing price on September 12, 2022 of $1.06 (without giving effect to the Reverse Split) (although at a premium of approximately 35% over the average closing price for the most recent three-month period), the Independent Board directed Stifel to inform JWCA that Cyclerion expected a proposal from another party (the Licensing Party) and that under the circumstances the Independent Board required a greater proposed per share price from JWCA.
As of September 16, 2022, the only proposal received from any party, other than JWCA, was from the Licensing Party. That proposal was expressly made following only preliminary due diligence and subject to significantly more due diligence and deliberation. The proposal consisted of, among other terms, an upfront payment of $12 million in cash, a worldwide license of zagociguat, cost-sharing for the next clinical study, and tiered royalties to Cyclerion.
On September 19, 2022, a representative of Stifel, at the direction of the Independent Board, informed representatives of JWCA that Cyclerion had received another proposal and that, as noted above, JWCA needed to improve its proposal, including the consideration offered.
On September 21, 2022, JWCA submitted a further revised, non-binding indicative proposal (the “Third JWCA Buyout Proposal”) that, among other things (i) proposed a transaction to acquire all the outstanding shares of common stock of Cyclerion for all cash at a price of between $1.04 and $1.30 per share (without giving effect to the Reverse Split), referencing a premium of approximately 26% to 58% over the average closing price of the then-most recent three-month period, (ii) required immediate access to management and several significant shareholders who might participate in funding the transaction, (iii) agreed to the chaperoning of such discussions with shareholders, except when purchase pricing might be discussed, and (iv) agreed to consider a go-shop provision (as required by Cyclerion) in the definitive documentation, provided that Cyclerion confirm that it was requesting such a provision from other persons expressing an interest in a transaction with Cyclerion and that it would not accept a two-tiered termination fee that contemplated a reduced termination fee for an alternative transaction that might arise in connection with such a go-shop provision.
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On September 22, 2022, the Independent Board met, with management and representatives of Hughes Hubbard and Stifel attending, and discussed, among other things, the Third JWCA Buyout Proposal. The Independent Board preliminarily concluded, following such discussions, that such proposal remained inadequate and instructed Stifel as described in the following paragraph.
On September 23, 2022, a representative of Stifel, as directed by the Independent Board, had a conference call with representatives of JWCA and conveyed that in connection with the Third JWCA Buyout Proposal (i) Cyclerion would not yet negotiate pricing, (ii) JWCA would be permitted to speak to Dr. Hecht and up to four other shareholders (which must be identified to Stifel in advance) on the following conditions: (A) each discussion be monitored by a representative of Stifel, (B) each discussion be limited to Cyclerion’s business, the case for Cyclerion becoming a private company and whether the shareholder would be willing to hold shares in the new private company in exchange for its Cyclerion shares (and make incremental investments in the new private company), (C) no other topics be discussed, including any post-closing benefits or compensation, (D) under no circumstances could any agreements or understandings of any kind be reached among any of the parties – the discussions to be solely exploratory, and (E) each shareholder must enter into a confidentiality agreement not to disclose that it had such discussion, and (iii) following their initial discussions with the shareholders, JWCA would clarify its position to the Independent Board before moving forward with any additional discussions with shareholders. Over the next several weeks, representatives of JWCA held discussions with several existing shareholders of Cyclerion with attendance from Stifel and Dr. Hecht. In addition, JWCA was granted access to Cyclerion’s data room for due diligence purposes.
On September 26, 2022, counsel to a Cyclerion shareholder (“Financing Party A”) contacted a representative of Hughes Hubbard regarding entering into a confidentiality agreement, which was executed on September 30, 2022.
At a meeting of the Independent Board on September 30, 2022, with management and representatives of Hughes Hubbard and Stifel attending, Ms. Gault provided an update on discussions with the Licensing Party. The Independent Board also received from management a presentation regarding liquidity and cash resources over an approximate six-month period that projected that cash availability to fund the Company prior to completion of either the proposed license with the Licensing Party or the JWCA deal to be approximately $5.0-8.0 million. In the context of Cyclerion’s apparently unsustainable cash path, it was noted that Cyclerion was considering a significant reduction in force. The Independent Board also discussed with a representative of Stifel the status of discussions regarding the Third JWCA Buyout Proposal.
On October 4, 2022, JWCA conducted a due diligence session with Cyclerion management to discuss strategic priorities and capital requirements.
On October 6, 2022, in light of the continuing adverse market circumstances and Cyclerion’s inadequate capital resources, the Board implemented a reduction of approximately 45% of Cyclerion’s workforce to focus its remaining resources on its proposed operating strategy.
On October 6, 2022, the Independent Board met, with management and representatives of Hughes Hubbard and Stifel attending, to discuss the status of discussions with JWCA and other potential counterparties. A representative of Stifel discussed these matters, including describing authorized discussions to date between JWCA and existing shareholders in meetings attended by a Stifel representative. Following this discussion, it was noted that, although Stifel and management continued their outreach efforts, the likelihood of a transaction with a party other than JWCA or the Licensing Party appeared to be low, especially given Cyclerion’s current and anticipated capital resources relative to the capital requirements to develop its product candidates.
On October 14, 2022, the Independent Board met, with management and representatives of Hughes Hubbard and Stifel attending. Ms. Gault provided an update on her discussions with the Licensing Party. She noted that the Licensing Party had set $10.0 million as the maximum possible amount of upfront cash and that discussions continued at a relatively slow pace. A representative of Stifel discussed the status of Stifel’s and management’s outreach and the status of discussions with JWCA, and noted that Stifel, at the direction of the Independent Board, had repeatedly requested JWCA to submit a more specific proposal, but that JWCA had not yet provided a revised proposal.
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On October 26, 2022, a representative of Hughes Hubbard received an indicative draft term sheet from Financing Party A proposing a private placement financing (“PIPE”) to directly invest up to $15.0 million in Cyclerion common stock at a price of $0.45 per share (without giving effect to the Reverse Split), which would result in it having a controlling interest in Cyclerion, subject to customary PIPE terms, due diligence and numerous other conditions and qualifications.
On October 27, 2022, the Independent Board met, with management and representatives of Hughes Hubbard and Stifel attending, to, among other things, discuss the proposed PIPE financing with Financing Party A. At the meeting, Stifel also discussed the status of ongoing strategic transaction efforts.
On November 2, 2022, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to, among other things, discuss the status of ongoing strategic alternative efforts. A representative of Hughes Hubbard updated the meeting on his negotiations directly with counsel to Financing Party A regarding the proposed PIPE financing. In particular, he described those negotiations and discussed the revised term sheet received the prior day from Financing Party A in which it increased its per share price to $0.50 per share (without giving effect to the Reverse Split) and shortened its due diligence period. It was noted that negotiations were expected to continue.
On November 8, 2022, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to, among other things, discuss the status of ongoing strategic alternative efforts. In that context, the meeting also discussed the cash position of Cyclerion, which was approximately $20.4 million as of September 30, 2022. The meeting was updated on the status of all potential counterparties, including Financing Party A, the Licensing Party and JWCA.
On the evening of November 13, 2022, Marsha Fanucci, Chair of the Board, spoke to a senior executive at Financing Party A who informed her that Financing Party A was withdrawing its interest in any financing of Cyclerion. Financing Party A did not provide reasons for its withdrawal.
On November 14, 2022, the Independent Board met, with management and representatives of Hughes Hubbard and Stifel attending, to, among other things, discuss the status of ongoing strategic transaction efforts. The Independent Board was updated on the status of all remaining potential counterparties, including the Licensing Party and JWCA. Representatives of Stifel explained that after engaging with certain shareholders of the Company, JWCA had not contacted Stifel further regarding the Third JWCA Buyout Proposal and had not yet responded to Stifel's request for a more specific proposal. The withdrawal of Financing Party A was also discussed. Given the limited cash available to the Company and the slow pace of negotiations, the Independent Board considered alternative options, including alternative transaction types that might be more likely to succeed. Based on this discussion, the Independent Board instructed Stifel to propose to JWCA an alternative transaction structure, instead of a buyout of Cyclerion as previously proposed, to buy all of Cyclerion's CNS assets, including without limitation all applicable intellectual property, equipment and machinery and a transfer of employees, in exchange for an upfront cash payment to Cyclerion and an equity position in the purchasing vehicle.
On November 16, 2022, on behalf of Cyclerion, Stifel, at the instruction of the Independent Board, submitted two alternative potential draft term sheets to Dr. Hecht for JWCA to consider, with an emphasis on addressing Cyclerion's liquidity concerns. One alternative was for JWCA to have an option to license the CNS assets on specified terms in exchange for an immediate cash option payment of $5.0 million, and the other was for Cyclerion to have the option to require JWCA to license the CNS assets on similar license terms, with Cyclerion to pay JWCA $1.5 million if it did not exercise the option.
On that same day, JWCA responded to the latest proposal provided by Stifel on behalf of Cyclerion and the Cyclerion liquidity concerns by submitting a proposed term sheet for an option agreement under which Cyclerion would have the option to sell to JWCA or its designee either all of its assets for $6.0 million in cash or only the CNS assets for $5.0 million in cash, with Cyclerion having the right under either option to seek an alternative transaction, paying $0.5 million to JWCA if an alternative transaction was achieved.
On November 17, 2022, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to discuss JWCA's response and its proposed option term sheet. Stifel discussed the
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financial terms of such term sheet and the Independent Board determined not to pursue such option proposal. Stifel was instructed to convey that determination to JWCA. Management explained to the Independent Board that the Company was at risk of being illiquid by March 2023, unless it significantly further reduced its workforce to focus only on out-licensing of its existing molecules.
On November 20, 2022, after it informed JWCA that the Independent Board was not interested in pursuing JWCA's option proposal, Stifel received from JWCA a proposed term sheet for an asset purchase agreement (the “Initial JWCA Asset Purchase Term Sheet”), instead of an acquisition of all of Cyclerion, pursuant to which, instead of granting an option to Cyclerion to sell its assets (including zagociguat and CY3018), JWCA would, among other things, purchase such assets for $5.0 million in cash, plus royalties of 3% of global net product sales of zagociguat and 1% of global net product sales of CY3018.
On November 21, 2022, Dr. Hecht filed an amendment to his Schedule 13D, initially filed on May 14, 2021, with respect to his beneficial ownership of shares of Cyclerion in which he disclosed the existence of his relationship to and certain terms of the Initial JWCA Asset Purchase Term Sheet.
Also on November 21, 2022, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending. Stifel discussed the financial terms of the Initial JWCA Asset Purchase Term Sheet and Hughes Hubbard and Foley Hoag presented with respect to certain corporate and securities law considerations related to the proposal. Following such discussion, the Independent Board determined to provide a counterproposal to JWCA and to pursue other alternatives. At the meeting, the Independent Board also reaffirmed the imposition of certain limitations on the access of Dr. Hecht to certain Cyclerion transactional information and activities, particularly in light of Cyclerion’s rejection of the Initial JWCA Asset Purchase Term Sheet and his Schedule 13D amendment.
Later on November 21, 2022, Stifel, at the direction of the Independent Board, communicated a counterproposal to JWCA that asked JWCA to either (i) increase its offer to an upfront payment of $7.0 million, a 20% equity stake in the purchasing vehicle with anti-dilution protection up to $80.0 million in equity raised and royalties of 3% on global net product sales of both zagociguat and CY3018, or (ii) match the Licensing Party’s terms, in each case with a break-up fee of approximately $2.5 million and a commitment to close the transaction by December 15, 2022.
On November 22, 2022, Cyclerion issued a press release in which it disclosed that the Independent Board had received and reviewed a term sheet for a proposed asset purchase from an unnamed group that included Dr. Hecht and that after consultation with its legal and financial advisors it had unanimously concluded that the proposal was not in the best interests of Cyclerion.
Also on November 22, 2022, Ms. Fanucci had a phone call with a senior executive of Financing Party A to explore whether it would reconsider its decision not to invest in Cyclerion. On the same date a representative of Hughes Hubbard had a call with counsel to Financing Party A for the same purpose. Both were told that the decision would not be changed.
That same day, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to, among other things, discuss the status of ongoing strategic alternative efforts.
On November 25, 2022, Ms. Fanucci received an unsolicited email from JWCA containing a new proposed term sheet for an asset purchase (the “Second JWCA Asset Purchase Term Sheet”). The Second JWCA Asset Purchase Term Sheet proposed purchasing the same CNS Assets as in the Initial JWCA Asset Purchase Term Sheet. In addition, the consideration included a purchase price comprised of the same $5.0 million in cash plus the issuance to Cyclerion of 10% of the equity in the purchasing vehicle (referred to as “Celtics”), with anti-dilution protection up to a $40.0 million post-money valuation of Celtics. The proposal also included an array of milestone and royalty payments per country separately for each of zagociguat and CY3018.
On November 27, 2022, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to consider the Second JWCA Asset Purchase Term Sheet. Representatives of Stifel discussed the proposed financial terms of the Second JWCA Asset Purchase Term Sheet as well as the financial terms of the proposed license to the Licensing Party. Ms. Gault updated the Independent Board that the Licensing Party was considering paying up to $12.0 million in early payments. Among many comparative considerations were that the Celtics deal involved the sale of both zagociguat and CY3018 whereas the license to the Licensing Party would involve only zagociguat, leaving Cyclerion with the opportunity, along with the attendant costs, to develop CY3018. Further, the Second JWCA Asset Purchase Term Sheet would provide only $5.0 million upfront as compared to the
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up to $12.0 million from the Licensing Party and would provide lower royalty rates than that offered by the Licensing Party. It was also noted that the sale of both zagociguat and CY3018 may take significantly longer to close than a licensing transaction because a licensing transaction was anticipated to be less likely to require shareholder approval. Such concern was subsequently communicated to JWCA, which thereafter proposed a licensing rather than asset sale transaction, although it included an equity interest.
On November 30, 2022, management of Cyclerion received a new proposed term sheet from JWCA pursuant to which Celtics would, instead of purchasing assets, license both zagociguat and CY3018 from Cyclerion but with the same consideration (the “Initial JWCA License Term Sheet”).
On December 1, 2022, the Independent Board met again, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to consider the Initial JWCA License Term Sheet and the licensing proposal from the Licensing Party. Representatives of Stifel discussed proposed financial terms of the licensing proposals. Ms. Gault updated the meeting on the status of discussions with the Licensing Party, including that it had agreed to increase the early cash payment to $12.0 million. The Initial JWCA License Term Sheet continued to offer only $5.0 million up front. The Independent Board also further considered Cyclerion’s cash position and runway. Following further discussion, the Independent Board instructed management and Stifel to commence negotiations with JWCA while the Company continued those with the Licensing Party in parallel to preserve alternatives.
Beginning on December 2, 2022 and continuing for several days, a representative of Stifel, as directed by the Independent Board, had multiple telephone conversations with representatives of Celtics, including Dr. Hecht, during which they discussed potential revisions to the terms of the Initial JWCA License Term Sheet, including the deletion of the requested grant to Celtics of rights in CY3018, an increase in the equity ownership in Celtics by Cyclerion, the coverage of certain of Cyclerion’s current costs, Celtics funding levels and other matters.
On December 8, 2022, JWCA delivered to management a new proposed term sheet for a license (the “Second JWCA License Term Sheet”). The new term sheet removed CY3018 from the transaction, clarified certain equity rights of Cyclerion in Celtics, and accommodated certain other comments of Cyclerion.
On December 8, 2022, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to consider the Second JWCA License Term Sheet and the licensing proposal from the Licensing Party. Representatives of Stifel discussed the proposed financial terms of the latest proposals. Ms. Gault further updated the meeting on the status of discussions with the Licensing Party. It was noted that the Second JWCA License Term Sheet continued to offer only $5 million up front. The Independent Board also further considered Cyclerion’s cash position and runway. During the meeting, Dr. Hecht briefly joined the meeting by invitation so that he might explain the Celtics perspective on the proposal and other clarifications, with his presentation being informational only and the Independent Board expressly refraining from any negotiations with him. Dr. Hecht noted, among other things, that Celtics expected to obtain approximately $65.0-80.0 million of committed capital from a number of private investors that included certain existing Cyclerion shareholders for the development of zagociguat and other potential development activities. After Dr. Hecht’s departure, the Independent Board continued its discussion and instructed management and Stifel to continue negotiations with JWCA while the Company continued those with the Licensing Party on parallel tracks. The Independent Board also discussed a further reduction in force and other necessary cash-saving measures.
On December 9, 2022, the Independent Board met again with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending to consider the Second JWCA License Term Sheet and the licensing proposal from the Licensing Party. At this meeting, representatives of Stifel again discussed the financial terms of the Second JWCA License Term Sheet and those of the proposed license with the Licensing Party. The outcome of the meeting was that the Independent Board instructed management, Stifel and counsel to further negotiate a list of additional requirements with JWCA.
On December 10, 2022, the Independent Board met to further discuss, among other things, Cyclerion’s liquidity and capital resources. It was noted that, because of the dislocation in the public equity markets for early-stage biotech assets, Cyclerion had no clear path to raising the $65.0 million it projected to be required to support the internal development of zagociguat in mitochondrial disease.
On January 11, 2023, following a period of continuing active negotiations with the Licensing Party and JWCA, Cyclerion received from JWCA a new proposed term sheet for an asset purchase by Celtics of all of Cyclerion’s CNS
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assets, including both zagociguat and CY3018 (the “Third JWCA Asset Purchase Term Sheet”). The new term sheet reverted from a license arrangement back to an asset purchase and reverted back to including CY3018 in the deal, clarified certain equity rights of Cyclerion in Celtics, and accommodated certain other comments of Cyclerion.
On January 11, 2023, the Independent Board met, with management and representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to discuss the Third JWCA Asset Purchase Term Sheet. By invitation Dr. Hecht briefly attended so that he might explain the Celtics perspective on the proposal and provide other clarifications, with his presentation being informational only and the Independent Board expressly refraining from any negotiations with him. Dr. Hecht noted, among other things, that Cyclerion would have an equity position in a new, well-funded company and that Celtics expected to obtain at least $65.0 million of committed capital, the amount Cyclerion had projected as needed to support internal development of zagociguat in mitochondrial disease, from a number of private investors that included certain existing Cyclerion shareholders. After Dr. Hecht’s departure, the Independent Board continued its discussions and instructed Cyclerion’s management, counsel, and Stifel to further advise the Independent Board at a subsequent meeting.
On January 12, 2023, the Independent Board met, with management and representatives of Hughes Hubbard and Stifel attending, to continue to discuss the Third JWCA Asset Purchase Term Sheet and the proposed license with the Licensing Party. Representatives of Stifel discussed the financial terms of the proposals. Ms. Gault updated the meeting on the progress of the negotiation with the Licensing Party. The Independent Board authorized continuing negotiations of both on parallel tracks. For the next several weeks, such negotiations continued. At the meeting, in light of possible further due diligence and other activities at Cyclerion’s offices or involving Cyclerion personnel, including possible third-party visits to such offices, the Independent Board instructed counsel to work with management to add further guidelines applicable to Dr. Hecht’s activities during the ongoing transactional process.
Also at the January 12, 2023 meeting, the Independent Board discussed the ongoing process for considering the present and any future potential transactions. In light of the past and expected work volume, for practicality purposes and to streamline such process, it was proposed that an ad hoc committee of the Independent Board be formed to be directly involved in day-to-day developments. It was noted that with seven members of the Independent Board it may be more efficient to have three such directors serve such role. Accordingly, the Independent Board agreed that Ms. Fanucci, Stephanie Lovell and Errol De Souza be appointed as an ad hoc transaction committee of the Independent Board solely for the purpose of facilitating interaction with management and others and for reporting to the Independent Board on developments and information. The group was not given any specific powers, duties, or authorities, and would work solely to facilitate a smooth interactive process and inform the full Independent Board. Accordingly, references hereinafter to the members of such committee refer to their roles in such capacity.
During the weeks of January 16 and January 23, 2023, Ms. Fanucci participated in discussions with Ms. Lovell and Mr. De Sousa, as the other members of the Independent Board’s ad hoc committee, and representatives of Celtics regarding, among other things, the structure of the proposed transaction, with a focus on the Independent Board's preference for the Celtics proposal to take Cyclerion private.
On January 26, 2023, the Independent Board met, with management and representatives of Hughes Hubbard and Stifel attending, to consider, among other matters, the status of ongoing transactional negotiations. Ms. Fanucci relayed that based on her discussions with representatives of Celtics, she did not believe Celtics would be willing to pursue an acquisition of the whole Company by merger and would instead require a transaction structured as an acquisition of zagociguat and CY3018. Following discussion, it was reaffirmed by the Independent Board that the proposed license of zagociguat to the Licensing Party for $10.0-12.0 million was superior to the Celtics proposal and in the best interests of shareholders. The meeting also discussed the possibility of raising equity capital through an underwritten or privately placed securities offering, while noting that the total market capitalization at the time was only approximately $28.0 million. Management was authorized to continue to explore any such possibilities. The Independent Board instructed management, counsel and Stifel to continue negotiations with Celtics and, instructed management and counsel to continue negotiations with the Licensing Party. Also at the meeting, the Independent Committee approved the additional guidelines applicable to Dr. Hecht as previously discussed.
On January 30, 2023, Ms. Fanucci met with Dr. Hecht to discuss the proposed structure of the Celtics transaction. In particular, she noted that Cyclerion required retaining control over CY3018, $5.0 million in cash at signing to cover operating costs until closing, certain expense reimbursements, an annual $2.0 million funding backstop and certain other terms.
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On February 1, 2023, Ms. Fanucci and a representative of Hughes Hubbard had a video conference with Dr. Hecht and a representative of Ropes & Gray to further discuss the proposed Celtics deal. The discussion included the logistics of such deal, including shareholder approval and the process and time frame required for the completion of a transaction.
On February 2, 2023, the Independent Board met, with representatives of Hughes Hubbard, Foley Hoag and Stifel attending, to discuss the status of the proposed transactions. It was reaffirmed that although discussions continued with the two live prospects on a parallel basis, the Independent Board continued to believe that the license transaction was preferable for shareholders. It was reaffirmed that the Celtics transaction was viewed as a secondary, back-up option. The Independent Board also authorized management to engage and proceed with a specific placement agent/underwriter identified by management to conduct a possible capital raise (“Financing Party B”) by way of a PIPE or underwritten equity offering.
On February 8, 2023, representatives of management and Hughes Hubbard attended the organizational meeting with Financing Party B to consider process and possible financings.
On February 9, 2023, the Independent Board met again, with representatives of Hughes Hubbard and Stifel attending, to discuss the status of the proposed transactions. It was noted that the Celtics deal had not progressed but that the proposed license with the Licensing Party was progressing well. Ms. Gault advised the meeting that only approximately a half dozen issues remained to be resolved. Management also noted that Financing Party B had been engaged and was in the process of exploring possible financings.
On February 16, 2023, following a period of continuing active negotiations and progress on the proposed license with the Licensing Party and limited progress with JWCA, Cyclerion received from JWCA a new proposed term sheet for an asset purchase by Celtics of zagociguat (the “Fourth JWCA Asset Purchase Term Sheet”). The new term sheet, among other things, covered CY3018 under a newly proposed co-development arrangement between the parties pursuant to which Cyclerion would retain ownership thereof and have a choice of either a 15% or 20% equity ownership in Celtics under different scenarios, and offered either a $3.0 million or no upfront payment depending on which equity alternative was chosen.
On February 23, 2023, the full Board met to discuss operational matters, including a going-forward strategy for Cyclerion in the context of the expected signing of the license transaction with the Licensing Party, which transaction appeared to be reaching execution readiness.
On March 6, 2023, Celtics delivered to Ms. Fanucci a new proposed term sheet for an asset purchase by Celtics of zagociguat and the co-development arrangement regarding CY3018, as previously proposed (the “Fifth JWCA Asset Purchase Term Sheet”). The new term sheet differed from the Fourth JWCA Asset Purchase Term Sheet by, among other things, removing any alternative involving an upfront payment and 15% equity ownership in favor of the 20% equity ownership alternative with no upfront payment. It also added binding terms relating to negotiating in good faith to definitive documents.
On March 8, 2023, Ms. Fanucci discussed with a representative of Celtics certain matters relating to the Fifth JWCA Asset Purchase Term Sheet and discussed possible resolutions thereof.
On March 8, 2023, Cyclerion delivered to Celtics a mark-up of the Fifth JWCA Asset Purchase Term Sheet reflecting extensive revisions, including extensive substantive, procedural and timing requirements, including relating to the co-development arrangement regarding CY3018.
On March 9, 2023, the Independent Board met to discuss the Fifth JWCA Asset Purchase Term Sheet. Ms. Fanucci described to the meeting her conversation of the prior day, including that the Celtics representative had described the latest offer as being “best and final”, that Cyclerion needed to return only with comments that were absolutely necessary to Cyclerion, and that Celtics would be willing to move directly to definitive documentation if Cyclerion would provide an exclusivity period.
Following further negotiations, on March 10, 2023, Cyclerion delivered to Celtics a further revised mark-up of the Fifth JWCA Asset Purchase Term Sheet containing additional revisions, including addressing the treatment (transfer or otherwise) of Cyclerion employees, fixing Cyclerion’s equity interest in Celtics at 15% (plus a future 5% top-up right for $5.0 million) with dilution protection up to a $100.0 million valuation of Celtics’ capitalization (allowing for a 15% equity incentive pool for management of Celtics), an upfront cash payment of $3.0 million, improved details for the co-development arrangement regarding CY3018 and a short exclusivity period.
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On or about March 10, 2023, Ms. Fanucci with the approval of the Independent Board preliminarily discussed with Dr. Hecht a request that he provide a common stock PIPE to sustain Cyclerion through a closing of a Celtics transaction (the “Hecht PIPE”). In response to such discussions, on March 11, 2023, Cyclerion provided to Dr. Hecht a draft term sheet for such a financing, including that Dr. Hecht would personally commit to fund $5.0 million to purchase common shares, pricing would not only meet Nasdaq market price requirements but also be at the higher of such market price prior to signing the funding commitment or the market price during the week following the announcement of the signing the Celtics deal, a funding upon such announcement, and customary registration rights.
On March 13, 2023, representatives of the Licensing Party contacted Ms. Gault to advise her that the Licensing Party would not be moving forward with the proposed license transaction. This news came as a significant surprise and disappointment to Cyclerion, as the transaction appeared to have been fully mutually agreed and subject only to final internal approvals at the Licensing Party. The Cyclerion management team and Independent Board immediately met to consider next steps and the process of redirecting its primary focus on the extant Celtics transaction as the remaining viable approach to fund the development of zagociguat, with Cyclerion having an interest in the potential value that might be created, while retaining the ability to continue operations with other product candidates.
On March 16, 2023, following further negotiations, Celtics delivered to Cyclerion a further revised version of the Fifth JWCA Asset Purchase Term Sheet marked against the version provided by Cyclerion on March 10, 2023.
On March 16, 2023, the Independent Board met. The Board was provided a draft of the Form 10-K for the fiscal year ended December 31, 2022, which indicated only approximately $13.0 million of cash on the balance sheet as of such date. The meeting generally discussed the viability of Cyclerion’s business under various scenarios, including a possible bankruptcy filing in the absence of a suitable and relatively fast transaction. The meeting discussed the going concern qualification disclosure in such draft Form 10-K.
On March 17, 2023, following further negotiations, Ms. Fanucci received an email from a representative of Celtics in which Celtics proposed acquiring CY3018 and zagociguat, paying upfront cash consideration of $8.0 million, and issuing to Cyclerion a 10% equity interest in Celtics. Negotiations continued on that basis.
Daily negotiations and activities ensued on the proposed Celtics transaction as well as the Hecht PIPE.
On March 22, 2023, the Independent Board met with representatives of Hughes Hubbard and Foley Hoag attending, to consider the status of discussions regarding the Celtics transaction and the prospects for sufficient liquidity and capital resources. It was reiterated that Cyclerion likely would not have enough cash to sustain operations for twelve months absent a cash infusion or a strategic transaction, and even in the case of the latter the need for additional capital through the closing of such a transaction. In this respect, a representative of Hughes Hubbard addressed the meeting as to bankruptcy matters and potential scenarios. The meeting further discussed the status of discussions regarding the Hecht PIPE.
On March 26, 2023, Ropes & Gray on behalf of JWCA delivered a draft exclusivity agreement to Hughes Hubbard pursuant to which JWCA sought exclusivity in Cyclerion discussions for 30 calendar days during which a definitive transaction could be negotiated. Negotiations ensued and on March 27, 2023, a revised version was sent by Ropes & Gray. Following further discussion, a revised agreement was received by the Company on March 28, 2023, in which the exclusivity period was reduced to 21 calendar days from Hughes Hubbard’s delivery of an initial draft of a proposed asset purchase agreement. On March 31, 2023, the agreement was signed and the parties moved directly to negotiating definitive agreements for an asset purchase of both zagociguat and CY3108, rather than through further term sheet exchanges.
On March 28, 2023, following discussions between counsel for Dr. Hecht and Cyclerion, a general agreement was reached on the proposed Hecht PIPE. On March 29, 2023, Hughes Hubbard sent to Dr. Hecht’s counsel an initial draft of a proposed stock purchase agreement relating to the proposed Hecht PIPE. Following negotiations, on March 29, 2023, Hughes Hubbard distributed a revised version of the draft agreement with the changes principally addressing the determination of pricing and the inclusion of an allocation between common stock and non-voting, convertible preferred stock.
On the evening of March 31, 2023, the definitive stock purchase agreement for the Hecht PIPE was entered into substantially in the form as initially proposed by Cyclerion with the closing of such financing conditioned on signing definitive documentation relating to the principal transactions contemplated by the JWCA exclusivity agreement.
On April 6, 2023, Hughes Hubbard submitted to JWCA an initial draft of a proposed asset purchase agreement.
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On April 9, 2023, Ropes & Gray sent the Cyclerion team initial drafts of the proposed set of agreements relating to the formation of the Buyer, including the investor rights agreement, the Cyclerion shareholder letter, the right of first refusal and co-sale agreement, and the voting agreement, as well as an amended and restated certificate of incorporation.
From April 10 through April 13, 2023, management, members of the Independent Board, and representatives of Hughes Hubbard had telephonic meetings to work through both the set of Buyer agreements and the draft asset purchase agreement.
On April 13, 2023, management, representatives of Hughes Hubbard and Ms. Fanucci discussed such set of Buyer agreements and then Hughes Hubbard sent marked versions thereof back to Ropes & Gray with collective comments. On the same day, Ropes & Gray sent Hughes Hubbard a revised version of the draft asset purchase agreement.
From April 14 through April 20, 2023, the respective parties continued their negotiation of the transaction documents.
On April 20, 2023, management, representatives of Hughes Hubbard and Ms. Fanucci presented a status report on the documents and the issues thereunder to a meeting of the Independent Board. Following the meeting and authorization and instructions from the Independent Board, Hughes Hubbard sent initial drafts of various schedules and comments on other documents to Ropes & Gray.
From April 21 through April 26, 2023, the respective parties had internal as well as bilateral discussions about open issues and exchanged marked versions of various documents, including Hughes Hubbard sending comments on the asset purchase agreement to Ropes & Gray on April 24, 2023.
On April 26, 2023, the Cyclerion team considered whether to extend the expiring exclusivity agreement and, following agreement later that day signed and delivered such an extension.
From April 26 through May 10, 2023, the respective parties continued their negotiation of the transaction documents.
On May 10, 2023, after the stock market had closed, the full Board held a meeting at which all directors were in attendance. After an administrative matter, Dr. Hecht and Mr. McGuire departed the meeting, after which the full Independent Board, as well as representatives of management, Stifel, Hughes Hubbard and Foley Hoag, remained. Representatives of Foley Hoag then reviewed the fiduciary duties of the Board in connection with a potential sale of Cyclerion’s assets to the Buyer and the related transactions pursuant to the Asset Purchase Agreement. Representatives of Hughes Hubbard then discussed with the Independent Board certain factors that from time to time the Independent Board had considered with its advisors in connection with the proposed Asset Sale Transaction, including those set forth in “Reasons for the Asset Sale Transaction” beginning on page 40 of this proxy statement.
The meeting next considered a presentation from Stifel in connection with Stifel’s financial analyses with respect to the consideration to be received by Cyclerion from the Buyer in connection with the Asset Purchase Agreement. Stifel representatives also delivered to the Independent Board its oral opinion, which was confirmed by delivery of a written opinion on May 10, 2023, to the effect that, as of such date and based on and subject to the factors, assumptions, limitations, qualifications and procedures set forth in its written opinion, the Consideration to be received by Cyclerion pursuant to the Asset Purchase Agreement was fair to Cyclerion from a financial point of view.
The Independent Board members then asked questions and discussed the provisions of the Asset Purchase Agreement, related documents, and related matters. After further discussion in which the Independent Board considered the factors discussed in “Reasons for the Asset Sale Transaction” beginning on page 40 of this proxy statement, the members of the Independent Board unanimously approved the Asset Purchase Agreement and the transactions contemplated thereby. The Independent Board also deemed it advisable and in the best interests of Cyclerion and its shareholders to consummate the Asset Purchase Agreement and the transactions contemplated thereby on the terms and subject to the conditions set forth in the Asset Purchase Agreement and related documents and to recommend that Cyclerion’s shareholders approve such transaction.
On May 11, 2023, the parties signed the Asset Purchase Agreement and announced the transaction.
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Opinion of the Company’s Financial Advisor
In connection with the Asset Sale Transaction, the Company engaged Stifel to act as its financial advisor. As part of that engagement, on May 10, 2023, Stifel delivered to the Independent Board, its oral opinion, subsequently confirmed in writing by delivery of the Stifel Opinion, that, as of that date and based upon and subject to the various limitations, matters, qualifications and assumptions set forth therein, the Consideration to be received by the Company from Buyer in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to the Company, from a financial point of view.
The Company did not impose any limitations on Stifel with respect to the investigations made or procedures followed in rendering the Stifel Opinion. In selecting Stifel, the Independent Board considered, among other things, the fact that Stifel is a reputable investment banking firm with substantial experience advising companies in the biotechnology and pharmaceutical sectors and in providing strategic advisory services in general. Stifel, as part of its investment banking business, is regularly engaged in the independent valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. In the ordinary course of business, Stifel and its clients may transact in the equity securities of the Company and may at any time hold a long or short position in such securities.
The full text of the written Stifel Opinion that Stifel delivered to the Independent Board is attached to this proxy statement as Annex C and is incorporated into this document by reference. The summary of the Stifel Opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the Stifel Opinion. Company shareholders are urged to read the Stifel Opinion carefully and in its entirety for a discussion of the assumptions made, procedures followed, matters considered and limits of the review undertaken by Stifel in connection with the Stifel Opinion.
The Stifel Opinion was for the information of, and directed to, the Independent Board for its information and assistance in connection with its consideration of the financial terms of the Asset Sale Transaction and only addresses the fairness, from a financial point of view and as of the date of the Stifel Opinion, of the Consideration to be received by the Company from Buyer pursuant to the Asset Purchase Agreement. The Stifel Opinion did not constitute a recommendation to the Independent Board or any other person as to how the Independent Board or any other person should vote or otherwise act with respect to the Asset Sale Transaction or any other matter, or to any shareholder of the Company as to how any such shareholder should vote or act with respect to the Asset Sale Transaction or any other matter, including, without limitation, whether or not any shareholder of the Company should enter into a voting, shareholders’ or affiliates’ agreement with respect to the Asset Sale Transaction or exercise any dissenters’, appraisal or similar rights that may be available to such shareholder. In addition, the Stifel Opinion did not compare the relative merits of the Asset Sale Transaction with any other alternative transactions or business strategies which may have been available to the Company and did not address the underlying business decision of the Independent Board to proceed with or effect the Asset Sale Transaction.
In rendering the Stifel Opinion, Stifel, among other things:
i.
reviewed the financial terms of the Asset Sale Transaction contained in a draft dated May 5, 2023 of the Asset Purchase Agreement and a draft dated May 8, 2023 of the Cyclerion Stockholder Letter;
ii.
reviewed certain publicly available financial and other information for the Company and certain other relevant financial and operating data regarding the Purchased Assets furnished to Stifel by the management of the Company;
iii.
reviewed and analyzed certain relevant historical financial and operating data concerning the Company furnished to Stifel by the management of the Company;
iv.
reviewed and analyzed certain internal financial analyses, financial projections, reports and other information concerning the Purchased Assets prepared by the management of the Company, including projections for the Purchased Assets provided by the management of the Company and reflecting the probabilities of success determined by the management of the Company and utilized per instruction of the Company;
v.
discussed with certain members of the management of the Company the historical and current business operations, financial condition and prospects of the Company with respect to the Purchased Assets and such other matters as Stifel deemed relevant;
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vi.
participated in certain discussions and negotiations between representatives of the Company and Buyer and Buyer Parent;
vii.
reviewed the reported prices and trading activity of the equity securities of the Company;
viii.
reviewed and analyzed, based on the projections provided to Stifel by the management of the Company, the cash flows generated by the Purchased Assets to determine the present values of those discounted cash flows;
ix.
considered the results of the Company’s efforts and Stifel’s efforts, at the direction of the Company, to solicit indications of interest from selected third parties with respect to a transaction involving the Company; and
x.
reviewed and analyzed such other information and such other factors, and conducted such other financial studies, analyses and investigations, as Stifel deemed relevant for purposes of Stifel’s opinion. In addition, Stifel took into account its assessment of general economic, market and financial conditions and Stifel’s experience in other transactions, as well as Stifel’s experience in securities valuations and its general knowledge of the industry in which the Company operates.
In rendering the Stifel Opinion, Stifel relied upon and assumed, without independent verification, the accuracy and completeness of all of the financial and other information that was provided to Stifel by or on behalf of the Company or Buyer or Buyer Parent, or that was otherwise reviewed by Stifel, and Stifel has not assumed any responsibility for independently verifying any of such information. With respect to the financial forecasts supplied to Stifel by the Company, Stifel assumed, at the direction of the Company, that they were reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of the Company as to the future operating and financial performance of the Company with respect to the Purchased Assets and that they provided a reasonable basis upon which Stifel could form the Stifel Opinion. Such forecasts and projections were not prepared with the expectation of public disclosure. All such projected financial information is based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projected financial information. Stifel relied on this projected information without independent verification or analyses and does not in any respect assume any responsibility for the accuracy or completeness thereof. Stifel expresses no opinion as to any such forecasted or projected information or any other estimates or the assumptions on which they were made. Stifel also assumed, at the direction of the Company, that the Company cannot raise the financing necessary for it to develop either the Company’s zagociguat or CY3018 programs and that there is substantial doubt about the Company’s ability to continue as a going concern.
Stifel also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of the Purchased Assets or the Company since the date of the last information made available to Stifel. Stifel assumed, at the direction of the Company, that each of Buyer and Buyer Parent was a newly formed corporation with no assets or liabilities material to Stifel’s analysis and will operate in accordance with, and will have no assets (other than the Purchased Assets) or liabilities material to Stifel’s analysis other than as provided in, the financial projections prepared by Company management regarding the Purchased Assets, that Buyer will remain a wholly owned subsidiary of Buyer Parent, that Buyer Parent will be funded at least $46.0 million at or by the closing of the Asset Sale Transaction and an additional $35.0 million at or by June 30, 2025, and that the ownership of Buyer Parent by the Company received by the Company as part of the Consideration will not be diluted below 9% of Buyer Parent’s outstanding common stock on a Valuation Fully-Diluted Basis (as defined in the Cyclerion Stockholder Letter) through completion of such funding. Stifel did not make or obtain any independent evaluation, appraisal or physical inspection of either the Company’s, Buyer’s or Buyer Parent’s assets or liabilities, nor has Stifel been furnished with any such evaluation or appraisal. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, Stifel assumes no responsibility for their accuracy.
Stifel assumed, with the Company’s consent, that there are no factors that would delay or subject to any adverse conditions any necessary regulatory or governmental approval and that all conditions to the Asset Sale Transaction will be satisfied and not waived. In addition, Stifel assumed that the definitive Asset Purchase Agreement would not differ materially from the draft Stifel reviewed. Stifel also assumed that the Asset Sale Transaction will be consummated substantially on the terms and conditions described in the Asset Purchase Agreement and as further described to Stifel by Company management, without any waiver of any material terms or conditions by the
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Company or any other party and without adjustment to the Consideration, and that obtaining any necessary regulatory approvals or satisfying any other conditions for consummation of the Asset Sale Transaction will not have an adverse effect on the Company, Buyer, Buyer Parent or the Asset Sale Transaction. Stifel assumed that the Asset Sale Transaction will be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act and all other applicable federal and state statutes, rules and regulations. Stifel further assumed that the Company had relied upon the advice of its counsel, independent accountants and other advisors (other than Stifel) as to all legal, financial reporting, tax, accounting and regulatory matters with respect to the Company, Buyer, Buyer Parent, the Asset Sale Transaction and the Asset Purchase Agreement.
The Stifel Opinion was limited to whether, as of the date of the opinion, the Consideration to be received by the Company from Buyer in the Asset Sale Transaction is fair to the Company, from a financial point of view, and did not address any other terms, aspects or implications of the Asset Sale Transaction, including, without limitation, the form or structure of the Asset Sale Transaction, any consequences of the Asset Sale Transaction on the Company, its shareholders, creditors or otherwise, or any terms, aspects or implications of any voting, support, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Asset Sale Transaction or otherwise, including, without limitation, the Transition Services Agreement and the Buyer Parent Shareholder Agreements and the Stock Purchase Agreement dated as of March 31, 2023, between the Company and Peter M. Hecht. The Stifel Opinion also did not consider, address or include: (i) any other strategic alternatives currently (or which have been or may be) contemplated by the Independent Board or the Company; (ii) the effect of the Asset Sale Transaction on the Company, including any aspect of the operation of the Company following the Asset Sale Transaction; (iii) the legal, tax or accounting consequences of the Asset Sale Transaction on the Company or the holders of Company Common Stock; (iv) the fairness of the amount or nature of any compensation to any of the Company’s officers, directors or employees, or class of such persons, relative to the compensation to the Company or otherwise; or (v) the effect of the Asset Sale Transaction on, or the fairness of any consideration to be received by, holders of any class of securities of the Company, or any class of securities of any other party to any transaction contemplated by the Asset Purchase Agreement. Furthermore, Stifel did not express any opinion as to the prices, trading range or volume at which the Company’s securities will trade following public announcement or consummation of the Asset Sale Transaction or at which Buyer’s or Buyer Parent’s securities will trade at any time.
The Stifel Opinion was necessarily based on economic, market, financial and other conditions as they existed on, and on the information made available to Stifel by or on behalf of the Company or its advisors, or information otherwise reviewed by Stifel, as of the date of the Stifel Opinion. It is understood that subsequent developments may affect the conclusion reached in the Stifel Opinion and that Stifel does not have any obligation to update, revise or reaffirm the Stifel Opinion. Further, as the Independent Board was aware, the credit, financial and stock markets had been experiencing unusual volatility and Stifel expressed no opinion or view as to any potential effects of such volatility on the Purchased Assets, the Company, Buyer, Buyer Parent or the Asset Sale Transaction.
Stifel is not a legal, tax, regulatory or bankruptcy advisor. Stifel has not considered any potential legislative or regulatory changes currently being considered or recently enacted by the United States Congress, the various federal banking agencies, the SEC, or any other regulatory bodies, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the SEC or the Financial Accounting Standards Board, or any changes in regulatory accounting principles that may be adopted by any or all of the federal banking agencies. The Stifel Opinion is not a solvency opinion and does not in any way address the solvency or financial condition of the Company or any other party. The Stifel Opinion was approved by Stifel’s fairness opinion committee.
Neither the Stifel Opinion nor Stifel’s analyses were determinative of the Consideration or of the views of the Independent Board or our management with respect to the Asset Sale Transaction. The type and amount of consideration payable in the Asset Sale Transaction were determined through negotiation between the Company and Celtics and the decision to enter into the Asset Sale Transaction was solely that of the Independent Board.
In accordance with customary investment banking practice, Stifel employed generally accepted valuation methods and financial analyses in reaching the Stifel Opinion. The following is a brief summary of the material financial analyses performed by Stifel in arriving at the Stifel Opinion. These summaries of financial analyses alone do not constitute a complete description of the financial analyses Stifel employed in reaching its conclusions. None of the analyses performed by Stifel were assigned a greater significance by Stifel than any other, nor does the order of analyses described represent relative importance or weight given to those analyses by Stifel. The summary text describing each financial analysis does not constitute a complete description of Stifel’s financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading or
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incomplete view of the financial analyses performed by Stifel. The summary text set forth below does not represent and should not be viewed by anyone as constituting conclusions reached by Stifel with respect to any of the analyses performed by it in connection with the Stifel Opinion. Rather, Stifel made its determination as to the fairness, from a financial point of view, of the Consideration to be received by the Company from Buyer in the Asset Sale Transaction pursuant to the Asset Purchase Agreement on the basis of its experience and professional judgment after considering the results of all of the analyses performed.
Except as otherwise noted, the information utilized by Stifel in its analyses, to the extent based on market data, was based on market data as it existed on or before May 9, 2023 and is not necessarily indicative of current market conditions. The analyses described below do not purport to be indicative of actual future results, or to reflect the prices at which any securities may trade in the public markets, which may vary depending upon various factors, including changes in interest rates, dividend rates, market conditions, economic conditions and other factors that influence the price of securities.
Financial analysis of the Consideration.
Stifel estimated an implied value of the Consideration by adding (A) the sum of (i) the implied value for the Purchased Assets pursuant to the risk-adjusted discounted cash flow analysis set forth below of ($14.0 million) to $4.4 million; (ii) the $46.0 million of cash to be funded to Buyer Parent at the signing of the Asset Purchase Agreement and at the closing of the Asset Sale Transaction, less certain upfront payments and expenses in the amount of $14.0 million as provided by Company management, and (iii) the present value of the Additional Tranche (as defined in the Buyer Parent Stock Purchase Agreement) of $35.0 million to be funded to Buyer Parent at the end of June 2025, as instructed by Company management, which was discounted to June 30, 2023 using a discount rate of 4.01%, the 2-year treasury yield as of May 9, 2023, and multiplying such sum by 9%, reflecting the minimum Company ownership of Buyer Parent on a Valuation Fully-Diluted Basis (as defined in the Cyclerion Stockholder Letter) through completion of the Additional Tranche, and (B) the cash consideration of $8 million.
This analysis resulted in an implied value for the Consideration of approximately $12.5 million to $14.2 million.
Financial analysis of the Purchased Assets.
Stifel performed a discounted cash flow analysis with respect to the Purchased Assets to calculate the estimated present value of the stand-alone, unlevered, after-tax free cash flows that the Purchased Assets were projected to generate from June 30, 2023 through December 31, 2045, with such stand-alone, unlevered, after-tax free cash flows derived from the projections for the Purchased Assets provided to Stifel by the Company management. Stifel estimated the terminal value of such unlevered, after-tax free cash flows generated by the Purchased Assets after calendar year 2045 by assuming a range of perpetuity decline rates of 25% to 75%. These cash flows and terminal value were then discounted to present values as of June 30, 2023 using an estimate of the Company’s weighted average cost of capital of 21% to 23%, based on Stifel’s judgment and experience and considering the Company’s specific circumstances. In performing its discounted cash flow analysis, Stifel assumed that the Company could raise the funding necessary to pursue the development of the Purchased Assets on its own.
This analysis resulted in an implied value for the Purchased Assets of approximately ($14.0 million) to $4.4 million, as compared to the implied value for the Consideration to be received by the Company of approximately $12.5 million to $14.2 million.
Miscellaneous.
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at the Stifel Opinion, Stifel considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Stifel believes that the summary provided and the analyses described above must be considered as a whole and that selecting portions of these analyses, without considering all of them, would create an incomplete view of the process underlying Stifel’s analyses and the Stifel Opinion; therefore, the ranges of valuations and relative valuations resulting from any particular analysis described above should not be taken to be Stifel’s view of the actual valuation of the Purchased Assets or the Consideration or their relative valuation.
Stifel is acting as financial advisor to the Company in connection with the Asset Sale Transaction and will receive a fee for its services of approximately $1.3 million, substantially all of which is contingent upon the closing
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of the Asset Sale Transaction. Stifel also acted as financial advisor to the Independent Board. Stifel will not receive any other significant payment or compensation contingent upon the successful consummation of the Asset Sale Transaction. In addition, the Company has agreed to reimburse Stifel for its expenses incurred in connection with Stifel’s engagement and to indemnify Stifel and its affiliates and their respective officers, directors, employees and agents, and any persons controlling Stifel or any of its affiliates, against certain liabilities arising out of its engagement. Stifel may seek to provide investment banking services to the Company, Buyer, Buyer Parent or their respective affiliates in the future, for which Stifel would seek customary compensation. In the ordinary course of its business, Stifel, its affiliates and their respective clients may transact in the securities of the Company and may at any time hold a long or short position in such securities.
During the two years preceding the date of the Stifel Opinion, Stifel was not engaged by the Company in any engagement in which Stifel received any compensation or is intended to receive any compensation, other than the engagements and any amounts that were paid under the engagements described in this proxy statement.
Certain Prospective Financial Information
The Company does not as a matter of course publicly disclose long-term forecasts or internal projections as to future performance, revenues, earnings, financial condition or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with the Board’s consideration of the potential Asset Sale Transaction, Company management prepared unaudited prospective financial information for the Purchased Programs on a stand-alone, pre-Asset Sale Transaction basis. The Company is electing to provide the unaudited prospective financial information in this proxy statement to provide the Company’s shareholders with access to certain non-public unaudited prospective financial information provided to the Board that the Company’s financial advisor was instructed to use in connection with the Asset Sale Transaction. The unaudited prospective financial information was not prepared with a view toward public disclosure and the inclusion of this information should not be regarded as an indication that the Company or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results for the Purchased Programs. Neither the Company nor any of its affiliates, nor any of their respective advisors or representatives, assumes any responsibility for the accuracy of this information. Readers of this proxy statement are cautioned not to place undue reliance on the unaudited prospective financial information. No one has made or makes any representation to any Company shareholder regarding the information included in the unaudited prospective financial information or the ultimate performance of the Company compared to the information included in the unaudited prospective financial information. The unaudited prospective financial information is not being included in this document to influence the decision of the Company’s shareholders whether to vote in favor of adoption of the Asset Sale Transaction, but rather because such information, or portions of such information, were provided to the Board and Stifel. The unaudited prospective financial information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in the Company’s public filings with the SEC. This unaudited prospective financial information was not provided to Buyers.
All prospective financial information consists of forward-looking statements. These and other forward-looking statements are expressly qualified in their entirety by the risks and uncertainties identified above and the cautionary statements contained in the Company’s most recent Annual Report on Form 10-K, as amended and updated from time to time in the Company’s subsequent filings with the SEC. Please refer to the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 13.
The unaudited prospective financial information was not prepared with a view toward complying with U.S. generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants with respect to the preparation or presentation of prospective financial information. Certain of the unaudited prospective financial information presents financial metrics that were not prepared in accordance with GAAP. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. The Company has not prepared, and our Board did not consider, a reconciliation of these non-GAAP financial measures to applicable GAAP financial measures.
There can be no assurance that the assumptions made in preparing such information will prove accurate or that the projected results reflected therein will be realized. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained herein, nor have they expressed any opinion or
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any other form of assurance on such information or its achievability, and assume no responsibility for the unaudited prospective financial information and disclaim any association with, the prospective financial information. Furthermore, the unaudited prospective financial information does not take into account any circumstance or event occurring after the date it was prepared or which may occur in the future, and, in particular, does not take into account any revised prospects of the Company or the Purchased Programs, changes in general business, regulatory or economic conditions, competition or any other transaction or event that has occurred since the date on which such information was prepared or which may occur in the future.
While presented with numeric specificity, the unaudited prospective financial information reflects numerous estimates and assumptions made by Company management with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to the Company and the Purchased Assets, all of which are difficult to predict and many of which are beyond the Company’s control.
As a result, the unaudited prospective financial information reflects numerous assumptions and estimates as to future events and there can be no assurance that these assumptions will accurately reflect future conditions, that the unaudited prospective financial information will be realized or that actual results will not be significantly higher or lower than estimated.
The Company’s management prepared the unaudited prospective financial information under a non-risk adjusted scenario and a risk-adjusted scenario, reflected below as the “Non-Risk-Adjusted Forecasts” and the “Risk-Adjusted Forecasts”, the latter reflecting probability of success for zagociguat and probability of success for CY3018. The Board instructed Stifel to use the Risk-Adjusted Forecasts in connection with its analysis and opinion, as described above in this proxy statement. The Board considered the forecasts in reaching its judgment to accept the proposal from Buyers and concluded that the forecasts were subject to risk and uncertainty.
The following table presents a summary of the material unaudited prospective financial information of Purchased Assets contained in the Board’s forecast:
Non-Risk-Adjusted Forecasts
($ in mm)
2H
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
Total Revenue
 
 
 
 
 
 
 
$78
$266
$442
$754
$1,043
$1,251
$1,299
$1,335
$1,373
$1,411
$1,451
$1,493
$1,344
$1,303
$1,304
$1,327
EBIT
($15)
($23)
($34)
($40)
($56)
($66)
($81)
($45)
$85
$209
$499
$762
$963
$1,007
$1,039
$1,065
$1,092
$1,123
$1,250
$1,120
$1,085
$1,087
$1,107
Unlevered Free Cash Flow(1)
($15)
($23)
($34)
($40)
($56)
($66)
($81)
($45)
$42
$162
$335
$496
$658
$723
$748
$767
$786
$808
$900
$844
$797
$790
$800
(1)
Unlevered Free Cash Flow was estimated based on 27.3% tax rate, 20% net working capital requirement, and usage of future net operating losses
Risk-Adjusted Forecasts
($ in mm)
2H
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
Total Revenue
 
 
 
 
 
 
 
$18
$44
$88
$141
$188
$215
$221
$227
$232
$237
$243
$249
$201
$181
$174
$174
EBIT
 
($20)
($21)
($19)
($25)
($29)
($24)
($12)
$3
$38
$89
$133
$159
$166
$171
$175
$178
$183
$201
$159
$143
$136
$136
Unlevered Free Cash Flow(1)
($15)
($20)
($21)
($19)
($25)
($29)
($24)
($12)
($3)
$27
$74
$104
$110
$119
$123
$126
$129
$132
$145
$125
$108
$101
$99
(1)
Unlevered Free Cash Flow was estimated based on 27.3% tax rate, 20% net working capital requirement, and usage of future net operating losses
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Reasons for the Asset Sale Transaction
In reaching its decision to approve the Asset Purchase Agreement and the Asset Sale Transaction, and to recommend that our shareholders vote to approve the Asset Sale Proposal, our Independent Board consulted regularly with management and outside financial and legal advisors. Our Independent Board considered numerous factors relating to the Asset Purchase Agreement and the proposed Asset Sale Transaction, including, without limitation, the following (many of which were discussed in detail at prior meetings of the Independent Board) but without assigning specific numerical weight, emphasis, or relative priority among those factors:
that the Consideration represents a fair valuation of the Purchased Programs and that the Company will have a better chance of increasing shareholder value by selling the Purchased Programs in this transaction than it would if it retained the Purchased Programs given the significant cash needed to support their ongoing development and the significant dilution that would have been required to obtain sufficient capital, to the extent such capital could even be raised;
the view of the Independent Board that, following the proposed Asset Sale Transaction, the Company will have a viable business plan to pursue, albeit with a smaller management team;
that the cash proceeds from the Asset Sale Transaction will provide the Company with critical financial liquidity and flexibility, which is important to the Company and its shareholders in order to provide the Company with the opportunity to maximize value of its Retained Programs via out-licensing, while pursuing other initiatives intended to increase shareholder value;
that following the engagement of Stifel on May 1, 2022, to explore strategic alternatives, Stifel and management contacted 65 potential counterparties for a strategic transaction, management representatives contacted an additional 25 potential counterparties for such a transaction, 30 potential counterparties had signed non-disclosure agreements with respect to such a transaction, and ultimately the only potential transaction that remained was the proposed Asset Sale Transaction;
that, as of the most recent quarter end prior to Independent Board approval, the Company had cash and cash equivalents of only approximately $7.0 million dollars, with a continuing burn rate and the need to retain employees to facilitate any out-licensing transaction, sale of assets or other transaction;
the fact that if the Asset Sale Transaction were not completed, and if the Company were unable to secure an alternative source of working capital or to enter into an alternative strategic transaction, then the Company likely would be forced to curtail operations or resort to bankruptcy protection;
that the shares of common stock in Buyer Parent that the Company receives will enable the Company’s shareholders to indirectly participate in the financial upside of any future development of the Purchased Programs by Buyers;
the Stifel Opinion received by the Independent Board, dated May 10, 2023, that, as of the date thereof, the Consideration to be received by the Company from Buyer in the Asset Sale Transaction pursuant to the Asset Purchase Agreement was fair to the Company, from a financial point of view;
historical information regarding (i) the Company’s business, financial performance and results of operations, (ii) market prices, volatility and trading activity with respect to the Company’s Common Stock, and (iii) market prices with respect to other industry participants and general market indices;
current information regarding (i) the Company’s business, prospects, financial condition, operations, technology, products, services, management, competitive position and strategic business goals and objectives, (ii) general economic, industry and financial market conditions, (iii) opportunities and competitive factors within the Company’s industry and (iv) the Company’s current financial and cash positions;
that following the consummation of the Asset Sale Transaction, Cyclerion may be deemed an investment company and subjected to related restrictions under the Investment Company Act of 1940;
the potential for other third parties to enter into strategic relationships with or to seek to acquire the Company or a significant portion of the assets of the Company, including a review of management’s
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dealings with other possible buyers in the past, the exhaustive efforts by the Company and its financial advisor to reach out to other potential acquirers of the Company regarding a strategic transaction, and assessment of the likelihood that a third party would offer a higher price than the purchase price;
the Independent Board’s belief that the Asset Sale Transaction was more favorable to the Company’s shareholders than any other alternative reasonably available to the Company and its shareholders, including the alternative of retaining the Purchased Programs based upon: (i) the Independent Board’s knowledge of the current and prospective environment in which the Company operates, the competitive environment, the Company’s overall strategic position, and the challenges attendant to improving the Company’s financial performance in order to maximize shareholder value; (ii) the Independent Board’s understanding of the Company’s business, operations, management, financial condition, earnings and prospects; and (iii) the Company’s current financial and cash positions;
the fact that, pursuant to the Asset Purchase Agreement, Buyer will assume the Assumed Liabilities (as defined in the Asset Purchase Agreement) and will pay, perform and discharge the Assumed Liabilities listed in the Asset Purchase Agreement;
the fact that, pursuant to the Asset Purchase Agreement, the Company will retain the Excluded Liabilities (as defined in the Asset Purchase Agreement);
the fact that the Asset Sale Transaction will be taxable and the Company has certain net operating losses;
the belief of the Independent Board that continuing with the strategic process would not result in a transaction at a more attractive price than the purchase price;
the belief of the Independent Board that the Asset Sale Transaction has a reasonable likelihood of closing without material potential issues under applicable antitrust laws or material potential issues from any governmental authorities;
the possible effects of the Asset Sale Transaction and public announcement of the Asset Sale Transaction on the Company’s financial performance, operating results and stock price and the Company’s relationships with suppliers and other business partners, management and employees;
the fact that the Asset Purchase Agreement precludes the Company from actively soliciting competing acquisition proposals;
the fact that the Asset Purchase Agreement imposes restrictions on the conduct of the Company’s business in the pre-closing period, which may adversely affect the Company’s business in the event the Asset Sale Transaction is not completed (including by delaying or preventing the Company from pursuing business opportunities that may arise or precluding actions that would be advisable if the Company were to remain an independent company), and which may significantly restrict the operation of the Company’s business;
the risks involved with the Asset Sale Transaction and the likelihood that the Company and Buyers will be able to complete the Asset Sale Transaction, the possibility that the Asset Sale Transaction might not be consummated and the Company’s prospects going forward;
the substantial transaction expenses to be incurred in connection with the Asset Sale Transaction and the negative impact of such expenses on the Company’s cash reserves and operating results should the Asset Sale Transaction not be completed; and
the fact that Dr. Hecht, our Chief Executive Officer and member of the Board, and Mr. McGuire, a member of the Board, each have certain interests in the transactions contemplated by the Asset Purchase Agreement and the Nasdaq Proposal as more fully described in the Sections “Proposal No. 1: The Asset Sale Proposal — Interests of Certain Persons in the Asset Sale Transaction” and “Proposal No. 2: The Nasdaq Proposal — Interest of our Chief Executive Officer in the Nasdaq Proposal”, beginning on pages 21 and 57 , respectively.
The foregoing discussion of the factors considered by our Independent Board is not intended to be exhaustive. Our Independent Board collectively reached the conclusion to approve the Asset Purchase Agreement and the Asset Sale Transaction in light of the various factors described above, as well as other factors that our Independent Board felt were appropriate. In view of the wide variety of factors considered by our Independent Board in connection with its evaluation of the Asset Sale Transaction and the complexity of these matters, our Independent Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors
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it considered in reaching its decision. Rather, our Independent Board made its recommendation based on the totality of the information presented to, and the investigation conducted by, the Independent Board. In considering the factors discussed above, individual members of the Independent Board may have valued certain factors more or less than others.
After evaluating these factors and consulting with its outside legal counsel and financial advisor, our Board unanimously approved and declared advisable, without the participation of Dr. Hecht and Mr. McGuire, the Asset Purchase Agreement and the Asset Sale Transaction and determined that the Asset Purchase Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company’s shareholders.
Use of Proceeds and Future Operations
We currently intend to utilize the cash proceeds from the sale of the Purchased Programs, net of expenses, and any value we receive from the Consideration Shares in the form of dividends or a sale of such shares to maximize the value of our Retained Programs via out-licensing and for other working capital purposes. Our Board of Directors will also continue to evaluate other activities aimed at enhancing shareholder value, which may potentially include collaborations, licenses, mergers, acquisitions and/or other targeted investments. No such activities are currently pending.
Appraisal Rights
General. We have concluded that Cyclerion shareholders may be entitled to assert appraisal rights under Part 13 of the MBCA. Section 13.02(a) of the MBCA provides that shareholders of a Massachusetts corporation, such as Cyclerion, are generally entitled to appraisal rights in the event of the sale of substantially all of a corporation’s property and assets otherwise than in the usual and regular course of business. Whether appraisal rights may apply to a given transaction is a matter of some judicial interpretation. Any shareholder of Cyclerion believing he, she or it is entitled to appraisal rights and wishing to preserve such rights should carefully review the Massachusetts Appraisal Rights Statutes, which set forth the procedures to be complied with in exercising and perfecting any such rights. Failure to strictly comply with these procedures will result in the loss of any appraisal rights to which such shareholders otherwise may be entitled. In light of the complexity of Massachusetts Appraisal Rights Statutes, any Company shareholder wishing to dissent from the Asset Sale Transaction and pursue appraisal rights may wish to consult his, her or its legal advisors.
Any Cyclerion shareholder who wishes to exercise appraisal rights or who wishes to preserve such rights should review carefully the following discussion and the Massachusetts Appraisal Rights Statutes, a copy of which is attached as Annex D to this proxy statement. A shareholder’s failure to strictly comply with the procedures specified in the Massachusetts Appraisal Rights Statutes will result in a loss of the shareholder’s appraisal rights.
Notice of Intent to Demand Payment. Any holder of Cyclerion’s Common Stock wishing to assert appraisal rights under the Massachusetts Appraisal Rights Statutes must (i) deliver to Cyclerion, before the vote to approve the Asset Sale Transaction is taken at the special meeting of Cyclerion’s shareholders to be held on July 19, 2023 (or any adjournment or postponement thereof), written notice of the shareholder’s intent to demand payment for his, her or its shares of Cyclerion’s Common Stock if the Asset Sale Transaction is effectuated, and (ii) not vote, or cause or permit to be voted, any such shares in favor of the Asset Sale Transaction. If a Cyclerion shareholder returns a signed proxy but does not specify a vote against the Asset Sale Transaction or a direction to “ABSTAIN” with respect to such vote, the proxy will be voted “FOR” the Asset Sale Transaction, which will have the effect of waiving that shareholder’s appraisal rights. A shareholder’s written notice is effective on the earliest of (a) receipt by Cyclerion, (b) five days after it was deposited in the United States mail (postpaid and correctly addressed) to Cyclerion, or (c) the date shown on a return receipt, if sent by registered or certified mail, return receipt requested or, if sent by messenger or delivery service, the date shown on the return receipt signed by or on behalf of Cyclerion. The written notice described in clause (i) above should be delivered to Anjeza Gjino, Chief Financial Officer and Corporate Secretary, Cyclerion, Inc., 245 First Street, 18th Floor, Cambridge, Massachusetts 02142. Cyclerion recommends that any such notice be sent by registered or certified mail, return receipt requested.
A shareholder may assert appraisal rights with respect to any of his, her or its shares of Cyclerion’s Common Stock only if the shareholder seeks appraisal rights with respect to all of his, her or its shares of Cyclerion’s Common Stock. A shareholder of record for more than one beneficial shareholder may assert appraisal rights as to fewer than all of the shares registered in such shareholder of record’s name, provided that such shareholder of record notifies
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Cyclerion in writing of the name and address of each beneficial shareholder on whose behalf such shareholder of record is asserting appraisal rights and, on behalf of each such beneficial shareholder, the shareholder of record objects with respect to all shares of Cyclerion’s Common Stock owned by the beneficial shareholder. Under the Massachusetts Appraisal Rights Statutes, a shareholder of record is the person in whose name shares are registered in the records of the corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with the corporation, and a beneficial shareholder is the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder.
A beneficial shareholder may assert appraisal rights as to shares of Cyclerion’s Common Stock held on his, her or its behalf only if he, she or it (i) submits to Cyclerion the shareholder of record’s written consent to the assertion of such rights no later than the Appraisal Form Deadline (as defined below), and (ii) does so with respect to all of his, her or its shares of Cyclerion’s Common Stock. Cyclerion shareholders who hold their shares in brokerage accounts or other nominee forms and who wish to exercise appraisal rights are urged to consult with their brokers or other nominees to determine the appropriate procedures for the making of a demand for appraisal by the nominee.
Appraisal Notice and Form. If the Asset Sale Transaction is completed, within 10 days after the effective date of the Asset Sale Transaction, Cyclerion must deliver a written appraisal notice (the “Appraisal Notice”) and a form containing certain information (the “Appraisal Form”) to all shareholders who have properly provided notice of intent to demand payment. The Appraisal Notice must be accompanied by a copy of the Massachusetts Appraisal Rights Statutes and the Appraisal Form, which will specify the date of the first announcement to shareholders of the principal terms of the Asset Sale Transaction. The Appraisal Form will require the shareholder asserting appraisal rights to certify (i) whether or not beneficial ownership of the shares for which appraisal rights are asserted was acquired before the date of the first announcement of the Asset Sale Transaction and (ii) that the shareholder did not vote for the Asset Sale Transaction. The Appraisal Form must state:
where the Appraisal Form must be returned, where certificates for certificated shares must be deposited and the date by which such certificates must be deposited (the “Certificate Deposit Deadline”);
the date by which the Appraisal Form must be received by Cyclerion (the “Appraisal Form Deadline”), which may not be fewer than 40 nor more than 60 days after the date the Appraisal Notice and Appraisal Form are sent, and that the shareholder shall have waived the right to demand appraisal with respect to such shares unless the Appraisal Form is received by Cyclerion by such specified date;
Cyclerion’s estimate of the “fair value” of the shares of Cyclerion’s Common Stock, as determined in accordance with the Massachusetts Appraisal Rights Statutes, as described below;
that, if requested in writing, Cyclerion will provide within 10 days after the Appraisal Form Deadline, the number of shareholders who have returned the Appraisal Forms by the Appraisal Form Deadline and the total number of shares owned by such shareholders; and
the date by which the shareholder may withdraw his, her or its notice of intent to demand payment, which date must be within 20 days after the Appraisal Form Deadline (the “Withdrawal Deadline”).
Fair Value Determination. Under the Massachusetts Appraisal Rights Statutes, “fair value,” with respect to the shares of Cyclerion’s Common Stock being appraised, means the value of the shares immediately before the effective date of the Asset Sale Transaction, excluding any element of value arising from the expectation or accomplishment of the Asset Sale Transaction unless exclusion would be inequitable.
Perfection of Rights. A Cyclerion shareholder who wishes to exercise appraisal rights and receive payment under the Massachusetts Appraisal Rights Statutes must execute and return the Appraisal Form, with all certifications completed, and, as applicable, deposit such shareholder’s certificates representing his, her or its shares of Cyclerion’s Common Stock in accordance with the terms of the Appraisal Notice by the Appraisal Form Deadline or the Certificate Deposit Deadline, respectively. A shareholder who does not timely satisfy these requirements will not be entitled to any payment under the Massachusetts Appraisal Rights Statutes. Once a shareholder deposits such stock certificates or, if such shareholder holds uncertificated shares, returns the executed Appraisal Form, the shareholder loses all rights as a shareholder of Cyclerion unless the shareholder withdraws his, her or its election in accordance with the withdrawal procedures summarized below. If a shareholder fails to make the certification on the Appraisal Form that such shareholder acquired beneficial ownership of the shares before the date of the first announcement of the Asset Sale Transaction, Cyclerion may elect to treat the shareholder’s shares as “after-acquired shares,” as described below.
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Right to Withdraw. A Cyclerion shareholder who has otherwise properly perfected his, her or its appraisal rights may nevertheless decline to exercise such appraisal rights and withdraw from the appraisal process by so notifying Cyclerion in writing by the Withdrawal Deadline. If the shareholder fails to withdraw from the appraisal process before the Withdrawal Deadline, such shareholder may not thereafter withdraw without Cyclerion’s written consent.
Termination of Appraisal Rights; Challenge to Transaction. A Cyclerion shareholder’s right to obtain payment of the fair value of his, her or its shares will terminate if Cyclerion abandons or rescinds the Asset Sale Transaction, a court having jurisdiction permanently enjoins or sets aside the Asset Sale Transaction or the shareholder’s demand for payment is withdrawn with Cyclerion’s written consent. A shareholder entitled to appraisal rights under the Massachusetts Appraisal Rights Statutes may not challenge the action creating his entitlement unless the action is unlawful or fraudulent with respect to the shareholder or Cyclerion.
Payment. Within 30 days after the Appraisal Form Deadline, Cyclerion must pay in cash to each shareholder who has properly perfected his, her or its appraisal rights the amount Cyclerion estimates to be the fair value of the shareholder’s shares (as determined in accordance with the Massachusetts Appraisal Rights Statutes, as described above), plus interest but subject to any applicable withholding taxes. The payment to each shareholder will be accompanied by:
the required financial statements of Cyclerion;
a statement of Cyclerion’s estimate of the fair value of the shares of Cyclerion Common Stock (as determined in accordance with the Massachusetts Appraisal Rights Statutes, as described above), which estimate must equal or exceed Cyclerion’s estimate given with the Appraisal Notice; and
a statement that the shareholder has the right to demand further payment in accordance with the procedures set forth in Section 13.26 of the MBCA, as described below, and that, if the shareholder does not do so within the time period specified therein, such shareholder will be deemed to have accepted the payment in full satisfaction of Cyclerion’s obligations under the Massachusetts Appraisal Rights Statutes.
Notwithstanding the foregoing, if a shareholder demands payment for “after-acquired shares,” Cyclerion may elect to withhold payment from such shareholder, in which case Cyclerion must, within 30 days after the Appraisal Form Deadline, provide all shareholders who have after-acquired shares with the required financial statements of Cyclerion and notify them:
of Cyclerion’s estimate of the fair value of the shares (as determined in accordance with the Massachusetts Appraisal Rights Statutes, as described above), which estimate must equal or exceed the estimate given with the Appraisal Notice;
that the shareholders may accept such fair value, plus interest, in full satisfaction of their demands or demand appraisal under Section 13.26 of the MBCA, as described below;
that those shareholders who wish to accept Cyclerion’s offer must notify Cyclerion of their acceptance within 30 days after receiving the offer; and
that those shareholders who do not satisfy the requirements for demanding appraisal under Section 13.26 of the MBCA will be deemed to have accepted Cyclerion’s offer.
Within 10 days after receiving the shareholder’s acceptance of the offer, Cyclerion must pay in cash the amount offered to each shareholder who agreed to accept Cyclerion’s offer for his, her or its after-acquired shares in full satisfaction of the shareholder’s demand. Within 40 days after sending the notice to holders of after-acquired shares, Cyclerion must pay in cash the amount offered to each such shareholder who does not satisfy the requirements for demanding appraisal under Section 13.26 of the MBCA.
Procedure if Shareholder is Dissatisfied with Payment or Offer. Pursuant to Section 13.26 of the MBCA, within 30 days after receipt of Cyclerion’s payment for his, her or its shares, a shareholder who properly perfected and exercised appraisal rights and is dissatisfied with the amount of the payment received for his, her or its shares of Cyclerion Common Stock must notify Cyclerion in writing of that shareholder’s estimate of the fair value of such shares (as determined in accordance with the Massachusetts Appraisal Rights Statutes, as described above) and demand payment of that estimate, plus interest, less any payment previously paid. In addition, within 30 days after receiving Cyclerion’s offer to pay for a shareholder’s after-acquired shares, a shareholder holding after-acquired shares who was offered payment for his, her or its shares of Cyclerion Common Stock, as described above, and who
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is dissatisfied with that offer must reject the offer and demand payment of the shareholder’s stated estimate of the fair value of such shares (as determined in accordance with the Massachusetts Appraisal Rights Statutes, as described above), plus interest. A shareholder who fails to so notify Cyclerion within the applicable 30-day period described above will be deemed to have waived the right to demand payment and will be entitled only to the payment made or offered by Cyclerion, as described above.
Judicial Appraisal of Shares. If a shareholder makes a proper and timely demand for payment that remains unsettled, Cyclerion must commence an equitable proceeding within 60 days after receiving the payment demand and petition the court in Middlesex County to determine the fair value of the shares (as determined in accordance with the Massachusetts Appraisal Rights Statutes, as described above) and accrued interest. Cyclerion must make all shareholders, whether or not residents of Massachusetts, whose demands remain unsettled parties to the proceeding as an action against their shares, and all parties must be served with a copy of the petition. If Cyclerion does not commence the proceeding within the 60-day period, it must pay in cash to each shareholder the amount the shareholder demanded, plus interest.
Each shareholder made a party to the proceeding will be entitled to judgment (i) in the case of shareholders who have received a cash payment, for the amount, if any, by which the court finds the fair value of the shareholder’s shares, plus interest, exceeds the amount that Cyclerion has already paid the shareholder for such shares, or (ii) in the case of after-acquired shares, for the full value, plus interest, of the shareholder’s shares.
Court Costs and Counsel Fees. In an appraisal proceeding, the court will determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. Cyclerion will be responsible for such costs, except that the court may assess cost against all or some of the shareholders demanding appraisal, in amounts the court finds equitable, to the extent the court finds such shareholders acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by the Massachusetts Appraisal Rights Statutes. The court in an appraisal proceeding may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, (i) against Cyclerion and in favor of any or all shareholders demanding appraisal if the court finds Cyclerion did not substantially comply with its notification and payment obligations under the Massachusetts Appraisal Rights Statutes, and (ii) against either Cyclerion or a shareholder demanding appraisal, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by the Massachusetts Appraisal Rights Statutes. The court in an appraisal proceeding may find that the services of counsel for any shareholder were of substantial benefit to other shareholders similarly situated, and that the fees for those services should not be assessed against Cyclerion, and the court may award to such counsel reasonable fees to be paid out of the amounts awarded the shareholders who were benefited.
To the extent Cyclerion fails to make a required payment pursuant to the Massachusetts Appraisal Rights Statutes, the shareholder may sue directly for the amount owed and, to the extent successful, will be entitled to recover from Cyclerion all costs and expenses of the suit, including counsel fees.
The foregoing discussion is not a complete statement of the law pertaining to appraisal rights under the Massachusetts Appraisal Rights Statutes and is qualified in its entirety by reference to the full text of the Massachusetts Appraisal Rights Statutes, which is attached to this proxy statement as Annex D. The foregoing discussion does not constitute any legal or other advice nor does it constitute a recommendation as to whether or not holders of Cyclerion’s Common Stock should exercise their appraisal rights. Any Cyclerion shareholder wishing to exercise appraisal rights is urged to consult with his, her or its legal counsel before attempting to do so, as a failure to strictly comply with all of the procedures set forth in the Massachusetts Appraisal Rights Statutes will result in the loss of the shareholder’s appraisal rights.
Certain Material U.S. Federal Income Tax Consequences
The following discussion is a general summary of certain of the anticipated material U.S. federal income tax consequences of the Asset Sale Transaction. The following discussion is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), its legislative history, currently applicable and proposed Treasury Regulations under the Code and published rulings and decisions, all as currently in effect as of the date of this proxy statement, and all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and non-U.S. laws, or federal laws other than those pertaining to income tax, are not addressed in this
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proxy statement. No rulings have been requested or received from the IRS as to the tax consequences of the Asset Sale Transaction and there is no intent to seek any such ruling. Accordingly, no assurance can be given that the IRS will not challenge the tax treatment of the Asset Sale Transaction discussed below or, if it does challenge the tax treatment, that it will not be successful.
The Asset Sale Transaction will be treated for U.S. federal income tax purposes as a taxable transaction upon which we will recognize gain or loss. The amount of gain or loss we recognize with respect to the sale of a particular asset (including any deemed sale of a particular asset) will be measured by the difference between the amount realized by us on the sale of that asset and our tax basis in that asset. The amount realized by us on the Asset Sale Transaction will include the amount of cash received, the fair market value of any other property received, and total liabilities assumed or taken by Buyer. For purposes of determining the amount realized by us with respect to specific assets, the total amount realized by us will generally be allocated among the assets according to the rules set forth in Section 1060(a) of the Code. Our basis in our assets is generally equal to the cost of such assets, as adjusted for certain items, such as depreciation. The determination of whether we will recognize gain or loss will be made with respect to each of the assets to be sold.
Accordingly, we may recognize gain on the sale of certain assets and loss on the sale of certain others, depending on the amount of consideration allocated to an asset as compared with the basis of that asset.
To the extent the Asset Sale Transaction results in us recognizing a net gain for U.S. federal income tax purposes, we expect that our current year losses or our available net operating loss carryforwards will offset all or a substantial part of such gain.
Each shareholder should consult with its tax advisors regarding their interest in the Company and Asset Sale Transaction.
Anticipated Accounting Treatment
Under generally accepted accounting principles, upon completion of the Asset Sale Transaction, we will remove the net assets and liabilities related to the Purchased Programs from our consolidated balance sheet. The results of operations from the Purchased Programs will be treated as discontinued operations. The unaudited proforma financial information, included elsewhere in this proxy statement, gives pro forma effect to the sale of the Purchased Programs.
Effects on our Company if the Asset Sale Transaction is Completed and the Nature of our Business following the Asset Sale Transaction
If the Asset Sale Transaction is consummated, the cash purchase price we receive will be paid directly to the Company, and the Company will receive the Consideration Shares.
We currently intend to utilize the cash proceeds from the sale of the Purchased Programs, net of expenses, and any value we receive from the Consideration Shares in the form of dividends or a sale of such shares to maximize the value of our Retained Programs via out-licensing and for other working capital purposes. The Board of Directors will also continue to evaluate other activities aimed at enhancing shareholder value, which may include potentially collaborations, licenses, merger, acquisitions and/or other targeted investments. No such activities are currently pending.
The Board currently anticipates that the Company will remain as a reporting company following the consummation of the Asset Sale Transaction. The Asset Sale Transaction will not alter the rights, privileges or nature of the issued and outstanding shares of our Common Stock. A shareholder who owns shares of our Common Stock immediately prior to the closing of the Asset Sale Transaction will continue to hold the same number of shares immediately following the closing.
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The Asset Purchase Agreement
Purchase and Sale of Assets
Purchased Assets
Subject to the terms and conditions of the Asset Purchase Agreement, Buyer has agreed to purchase at the closing of the Asset Sale Transaction and Cyclerion has agreed to and shall sell and cause to be sold, assigned, transferred, and conveyed to Buyer at the closing, all of Cyclerion’s rights, title, and interests, in and to the Purchased Assets, including without limitation, the following assets:
Intellectual Property rights owned by Cyclerion that are primarily related to the research, development, manufacture, commercialization, or other exploitation of the Purchased Programs, and, except to the extent constituting an Excluded Asset, all claims and causes of action with respect to any of the foregoing, whether accruing before, on, or after the Closing Date, including all rights to and claims for damages, restitution and injunctive and other legal and equitable relief for past, present, and future infringement, misappropriation or violation thereof;
Contracts to which Cyclerion is a party to the extent primarily related to the research, development, manufacture or commercialization of the Purchased Programs (the “Assumed Contracts”);
all physical assets, wherever located, that are used or held for use primarily in connection with the Purchased Programs;
inventories used, held for use, or intended to be used primarily in operating or developing the Purchased Programs, wherever located, including inventories of raw materials, finished goods, drug substance, intermediates, operating supplies, work-in-process, products, supplies, packaging, packaging materials, parts and other inventories used, held for use, or intended to be used in operating or developing the Purchased Programs, and of the foregoing being held on consignment, bailment, or other arrangement;
books and records relating to the Purchased Assets, including all technical literature used primarily for the Purchased Programs and all rights to receive mail (including e-mail) and other communications related to the Purchased Programs (including mail (including e-mail) and communications from suppliers and others with respect to the Purchased Programs);
all INDs, Permits and regulatory documentation with respect to the Purchased Programs (including any drug designations), all correspondence with the FDA or other Governmental Entity regarding the Purchased Programs, all preclinical and clinical study data supporting the Purchased Programs and all related historical safety and pharmacovigilance data, provided that Cyclerion will have the right to make copies of all such records and will retain the right to access and use any such records following the closing;
all personnel files for the Transferred Employees;
all claims, causes of action, defenses and rights of offset or counterclaim against Third Parties primarily related to any Purchased Asset or any Assumed Liability, except to the extent constituting an Excluded Asset; and
all goodwill primarily associated with the foregoing categories of Purchased Assets.
Excluded Assets
Notwithstanding anything contained in the Asset Purchase Agreement to the contrary, Cyclerion shall retain, and Buyer shall not acquire or assume, any and all assets of Cyclerion not included in Purchased Assets, including the following assets, properties and rights (collectively, the “Excluded Assets”):
all cash and cash equivalents of Cyclerion, together with all rights to all bank accounts of Cyclerion;
all accounts receivable of Cyclerion;
all minute books, organizational documents, stock registers and such other books and records of Cyclerion that pertain to the ownership, organization and existence of Cyclerion and its Subsidiary;
all personnel files for all current and former employees of Cyclerion who do not become Transferred Employees;
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all assets and Contracts related to, or assets held with respect to, the benefit plans of Cyclerion;
all rights of Cyclerion under the Transaction Agreements;
all Contracts of Cyclerion and its Subsidiary that are not Assumed Contracts (the “Excluded Contracts”);
all insurance policies and related Contracts of Cyclerion and all rights thereunder (including the right to make claims thereunder and to the proceeds thereof);
all assets, properties and rights, including all Contracts, primarily related to Cyclerion's business other than the Purchased Assets;
all abandoned or unclaimed property reportable under any state or local unclaimed property, escheat or similar law and associated with periods prior to the Closing Date;
all Intellectual Property rights owned or controlled by Cyclerion that are not primarily related to the research, development, manufacture, commercialization and other exploitation of the Purchased Programs, and all the goodwill associated therewith;
Cyclerion’s or its Subsidiary’s claims, causes of action, defenses and rights of offset or counterclaim against third parties not primarily related to any Purchased Asset or any Assumed Liability, as well as any claims, defenses, rights of offset or counterclaims made by Cyclerion or its Subsidiary against Third Parties related to any Purchased Assets but only to the extent set forth in the Disclosure Schedules;
all Joint Confidentiality Agreements, all bids and expressions of interest received from third parties with respect to the Purchased Assets (but excluding any confidentiality agreement that exclusively relates to the Purchased Programs);
all privileged materials, documents and records of Cyclerion or Cyclerion’s Subsidiary that are not related to the Purchased Assets;
all Tax assets of Cyclerion or its Subsidiary, or that relate to the Purchased Assets for a Pre-Closing Tax Period, including (i) Tax losses, refunds, credits, credit carry forwards and other Tax attributes, (ii) all deposits, prepaid or advance payments with respect to Taxes, and (iii) any claims, rights, and interest in and to any Tax asset, refund, credit, deduction or reduction of Taxes; and
all Tax Returns, Tax information and Tax records related to Cyclerion or its Affiliates.
Assumption of Liabilities
Assumed Liabilities
Subject to the terms and conditions of the Asset Purchase Agreement, at the closing of the Asset Sale Transaction, Buyer shall assume from Cyclerion and agree to pay, perform and discharge in accordance with their respective terms, all of the Assumed Liabilities regardless of (i) except as set forth in the definition of Assumed Liabilities, when or where such Liabilities arose or arise, (ii) where or against whom such Liabilities are asserted or determined, and (iii) which entity is named in any action associated with any Liability; provided that Buyer shall not assume (and the Assumed Liabilities shall not be deemed to include) Liabilities to the extent arising out of or relating to a breach by Cyclerion or its Subsidiary of an Assumed Contract or to the extent relating to the period prior to the Closing Date:
Excluded Liabilities
Except for the Assumed Liabilities, Buyer shall not assume pursuant to the Asset Purchase Agreement or the transactions contemplated thereby, and shall have no liability for, any Liabilities of Cyclerion or any of its Affiliates (the “Excluded Liabilities”), all of which shall be retained by and continue to be Liabilities of Cyclerion or its Affiliates, as applicable. Without limiting the generality or effect of the foregoing, Excluded Liabilities shall include the following Liabilities:
all Liabilities and obligations relating to, based in whole or in part on events or conditions occurring or existing in connection with, or arising out of, Cyclerion or the Purchased Assets as operated prior to the Closing Date, or the ownership, possession, use, operation or sale or other disposition prior to the Closing Date of any of the Purchased Assets (other than the PTC Grant, the Employee Expenses and R&D Expenses);
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all Liabilities based upon, arising out of or otherwise in respect of any employment, compensation, equity-based, incentive or other benefit plans, contracts, programs or agreements of Cyclerion, other than the Employee Expenses;
all Liabilities based upon, arising out of or otherwise in respect of any current or former employees, independent contractors, consultants, or other service providers of Cyclerion or any other member of its Group regardless of whenever occurring, other than (i) the Employee Expenses and (ii) solely with respect to the period following the closing (or, if later, the date a Transferred Employee becomes employed by Buyer or its Affiliates, except for the Employee Expenses related to any Inactive Employees who become Transferred Employees with respect to the period following the closing), Liabilities related to the employment or termination of employment of the Transferred Employees;
except as otherwise provided in the Asset Purchase Agreement, all Liabilities for (i) Taxes of Cyclerion (or its Subsidiary) or (ii) Taxes relating to the Purchased Assets for any Pre-Closing Tax Period;
all Liabilities arising in connection with, or relating to, any real property owned, leased or otherwise used or occupied by Cyclerion or its Subsidiary;
all royalties or other Liabilities owed under the Excluded Contracts; and
all Liabilities relating to abandoned or unclaimed property reportable under any state or local unclaimed property, escheat or similar law where the dormancy period elapsed on or prior to the Closing Date.
Consideration for the Asset Sale Transaction
As consideration for the Asset Sale Transaction, Buyers agreed to:
pay the Company (i) $8.0 million at the closing, plus (ii) the amount of any Employee Expenses or R&D Expenses for which Buyers are obligated to reimburse the Company pursuant to the Asset Purchase Agreement to the extent such amounts remain unpaid as of the closing of the Asset Sale Transaction; and
deliver to the Company a number of shares of common stock, par value $0.0001 per share, of Buyer Parent, such that following the issuance thereof, such shares comprise 10% of the issued and outstanding shares of Buyer Parent immediately following the closing of the Asset Sale Transaction, subject to certain protections against dilution specified in the Cyclerion Stockholder Letter.
Representations and Warranties
The Asset Purchase Agreement contains representations and warranties that the Company and Buyers have made to each other as of specific dates relating to themselves and their respective businesses. The assertions embodied in these representations and warranties were made solely for purposes of the Asset Purchase Agreement and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Asset Purchase Agreement. Accordingly, the Company’s shareholders should not rely on the representations and warranties as characterizations of the actual state of facts or circumstances, and should bear in mind that the representations and warranties were made solely for the benefit of the parties to the Asset Purchase Agreement, were negotiated for purposes of allocating contractual risk among the parties to the Asset Purchase Agreement rather than to establish matters as facts, may be subject to contractual standards of materiality different from those generally applicable to shareholders, and may be qualified by publicly filed reports and documents filed with the SEC and matters contained in the disclosure letter that the Company delivered to Buyers in connection with the Asset Purchase Agreement, which are not reflected in the Asset Purchase Agreement. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Asset Purchase Agreement, which subsequent information may or may not be reflected in the Company’s public disclosures. This description of the representations and warranties is included solely to provide shareholders with information regarding the terms of the Asset Purchase Agreement. The representations and warranties in the Asset Purchase Agreement and their description in this proxy statement should be read in conjunction with the other information contained in the reports, statements and filings that we publicly file with the SEC.
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The Company’s Representations and Warranties
The Company’s representations and warranties relate to, among other things:
Incorporation; Authority
The Purchased Assets
Compliance with Law
Consents and Approvals; No Conflicts
Contracts
Assigned Intellectual Property
Licenses, Permits and Authorizations
Taxes
Broker Fees
Representations with Respect to Consideration Shares
Buyers’ Representations and Warranties
Buyers’ representations and warranties, which are made on a joint and several basis, relate to, among other things, the following:
Incorporation; Ownership and Authority
Capitalization
No Operations
Consents and Approvals; No Violations
Financing
Broker’s Fees
Upon the consummation of the Asset Sale Transaction, the representations and warranties of the Company and Buyers will terminate.
Covenants
The Asset Purchase Agreement contains certain covenants that relate to, among other things, the following:
Operation of the Business
Corporate Examinations and Investigations
Know-How Licenses
Efforts
Employee Matters
Use of Retained Names and Marks
Interim Period Preclinical and Clinical Trial Activities
Exclusivity, as described in the Section entitled “Exclusivity” beginning on page 52
Matters related to Cyclerion Shareholders Meeting
Buyer Parent Stock Purchase Agreement
Taxes
FDA Letters
The matters described in the Section entitled “Post-Closing Arrangements” beginning on page 54
Joint Confidentiality Agreements
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Closing Conditions
Conditions to Each Party’s Obligation
The obligations of the parties to consummate the Asset Sale Transaction are subject to the satisfaction, on or prior to the closing, of each of the following conditions precedent (any of which may be waived in whole or in part by each of the parties in its sole discretion):
there will be no law of any nature issued by a Governmental Entity of competent jurisdiction that restrains, enjoins or otherwise prohibits, or has the effect of restraining, enjoining or otherwise prohibiting, the transactions contemplated by any Transaction Agreement from being consummated as provided in the Asset Purchase Agreement;
approval of the Asset Sale Transaction by the holders of a majority of the outstanding shares of the Company’s Common Stock shall have been obtained;
the parties having delivered letters to the FDA with respect to the transfer from Cyclerion to Buyer of (i) the INDs relating to the Purchased Programs and (ii) the orphan drug designations relating to the Purchased Programs; and
the Novation and Waiver Agreement is in full force and effect, has not been amended or modified in any respect (except with the express written consent of Cyclerion and Buyer), and there is no dispute, outstanding with respect thereto.
Conditions to the Obligation of Buyers
The obligations of Buyers to consummate the Asset Sale Transaction are subject to the satisfaction, on or prior to the closing, of each of the following conditions precedent (any one or more of which may be waived in whole or in part by Buyer in its sole discretion):
At the closing of the Asset Sale Transaction, Cyclerion shall deliver or have caused to be delivered to Buyer the following:
the Buyer Parent Shareholder Agreements, duly executed by Cyclerion;
a properly completed and executed Internal Revenue Service Form W-9 of Cyclerion dated no more than 10 Business Days prior to the Closing Date;
the Conveyancing and Assumption Instruments, duly executed by Cyclerion;
a Transition Services Agreement between Cyclerion and Buyer, duly executed by Cyclerion; and
a certificate of the Chief Financial Officer of Cyclerion that each of the conditions set forth in the two immediately following bullets have been satisfied.
The representations and warranties of Cyclerion contained in the Asset Purchase Agreement (i) that are qualified or limited by materiality or “Material Adverse Effect” shall be true and correct as of the closing with the same effect as if made as of the closing (other than such representations that are made as of a specified date, which shall be true and correct on and as of such date) and (ii) that are not so qualified or limited shall be true and correct in all material respects as of the closing with the same effect as if made as of the closing (other than such representations that are made as of a specified date, which shall be true and correct in all material respects as of such date).
Cyclerion shall have performed and complied in all material respects with all covenants and agreements required by the Asset Purchase Agreement to be performed or complied with by it at or prior to the closing. For purposes of this condition, a covenant of Cyclerion shall only be deemed to have not been performed if Cyclerion has materially breached such covenant and failed to cure within 15 calendar days after notice (or if earlier, the Termination Date); provided that Buyer shall not be required to consummate the closing unless and until such material breach of any covenant has been cured.
Since the date of the Asset Purchase Agreement, there shall not have occurred and be continuing a Material Adverse Effect.
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Conditions to the Obligation of the Company
The obligations of Cyclerion under the Asset Purchase Agreement shall be subject to each of the following conditions, unless waived by Cyclerion:
At the closing of the Asset Sale Transaction, Buyers shall deliver or have caused to be delivered to Cyclerion the following:
the Closing Payment;
evidence of issuance of the Consideration Shares;
the Buyer Parent Shareholder Agreements, duly executed by all of the parties thereto, other than Cyclerion;
the Conveyancing and Assumption Instruments, duly executed by Buyer;
the Transition Services Agreement, duly executed by Buyer;
evidence of the consummation of the closing of the Second Tranche; and
a certificate of a duly authorized officer of Buyer Parent that each of the conditions set forth in the immediately following two bullets has been satisfied.
The representations and warranties of Buyers contained in the Asset Purchase Agreement (i) that are qualified or limited by materiality or “Material Adverse Effect” shall be true and correct as of the closing with the same effect as if made as of the closing (other than such representations that are made as of a specified date, which shall be true and correct on and as of such date) and (ii) that are not so qualified or limited shall be true and correct in all material respects as of the closing with the same effect as if made as of the closing (other than such representations that are made as of a specified date, which shall be true and correct in all material respects as of such date).
Buyers shall have performed and complied in all material respects with all covenants and agreements required by the Asset Purchase Agreement to be performed or complied with by Buyer and Buyer Parent, as applicable, at or prior to the closing. For purposes of this condition, a covenant of Buyer or Buyer Parent shall only be deemed to have not been performed if Buyer or Buyer Parent, as applicable, has materially breached such covenant and failed to cure within 15 calendar days after notice (or if earlier, the Termination Date); provided that Cyclerion shall not be required to consummate the closing unless and until such material breach of any covenant has been cured.
Exclusivity
The Asset Purchase Agreement requires that Cyclerion, from signing until the earlier of the termination of the Asset Purchase Agreement or closing of the Asset Sale Transaction, not initiate contact with or solicit any inquiry or proposal or engage in any discussions with third parties in connection with possible proposals regarding a sale or licensing of the Purchased Assets and certain other strategic transactions involving the Company. The Company has agreed to promptly provide notice to Buyer of any solicitation or offer made by any third party in connection with such alternative transaction.
If Buyers terminate the Asset Purchase Agreement because there is a Cyclerion Adverse Recommendation Change (as defined in the Asset Purchase Agreement), the Company must pay a termination fee of $0.5 million as well as reimburse out-of-pocket expenses of Buyers in an amount equal to $1.0 million and pay Employee Expenses and R&D Expenses actually reimbursed or paid by Buyers, as described in the Section entitled “The Parties’ Obligations Upon Termination” beginning on page 53.
Termination
The Asset Purchase Agreement may be terminated prior to closing as follows:
by the mutual written agreement of the Company and Buyer;
by either party upon notice to the other if the transactions contemplated by the Asset Purchase Agreement have not been consummated by the Termination Date; provided that such right to terminate is not available to any party whose breach of any provision of the Asset Purchase Agreement has primarily caused or primarily resulted in the failure of the transactions to be consummated by such time;
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by Buyer if neither Buyer Parent nor Buyer is then in breach of any provision of the Asset Purchase Agreement that would lead any closing condition for the benefit of the Company not to be satisfied, if any representation or warranty made by the Company shall have become untrue or the Company shall have failed to perform any covenant or agreement set forth in the Asset Purchase Agreement, such that any closing condition for the benefit of Buyers would not be satisfied and such condition is incapable of being satisfied by the Termination Date, and the Company has not cured such breach within 20 days of Buyer’s written notification of such breach;
by the Company if the Company is not then in breach of any provision of the Asset Purchase Agreement that would lead any closing condition for the benefit of Buyers not to be satisfied, if any representation or warranty made by Buyer or Buyer Parent shall have become untrue or either of them shall have failed to perform any covenant or agreement set forth in the Asset Purchase Agreement, such that any closing condition for the benefit of the Company would not be satisfied and such condition is incapable of being satisfied by the Termination Date, and Buyer or Buyer Parent has not cured such breach within 20 days of the Company’s written notification of such breach;
by either party if the special meeting to which this proxy statement relates (including any adjournment or postponement thereof in accordance with the terms of the Asset Purchase Agreement) has concluded, our shareholders have voted, and the approval for the Asset Sale Proposal was not obtained;
by either party if any law or government order of any nature has been promulgated or issued that enjoins or otherwise prohibits, or has the effect of enjoining or otherwise prohibiting, the Asset Sale Transaction from being consummated, unless such party’s failure to fulfill or comply with any obligation or covenant under the Asset Purchase Agreement has been the cause of, or resulted in, such law or order;
by the Company if, after the sixth business day following the public announcement of the execution of the Asset Purchase Agreement, certain payments pursuant to the Stock Purchase Agreement, dated as of March 31, 2023 between Cyclerion and Dr. Peter M. Hecht have not been paid (which termination right is no longer available given such payments were made);
by the Company if all closing conditions for the benefit of Buyers have been satisfied on the date the closing should have been consummated by Buyers pursuant to the Asset Purchase Agreement, the Company has notified Buyer in writing thereof and that it stands ready, willing and able to close, and Buyer or Buyer Parent has failed to consummate the closing within two business days after the delivery of such notification; or
by Buyer if a Cyclerion Adverse Recommendation Change has been made, by delivering notice of such termination to the Company within 10 business days of such Cyclerion Adverse Recommendation Change.
The Parties’ Obligations Upon Termination
We will be required to pay Buyer a termination fee in the amount of $0.5 million if (i) Buyer validly terminates the Asset Purchase Agreement pursuant to the last bullet above, or (ii) prior to our special meeting, an Acquisition Proposal is publicized and not withdrawn, Buyer validly terminates the Asset Purchase Agreement in accordance with the second, third or fifth bullet above, and within twelve months of such termination, the Company enters into a definitive agreement with respect to, or consummates, such Acquisition Proposal.
In addition, we will be required to reimburse Buyer for certain out-of-pocket expenses in the amount of (i) $1.0 million plus any Employee Expenses and R&D Expenses that shall have been reimbursed by Buyers to the Company if (A) (x) Buyer validly terminates the Asset Purchase Agreement pursuant to the third or last bullet above or (y) either party validly terminates the Asset Purchase Agreement pursuant to the second bullet above at a time when Buyer has a right to terminate pursuant to the third bullet above, or (B) under the circumstances described in clause (ii) of the immediately foregoing paragraph, Buyer validly terminates the Asset Purchase Agreement pursuant to the second bullet above, and (ii) 50% of any Employee Expenses and R&D Expenses that shall have been reimbursed by Buyers to the Company if Buyer validly terminates the Asset Purchase Agreement pursuant to the fifth bullet above.
Buyers will be required to pay the Company a termination fee in the amount of $1.0 million if (i) the Company validly terminates the Asset Purchase Agreement pursuant to the fourth or eighth bullet above, or (ii) either party validly terminates the Asset Purchase Agreement pursuant to the second bullet above at a time when the Company has a right to terminate pursuant to clause (i) of this sentence.
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Post-Closing Arrangements
The Asset Purchase Agreement contains certain covenants that will survive the closing of the transaction, including:
Subject to the limitations in the Asset Purchase Agreement, we have agreed to indemnify Buyer Parent and each subsidiary of Buyer Parent and other related persons for any damages incurred by any of them in connection with (i) the Excluded Liabilities, including our failure to discharge any Excluded Liability, (ii) our breach of any covenants or agreements under the Asset Purchase Agreement or any other transaction agreement which require performance following the closing, and (iii) certain matters with respect to the deferred transfer of assets to Buyer.
Subject to the limitations in the Asset Purchase Agreement, Buyers have agreed to indemnify us and other related persons for any damages incurred by us or any of them in connection with (i) the Assumed Liabilities, including their failure to discharge any Assumed Liability, (ii) Buyers’ breach of any covenants or agreements under the Asset Purchase Agreement or any other transaction agreement which require performance following the closing, (iii) certain matters with respect to the deferred transfer of assets to Buyer and (iv) certain licensing matters.
Generally, the parties will each perpetually maintain in confidence, and cause their respective representatives to maintain in confidence, any confidential information of the other party or obtained from the other party (with certain limited exceptions).
The parties will provide each other with certain information relevant to the transaction, subject to the terms, conditions and limitations set forth in the Asset Purchase Agreement.
The Company will not and will cause its affiliates not to, (i) directly or indirectly, for the period of five years from the closing of the Asset Sale Transaction, initiate IND-enabling preclinical development, develop, commercially manufacture, commercialize, or otherwise exploit any compound or product (including any compound or product that is part of an Excluded Program) that is (A) a CNS-penetrant sGC Stimulator, (B) developed for the treatment of any neuropsychiatric, neurodegenerative and primary mitochondrial genetic disease or disorder, as well as stroke and stroke recovery, and (C) a Cyclerion Competing Product anywhere in the world, or (ii) license, convey, grant, or otherwise transfer any rights to any third party (including any rights under any Intellectual Property included in the Excluded Assets) to initiate IND-enabling preclinical development, develop, commercially manufacture, commercialize, or otherwise exploit a Cyclerion Competing Product anywhere in the world; provided, however, if there is a change of control of Cyclerion, the foregoing restrictions generally do not apply to affiliates of Cyclerion’s acquiror if Cyclerion segregates confidential information it has with respect to the Purchased Programs.
Each of Buyer and Cyclerion, effective as of the closing, grant to the other a perpetual, irrevocable, worldwide, non-exclusive, royalty-free license to any know-how included in the Purchased Assets and Excluded Assets, respectively, in each case, solely to develop, manufacture, commercialize, or otherwise exploit, the Excluded Programs existing as of the Closing Date and the Purchased Programs, respectively.
The Other Transaction Agreements
Voting and Support Agreements
Simultaneously with the execution of the Asset Purchase Agreement, Buyer Parent entered into Voting and Support Agreements with certain equityholders (and certain affiliates of such equityholders) of Buyer Parent or any subsidiary of Buyer Parent that are also shareholders of the Company, which shareholders collectively held approximately 28.6% of the total outstanding voting shares of the Company as of the Record Date and include Dr. Hecht, our Chief Executive Officer, as well as certain funds managed by Polaris Partners, an affiliate of Mr. McGuire.
Pursuant to the Voting and Support Agreements, each shareholder signatory thereto has agreed, with respect to all of the shares of the Company’s Common Stock that such shareholder beneficially owns as of the date thereof or thereafter (the “Covered Stock”), to, among other things, (i) vote in favor of the Asset Sale Transaction; and (ii) not transfer any such Covered Stock during the term of such Voting and Support Agreement. The Voting and Support Agreements will terminate upon the earlier of the termination of the Asset Purchase Agreement in accordance with its terms, the consummation of the closing of the Asset Sale Transaction, Buyer Parent’s receipt of notice of a
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Cyclerion Adverse Recommendation Change, the mutual written consent of the parties thereto, and the entry into any amendment to the Asset Purchase Agreement without the prior written consent of the applicable shareholder that is materially adverse to such shareholder. The Company is an express third-party beneficiary of the Voting and Support Agreements.
Buyer Parent Stock Purchase Agreement
Simultaneously with the execution of the Asset Purchase Agreement, we entered into the Buyer Parent Stock Purchase Agreement pursuant to which, among other things and subject to the terms and conditions set forth therein, Buyer Parent shall issue to the investors party thereto shares of Buyer Parent’s Series A Preferred Stock at multiple closings for an aggregate consideration of up to $81.0 million and which also provides the Company with a contractual right, exercisable at the times set forth in the Buyer Parent Stock Purchase Agreement, to subscribe for up to $5.0 million of Buyer Parent’s Series A Preferred Stock (in excess of the foregoing $81.0 million of Series A Preferred Stock).
Buyer Parent Shareholder Agreements
Buyer Parent Voting Agreement
At the closing of the Asset Sale Transaction, the Company intends to enter into a Voting Agreement with Buyer Parent and certain other shareholders of Buyer Parent. The parties to the Voting Agreement will agree to vote in a certain way on certain matters, including with respect to the election of directors of Buyer Parent. The agreement also provides for certain drag-along rights in connection with a sale of Buyer Parent.
Investor Rights Agreement
At the closing of the Asset Sale Transaction, the Company intends to enter into an Investor Rights Agreement with Buyer Parent and certain other shareholders of Buyer Parent. The agreement will provide the Company and the other shareholders with registration rights with respect to certain securities of Buyer Parent.
Cyclerion Stockholder Letter
At the closing of the Asset Sale Transaction, the Company intends to enter into a letter agreement with Buyer Parent. The Agreement will provide for (i) certain top-up rights in connection with the Consideration Shares issued to Cyclerion and (ii) certain information rights to Cyclerion.
Right of First Refusal and Co-Sale Agreement
At the closing of the Asset Sale Transaction, the Company intends to enter into a Right of First Refusal and Co-Sale Agreement with Buyer Parent and certain other shareholders of Buyer Parent. The agreement will, among other things, (i) provide Cyclerion with co-sale rights in respect of certain sales of Buyer Parent capital stock, (ii) prohibit transfers of Buyer Parent capital stock to certain transferees, such as competitors of Buyer Parent, and (iii) provide for a customary lockup following an initial public offering of Buyer Parent.
Transition Services Agreement
At the closing of the Asset Sale Transaction, the Company intends to enter into a transition services agreement with Buyer, pursuant to which Buyer would make available to Cyclerion certain services required by Cyclerion to, among other things, maximize the value of the Retained Programs via out-licensing following the date of the closing of the Asset Sale Transaction for the times specified for such services therein.
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Interests of Certain Persons in the Asset Sale Transaction
In considering the recommendation of the Board to vote in favor of the Asset Sale Transaction, shareholders should be aware that, aside from their interests as shareholders, Dr. Hecht, our Chief Executive Officer and a member of the Board, and Mr. McGuire, a member of the Board, have interests in the Asset Sale Transaction that are different from, or in addition to, those of the Company’s shareholders. The Board was aware of such interests during its deliberations on the merits of the Asset Sale Proposal and in deciding to approve the Asset Sale Proposal and recommend that Company shareholders vote in favor of the Asset Sale Proposal. These interests include, among other things, the following:
Mr. McGuire is a Founding Partner of Polaris Partners. He currently beneficially owns, including through his interests in entities affiliated with Polaris Partners 1.6% of our Common Stock. Investment funds affiliated with Polaris Partners have subscribed for shares of Series A Preferred Stock in Buyer Parent pursuant to the Buyer Parent Stock Purchase Agreement, which, following the closing of the Asset Sale Transaction, would result in investment funds affiliated with Polaris Partners holding approximately 4.0% of the fully diluted shares of Buyer Parent.
Dr. Hecht currently beneficially owns approximately 19.9% of our Common Stock, which includes shares he has (or will have within 60 days of June 15, 2023) the right to acquire through conversion or exercise of stock options and Cyclerion Preferred Stock. He owns 351,037 shares of our non-voting Cyclerion Preferred Stock, constituting all of the outstanding shares of that class. He has subscribed for shares of Series A Preferred Stock in Buyer Parent pursuant to the Buyer Parent Stock Purchase Agreement, which, following the closing of the Asset Sale Transaction, would result in Dr. Hecht holding approximately 7.8% of the fully diluted shares of Buyer Parent.
Dr. Hecht will become the Chief Executive Officer and a member of the Board of Directors of Buyer Parent upon the closing of the Asset Sale Transaction and will receive equity securities in Buyer Parent as part of his compensation. Dr. Hecht will resign as the Company’s Chief Executive Officer but will remain a member of the Board upon the closing of the Asset Sale Transaction.
Vote Required
Approval of this Proposal No. 1 requires the affirmative vote of the holders of a majority of all shares entitled to vote on the proposal, in person or by proxy.
Consequences of Failing to Approve this Proposal
If the Asset Sale Proposal is not approved, we will be unable to complete the Asset Sale Transaction. If the Asset Sale Transaction is not completed, and if the Company was unable to secure an alternative source of working capital or to enter into an alternative strategic transaction, the Company likely would be forced to curtail operations or resort to bankruptcy protection. In this event, it is extremely unlikely that the Company would be able to pay, or provide for the payment of, all of its liabilities and obligations, and, therefore, there would be no assets available for distribution to the Company’s shareholders.
Board Recommendation
The Board of Directors unanimously recommends, without the participation of Dr. Hecht and Mr. McGuire, a vote “FOR” the Asset Sale Proposal.
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PROPOSAL NO. 2
THE NASDAQ PROPOSAL
Background
On May 19, 2023, we consummated the sale of $5.0 million of Cyclerion Common Stock and Cyclerion Preferred Stock to Peter M. Hecht, Ph.D., our Chief Executive Officer and a member of the Board (the “Investor”), pursuant to the Subscription Agreement.
Under Nasdaq Listing Rule 5635(b), shareholder approval is required prior to the issuance of securities when the issuance or potential issuance will result in a change of control of a company. This rule does not specifically define when a change of control of a company may be deemed to occur for this purpose; however, Nasdaq suggests in its guidance that a change of control would occur, subject to certain limited exceptions, if after a transaction an investor (or a group of investors) would hold 20% or more of a company’s then-outstanding shares of common stock or voting power, and such ownership or voting power would represent the Company’s largest concentration of ownership or voting power. The potential issuance of Common Stock upon conversion of the shares of Cyclerion Preferred Stock purchased by the Investor under the Subscription Agreement, as described in more detail below, may result in the Investor holding 20% or more of our outstanding Common Stock and such ownership could represent the Company’s largest ownership position. Accordingly, we are seeking shareholder approval pursuant to Nasdaq Listing Rule 5635(b) of the issuance of Common Stock upon conversion of the Cyclerion Preferred Stock issued to the Investor under the Subscription Agreement in excess of these limits. Shareholders should note that a “change of control” as described under Nasdaq Listing Rule 5635(b) applies only with respect to the application of such rule, and does not necessarily constitute a “change of control” for purposes of Massachusetts law, our organizational documents or any other agreements to which we may be a party.
Under the Subscription Agreement, the Company issued to the Investor, in exchange for the Investor’s payment of $5.0 million, the Closing Common Shares and 351,037 shares of Cyclerion Preferred Stock (the “Closing Preferred Shares”), representing a per share purchase price of $8.68, the last closing price as reported on Nasdaq immediately preceding the execution of the Subscription Agreement as adjusted for our reverse stock split, which became effective on May 15, 2023. The Closing Preferred Shares are convertible into shares of Common Stock on a one-for-one basis; however, in accordance with Nasdaq Listing Rules, Dr. Hecht has agreed that the Closing Preferred Shares issued to him will not be convertible, unless and until such conversion is approved by the holders of Common Stock as required by the Nasdaq Listing Rules, to the extent the conversion would result in his owning or having the right to acquire 20% or more of the outstanding Common Stock at the time of conversion.
The shares of Cyclerion Preferred Stock have no voting rights except as required by law. Holders of the Cyclerion Preferred Stock are entitled to receive dividends pari passu with the holders of shares of our Common Stock and are entitled to a liquidation preference of $0.01 per share of Cyclerion Preferred Stock.
The Company agreed in the Subscription Agreement to use reasonable best efforts to solicit proxies in favor of this Proposal No. 2. The Subscription Agreement further provides that upon written demand by the Investor one time, the Company shall prepare and file with the SEC within 60 days thereafter a registration statement covering the resale of the Closing Common Shares and the shares of Common Stock issuable upon conversion of the Closing Preferred Shares, and to use commercially reasonable efforts to cause such registration statement to be declared effective under the Securities Act, as soon as practicable.
Interest of our Chief Executive Officer in the Nasdaq Proposal
Peter M. Hecht, Ph.D., the Investor, is our Chief Executive Officer and member of the Board. As of the Record Date, Dr. Hecht owned 327,384 shares of our Common Stock directly, corresponding to 13.6% of the total voting power of our Common Stock. In addition to 110,364 stock options vested or scheduled to vest within 60 days of the Record Date, he also had the right to acquire an additional 82,354 shares of our Common Stock upon conversion of the shares of Cyclerion Preferred Stock that are not subject to conversion limits under the Nasdaq Listing Rules. All of Dr. Hecht’s Common Stock, including the 225,000 shares of Common Stock purchased under the Subscription Agreement, will be voted in favor of the Asset Sale Proposal. The 225,000 shares of Common Stock Dr. Hecht purchased under the Subscription Agreement may not be voted in connection with the Nasdaq Proposal. Any shares of Common Stock that Dr. Hecht may receive on conversion of Cyclerion Preferred Stock prior to the special meeting will not be eligible to vote on either proposal at the special meeting. If the Nasdaq Proposal is approved, Dr. Hecht will own, or have the right to acquire upon conversion of the Cyclerion Preferred Stock in full, an aggregate of
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678,421 shares of our Common Stock, corresponding to 24.6% of the total voting power of our Common Stock, in addition to stock options. Such ownership would significantly increase Dr. Hecht’s influence on strategic decisions of the Company and his ability to impact voting results in future shareholder meetings, including elections of nominees to our Board.
Consequences of Failing to Approve this Proposal
The Board is not seeking the approval of our shareholders to authorize our entry into the Subscription Agreement. The Subscription Agreement has already been executed and delivered, and the closing of the transactions contemplated by the Subscription Agreement has occurred.
The failure of our shareholders to approve this Proposal No. 2 will mean that the Closing Preferred Shares will not be convertible into shares of Common Stock to the extent that conversion would result in the Investor (or any other holder of the Closing Preferred Shares at the time) owning or having the right to acquire 20% or more of the outstanding Common Stock at the time of conversion. As long as the Closing Preferred Shares are not converted into Common Stock, each Closing Preferred Share will be entitled to a liquidation preference of $0.01 per share in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, but they are not entitled to voting rights except as required by law.
Vote Required
In order to satisfy Nasdaq’s shareholder approval requirement, a majority of the total votes cast on a proposal must be voted in favor of the proposal. Consequently, approval of this Proposal No. 2 requires that the number of votes cast for the Nasdaq Proposal at the special meeting exceed the number of votes cast against the Nasdaq Proposal. In accordance with relevant Nasdaq interpretations, none of the Closing Common Shares are entitled to vote on Proposal No. 2. The Investor may, however, vote other shares of Common Stock that he owns as of the Record Date. Failures to vote, abstentions and broker non-votes will have no effect on the outcome of Proposal No. 2.
Board Recommendation
The Board of Directors unanimously recommends, without the participation of Dr. Hecht and Mr. McGuire, a vote “FOR” the Nasdaq Proposal.
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PROPOSAL NO. 3
THE ADJOURNMENT PROPOSAL
If the number of shares of the Company’s capital stock present at the special meeting, in person or represented by proxy, and voting in favor of the Asset Sale Proposal is insufficient to approve the Asset Sale Proposal, then the Board intends to move to adjourn and postpone the special meeting to a later date or dates, if necessary, to enable the Board to solicit additional proxies for the approval of the Asset Sale Proposal. In that event, we will ask the Company’s shareholders to vote only upon the adjournment and postponement of the special meeting, as described in this Proposal No. 3, and not any of the other proposals.
In this proposal, shareholders are being asked to grant authority to the holder of any proxy solicited by the Board of Directors so that such holder can vote in favor of the proposal to adjourn and postpone the special meeting to a later date or dates, if necessary, so that the Board can solicit additional proxies for the approval of the Asset Sale Proposal. If the shareholders approve this Adjournment Proposal, then we could adjourn the special meeting, and any adjourned session of the special meeting, and use the additional time to solicit additional proxies, including the solicitation of proxies from shareholders who have previously voted against the approval of the Asset Sale Proposal. Among other things, approval of the Adjournment Proposal could mean that, even if we had received proxies representing a sufficient number of votes against the Asset Sale Proposal to defeat the Asset Sale Proposal, we could adjourn the special meeting without a vote and seek to convince the holders of those shares to change their votes in favor of the Asset Sale Proposal.
Vote Required
Assuming a quorum is present, approval of this Proposal No. 3 requires that the number of votes cast for the Adjournment Proposal at the special meeting exceed the number of votes cast against the Adjournment Proposal.
Board Recommendation
The Board unanimously recommends, without the participation of Dr. Hecht and Mr. McGuire, that shareholders vote “FOR” the Adjournment Proposal.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDER MATTERS
The following table sets forth information known to the Company regarding the beneficial ownership of our Common Stock as of June 15, 2023 by:
each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our Common Stock;
each of our executive officers and directors; and
all of our executive officers and directors as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security or has the right to acquire securities within 60 days, including options and warrants that are currently exercisable or exercisable within 60 days. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. The calculation of percentage of beneficial ownership is based on 2,407,796 shares of Common Stock outstanding as of June 15, 2023:
Name
Number of
Shares of
Common
Stock Owned
Percentage
Officers and Directors:
 
 
Peter Hecht, Ph.D.(1)
520,102
19.9%
Cheryl Gault(2)
17,830
*
Anjeza Gjino(3)
11,420
*
Terrance McGuire(4)
39,517
1.6%
Ole Isacson, M.D., Ph.D.(5)
2,621
*
Steven Hyman, M.D.(6)
1,553
*
Errol De Souza, Ph.D.(7)
1,500
*
All directors and executive officers as a group (7 individuals)
594,542
23.1%
Shareholders:
 
 
Slate Path Capital LP(8)
357,880