Item 1.01. Entry into a Material Definitive Agreement.
Business Combination Agreement
On October 12, 2022, Good
Works II Acquisition Corp., a Delaware corporation (“Good Works”), entered into a Business Combination Agreement (the “BCA”),
by and among Good Works, Direct Biologics, Inc., a Delaware corporation (“Company Topco”), DB Merger Sub, Inc., a Delaware
corporation (“Company Merger Sub”), DB DRE LLC, a Delaware limited liability company (“DRE LLC”), and Direct Biologics,
LLC, a Wyoming limited liability company ( “Direct Biologics”). Upon consummation of the transactions contemplated by the
BCA (the “Business Combination”), Company Topco would become the Nasdaq-listed parent company of both Good Works and Direct
Biologics. The BCA supersedes the non-binding letter of intent between Good Works and Direct Biologics announced via press release on
September 27, 2022.
The Business Combination
The
BCA provides, among other things, that on the terms and subject to the conditions set forth therein, (i) Company Merger Sub will
merge with and into Good Works, with Good Works surviving the merger and becoming a wholly-owned subsidiary of Company Topco (the “Topco
Merger”), (ii) DRE LLC will merge with and into Direct Biologics, with Direct Biologics surviving the merger (the “Rollover
Merger”, and together with the Topco Merger, the “Mergers”). Following the closing of the Mergers, the combined company
will be organized in an “Up-C” structure, and Company Topco’s only direct assets will consist of equity in Good Works
and Direct Biologics. The date on which the closing of the Mergers (the “Closing”) actually occurs is hereinafter referred
to as the “Closing Date.”
Immediately
following the Mergers, certain members of Direct Biologics will contribute a portion of their equity in Direct Biologics to Company Topco
in exchange for equity in Company Topco (the “Topco Contribution”), with Direct Biologics continuing as a partially-owned
subsidiary of Company Topco. Following the Topco Contribution, Good Works will contribute to Direct Biologics all funds remaining in its
trust account following its stockholder vote to approve the Business Combination, less any amounts used to pay transaction expenses associated
with the Business Combination.
Business Combination Consideration
The aggregate consideration
available to be received by the members of Direct Biologics is based on an enterprise value of $1,025,000,000 and consists of (i) shares
of Company Topco common stock and Direct Biologics Up-C units based on a pre-money enterprise value of $625 million with equity consideration
valued at $10.00 per share, (ii) shares of Company Topco common stock and Direct Biologics Up-C units currently valued at $50 million
that are subject to forfeiture if Direct Biologics does not achieve a primary efficacy endpoint of 60-day all-cause mortality in its Phase
3 EXTINGuish trial by December 31, 2023, and (iii) shares of Company Topco common stock and Direct Biologics Up-C units currently valued
at $350 million that are subject to forfeiture if Direct Biologics does not obtain either Biologics License Application approval or Emergency
Use Authorization from the FDA for its ExoFlo product (or a derivative product for any applicable indication) by December 31, 2024.
The BCA and the Business Combination
have been approved by the boards of directors of each of Good Works, and Company Topco and the board of managers of Direct Biologics.
The Business Combination is expected to close in the first half of 2023, subject to customary closing conditions, including the satisfaction
of the minimum Available Cash conditions, the receipt of certain governmental approvals and the required approval by Good Works’
stockholders and Direct Biologics’ unit holders.
Representations, Warranties and Covenants
The BCA contains customary
representations and warranties for transactions of this type by the parties thereto as well as customary pre-closing covenants of the
parties, including the obligation of Good Works, Direct Biologics and their respective subsidiaries to conduct their respective businesses
in the ordinary course and to refrain from taking certain specified actions without the other party’s consent. The representations,
warranties, agreements and covenants of the parties set forth in the BCA will terminate at Closing, except for those covenants and agreements
that, by their terms, contemplate performance after Closing. Each of the parties to the BCA has agreed to use its reasonable best efforts
to take or cause to be taken all actions and things necessary to consummate and expeditiously implement the Mergers.
Governance
Current members of management
of Direct Biologics will continue to serve in their respective roles and capacities following the Business Combination.
The Board of Directors of
Company Topco upon completion of the Transaction will be compliant with NASDAQ’s independence and diversity rules and will consist
of at least such number of independent directors as is necessary to comply with stock exchange and other regulatory requirements. One
initial director shall be designated by Good Works, and the remaining initial directors shall be designated by Direct Biologics.
Conditions to Each
Party’s Obligations
Under the BCA, the obligations
of the parties to consummate the Business Combination are subject to a number of conditions to Closing, including the following without
limitation: (i) the requisite approval by Good Works stockholders and the members of Direct Biologics; (ii) the absence of specified adverse
laws, injunctions or orders; (iii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended; (iv) the approval of Company Topco’s initial listing application with the Nasdaq Stock Market
with respect to the shares and securities of Company Topco to be issued in the Business Combination; (iv) Good Works having net tangible
assets of at least $5,000,001; and (v) Company Topco’s proxy statement/prospectus related to the Business Combination having been
declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the
“Securities Act”), no stop order suspending the effectiveness of such proxy statement/registration statement being in effect,
and no proceedings for purposes of suspending the effectiveness of such proxy statement/registration statement having been initiated or
threatened by the SEC.
Further conditions to the
obligations of the parties to consummate the Business Combination include, but are not limited to:
| a) | the representations and warranties of Direct Biologics and Good Works must be true and correct, subject
to the materiality standards contained in the BCA; |
| b) | (x) Direct Biologics, with respect to the obligations of Direct Biologics, Company Topco, Company Merger
Sub and DRE LLC, and (y) Good Works, must have materially complied with their respective covenants under the BCA; |
| c) | the combined company shall have at least $75 million in Available Cash (as defined in the BCA) at Closing; |
| d) | Good Works’ total transaction expenses shall not exceed $14 million; and |
| e) | the entry into the Tax Receivable Agreement and a fourth amended and restated LLC operating agreement
of Direct Biologics. |
Termination
The
BCA may be terminated under certain customary and limited circumstances prior to the Closing of the Business Combination, including, but
not limited to, (i) by mutual written consent of Good Works and Direct Biologics, (ii) subject to certain limited exceptions, by
either Good Works or Direct Biologics if the Business Combination is not consummated by January 31, 2023, (iii) by either Good Works or
Direct Biologics if any governmental authority in the United States issues an injunction, order, decree or ruling that has the effect
of making consummation of the Business Combination illegal or otherwise preventing or prohibiting consummation of the Business Combination,
(iv) by either Good Works or Direct Biologics if any of the required stockholder approvals are not obtained at the Good Works stockholders
meeting, (v) by Good Works upon a material breach of the representations and warranties of Direct Biologics, Company Topco, Company Merger
Sub or DRE LLC or if Direct Biologics, Company Topco, Company Merger Sub or DRE LLC fails to perform certain covenants or agreements set
forth in the BCA, in each case, subject to certain conditions, (vi) by Direct Biologics if there is a material breach of the representations
and warranties of Good Works or if Good Works fails to perform certain covenants or agreements set forth in the BCA, in each case, subject
to certain conditions, (vii) by Good Works if Direct Biologics fails to obtain the consent of its members to the BCA and Business Combination,
(viii) by Direct Biologics if the parties have not raised at least $13 million in private placements by November 21, 2022 or at least
$25 million in private placements by December 15, 2022, and (ix) by Direct Biologics if Good Works fails to keep the Good Works Common
Stock and Good Works Warrants listed for trading on the Nasdaq Stock Market.
If
the BCA is validly terminated, none of the parties thereto will have any liability or any further obligation under the BCA other than
customary confidentiality obligations, except in the case of knowing and intentional breach.
A
copy of the BCA is filed with this Current Report on Form 8-K as Exhibit 2.1 and is incorporated herein by reference, and the foregoing
description of the BCA is qualified in its entirety by reference thereto.
The
BCA contains representations, warranties and covenants that the respective parties made to each other as of the date of the BCA or other
specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among
the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating
such agreement. The representations, warranties and covenants in the BCA are also modified or qualified in important part by the underlying
disclosure schedules which are not filed publicly and which are subject to a contractual standard of materiality different from that generally
applicable to stockholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts.
Good Works does not believe that these schedules contain information that is material to an investment decision.
Tax Receivable Agreement
Concurrent with the closing
of the Business Combination, Direct Biologics, Company Topco and certain members of Direct Biologics (the “TRA Holders”) will
enter into a Tax Receivable Agreement (the “Tax Receivable Agreement”). The Tax Receivable Agreement will generally provide
for the payment by Company Topco to the TRA Holders of 90% of the net cash savings, if any, in U.S. federal, state and local income tax
that Company Topco actually realizes in periods after the Business Combination as a result of: (i) certain increases in tax basis that
occur as a result of exercises of certain redemption rights set forth in the operating agreement of Direct Biologics; and (ii) imputed
interest deemed to be paid by Company Topco and additional tax basis arising from any payments under the Tax Receivable Agreement. Company
Topco will retain the benefit of the remaining 10% of these net cash savings.
If Company Topco elects to
terminate the Tax Receivable Agreement early, Company Topco would be required to make an immediate payment to each TRA Holder (an “Early
Termination Payment”) equal to the present value of the anticipated future payments to be made by Company Topco to such TRA Holder
under the Tax Receivable Agreement (based upon certain valuation assumptions and deemed events set forth in the Tax Receivable Agreement)
and the aggregate amount of such payments is expected to be substantial. If a change of control occurs, the Tax Receivable Agreement will
remain in effect with respect to each TRA Holder (provided that certain valuation assumptions, including that there will be sufficient
income to utilize all tax attributes covered by the Tax Receivable Agreement, will be utilized to determine the payments to be made under
the Tax Receivable Agreement), unless such TRA Holder elects (or the representative of the TRA Holders causes all of the TRA Holders to
be deemed to elect) to receive its Early Termination Payment in connection with the change of control transaction.
Private Placements
IB
Investments 1 LLC (“IB I”), an affiliate of I-Bankers Securities, Inc. (“IBS”) which is owned by the Chief Executive
Officer of IB Capital, LLC, previously entered into a subscription agreement pursuant to which, upon the terms and subject to the conditions
set forth therein, IB I committed to purchase $5,001,000 in principal amount of Class B Units of Direct Biologics (the “IBS Investment”).
The
parties are seeking to raise at least an additional $8 million by November 21, 2022, and $20 million by December 15, 2022, for a total
of at least $25 million (the “Initial Funding Amount”) in private placements (inclusive of the above-referenced IBS Investment).
Once the Initial Funding Amount is achieved, Good Works and Direct Biologics will then use their best efforts to raise a minimum of at
least $75 million (together with the Initial Funding Amount, the “Private Placement”), net of expenses, prior to the Closing.
Sponsor Arrangements
I-B
Good Works 2, LLC (the “Sponsor”) and certain other initial shareholders, including IBS, currently hold 5,750,000 founder
shares of Good Works which were initially issued to the Sponsor (“Founder Shares”). The initial shareholders have agreed to
cancel a proportionate share of up to 1,925,000 Founder Shares, based on the amount of Available Cash at Closing.
Additionally,
the Sponsor and certain other initial shareholders have agreed to cancel a proportionate share of up to 150,000 Founder Shares based on
entry valuation for the Private Placement.
The Sponsor will agree
to transfer 25,000 Founder Shares to Direct Biologics for the purposes of Direct Biologics donating such shares to a charity of its choice.
Transaction Support
Agreements
Concurrent
with the execution of the BCA, Direct Biologics and certain of its members representing at least a majority of voting power of Direct
Biologics’ outstanding equity entered into customary Transaction Support Agreements providing that, among other things, the Direct
Biologics member parties thereto will agree to vote in favor of the BCA and Business Combination. The Sponsor and certain other initial
stockholders of Good Works entered into a similar Transaction Support Agreement agreeing to vote in favor of the BCA and Business Combination
as well.
A
form of Transaction Support Agreement is filed with this Current Report on Form 8-K as Exhibit 10.1 and is incorporated herein by reference,
and the foregoing description of the Transaction Support Agreement are qualified in their entirety by reference thereto.
Registration Rights
Company
Topco, certain stockholders of Good Works and certain members of Direct Biologics will enter into a registration rights agreement, pursuant
to which those stockholders and members, including equity holders from the private placements, shall receive customary registration rights,
including customary demand, piggyback and shelf registration rights, with respect to the Company Topco shares received as consideration
in the Business Combination. All equity holders of Good Works whose securities are deemed restricted securities as that term is defined
for purposes of Rule 144 shall receive customary registration rights, including customary demand, piggyback and shelf registration rights.
These registration rights shall be at least equivalent to the registration and resale rights granted to Good Works’ sponsors.
A
form of Registration Rights Agreement is filed with this Current Report on Form 8-K as Exhibit 10.2 and is incorporated herein by reference,
and the foregoing description of the Registration Rights Agreement is qualified in its entirety by reference thereto.
Lock-Up Restrictions
Fifty
percent (50%) of the equity securities issued in the Private Placement will be subject to a one-month lock-up following the Closing of
the Business Combination; and the remaining fifty percent (50%) of the equity securities issued in the Private Placement will be subject
to a two-month lock-up following Closing. All of the Direct Biologics members receiving shares of Company Topco to be issued at the time
of the Closing of the Business Combination and all holders of Good Works Founder Shares (including charitable foundations which hold Founders
Shares) (collectively, the “Lock-Up Shares”) shall be bound by Company Topco’s bylaws and restricted from transferring,
assigning or selling any of their Lock-Up Shares until the earlier to occur of: (A) one year after the Closing or (B) the date on which
the combined company completes a liquidation, merger, stock exchange or other similar transaction after the Closing that results in all
of the combined company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Notwithstanding the foregoing,
(i) if the last sale price of the combined company’s common stock equals or exceeds $12.50 per share for any 20 trading days within
any 30-trading day period commencing at least 90 days after the Closing of the Business Combination, the lock-up restrictions will be
released on 33.33% of the Lock-up Shares and (ii) if the last sale price of the combined company’s common stock equals or exceeds
$15.00 per share for any 20 trading days within any 30-trading day period commencing at least 90 days after the Closing, the lock-up restrictions
will be released on 50% of the Lock-up Shares.
Amendment to Business
Combination Marketing Agreement
Good Works previously
engaged IBS as an advisor in connection with a business combination to assist Good Works in holding meetings with its stockholders to
discuss the potential business combination and the target business’ attributes, introduce Good Works to potential investors that
are interested in purchasing Good Works’ securities in connection with a Business Combination, assist Good Works in obtaining stockholder
approval such business combination and assist Good Works with its press releases and public filings in connection with such business combination
(the “Business Combination Marketing Agreement”). In connection with such engagement, Good Works agreed to pay IBS a cash
fee for such services upon the consummation of a business combination in an amount equal to 3.5% of the gross proceeds of its initial
public offering (exclusive of any applicable finders’ fees which might become payable).
In connection with the
Business Combination, Good Works and IBS amended and restated the Business Combination Marketing Agreement to potentially reduce the fee
payable in connection with the Business Combination with Direct Biologics based on the available cash proceeds available at Closing.
A
copy of the amended and restated Business Combination Marketing Agreement is filed with this Current Report on Form 8-K as Exhibit 10.3
and is incorporated herein by reference, and the foregoing description of such agreement is qualified in its entirety by reference thereto.
