Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On March 31, 2017, Jaguar Animal Health, Inc., a Delaware corporation (the "Jaguar"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Napo Pharmaceuticals, Inc., a Delaware corporation ("Napo"), Napo Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Jaguar ("Merger
Sub"), and Gregory Stock, the Napo representative, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will
merge with and into Napo, with Napo becoming a wholly-owned subsidiary of Jaguar and the surviving corporation of the merger (the "Merger").
Subject
to the terms and conditions of the Merger Agreement, at the closing of the Merger, (i) each issued and outstanding share of Napo common stock (other than dissenting shares
and shares held by Jaguar or Napo) will be converted into a contingent right to receive up to a whole number of shares of Jaguar common stock compromising in the aggregate no more than approximately
21.5% of the fully diluted shares of Jaguar common stock immediately following the consummation of the merger ("Contingent Right Holders"), which contingent right will vest if the subsequent resale of
certain shares of Jaguar common stock ("the Tranche A Shares") issued by Jaguar to Nantucket Investments Limited
("Nantucket") in the Napo litigation debt settlement described further below provides Nantucket with specified cash returns upon the subsequent sale of their Tranche A Shares to third parties
over a specified period of time (the "Hurdle Amounts"), (ii) existing creditors of Napo (inclusive of Nantucket) will be issued in the aggregate approximately 43,102,595 shares of Jaguar
non-voting common stock and 2,005,245 shares of Jaguar voting common stock in full satisfaction of all existing indebtedness then owed by Napo to such creditors and (iii) an existing Napo
stockholder will be issued an aggregate of approximately 3,243,243 shares of Jaguar common stock in return for $3 million of new funds invested into Jaguar by such investor, which will be
immediately loaned to Napo to partially facilitate the extinguishment of the Nantucket debt in Napo. At closing, it is contemplated that unless consented to or waived by Jaguar, Napo will have no more
than (x) $11.3 million in secured and unsecured debt for monies borrowed (a portion of such debt proceeds which will be used to pay off Napo's secured debt owed to Nantucket),
(y) $6.2 million of trade payables and certain other debt, excluding transaction expenses and (z) Napo's cash at closing shall be no less than $500,000.
Shares
of Jaguar non-voting common stock have the same rights to dividends and other distributions and are convertible into shares of common stock on a one-for-one basis upon
(x) transfers to non-affiliates of Nantucket at the option of the respective holders thereof and (y) the release from escrow of certain non-voting shares held by Nantucket to the legacy
stockholders of Napo under specified conditions.
Jaguar
will also assume (i) each outstanding and unexercised option to purchase Napo common stock, which will be converted into options to purchase Jaguar common stock,
(ii) each outstanding warrant to purchase Napo capital stock, which will be converted into warrants to purchase Jaguar common stock, and (iii) each outstanding restricted stock unit to
acquire Napo capital stock, which will be converted into restricted stock units to acquire Jaguar common stock.
The
stockholders of Jaguar will continue to own their existing shares and the rights and privileges of their existing shares will not be affected by the merger. However, because Jaguar
will be issuing new shares of Jaguar common stock and non-voting common stock to Napo creditors, and options, warrants and restricted stock units exercisable for Jaguar common stock to holders of Napo
options, warrants and restricted stock units in the merger, the stockholders of Jaguar will experience dilution as a result of the issuance of shares in the merger and each outstanding share of Jaguar
common stock immediately prior to the merger will represent a smaller percentage of the total number of shares of Jaguar common stock and non-voting common stock issued and outstanding after the
merger. It is expected that Jaguar stockholders and option and warrant holders before the merger will hold approximately 25% of the total Jaguar common stock and non-voting common stock issued and
outstanding on a fully diluted basis ("Jaguar Equity Holders") immediately following completion of the
merger.
Thus, Jaguar Equity Holders before the merger will experience dilution in the amount of approximately 75% as a result of the merger.
Consummation
of the Merger is subject to certain closing conditions, including, among other things, approval by the stockholders of Jaguar and Napo. The Merger Agreement contains
specified termination rights for both Jaguar and Napo, and further provides that, if the merger fails to close for any reason on, or prior to, July 31, 2017, other than as a result directly or
indirectly of (x) lack of stockholder approval by either Jaguar or Napo or (y) Napo (i) fails to perform in accordance with the terms and conditions of the Binding Agreement of
Terms for Jaguar Animal Health, Inc. Acquisition of Napo Pharmaceuticals, Inc., dated February 8, 2017, between Jaguar and Napo (the "Binding Agreement of Terms") or the merger
documents or (ii) fails to abide by or breaches the provisions or representations, warranties and covenants of the Binding Agreement of Terms or the merger documents, then on, or before, the
close of business on August 7, 2017, Jaguar will issue 2,000,000 shares of its restricted common stock to Napo.
The
Board of Directors and executive management of Jaguar is expected to remain unchanged following the effective time of the Merger.
In
connection with the Merger, Jaguar will seek stockholder approval to (1) issue shares of Jaguar common stock and non-voting stock as contemplated in the Merger Agreement,
(2) adopt an amended and restated certificate of incorporation to: (a) authorize a class of non-voting common stock and (b) change the name of Jaguar to Jaguar
Health, Inc., each subject to the consummation of the Merger, and (3) increase the number of shares authorized to be issued under the Jaguar 2014 Stock Incentive Plan.
The
preceding summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report
on Form 8-K and incorporated herein by reference.
Settlement of Outstanding Napo Debt
In order to induce Jaguar to enter into the Merger Agreement, on March 31, 2017, Napo entered into a Settlement and Discounted Payoff
Agreement with Nantucket and the lenders named therein (the "Settlement Agreement") pursuant to which Napo agreed, simultaneously with the consummation of the merger, (a) to make a cash payment
to Nantucket of no less than $8 million, which will reduce the outstanding principal obligations under the Litigation Financing Agreement, dated October 10, 2014, by and between Napo and
Nantucket (the "Financing Agreement"), and (b) in satisfaction as a compromise for the outstanding obligations under the Financing Agreement and the release of any lien or security interest in
respect of such outstanding obligations, (x) to transfer to Nantucket 2,666,666 shares of Jaguar common stock owned by Napo and (y) pursuant to the merger agreement, to cause Jaguar to
issue to Nantucket 1,940,382 newly issued shares of Jaguar voting common stock and 38,380,028 newly issued shares of Jaguar non-voting
common stock, which shares are subject to the terms of the Investor Rights Agreement described below.
In
connection with the execution of the Merger Agreement and the Settlement Agreement, Jaguar and Nantucket entered into an Investor Rights Agreement, dated March 31, 2017 (the
"Investor Rights Agreement") pursuant to which, among other things, Jaguar has agreed to register the resale of those shares on one or more registration statements. A portion of these shares will be
held in escrow and released to either Nantucket or the former Napo stockholders, depending on whether Nantucket receives sufficient proceeds from the resale of the Tranche A Shares to third
parties to satisfy the Hurdle Amounts. The Investor Rights Agreement also provides that Jaguar cannot pay any dividends on any shares of its capital stock or redeem any shares, except in limited
circumstances, without the prior written consent of Nantucket.
The
preceding summary does not purport to be complete and is qualified in its entirety by reference to the Investor Rights Agreement, which is filed as Exhibit 10.1 to this
Current Report on Form 8-K and incorporated herein by reference.