26th May 2015
This Explanatory Memorandum has been prepared for the information of Shareholders in connection with the business to be conducted at the Meeting to be held at Level 2, 1 Walker Avenue, West Perth on Tuesday, 30 June 2015 at 10.30 am (WST).
This Explanatory Memorandum should be read in conjunction with, and forms part of, the accompanying Notice. The purpose of this Explanatory Memorandum is to provide information to Shareholders in deciding whether or not to pass the Resolutions set out in the Notice.
A Proxy Form is located at the end of the Explanatory Memorandum.
2. Action to be taken by Shareholders
Shareholders should read the Notice and this Explanatory Memorandum carefully before deciding how to vote on the Resolutions.
A Proxy Form is attached to the Notice. This is to be used by Shareholders if they wish to appoint a representative (a ‘proxy’) to vote in their place. All Shareholders are invited and encouraged to attend the Meeting or, if they are unable to attend in person, sign and return the Proxy Form to the Company in accordance with the instructions thereon. Lodgment of a Proxy Form will not preclude a Shareholder from attending and voting at the Meeting in person.
Please note that:
(a) a member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy;
(b) a proxy need not be a member of the Company; and
(c) a member of the Company entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise, but where the proportion or number is not specified, each proxy may exercise half of the votes.
The enclosed Proxy Form provides further details on appointing proxies and lodging Proxy Forms.
3. Resolution 1 – Approval of Acquisition of Dimerix Bioscience Limited
The Company announced on 13 May 2015 that it had entered into an implementation agreement with Dimerix (Implementation Agreement) to acquire 100% of Dimerix (Acquisition).
Dimerix Bioscience Limited (Dimerix) is a public unlisted clinical stage drug discovery and development company, based in Melbourne. Dimerix’s lead clinical program is a Phase II study in patients with Chronic Kidney Disease, using its novel combination therapy, DMX-200. The acquisition will transform Sun Biomedical into an advanced clinical stage company with an asset that has the potential to make a considerable impact in the treatment of Chronic Kidney Disease (CKD). Upon successful results from the Phase II study, Dimerix intends to pursue the pathway of registration of a product for an orphan indication subgroup of CKD patients, such as Nephrotic Syndrome, and partner development of the product in the larger CKD indications.
Dimerix’s team has applied its patented GPCR drug discovery technology for its own internal research identifying and developing therapeutic treatments. Dimerix leverages its knowledge of drug target interaction and develops new combination therapies using already marketed compounds for new medical indications. This positions Dimerix’s therapies with a fast route to market due to extensive safety data for the selected compounds removing the requirement for Phase I studies and allowing to proceed directly to Phase Il efficacy studies.
Further information on Dimerix and its activities is set out in Schedule 1.
Dimerix is subject to a range of risks which apply to the biotechnology sector including the risk of failure in the development and commercialisation of its products (for example, through adverse clinical outcomes, failure to achieve necessary regulatory approvals, the product being found to be uneconomic or unable to compete with products marketed by third parties), challenge to its intellectual property rights and obtaining sufficient funding to implement its overall business strategy. These risks and others are discussed in more detail in Schedule 3.
Under the terms of the Implementation Agreement, the Company has agreed to issue the Vendor Shares as consideration to the Vendors.
This Meeting has been called by the Board to seek the necessary approvals required to effect the Acquisition.
3.2 Commercial Terms
Under the terms of the Implementation Agreement, the Company will enter into acquisition agreements with each of the Vendors (Acquisition Agreements) to acquire 100% ownership of Dimerix for total consideration of:
(a) 750,000,041 Shares;
(b) 75,000,040 Class A Performance Shares (convertible into 75,000,040 Shares upon receipt by the Company or Dimerix of a notice of allowance from the United States Patent and Trademark Office in relation to the US patent application number 13/979,127 (or any divisional or continuation thereof) within 24 months of completion of the Acquisition) (Class A Performance Shares);
(c) 75,000,040 Class B Performance Shares (convertible into 75,000,040 Shares upon the Board making an investment decision to proceed to file an application to the US Food and Drug Administration for a pre-Investigational New Drug (“pre-IND”) meeting to progress development of DMX200 following the receipt of data generated under the current clinical trial for chronic kidney disease supporting further progression of the technology within 48 months of completion of the Acquisition) (Class B Performance Shares); and
(d) 75,000,040 Class C Performance Shares (convertible into 75,000,040 Shares upon receipt of ethics approval allowing commencement of a second clinical trial derived from the Dimerix platform and in relation to an indication that is not covered under the existing Austin Human Research Ethics Committee approval within 48 months of completion of the Acquisition) (Class C Performance Shares), (the Vendor Shares).
Resolution 1 seeks Shareholder approval for the issue of the Vendor Shares (refer to Section 3.10 for further details). One of the Directors, Dr Anton Uvarov, has a beneficial interest in 231,000 shares in Dimerix. Approval of the issue of Vendor Shares to Dr Uvarov as a related party for the purposes of Listing Rule 10.11 is being sought in Resolution 3 (see Section 5 for further details).
Under the terms of the Implementation Agreement, the Acquisition Agreements will be subject to certain conditions which must be satisfied or waived by 8 July 2015 (unless extended by agreement between the parties). These conditions have been satisfied with the exception of the following conditions which remain outstanding at the date of this Notice:
(a) the Company obtaining all necessary shareholder approvals as are required to give effect to the Acquisition;
(b) all of the Vendors entering into an Acquisition Agreement with the Company in respect of their shares in Dimerix;
(c) the Company receiving firm commitments and cleared funds for the full amount of the Tranche 2 Placement; and
(d) no material breach of the warranties given in the Implementation Agreement having occurred.
If completion has not occurred under the Acquisition Agreements by 8 July 2015, then the Implementation Agreement and the Acquisition Agreements will be at an end (unless extended by agreement between the parties).
The Implementation Agreement requires the parties to comply with certain obligations prior to completion including:
(a) an obligation on Dimerix to ensure that (other than as agreed between the parties):
(i) Dimerix conducts its business in the ordinary course and does not incur any material liabilities (other than in the usual conduct of business), encumber or dispose of any assets, issue any securities or declare or pay any dividend;
(ii) Dimerix complies with the terms of specified material contracts;
(iii) Dimerix takes:
(A) all steps necessary to maintain in good standing the intellectual property owned by Dimerix; and
(B) all reasonable steps to prevent any infringement of that intellectual property by any third parties;
(iv) Dimerix uses its reasonable endeavours to preserve its assets and goodwill, including preserving its current business relationships; and
(v) nothing is knowingly done by Dimerix which is likely to have a material adverse impact on Dimerix or its assets; and
(b) an obligation on the Company to ensure that (other than as agreed between the parties):
(i) it conducts its business in the ordinary course and will not incur expenditure materially different from its expected expenditure as at the date of the Implementation Agreement, materially change any intellectual property it currently owns or licenses or any current projects it is undertaking or commence any new projects, nor agree to do any of those things;
(ii) it conducts its business in the ordinary course and does not incur any material liabilities (other than in the usual conduct of business), encumber or dispose of any assets, issue any securities or pay any dividend;
(iii) nothing is done by the Company which is likely to have a material adverse impact on the Company and its assets; and
(iv) it complies with the terms of the specified material contracts; and
(v) it uses its reasonable endeavours to preserve its assets and goodwill, including preserving its current business relationships.
Prior to Completion the Company and Dimerix will consult with each other in relation to any material expenditure or unusual items that may arise. The Company will also keep Dimerix informed about the Company’s expenditure and cash position.
The Implementation Agreement contains standard commercial warranties about Dimerix and its assets and limits of vendor liability that are usual for a transaction of this type. If a breach of any of these warranties come to light prior to completion of the Acquisition, the Company will have the right to terminate the Implementation Agreement.
Under the terms of the Implementation Agreement and the relevant Acquisition Agreements, Vendors holding approximately 74% of the shares in Dimerix will agree that the Shares they will receive as consideration for the sale and purchase of their Dimerix shares will be subject to between 6 and 12 months voluntary escrow from the date of issue.
The Vendors have the right to nominate two directors to the Board of the Company, and current Directors, Mr Evan Cross and Mr Peter Webse, will resign with effect from completion of the Acquisition. Mr Webse will continue as Company Secretary.
Under the Implementation Agreement:
(a) the Company will grant up to 60,000,000 Adviser Options to Forrest Capital at an issue price of 0.0001 cents per Option (see Section 9); and
(b) the Company will grant of up to 30,851,594 Transaction Options to past and present employees and consultants of Dimerix for nil consideration (see Section 10).
3.3 Capital Raising and Use of Funds
The Company intends to undertake a placement of up to 160,000,000 Shares each at an issue price of $0.01 to raise up to $1,600,000 (before costs) (Capital Raising) in two tranches with:
(a) the first tranche of 60,000,000 Shares to be issued under the Company’s existing placement capacity following the execution of Acquisition Agreements by all of the Vendors prior to the date of the Meeting (Tranche 1 Placement); and
(b) the second tranche of 100,000,000 Shares to be issued subject to shareholder approval (Tranche 2 Placement),
to fund the Acquisition and expenditure on the assets owned by Dimerix and the existing business of the Company and to provide on-going working capital. Resolution 5 seeks Shareholder approval for the Tranche 2 Placement (refer to Section 7 for further details).
Forrest Capital has assisted the Company with the Capital Raising.
To read the full document, please click on the link below.