Klaria Pharma Holding and Karessa Pharma Holding merge to create a focused drug development company with a strong pipeline and a wholly-owned drug-delivery technology platform

Important Information
In the information below, “this press release” refers to this document, its content or part thereof, oral presentations, question papers and written or oral material discussed or distributed in connection therewith. This press release is not a notice to attend an extraordinary general meeting or a merger document. This press release is also not an offer to sell, or a solicitation or invitation to submit an offer to buy, acquire or subscribe for, securities, or an incentive to make any investment, and there will be no sale of securities in jurisdictions where such an offer, request or sale would be prohibited without registration or qualification under such jurisdiction's securities law. Decisions regarding the proposed legal merger between Klaria Pharma Holding AB (publ) ("Klaria") and Karessa Pharma Holding AB (publ) ("Karessa") (the "Merger") shall be made solely on the basis of information stated in the actual notices to attend Klaria’s and Karessa's extraordinary general meetings, as applicable, and the Merger Document relating to the Merger, and to independent analyses of the information therein. You should read the Merger Document, which will be available before the extraordinary general meetings which will decide on the issues set forth herein, to obtain more complete information on the Merger. You should also do an independent analysis of the information contained therein and the merger document before making an investment decision.

This press release contains forward-looking information. Forward-looking information is inherently associated with known and unknown risks, uncertainties, assumptions and other factors, as it relates to circumstances and depends on circumstances that occur in the future, whether within or outside the respective companies or New Klaria Pharma's control. Such factors may cause actual results, performance and actual development to deviate significantly from what is expressed or implied in the forward-looking information. Although each company's management believes that their expectations stated in the forward-looking information are reasonable based on such information that is available to them, no guarantee is given that such forward-looking information will prove to be accurate. Undue weight should not be given to forward-looking information. The forward-looking information applies only to the day of this press release and neither Klaria nor Karessa undertake any obligation to update the forward-looking information beyond what is required pursuant to applicable law. Klaria's and Karessa's past performance does not guarantee, and does not represent, the future performance of New Klaria Pharma. Furthermore, Klaria, Karessa and their respective subsidiaries, senior executives, employees and agents undertake no obligation to review, update or confirm expectations or estimates, or revise forward-looking information to reflect events that occur, or circumstances that arise, in relation to the content of the press release. Furthermore, it is not certain that the Merger will be carried out in the manner and within the time frame described in this press release or at all.

Today, on 5 November 2019, Klaria's and Karessa's Board of Directors (jointly the "Boards") adopted, a joint merger plan (the "Merger Plan"), according to which Klaria and Karessa have agreed on the Merger.[1]

Background and reasons for the merger
The purpose of the Merger is to create a market-leading player in the development of drug candidates based on innovative drug delivery systems with clear competitive advantages in each therapy area.

To a certain extent, Klaria and Karessa have overlapping and at the same time complementary business areas, and the Companies use the same drug delivery technology platform. As a consequence, there are great synergies to be gained through a merger of the two companies:

• New Klaria Pharma will have a stronger market position towards potential customers and business partners as the companies will become stronger and steadier with a higher ability to deliver as a unified unit.
• As Klaria and Karessa are currently using the same CMO (Contract Manufacturing Organisation) and the manufacturing procedures are very similar, the synergies in manufacturing are evident.
• Within business development, the companies share the same customers among pharmaceutical companies, and the companies’ joint opportunities to approach relevant pharmaceutical companies are better than if the companies act separately.
• As both companies rely on the same technology-platform, while the companies’ research areas complement each other, there are synergies to be gained by integrating the two companies’ research activities and gathering the know-how within one organisation.
• New Klaria Pharma has an expanded project portfolio, which means that it is more likely that one or more projects will be effectively introduced on the market.
• New Klaria Pharma will have greater ability to raise capital than Klaria and Karessa separately.
• Klaria and Karessa have overlapping organisations and through the Merger, New Klaria Pharma creates a clearer, more cost-effective and focused organisation, not at least through combined expertise.

In order to create a future competitive company in drug delivery, the merger will create favourable conditions and increase the possibility for the companies to succeed in creating value at a lower risk through greater diversification. The merger will create security for both shareholders and the organisation's employees.

”With this merger, we create a drug development company that has a strong and diversified pipeline of six drug candidates. New Klaria Pharma can now appeal our two main target groups, pharmaceutical companies and life science focused investors, with a precise and clear offer. We are confident that this clarity will provide for better results for all our stakeholders.” says Björn Littorin, Chairman of Klaria.

”The merger of Karessa and Klaria creates a strong player in drug delivery and drug development. We have a focused portfolio of development projects and we own our patent-protected technology platform. I look forward to an exciting future for New Klaria Pharma where we jointly create value from this strong base.” says Kristina Lidén Mascher, board member of Karessa.

Summary of the transaction

• New shares in Klaria will be issued to Karessa's shareholders in relation to their existing shareholdings in Karessa with the exchange rate 0.6032:1, i.e one (1) share in Karessa entitles the holder to receive 0.6032 new shares in Klaria.
• Based on the volume weighted average price during the last sixty trading days for Klaria's share, the offer values Karessa at approximately SEK 4.47 per share, which means no discount or premium compared to Karessa's volume weighted average price during the last sixty trading days but a discount of about 25 percent compared to the closing price on 4 November 2019 (the day before the announcement of the Merger) of SEK 5.95.
• The merger requires, among other things, approvals at extraordinary general meetings of the two companies.
• Shareholders in Klaria representing more than 37 percent of the votes and shares in Klaria and shareholders in Karessa representing more than 47 percent of the votes and shares in Karessa have committed or submitted their intention to vote to approve the Merger at the forthcoming extraordinary general meeting.
• A merger document is expected to be published late November 2019.

Board of Directors and senior executives
Upon completion of the Merger, Björn Littorin, Anders Ardstål and Scott Boyer are expected to be board members of New Klaria Pharma, and Scott Boyer to be New Klaria Pharma’s CEO.

Apart from the above, there are currently no decisions on significant changes to Klaria’s nor Karessa's employees or to their current organisation and operations, including the terms of employment and the locations where the Companies conduct their operations.

Merging entities
The Boards of Directors consider that the merger of Klaria and Karessa should be implemented as a statutory merger of the Companies in accordance with the Swedish Companies Act, giving shareholders of both Companies the opportunity to approve the merger at an extraordinary general meeting in each company. Furthermore, the Boards propose that the Merger shall be implemented with Klaria as the absorbing company and Karessa as the absorbed company. All 11,000,000 shares in Karessa shall be included in the Merger.

Voting undertakings or declared voting intentions

The merger is conditional upon, inter alia, approvals at extraordinary general meetings in both companies. Shareholders in Klaria representing more than 37 percent of the votes and shares in Klaria and shareholders in Karessa representing more than 47 percent of the votes and shares in Karessa have undertaken or declared their intention to vote in favour of the merger at the forthcoming extraordinary general meetings (including the issue of shares as Merger Consideration (as defined below) at the extra general meeting in Klaria).

Merger Consideration etc.
Klaria shall pay merger consideration to Karessa's shareholders as set out below. When calculating the merger consideration, the Boards have only taken into account the volume-weighted average prices of the Companies on Nasdaq First North Growth Market during the last sixty days of trading (as of 4 November 2019, the last day of trading prior to the disclosure of the Merger).

One (1) share in Karessa entitles the holder to receive 0.6032 new shares in Klaria (the "Merger Consideration"), ie. new shares in Klaria will be issued to Karessa's shareholders in relation to their existing shareholdings in Karessa at an exchange rate of 0.6032:1. The shareholders of Karessa will thus receive an economic ownership of approximately 17.13 percent in New Klaria Pharma (based on 11,000,000 outstanding Karessa shares as at the day of this announcement).

Thus, based on the volume weighted average price during the last sixty days of trading in Klaria's share, Karessa's share is, within the framework of the offer, valued at approximately SEK 4.47 per share, meaning no premium or discount compared with the volume weighted average price during the last sixty days of trading, but a discount of about 25 percent compared to the closing price on 4 November 2019 (the day before the announcement of the Merger) of SEK 5.95.
 

Fractions
Only whole shares in Klaria will be paid to shareholders in Karessa as a Merger Consideration. Klaria and Karessa will therefore retain a third party (the "Securities Broker") to aggregate all fractions of Karessa shares which do not entitle the holder to a whole new Klaria share ("Fractions") and the total number of shares in Klaria corresponding to such Fractions will then be sold by the Securities Broker at Nasdaq First North Growth Market. The sale will be made as soon as possible after the registration of the Merger with the Swedish Companies Registration Office (Sw. Bolagsverket) (the "Completion"). The proceeds for the sale of Fractions will be settled by the Securities Broker and then paid to those entitled to it in proportion to the value of the Fractions held immediately prior to the sale. This payment shall be made as soon as practicable possible after such sale of Fractions.

Settlement of the Merger Consideration
Those entitled to receive Merger Consideration will be the shareholders listed in the share register of Karessa on the date of the Swedish Companies Registration Office registration of the Merger. However, the board of directors has the right to postpone this day, should it be required as a result of the practical administration. Such a postponement will be communicated as soon as such a decision has been made.

Unless otherwise stated below the Merger Consideration will be settled after the Swedish Companies Registration Office has registered the Merger, by Euroclear Sweden registering the number of Klaria shares in the securities account of each duly entitled party. Meanwhile the shareholding in Karessa of such parties shall be deregistered from the same account. The consideration will thus be distributed automatically and no measures will be required by shareholders in Karessa in relation thereto. The new shares in Klaria, issued as Merger Consideration, shall carry full shareholder rights as from the date of their registration with the Swedish Companies Registration Office.

The proceeds from the sale of Fractions, as described above, will be settled by the Securities Broker. This settlement shall be made as soon as practicable possible after the sale of the Fractions.

If the shares in Karessa are pledged on the date of account of the Merger Consideration, settlement shall be made to the pledge holder. If the shares in Karessa are registered with a nominee, settlement shall be made to the nominee.

Registration of the Merger is expected to take place during the first quarter of 2020.

Share issue
The issue of shares in Klaria, as Merger Consideration, shall be approved by Klaria's shareholders at an extraordinary general meeting which will resolve on the Merger Plan.

The shares issued in Klaria to the shareholders in Karessa as Merger Consideration shall carry rights to dividends for the first time on the record date that occurs following Completion. The shareholders of Karessa will be entitled to a dividends in Klaria in accordance with the provisions of Klaria's Articles of Association.

Shares in Karessa held by or on behalf of Karessa will be cancelled in accordance with the provisions in the Swedish Companies Act.

The total number of shares that will be issued to Karessa's shareholders as Merger Consideration will be based on the number of Karessa shares outstanding at the time of the Completion, excluding any shares in Karessa held by or on behalf of Karessa. Assuming that the number of shares outstanding as per the day of this publication is the same at Completion, the total number of issue of new shares in Klaria will amount to 6,635,200. Thus, at the time of the Completion, there will be a total of 38,728,448 outstanding shares in New Klaria Pharma.

Ownership Structure
The table below illustrates the ownership of New Klaria Pharma should the Merger have been implemented based on shareholder information from Euroclear Sweden AB as per 30 September 2019.

The value of synergies

The value of synergies
The merger is expected to create value for the shareholders of New Klaria Pharma through synergies in the form of saved costs attributable to the consolidation of administrative functions such as accounting, activities linked to the Companies listing on First North Growth Market and management functions (board, management group, etc.). In total, the value of synergies from these cost savings are estimated to amount to between SEK 3 million and 5 million annually. However, the expected value-creating synergies do not primarily stem from these smaller cost savings but from the synergies described above under “Background and reasons for the merger” and described in the merger plan, for example greater efficiency in research and development and increased impact in business development towards potential customers.

The synergies are expected to be unlocked within 6 to 12 months. The integration of the businesses will begin immediately after the Merger is completed. The Synergies are expected to be achieved soon thereafter, as Klaria’s and Karessa's operations are already similar which will shorten the time of integration.

Undertakings prior to the Merger

The Companies undertake, during the period from the approval of the Merger Plan by the respective extraordinary general meeting to the Completion, to take all necessary measures necessary to carry out the Merger on the terms set out herin, to continue to carry on the business of their respective companies in the ordinary course of business and shall not, without the prior written consent of the other party, take any of the following actions:

1. declare or pay any dividend or other distribution to shareholders, except that the Companies may pay dividends as per Chapter 18 Section 11 of the Swedish Companies Act;
2. issue shares or other securities, except for the shares that may be subscribed for under the outstanding Karessa Options (as defined below under the heading “Holders of Securities with Special Rights in the Companies”);
3. resolve on a share split or similar measures;
4. acquire, divest or agree to acquire or divest, significant shareholdings, operations or assets;
5. enter into or amend material agreements or other agreements or incur any material additional indebtedness, other than in the ordinary course of operating its business, except that Klaria is allowed to raise loans in order to obtain financial strength to continue Klaria's previously decided and communicated strategic plan, provided that this the loan is raised on market terms or on conditions that are more favourable to Klaria than market terms;
6. take other measures that are aimed to affect the relative value of the Merger Consideration in relation to the value of the shares in Karessa in an unreasonable way; or
7. amend the Articles of Association or any other constitutional documents.

Fairness Opinion
The Boards are of the opinion that the Merger is beneficial to the companies and the shareholders.

The Board of Directors of Karessa's considers the Merger Consideration to be fair from a financial point of view for Karessa's shareholders and this view is supported by a so-called fairness opinion from Skarpa AB which Karessa obtained in accordance with IV.3 of the Swedish Corporate Governance Takeover Rules for certain trading platforms ("The Takeover Rules”), stating that, based on and subject to the assumptions and limitations set forth therein, the Merger Consideration to be obtained in the Merger by shareholders in Karessa is fair from a financial point of view, for such shareholders.

Klaria's Board of Directors considers that the Merger Consideration is fair for Klaria from a financial point of view and has obtained a so-called fairness opinion from Avane AB stating that, based on and subject to the assumptions and limitations set forth therein, the Merger Consideration is fair from a financial point of view, for Klaria’s shareholders.

Holders of securities with special rights in the Companies
As part of an incentive program for senior executives, Karessa has issued a total of 330,000 warrants in accordance with a resolution at the annual general meeting held on 29 May 2017 (the "Karessa Warrants"), of which 50,000 are held by Karessa's subsidiary Karessa Incentive AB as per the day of this press release. The offer does not include these warrants. Klaria intends to ensure that the holders of Klaria Warrants are otherwise treated fairly in connection with the Offer, whereby Klaria will offer to redeem all Karessa Warrants, with the exception of the Karessa Warrants held by Karessa or its subsidiaries, which instead will be cancelled by the Board of Directors in Karessa. The settlement for redeemed Karessa Warrants will be paid as soon as practically possible after redemption.

Apart from the above, there are no outstanding warrants, convertibles or other securities providing the holder with special rights in Klaria or Karessa.

Terms of the Merger
The Completion is conditional upon:

1. that Klaria's shareholders, at an extraordinary general meeting in Klaria, approve the Merger Plan and resolve upon the issue of the shares that constitute the Merger Consideration;
2. that Karessa's shareholders, at an extraordinary general meeting in Karessa, approve the Merger Plan;
3. that Nasdaq Stockholm has admitted the shares that constitute the Merger Consideration to trading on Nasdaq Stockholm First North Growth Market;
4. that all permits and approvals of the competition authorities that are necessary for the Merger have been obtained on terms containing no remedies, conditions or undertakings which in the opinion of the Boards, acting in good faith, would have a material adverse effect on the business, competitive or financial position of New Klaria Pharma following Completion
5. that the Merger is not in whole or in part made impossible or materially impeded as a result of legislation, court rulings, decisions by public authorities anything similar;
6. that neither Klaria nor Karessa has breached their undertakings set out in the section “Undertakings prior to the Merger” before the day when the Merger is registered with the Swedish Companies Agency in any such a way that would result in a material adverse effect on the Merger or New Klaria Pharma; and
7. that no change, matter or event or series of changes, matters or events has occurred that has had or could reasonably be expected to have a material adverse effect on the financial position or operation, including sales, results, liquidity, equity ratio, equity or assets of Karessa or Klaria or New Klaria Pharma, and as a result of which the other party cannot reasonably be expected to complete the Merger

If the conditions set out in this section have not been satisfied and Completion has not taken place on or before 30 April 2020, the Merger will not be implemented and the Merger Plan shall cease to have any further effect, however that the Merger will only be discontinued and the Merger Plan shall only cease to have any further effect, to the extent permitted by applicable law, if the nonsatisfaction is of material importance to the Merger or New Klaria Pharma. The Boards reserve the right to jointly waive, in whole or in part, one, several or all of the conditions above.

The Boards shall, subject to applicable law, be entitled to jointly decide to postpone the last date for fulfilment of the conditions from 30 April 2020 to a later date.

Shareholding between Klaria and Karessa

Klaria does not own or control any shares in Karessa, or other financial instruments, which give Klaria financial exposure equal to holdings in Karessa.

Karessa does not own or control any shares in Klaria, or other financial instruments, which give Karessa financial exposure equal to a holdings in Klaria.

Financing
The Completion is not dependent on any financing as the Merger Consideration exclusively consist of new shares in Klaria.

Due diligence and exchange of insider information
No due diligence has been carried out in connection with the preparations for the Merger. Apart from Karessa being informed of Klaria's acquisition of Uppsalagruppen Medical AB, no information has been provided that has not previously been published and which could constitute insider information in relation to Klaria and Karessa respectively.

Indicative timetable and publication of merger documents
The merger document is expected to be finalised and published late November. The preliminary timetable for the Merger is as follows.

All dates are preliminary and may be subject to change.

Scheduled time for Karessa's dissolution
As the Swedish Companies Registration Office registers the Merger, Karessa will be dissolved and its assets and liabilities will be taken over by Klaria. This is expected to occur no earlier than the first quarter of 2020. The companies will announce the date on which the Swedish Companies Registration Office is expected to register the Merger.

The final day of trading in Karessa's shares is expected to be the trading day that falls two trading days prior to the registration of the Merger by the Swedish Companies Registration Office and the first day of trading in the newly issued shares in Klaria is expected to fall two trading days after the day of registration of the Merger.

Fees etc. in relation to the Merger
No special fees or benefits, as defined in the Swedish Companies Act, will be paid to any of Klarias’ or Karessa's Board members or CEOs in connection with the Merger. Aside from what is set out below, no such fees or benefits will be paid to the Company's auditors.

Fees to the auditors in Klaria and Karessa shall be paid for, inter alia, their opinion on the Merger Plan, their review of the merger document and other work performed by the auditors in connection with the Merger.

Certain related party issues etc.
Scott Boyer is a member of the Board of Directors of both Karessa and Klaria and has therefore not participated in either of the Boards’ decision nor the administration thereof and drafting of the Merger Plan.

Fredrik Hübinette is a member of the Board of Directors of Karessa and a major shareholder of Klaria, and has thus has not participated in the Board of Directors' of Karessa’s decision nor administration thereof and drafting of the Merger Plan.

These circumstances also mean that Chapter IV of the Takeover Rules applies to the Offer. This means that the Boards, according to Section IV.3 of the Takeover Rules are obliged to obtain and publish valuation statements (a so-called fairness opinion) regarding the Companies from independent expertise. 

Applicable law and disputes

The merger shall be governed and construed in accordance with Swedish law. Through the undertaking that follow from the Companies listing on the Nasdaq First North Growth Market, the Merger and the Companies are subject to the Takeover Rules, the Swedish Securities Council decisions and advice on the interpretation and application of the Takeover rules (and, where applicable, the  Swedish Securities Council’s previous statements and advice on interpretation and application of the Industry and Commerce Stock Exchange Committee’s (Sw. Näringslivets börskommitté) Rules Concerning Public Offers for the Acqusition of Shares that were previously applied), and the penalties that the Nasdaq First North Growth Market can impose for violations of the Takeover rules. Disputes concerning, or arising out of or in connection with, the Merger shall be exclusively settled by Swedish courts, and the Stockholm District Court (Sw. Stockholms tingsrätt) shall be the court of first instance.

Advisors

Klaria has retained Setterwalls Advokatbyrå as legal advisor and Avane AB as an independent financial advisor to the Board of Directors of Klaria. Karessa has retained Hamilton Advokatbyrå Firm as legal advisor and Skarpa AB as an independent financial advisor to the Board of Directors of Karessa.

[1] Scott Boyer is a member of the Board of Directors of both Karessa and Klaria and has therefore not participated in either of the Boards’ decision nor the administration thereof in connection with the Merger. Also Fredrik Hübinette, Board Member of Karessa, is, as major owner of Klaria, subject to conflicts of interest, and has thus has not participated in the Board of Directors' of Karessa’s decision nor administration thereof in connection with the Merger, see below under "Certain related party issues etc." below.

For further information, please contact:

Klaria
Scott Boyer, CEO Klaria Pharma Holding AB (publ)
scott.boyer@klaria.com
Telephone: +46(0)8-446 42 99

Karessa
Mats Nilsson, CEO Karessa Pharma Holding AB (publ)
mats.nilsson@karessa.se
Telephone: +46(0)8-768 22 33

This is information that Klaria Pharma Holding AB (publ) and Karessa Pharma Holding AB (publ) are required to disclose in accordance with the EU Market Abuse Regulation. The information was submitted for publication, by the agency of the contact persons above, on 5 November 2019, at 08:55.

About Klaria Pharma Holding AB

Klaria (Klaria Pharma Holding AB (publ)) is a Swedish listed pharmaceutical company that develops innovative, rapid-acting products. By combining patented technology of a film that attaches to the oral mucosa and well-proven pharmaceuticals, the company has developed a drug distribution concept with many benefits and potential uses. Klaria is listed on First North Growth Market under the short name KLAR. FNCA Sweden is a Certified Advisor (info@fnca.se, +46(0) 8-528 00 399) for Klaria Pharma Holding AB. For further information, see www.klaria.com.

About Karessa Pharma Holding AB

Karessa (Karessa Pharma Holding AB (publ)) is a Swedish pharmaceutical company with the goal of developing products based on a patented drug delivery platform with direct absorption of active substances from the oral cavity to the bloodstream. For further information, see karessa.se. Certified Advisor: FNCA Sweden AB, info@fnca.se, + 46-8-528 00 399.