Merger and Pre-Merger Financing

12 Months Ended

Dec. 31, 2019

Pre-Merger Financing

In June 2019, Former Ocugen and Histogenics entered into a Securities Purchase Agreement (as amended, the “Financing SPA”) with certain accredited investors (the “Investors”). Pursuant to the Financing SPA, among other things, (i) immediately prior to the Merger, Former Ocugen issued 4.6 million shares of common stock to the Investors (the “Initial Shares” and, as converted pursuant to the exchange rate in the Merger into the right to receive approximately 2.2 million shares the Company’s common stock, the “Converted Initial Shares”), (ii) immediately prior to the Merger, Former Ocugen issued and deposited 4.6 million shares of common stock into escrow on behalf of the Investors (the “Additional Shares” and, as converted pursuant to the exchange rate in the Merger, into the right to receive approximately 2.2 million shares of the Company’s common stock, the “Converted Additional Shares”) and (iii) the Company agreed to issue, on the fifth trading day following the consummation of the Merger, three series of warrants to purchase shares of the Company’s common stock (the “Series A Warrants,” the “Series B Warrants” and the “Series C Warrants” and collectively, the “Pre-Merger Financing Warrants”) in exchange for an aggregate purchase price of $25.0 million (“Pre-Merger Financing”). See Note 10 for additional information on the Pre-Merger Financing Warrants.

On October 4, 2019, the Converted Additional Shares were released from escrow to the investors because, as determined at the close of business on October 2, 2019, 80% of the volume-weighted average trading price of a share of Ocugen’s common stock as quoted on Nasdaq for the first three trading days immediately following the closing date of the Pre-Merger Financing was lower than the price paid by the Investors for the Initial Shares.

Approximately $2.5 million of the $25.0 million Pre-Merger Financing was utilized to pay transaction costs related to the Merger and the Pre-Merger Financing in the form of equity. In addition, the Company utilized $5.3 million of the Pre-Merger

Financing for the repayment of the Senior Secured Notes, as defined in Note 7. As a result, the Company received total net proceeds of $17.2 million from the Pre-Merger Financing.

The Company incurred $1.9 million in equity issuance costs related to the Pre-Merger Financing, of which $0.7 million was paid in cash and $1.2 million was paid with equity as of December 31, 2019. Approximately $1.1 million of equity issuance costs was allocated to the Series A Warrants and Series C Warrants and is included in additional paid-in capital. Approximately $0.8 million of issuance costs allocated to the Series B Warrant liability was expensed and is reflected in other income (expense) on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2019.

Merger with Histogenics

On September 27, 2019, the Company completed the Merger in accordance with the terms of the Merger Agreement. The Merger was structured as a stock-for-stock transaction whereby all of Former Ocugen’s outstanding shares of common stock and securities convertible into or exercisable for Former Ocugen’s common stock were converted into the right to receive Histogenics’ common stock and securities convertible into or exercisable for Histogenics’ common stock. Immediately following the Merger, the former equity holders of Former Ocugen owned 84.25% of the outstanding capital stock of the Company, and the equity holders of the Company immediately before the Merger owned 15.75% of the outstanding capital stock of the Company, including the Initial Shares but excluding the Additional Shares and the Pre-Merger Financing Warrants pursuant to the Financing SPA.

In accordance with ASC Topic 805, Business Combinations (“ASC 805”), the Company concluded that, while Histogenics is the legal acquirer, Former Ocugen is the accounting acquirer due to the fact that (i) Former Ocugen’s shareholders have the majority of the voting rights in Ocugen, (ii) Former Ocugen holds all of the board seats of the combined company and (iii) Former Ocugen management holds all key positions in the management of the combined company. The Company has further concluded that Histogenics does not meet the definition of a business under ASC 805 due to the fact that substantially all of the fair value of the gross assets disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets. Therefore, the Merger was accounted for as a reverse asset acquisition. The Company incurred $4.9 million in transaction costs related to the Merger, of which $2.6 million was paid in cash and $2.3 million was paid with equity.

Assets and liabilities of Histogenics on September 27, 2019 were as follows (in thousands):


	September 27, 2019
Cash and cash equivalents	$	302
Asset held for sale	7,000
Accounts payable	(1,106)
Net assets acquired	$	6,196

Asset Held for Sale

In connection with the Merger, on May 8, 2019, Histogenics entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Medavate Corp., a Colorado corporation (“Medavate”), pursuant to which Histogenics agreed to sell substantially all of its assets relating to its NeoCart^® program, including, without limitation, intellectual property, business and license agreements and clinical trial data (the “Assets”) in return for a cash payment of $6.5 million. On September 26, 2019, the parties entered into an amendment to the Asset Purchase Agreement whereby the closing date was amended to October 4, 2019. On October 4, 2019, the parties entered into a second amendment (the “Second Amendment”) to the Asset Purchase Agreement whereby the purchase price was increased to $7.0 million under the Asset Purchase Agreement and the closing date of the Asset Purchase Agreement was revised from October 4, 2019 to two business days after Medavate obtains financing in an amount no less than the purchase price (the “Closing Date”). The Second Amendment further provides that if the Closing Date does not occur on or prior to October 31, 2019, Ocugen may choose to terminate the Asset Purchase Agreement without recourse and, if Ocugen does not terminate the Asset Purchase Agreement, the purchase price shall increase 10% per month (or any portion thereof) between October 31, 2019 and the Closing Date. The Closing Date did not occur as of December 31, 2019, Ocugen has not terminated the Asset Purchase Agreement and as of December 31, 2019, the purchase price has increased to $8.5 million.

The NeoCart^® asset qualified as held for sale as of the date of the reverse asset acquisition and is carried at its original fair value less cost to sell on the consolidated balance sheet as of December 31, 2019. The NeoCart^® asset held for sale was valued at the

acquisition date based on a quoted price of $7.0 million, which is an observable Level 2 fair value input. Subsequent increases in fair value are not recognized beyond the initial value at the time the asset was classified as held for sale.

MEDINET Agreement

In December 2017, Histogenics entered into the License and Commercialization Agreement (the “License Agreement”) with MEDINET Co., Ltd. (“MEDINET”) to grant MEDINET a license under certain patents, patent applications, know-how, and technology to develop and commercialize certain therapeutic products related to the NeoCart^® program. As consideration for the granting of the license, MEDINET agreed to pay Histogenics a non-refundable upfront cash payment of $10.0 million which was received in January 2018. Based on the results of the NeoCart^® research, Histogenics suspended the NeoCart^® program. Subsequently, since MEDINET relied on the NeoCart^® product to supply clinical trial patients, MEDINET suspended the development of its clinical trial. As of December 31, 2019, the contract with MEDINET was wholly unperformed. As a result of the expected sale of the NeoCart^® asset, the Company does not expect to retain any future obligations related to the MEDINET agreement.