PART II AND III 2 stre20181113_1e.htm stre20181112_prem14a.htm

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this preliminary proxy statement/offering circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This preliminary proxy statement/offering circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a final proxy statement/offering circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the final proxy statement/offering circular or the offering statement in which such final proxy statement/offering circular was filed may be obtained.

 

PRELIMINARY PROXY STATEMENT

OF

APOLLONIA, LLC

P.O. Box 272390

Fort Collins, CO 80527

PRELIMINARY OFFERING CIRCULAR

FOR 200,000 COMMON UNITS

OF

ST. RENATUS, LLC

1000 Centre Avenue, Suite 120

Fort Collins, Colorado 80526

970.282.0156

www.st-renatus.com

 

PRELIMINARY – SUBJECT TO COMPLETION – DATED NOVEMBER 15, 2018

 

PROPOSED MERGER – YOUR VOTE IS VERY IMPORTANT

 

Dear Apollonia, LLC Member:

 

The boards of directors of Apollonia, LLC (“Apollonia”), and St. Renatus, LLC (“St. Renatus”) have approved a merger of Apollonia with a newly-created, wholly-owned subsidiary of St. Renatus called “SR Merger Sub, LLC” (“Merger Sub”), with Apollonia continuing as the surviving entity after the merger as a wholly owned subsidiary of St. Renatus. The merger will be effected by the parties under an agreement and plan of merger between them dated as of November 7, 2018 (“Merger”). Upon the completion of the Merger, Apollonia members will surrender their units of Apollonia in exchange for a total of 200,000 newly issued voting common units of St. Renatus. Those units will be valued at $70 per unit for purposes of the transaction and divided between Apollonia unit holders as follows: (i) unitholders who have “invested cash” (as defined in the Apollonia member control agreement) will receive the number of St. Renatus common units equal to the remaining balance of their invested cash divided by $70; and (ii) the remaining St. Renatus common units will be allocated pro rata to all Apollonia unitholders. Fractional units will be rounded to the nearest whole St. Renatus common unit. If the Merger is approved, Apollonia unitholders will have to tender their Apollonia units and otherwise provide written consent before receiving St. Renatus common units. Apollonia members and financial rights holders are collectively referred to herein as “Apollonia members.”

 

Contemporaneously with the completion of the Merger, St. Renatus expects to acquire all of the issued and outstanding equity interests of Nasadent, LLC in exchange for the issuance of voting common units of St. Renatus. The Merger with Apollonia and the merger with Nasadent are not conditioned on the other merger being concluded, either merger could close independently from the other merger. If the Merger and St. Renatus’ acquisition of Nasadent are completed, it is expected that there will be issued and oustanding approximately 2,074,176 common units of St. Renatus, with current St. Renatus members owning approximately 77% of the combined company, current Apollonia members owning approximately 10% of the combined company, and current Nasadent members owning approximately 13% of the combined company.

 

The St. Renatus units to be issued pursuant to the Merger will be issued pursuant to the Regulation A exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), and this document serves as an offering circular with respect to the St. Renatus units. The St. Renatus units are not listed on any stock exchange or trading market and St. Renatus does not currently have any plans to list its units on any stock exchange or trading market. Even if St. Renatus did intend to list its units on a stock exchange or trading market in the future, its ability to do is uncertain, and therefore Apollonia members should not assume that the St. Renatus units will ever be listed. For a description of the St. Renatus units, see the information in the “Description of St. Renatus Units” below. The offer and issuance of St. Renatus units in connection with its acquisition of Nasadent will be made pursuant to an exemption provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder and they are not being offered pursuant to this proxy statement/offering circular.

 

 

 

 

St. Renatus will not receive any proceeds in connection with the issuance of its units in connection with the Merger. No underwriters are involved in this offering and no underwriter commissions will be paid. Only St. Renatus will distribute the units pursuant to this proxy statement/offering circular; no members or other security holders of St. Renatus will distribute any units pursuant to the proxy statement/offering circular. The actual date of distribution (offering) of the units will be shortly after the Merger is consummated (if the Merger is not consummated for any reason, no units will be distributed).

 

We cannot complete the Merger unless a sufficient number of Apollonia unitholders approve the merger agreement and the transactions associated with it. Your vote is very important, regardless of the number of units you own. Whether or not you plan to attend the Apollonia special unitholder meeting in person, please vote your units as promptly as possible so that your units may be represented and voted at the meeting. Please note that your failure to vote or to return your proxy card may result in a failure to establish a quorum for the Apollonia special meeting.

 

After due consideration, Apollonia’s board voted to approve the Merger. One board member abstained from the vote because of a potential conflict of interest, and the other board members all voted in favor of the Merger. The board recommends that Apollonia unitholders vote in favor of the proposal being submitted.

 

Additional information about the Merger is contained in the accompanying proxy statement/offering circular. You should read the entire proxy statement/offering circular carefully. In particular, we urge you to read the information under “Risk Factors.”

 

We thank you for your consideration and continued support.

 

Michael Herold
Chairman of the Board

[   ], 2018

 

 

 

The United States Securities and Exchange Commission does not pass upon the merits of or give its approval to any securities offered or the terms of the offering, nor does it pass upon the accuracy or completeness of any offering circular or other solicitation materials. These securities are offered pursuant to an exemption from registration with the Commission; however, the Commission has not made an independent determination that the securities offered are exempt from registration. For general information on investing, we encourage you to refer to www.investor.gov.

 

Please pay particular attention to the section entitled “Risk Factors” for a discussion of the risks related to the Merger and the ownership of St. Renatus units.

 

The date of this proxy statement/offering circular is [    ], 2018 and it is first being mailed to the members of Apollonia, LLC on or about [    ], 2018.

 

 

 

 

NOTICE OF SPECIAL MEETING OF APOLLONIA MEMBERS

 

 

To the unitholders of Apollonia, LLC:

 

You are cordially invited to attend a special meeting of Members of Apollonia, LLC, a Minnesota limited liability company, to be held at [   ] on [   ], 2018, at [   ][a.m./p.m.], Mountain Standard Time. The purpose of the meeting shall be to consider and vote upon the following matters: 

 

 

1.

to approve the agreement and plan of merger, dated as of November 7, 2018, among Apollonia, LLC, St. Renatus, LLC, and SR Merger Sub LLC, a copy of which is attached as Annex A to the proxy statement/offering circular accompanying this notice, and approve the merger of Apollonia, LLC, with SR Merger Sub, LLC, with Apollonia, LLC as the surviving company and becoming a direct, wholly-owned subsidiary of St. Renatus, LLC as a result of the merger; and

 

 

2.

to approve any motion to adjourn the special meeting, or any adjournment thereof, to another time or place if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement and approve the transactions contemplated thereby.

 

Members also will consider and act on such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

THE APOLLONIA BOARD OF GOVERNORS RECOMMENDS THAT APOLLONIA MEMBERS VOTE “FOR” EACH OF THE PROPOSALS.

 

The above matters, the merger agreement, and the proposed merger are described in detail in the accompanying proxy statement/offering circular. Please read the proxy statement/offering circular carefully in deciding how to vote. 

 

The record date for the Apollonia special meeting is [   ], 2018. Only members of record holding voting common units of Apollonia at the close of business on the record date are entitled to notice of, and to vote at, the Apollonia special meeting, or any adjournment or postponement thereof. 

 

Adoption of the merger agreement and approval of the proposed merger by Apollonia members is a condition to the merger and requires the affirmative vote, in person or by proxy, of holders of a majority of the Apollonia common units outstanding and entitled to vote thereon. Therefore, your vote is very important. Your failure to vote your units will have the same effect as a vote “against” the adoption of the merger agreement and approval of the proposed merger. Whether or not you plan to attend the special meeting, please promptly vote your Apollonia units by marking, dating, signing and returning all proxy cards you receive. By providing your proxy, you do not restrict your right to vote in person at the Apollonia special meeting. If your Apollonia units are held in the name of a bank, broker, or other fiduciary, please follow the instructions on the voting instruction form furnished by the record holder.

 

Do not send any Apollonia certificates at this time. If we complete the merger, we will notify you of the procedures for exchanging your unit certificates for ownership interest in St. Renatus, LLC.

 

 

By Order of the Board of Governors,

 

Michael Herold
Chairman of the Board

[    ], 2018

 

 

 

 

TABLE OF CONTENTS

Page

 

NOTICE OF SPECIAL MEETING OF APOLLONIA MEMBERS

1

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE APOLLONIA SPECIAL MEETING

I

SUMMARY

1

RISK FACTORS

6

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

23

APOLLONIA SPECIAL MEETING OF UNITHOLDERS

24

THE MERGER

27

FAIRNESS OPINION OF APOLLONIA ADVISOR

30

THE MERGER AGREEMENT

31

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

37

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

43

DESCRIPTION OF ST. RENATUS UNITS

49

COMPARISON OF RIGHTS OF APOLLONIA UNITHOLDERS AND ST. RENATUS UNITHOLDERS

55

INFORMATION ABOUT ST. RENATUS

61

ST. RENATUS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

81

LEGAL MATTERS

86

WHERE YOU CAN FIND MORE INFORMATION

86

EXHIBIT INDEX

87

SIGNATURES

88

POWER OF ATTORNEY

88

 

 

Annex A – Agreement and Plan of Merger

 

Annex B – Opinion of Palladian Valuation, LLC

 

We have not authorized anyone to provide you with any information other than the information included in this proxy statement/offering circular and the documents to which we refer you herein. If someone provides you with other information, please do not rely on it as being authorized by us.

 

This proxy statement/offering circular has been prepared as of the date on the cover page. There may be changes in the affairs of St. Renatus and Apollonia since that date that are not reflected in this document.

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE APOLLONIA SPECIAL MEETING

 

Q:

Why am I receiving this proxy statement/offering circular?

 

A:

You have voting rights with respect to certain units of Apollonia, LLC, and are being asked to vote on a merger between Apollonia and St. Renatus, LLC. This proxy statement/offering circular explains the terms of the proposed merger, the reasons for it, the procedures for voting, and the process by which Apollonia units will be redeemed. This document is also an offering circular that is being delivered to Apollonia members because St. Renatus is offering its units to Apollonia members in connection with the Merger.

 

Q:

On what am I being asked to vote?

 

A:

You are being asked to approve the Agreement and Plan of Merger by and between Apollonia, LLC, St. Renatus, LLC, and SR Merger Sub, LLC, which we may refer to as the “merger agreement” and which provides for the merger of Apollonia and SR Merger Sub, with Apollonia, as the surviving entity in the Merger, becoming a wholly-owned subsidiary of St. Renatus.

 

Q:

Why have the companies decided to merge?

 

A:

Apollonia and St. Renatus agreed to merge for strategic reasons that benefit both parties. Their boards of directors and governors believe that the merger will unify the otherwise fractured interests of the companies and facilitate future financing and operations.

 

Q:

How does my board of governors recommend I vote on the merger agreement?

 

A:

The board of governors of Apollonia and board of directors of St. Renatus have approved and adopted the merger agreement and the board of governors of Apollonia recommends that the Apollonia unitholders vote “FOR” approval of the merger agreement.

 

Q:

What will happen to Apollonia and St. Renatus as a result of the merger?

 

A:

If the merger occurs, Apollonia members will exchange their ownership interests in Apollonia for voting common units in St. Renatus. Apollonia will initially continue to exist as a wholly-owned subsidiary of St. Renatus, but it may also be dissolved or otherwise eliminated as a separate entity by St. Renatus.

 

Q:

What vote is required to approve the merger agreement?

 

A:

Approval of the merger agreement requires the affirmative vote of a majority of the Apollonia member interests entitled to vote. The Board of Directors of St. Renatus has already approved the merger, and no further action by St. Renatus or its unitholders is necessary to complete the Merger.

 

Q:

What will I receive in the Merger?

 

A:

After the Merger is completed, current Apollonia members will collectively own approximately 10% of the common units in St. Renatus. Each Apollonia common unitholder and holder of financial rights will receive a specified number of whole St. Renatus common units depending on the amount of their “invested cash” and percentage ownership in Apollonia. See “The Merger Agreement—Allocation of Merger Consideration to Apollonia Unitholders.”

 

Q:

What are the federal income tax consequences of the merger to me?

 

A:

The transaction involves the exchange of one security classified as a partnership interest for U.S. tax purposes for another security classified as a partnership interest for U.S. tax purposes and, as such, the Merger is not expected to have material tax consequences to the Apollonia unitholders. See “Material U.S. Federal Income Tax Consequences—Material U.S. Federal Income Tax Consequences of the Merger.” Your tax treatment will depend on your specific situation and many variables not within our control. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you.

 

 

 

 

Q:

When do you expect the Merger to be completed?

 

A:

We are working to complete the Merger in the fourth quarter of 2018, shortly after the special unitholders meeting, assuming Apollonia voting members approve the Merger and other conditions to closing are met. We could, however, experience delays in meeting other conditions or be unable to meet them at all.  See “Risk Factors—Risks Related to the Merger,” for a discussion of these and other risks relating to the merger.

 

Q:

Will I be able to sell the St. Renatus voting common units I receive pursuant to the Merger?

 

A:

Not immediately. The transfer of St. Renatus voting common units are subject to various transfer restrictions, including a right of first refusal, tag-along and drag-along rights as well as limits to avoid “publicly traded partnership” status and ensure compliance with federal and state securities laws. See “Description of St. Renatus Units—Restrictions on Transfer of Common Units.” The voting common units in St. Renatus are being issued pursuant to the Regulation A exemption from registration under the Securities Act of 1933. The interests cannot be sold absent a registration under the securities laws or an exemption to registration and further requires compliance with the transfer restrictions in the St. Renatus limited liability company agreement.

 

Q:

What should I do now?

 

A:

After carefully reading and considering the information in this proxy statement/offering circular, follow the voting instructions included on the enclosed proxy card in order to vote your units as soon as possible so that your units will be represented at Apollonia’s special meeting.

 

 NOTE: If you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be voted “FOR” the proposal to approve the merger agreement.

 

Q:

What if I do not vote?

 

A:

If you do not vote, it will have the same effect as voting your units against the merger.

 

Q:

If my units are held by a custodian, will my custodian automatically vote my units for me?

 

A:

No. Your custodian will vote your units on the merger agreement only if you provide instructions on how to vote. You should instruct your custodian on how to vote your units, following the directions your custodian provides. If you do not provide instructions to your custodian, and your custodian submits an unvoted proxy, the resulting custodian nonvote will not be counted toward a quorum and your units will not be voted at Apollonia’s special meeting, which will have the same effect as voting your units against the Merger.

 

Q:

Can I change my vote after I deliver my proxy?

 

A:

Yes. You can change your vote at any time before your proxy is voted at the special meeting. You can do this in three ways. First, you can revoke your proxy by giving written notice of revocation to Apollonia’s Chairman of the Board. Second, you can submit a new properly executed proxy with a later date to Apollonia’s Chairman of the Board at or before Apollonia’s special meeting. The latest proxy actually received before the meeting will be counted, and any earlier proxies will be revoked. Third, you can attend Apollonia’s special meeting, give oral notice of your revocation, and vote your units in person. Any earlier proxy will be thereby revoked. However, simply attending the meeting without voting will not revoke your proxy. If your units are held by a custodian you must contact your custodian prior to Apollonia’s special meeting if you wish to revoke your proxy or change your vote.

 

Q:

Should I send in my unit certificates now?

 

A:

No. If you are an Apollonia member and the Merger is completed, Apollonia’s Member Representative will send all Apollonia members written instructions for exchanging Apollonia member interests for the Merger consideration they are entitled to receive.

 

 

 

 

Q:

Who can help answer my questions?

 

A: If you would like additional copies of this document, or if you would like to ask any questions about the Merger and related matters, you should contact:

 

For Apollonia unitholders:

 

Linda Hult

1000 Centre Avenue

Fort Collins, CO 80526

Telephone: 970-282-0156 x 3512

E-mail: lhult@kovanaze.com

 

 

 

 

SUMMARY

 

The following summarizes some of the important information in this proxy statement/offering circular but is not complete. Prospective investors should carefully read this entire proxy statement/offering circular. This summary is qualified in its entirety by reference to the remainder of this proxy statement/offering circular.

 

The Companies

 

Apollonia

 

Apollonia, LLC (“Apollonia” or the “Company”) currently owns certain royalty rights with respect to intellectual property relating to a nasal spray dental anesthetic. In 2002, Dr. Bryan Clay was issued a patent (the “499 Patent”), which was transferred to Gill Anesthesia, LLC (“Gill”), on September 7, 2004, in exchange for certain royalty payments to Dr. Clay. Gill subsequently merged with an entity named “Renatus, LLC,” which promptly changed its name to “Apollonia, LLC.” Dr. Clay then assigned his royalty rights to a newly-formed entity known as “Nasadent, LLC.”

 

On March 31, 2008, Apollonia entered into an agreement with St. Renatus, LLC to transfer the 499 Patent and related intellectual property in exchange for a royalty payment (the “Assignment Agreement”). The Assignment Agreement was amended several times. As it currently stands, Apollonia is entitled to a 10% royalty on all sales “generated from Products that involve anesthetizing a portion or all of a patient’s maxillary dental arch using a nasally delivered anesthetizing composition.” In turn, Apollonia is obligated to pay 40% of the royalties it receives to Nasadent. As a result, Apollonia is entitled to a net royalty on the described product sales of 6%. To the extent Apollonia is currently earning royalties, they are being offset against amounts Apollonia owes to St. Renatus in connection with prepaid royalties that were not earned.

 

Apollonia has no current operations and its only asset is the right to royalties from St. Renatus, subject to the royalties it owes to Nasadent. Pursuant to the Assignment Agreement, there are circumstances under which the assigned intellectual property would revert back from St. Renatus to Apollonia. The only express language regarding a transfer back of the intellectual property requires the nonpayment of the earned royalties. In the event of such a reversion, Apollonia does not currently have the resources to develop the product and its likely options would be to sell or license the technology. Because the 499 Patent expires on March 20, 2020, the value of that technology, standing alone, is limited.

 

The Assignment Agreement, as amended, is not limited to royalties based solely on revenue derived from the 499 patent and intellectual property transferred with it. Instead, Apollonia is also entitled to a royalty from certain products derived from a separate patent obtained by St. Renatus known as the “282 Patent.” The royalty payments on the specified products extend for the term of the patents, and the 282 Patent is expected to expire in 2031. By completing the Merger, Apollonia members will become direct owners of St. Renatus and participate in all product sales of St. Renatus in the same manner as other St. Renatus common unitholders, with the Assignment Agreement between Apollonia and St. Renatus being effectively eliminated due to the Merger.

 

St. Renatus

 

St. Renatus is a privately-held company that was formed to bring to market a proprietary Nasal Spray dental anesthetic product, the world’s first intranasal dental anesthesia. This product, sprayed into the nasal cavity, is a needle-free local anesthetic suitable for use in dental procedures involving most of the upper teeth. On June 29, 2016, the U.S. Food and Drug Administration (FDA) approved St. Renatus’ “Kovanaze® (tetracaine HCl and oxymetazoline HCl) Nasal Spray” for use and commercialization in the United States. St. Renatus’ first sales of product occurred in November 2016. Kovanaze® Nasal Spray is a prescription product for dental anesthesia, available only by dentist authorization.

 

St. Renatus believes that Kovanaze® Nasal Spray dental anesthetic technology offers significant benefits over existing anesthetic techniques, including needle-free delivery and less collateral tissue numbness. Our initial sales efforts have not met our expectations, and we have developed a restructured and robust sales and marketing plan that we recently implemented. See “Risk Factors—Unacceptable Company Sales; Transformation of Company to a Consumer-Focused Sales and Marketing Enterprise.”

 

The St. Renatus units are not listed on any stock exchange or trading market and St. Renatus does not currently have any plans to list its units on any stock exchange or trading market. Even if St. Renatus did intend to list its units on a stock exchange or trading market in the future, its ability to do so is uncertain, and therefore Apollonia members should not assume that the St. Renatus units will ever be listed.

 

1

 

 

St. Renatus’ corporate offices are located at 1000 Centre Avenue, Suite 120, Fort Collins, Colorado 80526, and its telephone number is (970) 282-0156.

 

Authorized, Outstanding and Reserved Equity Securities

 

“Common Units” as used in this summary refers to, collectively, voting common units, non-voting common units and incentive units outstanding at St. Renatus. See “Description of St. Renatus Units”. Authorized and outstanding equity securities as of the date of this summary are as follows:

     

Before Merger

Authorized Common Units

2,640,000

 

Total Issued and Outstanding Common Units(1)

(1,874,176)

 

Reserved for Convertible Debt Conversion and Security

(252,963)

  Reserved for Incentive Units  (64,550)
 

Reserved for Acquisitions Subject to MOU (Net)

(246,759)

 

Unissued and Unreserved Common Units

201,552

     
     

After Merger

Authorized Common Units

2,640,000

 

Total Issued and Outstanding Common Units(1)

(2,074,176)

 

Reserved for Convertible Debt Conversion and Security

(252,963)

 

Reserved for Incentive Units

(64,550)

 

Reserved for Acquisitions Subject to MOU (Net)

(46,759)

 

Unissued and Unreserved Common Units

201,552

 

 

(1)

Includes issued and outstanding incentive units. Does not include units into which outstanding convertible notes may be converted as it is not possible at this time to determine whether such notes will be wholly or partially converted into units or, if less than fully converted, the number of units into which such notes will be converted. Potential units to be issued on full conversion of outstanding notes are included in reserve amounts.

 

Description of Units

 

The principal features of the St. Renatus common units are as follows (also see “Description of St. Renatus Units.”):

 

Class of membership:     Common Units

 

Voting rights:     The Common Units have voting rights.

 

Transferability of Common Units: Transferability of Common Units is severely restricted. The sale of units to a third party is subject to a right of first refusal by St. Renatus. Tag-along and drag-along rights apply. All transfers are subject to compliance with federal and state securities laws requirements and tax rules governing trading in certain partnerships.

 

2

 

 

St. Renatus Going Concern Qualification

 

St. Renatus has received a going concern qualification with its 2017 Audit Opinion. The poor results of the product launch and lack of significant Kovanaze® sales, coupled with the weakness of the balance sheet, left no alternative for the auditors, especially in the face of the Auditing Standards Board’s (ASB) new Statement No. 132 on auditing standards, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern, updated guidance in this area which became effective for audits of financial statements for periods ending on or after Dec. 15, 2017, and reviews of interim financial information for interim periods beginning after fiscal years ending on or after Dec. 15, 2017.   Statement No. 132 aligned with the new FASB standard’s explicit definition of substantial doubt about an entity’s ability to continue as a going concern. The FASB standard established that there would be going concern issues if it is probable that the entity will not be able to meet its obligations within a year of when financial statements are issued. Without the earnings upswing that was projected in 2017, that test cannot be met by St. Renatus. See “Risk Factors--Risks Related to Ownership of St. Renatus Units--Management’s Disclosure Regarding Going Concern Qualification.” St. Renatus has revised its product sales techniques in an effort to transform St. Renatus into a consumer-focused sales and marketing enterprise. See “Information about St. Renatus—Sale and Marketing and Unacceptable Company Sales; Transformation of Company to a Consumer-Focused Sales and Marketing Enterprise.”

 

March/April/May 2018 Bridge Financing 

 

At this time St. Renatus has secured $6,336,333 in new debt bridge financing (the “Bridge Financing”) from its directors and our major investor, but we have not secured or identified any additional financing. We do not have any firm commitments or other identified sources of additional capital from third parties, from our officers and directors or from other unitholders. As of the date of this Memorandum, $3 million of the Bridge Financing has been received in March and April 2018. Additional payments of $1 million was received in May 2018, $0.2 million in August 2018, $0.5 million in September 2018 and $0.6 million in October 2018. The remaining $1.036 million is from the conversions of the March 31, 2018 maturing notes into notes maturing March 31, 2021. The Bridge Financing will be fully or partially convertible in the discretion of the holder at a conversion price equal to 30% of the Unit price in this offering of $70, or a $49 conversion price. Interest will be payable annually on the Bridge Financing at a rate of 14.5% until its maturity during March to October of 2021. If the notes are not converted, extended or repaid prior to maturity, we will be obligated to repay the principal amount and interest under the existing notes at maturity in cash, subject to the ability of the holder to convert the principal into common units. Our ability to repay these convertible notes will depend on our financial resources at the time the notes mature.

 

Outstanding Convertible Notes Due at Maturity

 

St. Renatus currently has four issues of convertible debt outstanding in addition to the Bridge Financing described above, two issuances of wholly convertible debt and two issuances of partially convertible debt, as follows:

 

 

a.

$1,000,000 in wholly convertible notes issued in December 2017 to two major investors, represented on the Board of Directors, with such notes originally maturing on March 31, 2018 but which maturity date was recently extended by the lenders until March 31, 2021. As a condition to agreeing to extend these note to March 31, 2021, the Company agreed to modify these notes to have the same terms as the Bridge Financing described above. If the notes are not converted, extended or repaid prior to maturity, we will be obligated to repay the principal amount and interest under the existing notes at maturity in cash, subject to the ability of the holder to convert the principal into common units. Our ability to repay these convertible notes will depend on our financial resources at the time the notes mature.

 

 

b.

$4,935,139 in wholly convertible notes issued in August, September, and October of 2017 to four major investors, three of whom are represented on the Board of Directors, with such notes maturing on December 31, 2019. These notes bear interest at a 10% annual rate, payable annually, and the notes and unpaid interest are wholly convertible at a conversion price equal to (i) 80% of the next qualified financing; (ii) the price Common Units are offered in this offering; or (iii) after December 31, 2018 (if no qualified financing has occurred), $150 per Common Unit. If the notes are not converted, extended prior to maturity, we will be obligated to repay the principal amount and interest in cash, subject to the ability of the holder to convert the principal into common units. Our ability to repay these convertible notes will depend on our financial resources at the time the notes mature.

 

3

 

 

 

c.

$7,678,962 in partially convertible notes issued between April and July 2017, and maturing on December 31, 2018. These notes bear interest at a 10% annual rate, payable annually, and are 50% convertible into non-voting Common Units at a conversion price of $150 per Common Unit. If the notes are not converted, extended or repaid prior to maturity, we will be obligated to repay the principal amount and interest under the existing notes at maturity in cash, subject to the ability of the holder to convert the principal into common units. Our ability to repay these convertible notes will depend on our financial resources at the time the notes mature.

 

 

d.

$2,050,000 in partially convertible notes issued in 2013 and 2014, previously maturing on December 31, 2017, but extended to December 31, 2018. These notes bear interest at a 12% annual rate and are 50% convertible into non-voting Common Units at conversion prices of $100 per Common Unit, with respect to notes with a principal amount of $1,800,000, and $130 per Common Unit, with respect to notes with a principal amount of $250,000. If the notes are not partially converted, extended or repaid prior to maturity, we will be obligated to repay the principal amount and interest under the existing notes at maturity in cash, subject to the ability of the holder to convert a portion of the principal into common units. Our ability to repay the partially convertible notes will depend on our financial resources at the time the notes mature.

 

Non-Binding Agreement to Acquire Apollonia, LLC and Nasadent, LLC

 

            St. Renatus entered into a non-binding memorandum of understanding (“MOU”) with Apollonia LLC (“Apollonia”), Nasadent, LLC (“Nasadent”), Nasadent’s three principals, and the Company’s two founders, by which St. Renatus will acquire all outstanding equity interests in Apollonia and Nasadent. The Merger that is the subject of this Offering Circular reflects this agreement with Apollonia. St. Renatus is proceeding with a similar acquisition of Nasadent that is not dependent on the Merger with Apollonia closing. If St. Renatus successfully completes the acquisitions of Apollonia and Nasadent, St. Renatus will eliminate increasingly complex royalty and debt payments and potential disputes between St. Renatus, Apollonia and Nasadent, arising from historical intellectual property and financing agreements. See “Information about St. Renatus--History and Assignment of the ‘499 Patent Rights and Development of Kollar IP.” The MOU provides that the Company will acquire a 100% ownership interest in Apollonia from Apollonia unitholders in exchange for 200,000 common units, representing an approximately 10% interest in St. Renatus. The MOU also provides that the Company will acquire a 100% ownership interest in Nasadent from Nasadent unitholders in exchange for common units in the Company. The St. Renatus founders and other major investors have also agreed in the non-binding MOU to contribute additional common interests in St. Renatus and Apollonia to assist in funding the acquisitions.

 

The Board of Directors of St. Renatus and the two founders believe that implementing the terms of the MOU is in the best interests of St. Renatus and the founders to ensure that the Company gains full rights to its core intellectual property, as well as mitigates any potential claims that could be made against St. Renatus based on the historical agreements between the parties to the MOU. See “Information about St. Renatus--History and Assignment of the ‘499 Patent Rights and Development of Kollar IP.” Upon completion of the respective transactions with Apollonia and Nasadent contemplated in the MOU, Ryan A. Martarano, a director of Apollonia, and Jamie R. Clay, D.M.D., a principal of Nasadent, will become members of the Company’s Board of Directors.

 

LLC Agreement

 

The St. Renatus LLC Agreement sets forth the terms and conditions upon which we conduct our business and affairs. The agreement also sets forth the rights and obligations of our members. Pursuant to the LLC Agreement, unitholders holding voting rights exceeding 50% of our outstanding voting rights have the ability to elect Directors and remove some or all of our Directors from our Board of Directors. See “Description of St. Renatus Units--Summary of the LLC Agreement” for more information.

 

Tax Status

 

The Merger involves the exchange of one security classified as a partnership interest for U.S. tax purposes for another security classified as a partnership interest for U.S. tax purposes and, as such, the Merger is not expected to have material tax consequences to the Apollonia unitholders. See “Material U.S. Federal Income Tax Consequences—Material U.S. Federal Income Tax Consequences of the Merger.” Your tax treatment will depend on your specific situation and many variables not within our control. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you.

 

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St. Renatus, like Apollonia, is currently taxed as a partnership for federal and state income tax purposes. As such, St. Renatus’ income, gain and loss passes through to its members. The ability to use losses may be restricted. Income and gain may be allocated to a member who will be taxed on such income or gain irrespective of the amount of any cash distribution from St. Renatus. Investors will be subject to tax in states where St. Renatus conducts its business. Certain states may require St. Renatus to withhold state taxes on St. Renatus income sourced in such state. To the extent possible, St. Renatus plans to file returns on behalf of its unitholders in states where it is subject to tax, pay any required tax and deduct such amount from distributions otherwise payable to its unitholders. Tax-exempt members may be subject to tax on income or gain generated by St. Renatus. See “Material U.S. Federal Income Tax Consequences—Material U.S. Federal Income Tax Consequences of St. Renatus Common Unit Ownership.” Your tax treatment will depend on your specific situation and many variables not within our control. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you.

 

The St. Renatus Board of Directors, under certain circumstances described in the LLC Agreement, may decide to convert St. Renatus into a corporation, which would change the tax classification of St. Renatus. See “Description of St. Renatus Units--Summary of the St. Renatus LLC Agreement – Board of Directors Power to Convert St. Renatus to Corporate Form.”

 

The United States Congress has enacted comprehensive tax legislation that may have a generally favorable impact on certain investors who receive “qualified business income” from pass-through entities for taxable years beginning in 2018. The tax legislation also provides for significantly lower tax rates for taxable C corporations, which may cause the Company’s Board of Directors to consider changing the Company to C corporation status after analyzing the tax advantages and costs associated with such a conversion. You are advised to consult with your tax advisor as to the scope and status of any new tax legislation and its impact on you as an investor in the Company.

 

Risk Factors

 

An investment in St. Renatus involves a high degree of risk. See “Risk Factors” for factors that Apollonia unitholders should consider before voting on the Merger.

 

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RISK FACTORS

 

 

In addition to general investment risks and the other information contained in this proxy statement/offering circular, including the matters addressed under the heading “Cautionary Note Regarding Forward-Looking Statements,” you should consider carefully the following risk factors in deciding how to vote on the proposals presented in this proxy statement/offering circular.

 

Risks Related to the Merger

 

Owning an interest in St. Renatus is subject to the same general risks as owning an interest in Apollonia. There are risks relating to the market, the technology, the operations, the government, and other risks that affect businesses of all sizes. The purpose of this section is to summarize the risks related to the merger itself. Those risks include the following:

 

Members will be exchanging their interests in a Minnesota limited liability company for interests in a Delaware limited liability company. 

 

Apollonia and its predecessors were organized under and subject to Minn. Stat. §322B. Pursuant to a statutory mandate, Apollonia became subject to Minn. Stat. §322C, effective as of January 1, 2018. The changes to Minnesota limited liability companies resulting from the enactment of §322C are viewed as making the limited liability company law in Minnesota more like the law in Delaware, which tends to reduce the rights available to individual members. In general, Delaware law tends to favor the entity over the individual owners. A comparison of the rights is set forth below at “Comparison of Rights of Apollonia Unitholders and St. Renatus Unitholders.”

 

Apollonia will be giving up any rights it has as against St. Renatus or any other party.

 

Apollonia assigned certain intellectual property rights to St. Renatus, as documented in the Third Amended and Restated Assignment Agreement (“Assignment”), which provided that the intellectual property would revert back to Apollonia in the event of a breach. Apollonia is not currently aware of any breach of the Assignment or of any other basis for a meritorious claim by it against St. Renatus.

 

Members will become a smaller part of a larger ownership group.

 

After the Merger, Apollonia’s members will no longer have an ownership interest in Apollonia and will collectively own approximately ten percent (10%) of St. Renatus. Thus, Apollonia’s voting members currently have greater voting power with respect to Apollonia than they will with respect to St. Renatus, although Apollonia financial rights holders, who currently have no voting rights at Apollonia, will receive St. Renatus voting common units in the Merger so they will have greater voting rights after the Merger. The concern about reduced voting rights is somewhat offset, however, because Apollonia’s current business activities are minimal and consist primarily of collecting royalties from St. Renatus and distributing them to Apollonia members. Also offsetting the reduction in voting power is the fact that Apollonia’s members currently have no voting power with respect to St. Renatus, but they will have some voting power after the Merger.

 

The likelihood of a financial return will be impacted by the overall profitability of St. Renatus and not just the successful sale or licensing of the product or the intellectual property.

 

Under the Assignment, Apollonia is to receive certain payments based on “Net Sales” or “License Revenue” of specific products sold or licensed by St. Renatus. After the Merger, Apollonia’s former owners will become direct owners of St. Renatus and they will be entitled to the same dividends or distributions as the other owners of St. Renatus common units based on all revenue generated by St. Renatus from any source. Thus, sales by St. Renatus could be substantial, but profits and dividends could be minimal if St. Renatus has high fixed costs or other expenses that would not be considered in calculating the royalty and that would otherwise be owed under the Assignment if the Merger did not occur.

 

The merger forecloses other options.

 

Apollonia’s principal asset at this time is the right to receive payments under the Assignment. There is the possibility that a buyer exists that would pay to acquire the right to receive those payments. Given the uncertainty that currently exists, it would be difficult to establish an appropriate price for such rights independently from a sale of St. Renatus.

 

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The ability to recover “Invested Cash” may be affected.

 

Apollonia’s governing documents provide that unitholders with actual cash invested are to receive repayment before any other payments are made to unitholders. As part of the Merger, holders who have “invested cash” (as defined) are receiving a preferential allocation of a portion of the aggregate merger consideration consisting of a total of 200,000 St. Renatus common units. Specifically, each unitholder who has an “invested cash” balance owing will receive the number of St. Renatus common units equal to the amount of the remaining balance of their “invested cash” divided by $70. The St. Renatus common units remaining after satisfying the distribution obligation to those Apollonia unitholders who are to be repaid their “invested cash” balance will be distributed pro rata among all Apollonia unitholders based on their respective common units and/or financial rights units ownership percentage. Thus, instead of receiving a preferential cash distribution that is available as a result of the current royalty provisions in the Assignment, Apollonia unitholders with invested cash will own larger percentages after the Merger than they do currently as compared to other Apollonia holders. Apollonia unitholders who have an “invested cash” balance owing to them will share distributions after the Merger proportionately to all St. Renatus holders of voting common units. See “The Merger Agreement—Allocation of Merger Consideration to Apollonia Unitholders.”

 

The proposed Nasadent transaction might not occur.

 

While the current plan is for the Nasadent interests to be exchanged for ownership in St. Renatus, the transactions are independent and one could happen even if the other does not. An objective of the transactions is to unify the interests in a way that facilitates future financing and operations, and that objective could be adversely impacted if the Nasadent interests remain separate. See “Summary--Non-Binding Agreement to Acquire Apollonia, LLC and Nasadent, LLC.”

 

Risks Related to Ownership of St. Renatus Units

 

Management’s Disclosure Regarding Going Concern Qualification

 

St. Renatus has received a going concern qualification with its 2017 Audit Opinion. The poor results of the product launch and flagging Kovanaze® sales coupled with the weakness of the balance sheet left no alternative for our auditors, especially in the face of The Auditing Standards Board’s (ASB) new Statement No. 132 on auditing standards, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern, updated guidance in this area and became effective for audits of financial statements for periods ending on or after Dec. 15, 2017, and reviews of interim financial information for interim periods beginning after fiscal years ending on or after Dec. 15, 2017.

 

Statement No. 132 aligned with the new FASB standard’s explicit definition of substantial doubt about an entity’s ability to continue as a going concern. The FASB standard established that there would be going concern issues if it is probable that the entity will not be able to meet its obligations within a year of when financial statements are issued. Without the earnings upswing that was projected in 2017, that test cannot be met.

 

The FASB standard now places the disclosure responsibility on management, and their auditors must now review these disclosures along with other evidence as part of their audits. SAS No. 132 contains new guidance addressing the auditor’s responsibilities when companies rely on financial support from third parties or their major investors. Management’s projections about future debt or equity financings is no longer sufficient to satisfy the new rules. The new rules require the auditor to obtain sufficient, appropriate audit evidence about potential investors’ intent and their ability to provide the necessary financial support. That evidence may be either by written evidence about their (or a third party’s) commitment or by getting that evidence directly from any third party.

 

The ability of St. Renatus to raise new investment and especially new equity has been significantly impacted by two factors. The first is the slow progress in executing the merger of Apollonia and Nasadent. While it appears that the many hurdles to this important gating event have been cleared, the uncertainty relative to the complicated and potentially litigious claims among St. Renatus, Apollonia, and Nasadent compounded an already complex story and has kept potential new investors on the sidelines.

 

Secondly, the excitement of having achieved a coveted FDA new drug approval and the initial launch to dealers lost both momentum and luster, and sales of Kovanaze® came to a near standstill. Accordingly, the Company was faced with the costs of addressing significant liabilities while simultaneously needing to bear the costs required to fund the marketing and sales initiatives to overcome dentist indifference and the lack of consumer awareness. Funding the Company’s short-term requirements during this period has been met by members of the board through debt investment, but additional funding beyond the current commitments cannot be assured. We expect to achieve the necessary funding through a series of initiatives to be pursued in parallel.

 

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The first is a new raise of equity. While we authorized a 200,000 unit offering at $130 with million-dollar breakpoints depending on the size of the investment, we have generated no takers. Current investors are fatigued, and new investors are hard pressed to buy in at historical prices that anticipated strong and growing sales. Given the new reality, the board will reprice the issue at an offer not likely to exceed $70 per unit. The second initiative involves the potential licensing of one or more follow-on medical indications to one or more parties who have the wherewithal not only to pay us for the right but who have the expertise and capital to properly execute against the opportunity. The third prong of our financing effort involves raising preferred convertible debt or some variant thereof from a strategic partner who can accelerate the development and traction of our digital and social marketing strategy.

 

Ultimately, the success of the Company will be predicated by the willingness of consumers to seek out and pay for the use of Kovanaze® for their qualifying dental procedures. Our research suggests that 92 million Americans suffer from a clinical fear of needles. Our challenge is to marshal their desire for a needle-free alternative in a manner that overcomes the relative indifference of dental professionals.

 

Until recently, St. Renatus was a development stage company with no operating history, and it expects future losses.

 

St. Renatus was formed in September 2006. Until recently, St. Renatus was a development stage company with no operating history upon which an evaluation of its business and prospects could be based. St. Renatus is not profitable and has incurred losses in each year since it commenced operation in 2008. In addition, St. Renatus has limited experience and has not yet demonstrated an ability to successfully overcome many of the risks, uncertainties, expenses and difficulties frequently encountered by companies with limited funds in their early stages of commercialization and product launch of new products for the rapidly evolving pharmaceutical market.

 

There is no assurance that St. Renatus will generate any sustainable revenues. To address these risks and uncertainties, St. Renatus must:

 

 

successfully execute its business and marketing strategy;

 

 

develop its technologies and commercialize products incorporating its technologies;

 

 

successfully achieve market approval from foreign authorities comparable to its FDA approval;

 

 

develop and maintain strategic relationships;

 

 

respond to competitive developments; and

 

 

attract, integrate, retain and motivate qualified personnel.

 

Any inability to accomplish one or more of these objectives may have a material adverse effect on St. Renatus’ business financial condition and results of operation.

 

St. Renatus expects to incur significant operating expenses as it continues to commercialize Kovanaze® Nasal Spray dental anesthetic technology. In addition, St. Renatus has ongoing payment obligations to its employees, and its vendors, each of which represents sizable cash outlays before it generates any significant revenue. St. Renatus cannot assure you that it will succeed in commercializing Kovanaze® Nasal Spray dental anesthetic, generate substantial revenues, or achieve profitability at any time in the future.

 

St. Renatus previously laid off substantially all of its full-time employees and, despite rehiring critical employees, its ability to attract and retain qualified employees may be negatively impacted.

 

St. Renatus’ ability to attract and retain qualified employees may be limited due to its previous layoff of substantially all of its full-time employees although many of them were subsequently rehired. On January 12, 2018, St. Renatus terminated substantially all of its employees due to a delay in bringing all parties to agreement on the terms of the memorandum of understanding, or MOU, related to the Merger, resulting in an inability to raise additional funds to implement St. Renatus’ new marketing launch plan. A skeleton group of laid-off employees provided greatly needed interim assistance to St. Renatus in the belief that acceptable merger terms would be struck, and that preparation to launch St. Renatus’ marketing plan needed to advance without interruption. With the execution of the MOU, and understanding that the transactions contemplated therein would take several months to finalize, the largest investors in St. Renatus agreed to provide bridge financing loans. These financings, among other things, enabled St. Renatus to hire back key members of the staff and St. Renatus believes it will allow it to attract critical new employees. A number of laid off employees were rehired effective March 19, 2018 and a few new offers to prospective employees have been extended since then. Certain employees who were laid off have obtained other employment and will not be available to be rehired. These employees may need to be replaced so St. Renatus has sufficient employees to execute the launch plan, supervise the manufacture of product, and meet related regulatory requirements needed to fulfill orders received on the anticipated launch. There can be no assurance that St. Renatus’ past actions with respect to its employees will not limit its ability to attract and retain qualified employees.

 

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St. Renatus needs to raise additional capital to meet its future business requirements and such capital raising may be costly or difficult to obtain and could dilute current unitholders’ ownership interests.

 

St. Renatus is seeking to raise additional financing, in order to implement its product commercialization plans and meet its capital needs for the next 18 to 24 months of operations. St. Renatus has a number of vendors who have invoices that are overdue. While most of St. Renatus’ vendors are working with it to accommodate its cash flow availability, it is possible that vendors will refuse service or sales of goods to St. Renatus unless it brings its accounts payable current, or reaches some other accommodation. St. Renatus’ contract manufacturing organizations and other vendors may threaten to delay delivery of goods and services or delay production unless St. Renatus reaches an accommodation with them on unpaid invoices, and there can be no assurance St. Renatus will be successful in that regard. See “Risk Factors--Management’s Disclosure Regarding Going Concern Qualification.” St. Renatus does not have any firm commitments or other identified sources of additional capital from third parties, its officers and directors, or other unitholders. There can be no assurance that additional capital will be available to St. Renatus, or that, if available, it will be on terms satisfactory to the company. If St. Renatus does not obtain additional capital on terms satisfactory to it, or at all, it may cause it to delay, curtail, scale back or forgo some or all of its business operations, which could have a material adverse effect on its business and financial results, and investors would be at risk to lose all or a part of any investment in the company.

 

Uncertainty exists as to whether St. Renatus’ business will have sufficient funds over the next six months, thereby making an investment in the company speculative.

 

St. Renatus requires additional financing to commercialize Kovanaze®, until sufficiently self-sustaining revenue can be generated by product sales. See “Risk Factors--Management’s Disclosure Regarding Going Concern Qualification.” In the event St. Renatus is unable to generate sufficient revenues through its commercialization efforts, and all of the funds now held by it and obtained by it through equity offerings or otherwise are expended, an investment made in St. Renatus may decrease in value. If adequate funds are not available to St. Renatus on a timely basis, St. Renatus may be required to delay, limit, reduce or terminate its establishment of sales and marketing, manufacturing or distribution capabilities or other activities that may be necessary to commercialize Kovanaze®.

 

St. Renatus will need additional financing to commercialize its product and fund follow-on development efforts, which it may not be able to obtain when needed and which, if it does obtain it, may lead to dilution of your investment.

 

If St. Renatus’ operations progress as anticipated, it expects its cash on hand to allow it to meet its cash requirements through June 30, 2019. In addition, if its operations do not progress as anticipated, St. Renatus will require other additional financing earlier than expected. In any case, St. Renatus cannot assure you that additional financing will be available to it on favorable terms, or at all. If St. Renatus is unable to obtain additional financing, its business and operations will suffer. Additional financing may include sales of debt or equity securities or loans from banks or other financial institutions.

 

To the extent St. Renatus raises funds through the issuance of equity securities, it may need to increase its authorized units, and the percentage ownership of the then current members may be reduced. If additional funds are raised through the issuance of debt securities, such securities could have certain rights, preferences and privileges senior to those of the holders of St. Renatus units, and the terms of such debt could impose restrictions on its operations. If St. Renatus raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, it may have to relinquish certain valuable rights to its product, future revenue streams or grant licenses on terms that may not be favorable to St. Renatus.

 

Kovanaze® Nasal Spray dental anesthetic is a new approach to dental anesthesia that may not be accepted by the market.

 

The dental anesthetic market is highly competitive. The commercial success of Kovanaze® will require broad recognition and acceptance by the dental community and patients, and depend, in part, upon clinical results, and the conclusions of the dental community as to the safety, efficacy, and cost-effectiveness of Kovanaze®. There can be no assurance that Kovanaze® will provide benefits considered adequate by dentists or patients, or that a sufficient number of dentists and patients will use Kovanaze® in order to achieve commercial success. Failure of Kovanaze® to achieve market acceptance would have a material adverse effect on St. Renatus’ business, financial condition, and results of operations.

 

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St. Renatus’ initial efforts to commercialize its product were not successful and its transformation to a consumer-focused sales and marketing enterprise may not be successful.

 

St. Renatus’ initial efforts to commercialize Kovanaze® after receiving FDA approval were not successful and there is no assurance that its revised plan will be successful. St. Renatus’ initial product launch efforts in late 2016, relied almost exclusively on the indirect sale of Kovanaze® through several national dental distributors and their respective sales forces. This strategy proved to be only marginally useful. While St. Renatus learned valuable information regarding market friction and the perceptions of its value proposition, it became increasingly clear that the chosen strategy would not result in product sales as projected, and certainly not without significant new equity investment and a significant change in marketing strategy, product positioning and sales direction. In response to this learning and the challenges posed, the Board of Directors of St. Renatus determined that the company could achieve greater value by focusing on a review of its corporate strategy, culture, and management. As a result of this review, St. Renatus accepted the resignation of its Chief Operating Officer and terminated its Chief Executive Officer, as well as most of its employees involved in the marketing and sales effort. Additionally, the Board of Directors transformed the company from a research and development venture managing anticipated sales through dental distributors to a consumer service and product company, dealing direct, and executing against a fresh and robust marketing strategy. See “Information about St. Renatus—Sales and Marketing.” There is no assurance that St. Renatus will be successful in its new marketing strategy, and failure to execute the strategy may significantly affect the future viability of its business.

 

St. Renatus has limited marketing experience and a small sales organization and could experience difficulty selling Kovanaze® Nasal Spray dental anesthetic.

 

St. Renatus has extremely limited experience in the marketing and sale of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including its ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. St. Renatus cannot assure you that its future marketing efforts will result in strong sales activity or that it will be able to develop an effective distribution network or an effective sales organization. If St. Renatus fails to develop an effective marketing and sales organization or an effective distribution network, it will suffer material adverse effects on its business and financial condition.

 

The FDA and other applicable regulatory agencies restrict St. Renatus’ ability to market or advertise its products to the scope of its approved label for the applicable product, which could limit dentist and patient adoptions. St. Renatus may attempt to develop, and if approved, promote and commercialize, new treatment indications for its products in the future, but it cannot predict when or if it will receive the regulatory approvals required to do so. Failure to receive such approvals would prevent St. Renatus from promoting or commercializing the new treatment indications. St. Renatus operations will also be subject to the federal transparency requirements under the Patient Protection and Affordable Care Act, which requires manufacturers of drugs, devices, biologicals and medical supplies to annually report information related to payments and other transfers of value to dentists and teaching organizations and certain company ownership and investment interests held by dentists and their immediate family members, to the government.

 

If St. Renatus is found to have improperly promoted off-label uses, or if healthcare professionals improperly use its product, St. Renatus may become subject to prohibitions on the sale and/or marketing of its product, significant sanctions, product liability claims, and its image and reputation within the industry and marketplace could be harmed.

 

The FDA and other regulatory agencies strictly regulate the marketing and promotion of prescription pharmaceuticals and medical devices. In particular, a product may not be promoted for uses or indications that are outside of the product’s approved labeling provided by the FDA. While dentists are able to, in their independent medical judgment, use Kovanaze® off-label, St. Renatus as a company cannot in any way promote such off-label uses. If St. Renatus is found to have promoted such off-label uses, it may receive warning letters, sanctions and liability that could significantly and materially harm its business. The federal government has levied large punitive civil and criminal fines against pharmaceutical companies deemed to have engaged in off-label drug promotion. If St. Renatus becomes the target of such an investigation or prosecution based on its marketing and promotional practices, it could face similar sanctions, which would materially harm its business.

 

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St. Renatus faces significant competition from well-established competitors and, as a result, may be unable to sell Kovanaze® Nasal Spray dental anesthetic at profitable levels.

 

St. Renatus’ ability to compete depends upon many factors both within and beyond its control, including the timing and market acceptance of new products and enhancements to existing products developed either by St. Renatus or its competitors; customer service and support efforts; sales and marketing initiatives; and the ease of use, performance, price, and reliability of solutions developed either by St. Renatus or its competitors.

 

St. Renatus competes for sales of dental anesthetics used in dental procedures with large, well-established dental anesthetic manufacturers and brands such as Septodont, Inc., DENTSPLY International, Abbott Laboratories and Carestream. While St. Renatus is not aware of any product that competes directly with Kovanaze® Nasal Spray dental anesthetic technology, it still competes with existing manufacturers’ injectable and topical anesthetic products. Additionally, St. Renatus faces competition from companies like BioDent, TuttleNumbNow, LLC, Anutra Medical, and Onpharma, who manufacture and market devices and systems that reduce the discomfort of injections and anesthesia. Most of St. Renatus’ existing competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than St. Renatus. This may allow them to respond more quickly than St. Renatus can to changes in customer requirements. It may also allow them to devote greater resources than St. Renatus can to the development, promotion and sale of their products and services. Such competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential employees, strategic partners and advertisers.

 

Kovanaze® Nasal Spray dental anesthetic is St. Renatus’ only product, and therefore if St. Renatus fails to successfully develop and commercialize it, its business would suffer.

 

Currently, Kovanaze® Nasal Spray dental anesthetic is St. Renatus’ only product. At this time, St. Renatus is not developing and has no immediate plans to develop other products. Therefore, the success of St. Renatus depends upon the success of Kovanaze® Nasal Spray dental anesthetic.

 

St. Renatus has limited manufacturing experience and will depend on third parties to manufacture and package Kovanaze® Nasal Spray dental anesthetic. Additionally, St. Renatus will be subject to periodic inspections.

 

St. Renatus has limited experience in manufacturing Kovanaze® Nasal Spray dental anesthetic. St. Renatus outsources all of its manufacturing to contract manufacturers, who it is completely dependent on, and who must be approved by the FDA and possibly other regulatory authorities. St. Renatus has no control over the ability of its contract manufacturers or other third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Manufacturers often encounter difficulties in scaling up production of new products, including problems involving product yields, controlling and anticipating product costs, quality control and assurance, component supply, shortages of qualified personnel, and compliance with the FDA’s current Good Manufacturing Practice (cGMP) regulations. In addition, St. Renatus cannot assure you that the third-party contract manufacturers will have the ability to produce the quantities of its product to compete successfully in the market. In addition, St. Renatus cannot assure you that the third-party manufacturers with whom it has reached agreements to manufacture the product will not experience future regulatory or manufacturing difficulties beyond St. Renatus’ control. St. Renatus’ FDA approval is subject to periodic inspection of its facilities and the facilities and plants of its direct and indirect suppliers, including the review of production processes and testing of St. Renatus’ products to confirm that it is in compliance with all applicable regulations. St. Renatus’ manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for Kovanaze® is subject to extensive and ongoing regulatory requirements. Any difficulties in locating and hiring new or additional third-party manufacturers, or in the ability of third-party manufacturers to supply products at the times and in the quantities St. Renatus needs, could have a material adverse effect on its business. Reliance on third-party manufacturers entails additional risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing agreement by the third party, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for St. Renatus. Any change in St. Renatus’ manufacturers could be costly because the commercial terms of any new arrangement could be less favorable, and because the expenses relating to the transfer of necessary technology and processes could be significant.

 

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The components used in manufacturing Kovanaze® and the vendors from whom St. Renatus acquires components of its product, as well as locations where St. Renatus manufactures, packages, inspects and tests, distributes and stores its product prior to release for sale are all specifically approved by the FDA, and they are not easily replaced.

 

Because there are a limited number of suppliers for the raw materials that St. Renatus uses to manufacture its product, it may need to engage alternate suppliers to prevent a possible disruption in the manufacture of the supplies and materials necessary to produce its product. Certain product components, most importantly the spray device that St. Renatus uses to deliver Kovanaze® to patients through nasal administration, are obtained from a single source of supply with no FDA-approved alternative vendor available to St. Renatus. Should the Nasal Spray device vendor stop producing its sprayer component or deliver a product that is unable to meet applicable FDA specifications, St. Renatus would not be able to produce any product until it obtained FDA approval to utilize a replacement spray device, thereby causing a material adverse effect on its business. St. Renatus selected a spray device for its product that is identical to the device used to deliver annual FluMist™ flu vaccines to patients internasally, so it is expected that the manufacturer will continue to produce an acceptable number of devices, but there can be no assurance in that regard. The U.S. government temporarily halted the use of the FluMist™ flu vaccine in the United States for the 2016-2017 and 2017-2018 flu seasons, however it has since reinstated FluMist™ for the 2018-2019 flu season. St. Renatus believes that FluMist is the only other major customer for its approved nasal spray device which is produced by Becton, Dickinson and Company (“BD”).

 

If the contract manufacturers that St. Renatus relies on experience difficulties with manufacturing its product or fail FDA inspections, St. Renatus’ ability to commercialize its product and generate revenue may be significantly delayed.

 

There are a variety of risks associated with commercial manufacturing of St. Renatus’ product including, among others, potential problems with forecasting and cost overruns, process reproducibility, storage availability, stability issues, lot consistency and timely availability of raw materials and supplies. Contract manufacturers that St. Renatus selects to manufacture Kovanaze® Nasal Spray dental anesthetic for commercial use may encounter difficulties with the small and large-scale formulation and manufacturing processes required for such manufacture. These difficulties could result in delays in future regulatory submissions or commercialization of St. Renatus’ product. When a product, such as Kovanaze®, is approved and is being marketed, these difficulties could also result in the subsequent recall or withdrawal of the product from the market or failure to have adequate supplies to meet market demand. Even if St. Renatus is able to establish additional or replacement manufacturers, identifying these sources, entering into definitive supply agreements, and obtaining regulatory approvals may require a substantial amount of time and cost, and such supply arrangements may not be available on commercially reasonable terms, if at all.

 

In addition, St. Renatus and its contract manufacturers must comply with cGMP, requirements, strictly enforced by the FDA through its facilities inspection program. Many other countries have similar requirements which manufacturers must follow. These requirements include quality control, quality assurance and the maintenance of records and documentation. St. Renatus, or its contract manufacturers, may be unable to comply with cGMP requirements, or with other FDA, state, local and foreign regulatory requirements. St. Renatus has little control over its contract manufacturers’ compliance with these regulations and standards, or with their quality control and quality assurance procedures. Development of large-scale manufacturing processes will require validation studies, which the FDA may review in any inspections it undertakes of St. Renatus’ contract manufacturers. Failure to comply with these requirements by St. Renatus’ contract manufacturers could result in the issuance of warning or similar cautionary letters from authorities, as well as sanctions being imposed on St. Renatus, including fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall or withdrawal of product approval. If the safety of the product manufactured or supplied by contract manufacturers is compromised due to their failure to adhere to applicable laws, or for other reasons, St. Renatus may not be able to maintain regulatory approval for or successfully commercialize Kovanaze® Nasal Spray dental anesthetic, which would harm its business and prospects significantly.

 

If one or more of St. Renatus’ contract manufacturers were to encounter any of these difficulties or otherwise fail to comply with its contractual obligations, future clinical trials that might need to be conducted to obtain foreign regulatory approvals could also be affected. Any delay or interruption in the supply of clinical trial supplies for clinical trials for foreign regulatory approvals could delay the completion of St. Renatus’ clinical trials, increase the costs associated with maintaining St. Renatus’ clinical trial programs and, depending on the period of delay, require St. Renatus to commence new trials at significant additional expense or terminate the trials completely. If St. Renatus needs to change to other commercial manufacturers, the FDA must first approve (and comparable foreign regulators may need to approve) these manufacturers’ facilities and processes, which could require new testing and compliance inspections, and the new manufacturers would have to be educated in or independently develop the processes necessary for the production of Kovanaze® Nasal Spray dental anesthetic.

 

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St. Renatus has paused its manufacturing several times since 2017 and may continue to experience manufacturing problems.

 

St. Renatus has paused manufacturing several times since the beginning of 2017 due to lack of robust product sales. St. Renatus’ prior batch of product was completed at its contract manufacturing organization, Catalent, in October 2017. Finished inventory as of February 2018 comprised about 75,660 sprayers that fill approximately 2,522 product cartons. Slow sales in 2017 left St. Renatus with approximately 6,300 cartons of expired product, which were written off in November and December, 2017. An additional 29,160 sprayers expired at the end of February 2018. The remaining 46,500 sprayers, or 1,550 cartons, expired at the end of June 2018. Manufacturing of the current batch of 1,000 cartons was completed in September 2018 and began shipping on October 3, 2018.

 

If St. Renatus’ customers cannot obtain third-party reimbursement for their use of its product, they may be less inclined to purchase its product.

 

St. Renatus’ product will generally be purchased by dental professionals who have various billing practices and patient mixes. Such practices range from primarily private pay (fee for service) to those who rely heavily on third-party payors, such as private insurance or government programs. While it is possible that the Kovanaze® Nasal Spray dental anesthetic could be reimbursed by insurance companies under a specific Current Dental Terminology (CDT) code that allows dentists to submit procedures and products for insurance reimbursement, currently no such code exists for the product. At the current time, restorative dental procedures requiring local anesthesia are submitted to insurance as a single “all inclusive” fee and not separated out for individual reimbursement of local anesthesia. On November 1, 2017, the American Dental Association’s Code Maintenance Committee (CMC) began consideration of applications to revise and update the Code on Dental Procedures and Nomenclature (CDT) 2019. Multiple dental professionals submitted applications for a new CDT code that would include Kovanaze®, but after review, the CMC did not adopt any of these codes. It is unknown whether or not any future CDT codes will be submitted that would cover Kovanaze®. In addition, even if a CDT code for Kovanaze® is established, insurance payors may (i) deny coverage and reimbursement if they determine that a procedure or product is not medically necessary, and (ii) review and challenge the prices charged for dental services or products resulting in reduced or refused reimbursement. Additionally, if dentists participate in certain insurance plans, they may be precluded from charging patients enrolled in such plans a fee for Kovanaze®. In many foreign countries, the prices for dental services are predetermined through government regulation. If a national healthcare system is established in the United States, dental service fees may become predetermined, and thus any existing reimbursement for Kovanaze® may be reduced or eliminated. St. Renatus cannot predict what effect the policies of third-party payors or Federal and/or state governments may have on future sales of its product, and therefore there can be no assurance that such policies will not cause an adverse impact on its revenue.

 

In order to successfully execute its business plan, St. Renatus will need to attract and retain a strong Board of Directors.

 

St. Renatus’ Board of Directors has been altered significantly since January 2017 and a majority of unitholders could further alter the composition of the Board. Pursuant to St. Renatus’ limited liability company agreement, unitholders holding more than 50% of its outstanding voting rights have the ability to remove some or all of the directors from the Board of Directors. Five of the directors resigned from the Board in February 2017 as part of the resolution of a dispute. The reconstituted Board has the power to remove any of St. Renatus’ officers or employees, subject to any existing employment agreements. Two of the directors on the reconstituted Board resigned in August 2017 and one of those directors, Dr. Eric Lodewijk, resigned in March 2018. On October 30, 2017, two new directors were elected to the Board of Directors. St. Renatus will need to attract and retain qualified directors to successfully execute its business plan. As a condition of the mergers with Apollonia and Nasadent, each of those companies will obtain a director on the St. Renatus Board of Directors upon closing of the respective mergers, with such directors subject to the consent of the St. Renatus members at its next annual meeting.

 

St. Renatus’ ability to pursue the commercialization of Kovanaze® Nasal Spray dental anesthetic depends on its ability to make certain payments to Apollonia, which payment will be eliminated upon completion of the Merger.

 

St. Renatus obtained rights to Kovanaze® Nasal Spray dental anesthetic technology pursuant to the Apollonia Assignment Agreement, according to which Apollonia assigned to St. Renatus its entire right, title and interest to the ‘499 Patent, the Investigational New Drug application filed in January 2006 for Kovanaze® Nasal Spray dental anesthetic (the “NDA”), and all related intellectual property.

 

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The Apollonia Assignment Agreement requires St. Renatus to pay various upfront milestone payments to Apollonia out of its net sales revenues, plus a running royalty of 10% of net sales by St. Renatus or one of its affiliates, and 30% of license revenue received by St. Renatus (only if St. Renatus chooses to sub-license the technology as permitted outside the United States). It also provides that if St. Renatus does not make such payments to Apollonia when due, after any payment extensions granted by Apollonia or available cure periods are exhausted, that Apollonia may reacquire the rights to the ‘499 Patent and related assigned property from St. Renatus and may terminate the Apollonia Assignment Agreement. On October 12, 2016, Apollonia attempted to perfect its rights to reacquire the ‘499 Patent upon a payment default (even though no payment default has ever occurred), by recording a security interest with the USPTO, and also attempted to create a lien on another St. Renatus patent. Apollonia voluntarily released its liens and the security interests with respect to both patents by making a filing with the USPTO on which St. Renatus was copied, the state UCC filings were released but the USPTO releases were not recorded on the USPTO website until May 3, 2018. If the Merger is completed St. Renatus will no longer have an obligation to Apollonia as described above.

 

If St. Renatus does not complete the acquisition of Apollonia and Nasadent, its future profitability will be adversely affected by the terms of its assignment agreement with Apollonia.

 

Even if St. Renatus is able to successfully execute its business plan, its future profitability will be adversely affected by the terms of the Apollonia Assignment Agreement. The rights to the ‘499 Patent acquired under the Apollonia Assignment Agreement as well as certain claims under the St. Renatus patents that name Dr. Mark Kollar, a founder of St. Renatus, as the sole inventor are collectively referred to herein as the “Patents”. Pursuant to the Apollonia Assignment Agreement, St. Renatus agreed to pay Apollonia (i) a royalty of 10% of net sales by St. Renatus or one of its affiliates of any nasally administered product covered by the Patents; (ii) a royalty of 30% of any license revenue received by St. Renatus from licenses granted by St. Renatus to the Patents, which are limited to licenses outside of the United States; and (iii) a contingent cash payment of $10 million, in specified installments beginning after St. Renatus receives FDA approval and generate product revenues. In January 2014 and March 2015, St. Renatus paid Apollonia a $500,000 royalty payment, with the $1 million total to be credited against the $10 million contingent payment requirement in the Apollonia Assignment Agreement. In January 2017, St. Renatus paid Apollonia $134,700 as a royalty payment for gross sales of Kovanaze® made in the fourth quarter of 2016, and in April 2017 St. Renatus paid Apollonia $18,463 as a royalty payment for gross sales of Kovanaze® made in the first quarter of 2017. Because St. Renatus’ contractual payments to Apollonia are a function of net sales, St. Renatus has submitted a bill to Apollonia for $105,000 in overpayments, resulting from returns by dealers of product Apollonia did not sell, as well as sales from a buy one get one free promotion. St. Renatus owes but has not paid $2,773 in additional royalties to Apollonia in 2018 through the date of this proxy statement/offering circular. If St. Renatus does not complete the acquisition of Apollonia and/or Nasadent, further payment obligations to Apollonia or Nasadent will directly reduce St. Renatus’ future profitability.

 

St. Renatus may not obtain adequate protection for its product through its intellectual property.

 

If St. Renatus’ efforts to protect the intellectual property related to its product are not adequate, it may not be able to compete effectively in the market. St. Renatus relies upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to its product and technology. One of St. Renatus’ primary patents will expire in March 2020 and certain of its other primary patents will expire in April 2030, absent any extension of the patent term. St. Renatus is pursuing additional U.S. patent rights as well as foreign patent rights to further protect its proprietary formulations and related methods and/or uses. St. Renatus is also pursuing worldwide patent rights for additional indications for the nasally administered formulations, including anesthetizing the upper back molars and treating severe headaches, such as migraines. However, St. Renatus’ pending patent applications may not issue as patents, and hence St. Renatus may not be able to obtain additional patent protection relating to Kovanaze® Nasal Spray dental anesthetic technology.

 

St. Renatus’ current patent portfolio and any additional patents (whether U.S. or foreign) that may be issued to St. Renatus in the future may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit its ability to stop competitors from marketing similar products, or limit or eliminate any patent protection St. Renatus may have for Kovanaze® Nasal Spray dental anesthetic products and methods. If St. Renatus’ current patent portfolio and any future patent applications and patents do not provide meaningful protection against competitors making, using or selling competitive products, it will be difficult for St. Renatus to carry out its business plan successfully.

 

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St. Renatus may infringe the intellectual property rights of others.

 

St. Renatus’ commercial success depends significantly on its ability to operate without infringing the patents and other intellectual property rights of third parties, for example, the intellectual property rights of competitors. St. Renatus’ research, development and commercialization activities may be subject to claims that it infringes or otherwise violate patents owned or controlled by third parties. St. Renatus’ competitors may assert that the Kovanaze® Nasal Spray dental anesthetic product or method is covered by, and thus, infringes the claims of one or more U.S. or foreign patents held by them. Third party patents may contain multiple claims, any one of which may be independently asserted against St. Renatus. There may be issued patents, of which St. Renatus is not aware, that the Kovanaze® Nasal Spray dental anesthetic products or methods may be found to infringe, or patents of which St. Renatus is aware and believe it does not infringe but which St. Renatus may ultimately be found to infringe. Patent applications in the U.S. and many other jurisdictions are typically not published until 18 months after their first effective filing date, or in some cases not at all, and their underlying discoveries are in some cases maintained in secrecy until patents are issued. Because patents can take many years to issue, there may be currently pending applications of which St. Renatus is unaware that may later result in issued patents that the Kovanaze® Nasal Spray dental anesthetic products or methods are found to infringe. Moreover, there may be published pending applications that do not currently include a claim covering the Kovanaze® Nasal Spray dental anesthetic products or methods but that nonetheless provide support for a later drafted claim that, if issued, the Kovanaze® Nasal Spray dental anesthetic products or methods could be found to infringe.

 

Third parties could, in the future, assert infringement or misappropriation claims against St. Renatus with respect to Kovanaze® Nasal Spray dental anesthetic. Third parties making claims against St. Renatus for infringement or misappropriation of their intellectual property rights may seek and obtain injunctive or other equitable relief, which could effectively block St. Renatus’ ability to further develop and commercialize its product. Determining whether a product or method would be found to infringe the claims of a particular patent typically involves complex legal and factual issues, the determination of which is often uncertain. St. Renatus has not sought from legal counsel a “freedom to operate” opinion with respect to third party owned patents that may relate to Kovanaze® Nasal Spray dental anesthetic technology. St. Renatus may in the future seek such an opinion of legal counsel. There cannot, however, be any assurance that St. Renatus will receive a clean freedom to operate opinion. St. Renatus may be advised to seek a license to one or more third party patents, and such licenses may not be available on terms acceptable to St. Renatus or at all. Even if St. Renatus does receive a clean freedom to operate opinion, it will be based only on the facts and law as they exist as of the date of the opinion and will have to be updated periodically with respect to the Kovanaze® Nasal Spray dental anesthetic products and methods. Furthermore, even if St. Renatus does receive a clean freedom to operate opinion, it still cannot be certain that the Kovanaze® Nasal Spray dental anesthetic products or methods will be found not to infringe one or more claims of a third-party patent previously known to St. Renatus or of which it was unaware.

 

Patent litigation is costly and time consuming and may subject St. Renatus to liabilities.

 

St. Renatus’ involvement in any patent litigation, interference, opposition, reexamination, post-grant review proceeding, inter partes review proceeding, derivation proceeding, or other administrative proceedings, whether initiated by St. Renatus or a third-party, will likely cause St. Renatus to incur substantial expenses, and the efforts of its technical and management personnel will be significantly diverted. In addition, an adverse determination in litigation could subject St. Renatus to significant liabilities.

 

If St. Renatus is accused of infringing or found to infringe intellectual property rights of third parties, it will adversely affect its business. Claims of infringement or misappropriation of the intellectual property rights of others could prohibit St. Renatus from commercializing Kovanaze® Nasal Spray dental anesthetic or other products, require St. Renatus to obtain licenses from third parties or require it to develop non-infringing alternatives, and subject it to substantial monetary damages and injunctive relief.

 

Any infringement or misappropriation claim could cause St. Renatus to incur significant costs, which could substantially delay the commercialization of Kovanaze® Nasal Spray dental anesthetic and place significant strain on St. Renatus’ financial resources, divert management’s attention from its business and harm its reputation. Although patent and intellectual property disputes in the pharmaceutical area may be settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and may include ongoing royalties. If the relevant third-party patents were upheld in litigation as valid and enforceable and St. Renatus’ products or processes were found to infringe, St. Renatus could be prohibited from commercializing any infringing products or processes unless it could obtain licenses to use the technology covered by the patent or is able to design around the patent. St. Renatus may be unable to obtain a license on terms acceptable to it, if at all, and it may not be able to design its product or process to avoid infringement, and any design may not receive FDA approval in a timely manner, if at all. Any such license could impair operating margins on future product revenue. A court could also order St. Renatus to pay compensatory damages for such infringement, and potentially treble damages, plus prejudgment interest and third-party attorney fees. These damages could be substantial and could harm St. Renatus’ reputation, business, financial condition and operating results. A court also could enter orders that temporarily, preliminarily or permanently enjoin St. Renatus and its customers from making, using, selling, offering to sell or importing infringing products, or could enter an order mandating that St. Renatus undertake certain remedial activities that may significantly delay the FDA approval of the drug. Depending on the nature of the relief ordered by the court, St. Renatus could become liable for additional damages to third parties. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent St. Renatus from manufacturing and selling its product, which would have a significant adverse impact on its business.

 

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In addition, St. Renatus may be required to initiate litigation against parties that it believes infringe its intellectual property rights. Any litigation that may be necessary in the future could place significant strain on its financial resources, divert management’s attention from its business and harm its reputation, even if it were to prevail. Generic drug manufacturers may develop, seek approval for, and launch generic versions of St. Renatus’ product. If St. Renatus files an infringement action against such a generic drug manufacturer, that company may challenge the scope, validity or enforceability of St. Renatus’ patents, requiring St. Renatus to engage in complex, lengthy and costly litigation or other proceedings.

 

St. Renatus may not obtain trademark registrations.

 

St. Renatus has filed and intends to continue to file applications for trademark registrations in connection with Kovanaze® Nasal Spray dental anesthetic product in various jurisdictions, including the U.S. St. Renatus currently has U.S. and foreign trademark applications and registrations to “Kovanaze,” “St. Renatus” and “Renatus.” The Kovanaze® registration issued in the United States on February 28, 2017. No assurance can be given that any of St. Renatus’ trademarks will be registered in the U.S. or elsewhere, or that the use of any registered or unregistered trademarks will confer a competitive advantage in the marketplace. Even if St. Renatus registers its trademarks successfully, the FDA and regulatory authorities in other jurisdictions have their own views concerning appropriate proprietary names for drugs. In May 2015, St. Renatus filed a Request for Proprietary Name Review with the FDA for the name “Kovanaze”, which name was found by the FDA to be “conditionally acceptable” in August 2015. St. Renatus’ NDA approval on June 29, 2016 granted marketing approval to St. Renatus’ use of the name “Kovanaze” for its Kovanaze® Nasal Spray dental anesthetic product. Nevertheless, the FDA could request that St. Renatus reconsider the name for its product because of evidence of confusion in the marketplace. No assurance can be given that any regulatory authority will approve any of St. Renatus’ trademark applications or will not request reconsideration of one of St. Renatus’ trademarks at some time in the future. The loss, abandonment, or cancellation of any of St. Renatus’ trademarks or trademark applications could negatively affect the success of the product candidates to which they relate.

 

St. Renatus operates in a highly regulated industry and needs to maintain regulatory approval for Kovanaze® Nasal Spray dental anesthetic.

 

St. Renatus’ research, development, testing, manufacturing, labeling, packaging, approval, promotion, advertising, storage, recordkeeping, marketing, distribution, post-approval monitoring and reporting, and export and import activities in the United States and other countries are subject to extensive regulation by numerous governmental authorities, including the FDA. These regulations differently from country to country. Although St. Renatus obtained FDA approval to market Kovanaze® in the United States on June 29, 2016, the process of obtaining FDA and other required regulatory approvals for any other products is lengthy, expensive and uncertain. Despite the FDA approval of Kovanaze® St. Renatus is still subject to significant limitations on the indicated uses for which the product may be marketed. These regulatory requirements may, among other things, limit the size of the market for the product. Even after approval, discovery of previously unknown problems with a product, manufacturer or facility, such as previously undiscovered side effects, may result in restrictions on any product, manufacturer or facility, including, among other things, labeling restrictions, a possible product recall or withdrawal of approval of the product.

 

St. Renatus has made initial contacts with a contract research organization to seek approval of its drug in other jurisdictions in Western Europe and possibly other areas of the world. Certain initial contacts with various European regulatory authorities have been made, but no marketing applications have yet been submitted. As with FDA approval, the process of obtaining regulatory approvals in Europe will require St. Renatus to expend substantial resources. St. Renatus could be required to conduct additional clinical trials or other testing beyond what it conducted for FDA approval, and once again, if St. Renatus is unable to successfully complete those clinical trials or other testing, or if the results of those and other trials or tests raise safety concerns or fail to demonstrate efficacy of the drug, it may not obtain marketing approval for its product in those countries.

 

Even though St. Renatus has obtained marketing approval for Kovanaze® in the United States, the marketing, distribution and manufacture of Kovanaze® Nasal Spray dental anesthetic will remain subject to extensive regulatory requirements administered by the FDA and other regulatory bodies. Additionally, St. Renatus’ facilities and the facilities of its contract manufacturers will need to comply with applicable quality assurance regulations and record-keeping rules relating to the manufacture of its product. Failure to comply with any regulatory requirements could, among other things, result in fines, suspensions or withdrawals of regulatory approvals, product recalls, operating restrictions and criminal prosecution. Further changes in existing regulations or their interpretation or adoption of new regulations or policies could prevent St. Renatus from obtaining, or affect the timing of, regulatory approvals on a timely basis or at all, and any delay or failure to receive such approvals, or failure to comply with existing or future regulatory requirements, would have a material adverse effect on St. Renatus’ business.

 

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If regulatory authorities in other countries require additional clinical trials, St. Renatus may be unable to develop its product on a timely basis, which may increase its development costs, and could delay the potential commercialization of its product in those countries and the subsequent receipt of revenue from sales, if any.

 

If St. Renatus decides to move forward with obtaining regulatory approvals in foreign countries and is required to conduct additional clinical trials or other tests, it cannot predict whether it will encounter problems with any of those trials or tests that will cause foreign regulatory agencies, clinical trial institutions, institutional review boards or St. Renatus to delay its clinical trials or suspend or delay the analysis of the data from those trials. Clinical or preclinical trials can be delayed for a variety of reasons, including: discussions with foreign authorities regarding the scope or design of the trials; delays or the inability to obtain required approvals from institutional review boards or other entities responsible for the conduct of trials at sites selected for participation in those trials; delays in enrolling patients into clinical trials; lower than anticipated retention rates of patients in clinical trials; the need to repeat or conduct additional clinical or preclinical trials as a result of problems such as inconclusive or negative results, poorly executed testing or unacceptable design; an insufficient supply of product candidate materials or other materials necessary to conduct clinical or preclinical trials; the need to qualify new suppliers of product candidate materials for foreign regulatory approval; an unfavorable regulatory authority inspection or review of a clinical or preclinical trial site or records of any clinical or preclinical investigation; actions of an institutional review board at a trial site; the occurrence of drug-related side effects or adverse events experienced by participants in clinical trials; or the placement of a clinical hold on a clinical trial or trials.

 

In addition, a clinical trial may be suspended or terminated by St. Renatus or foreign regulatory authorities due to a number of factors, including: failure to conduct the clinical trial in accordance with regulatory requirements or its clinical protocols; inspection of the clinical trial operations or trial sites by foreign regulatory authorities perhaps resulting in the imposition of a clinical hold on the trial; unforeseen safety issues or any determination that a trial presents unacceptable health risks; or lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional trials and increased expenses associated with the services of third parties.

 

Changes in regulatory requirements and guidance may occur and St. Renatus may need to amend clinical or preclinical trial protocols to reflect these changes. Amendments may require St. Renatus to resubmit its clinical trial protocols to regulatory authorities or institutional review boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If the results of St. Renatus clinical trials are not available when it expects or if it encounters any delay in the analysis of data from the clinical trials, St. Renatus may be unable to submit applications or amendments or supplements to applications for regulatory approval or conduct additional clinical trials on the schedule it currently anticipates. Any delays in completing its clinical trials may increase its development costs, would slow down its product development and approval process, would delay its receipt of product revenue and would make it difficult to raise additional capital. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. In addition, it is possible that the results of any further clinical trials could have an impact on the FDA approval for Kovanaze® or the scope of that approval. Further, significant clinical trial delays also could allow competitors to bring products to market in foreign countries before St. Renatus does and impair its ability to commercialize Kovanaze® Nasal Spray dental anesthetic or future products and may harm its business.

 

Even though Kovanaze® Nasal Spray dental anesthetic received marketing approval in the U.S., it could be subject to restrictions or withdrawal from the market, and St. Renatus may be subject to penalties if it fails to comply with regulatory requirements or if it experiences unanticipated problems with Kovanaze® spray dental anesthetic.

 

Any drug for which St. Renatus has obtained marketing approval, such as Kovanaze®, together with the manufacturing processes, any post-approval clinical data, and advertising and promotional activities for such drug, will be subject to continued regulation by the FDA and other regulatory agencies. The FDA provides regulations and guidelines with respect to appropriate promotion, advertising and marketing activities relating to prescription drug products. In addition, the regulations and guidelines may be changed in the future. Although St. Renatus will endeavor to follow these regulations and guidelines, the FDA or other regulatory authorities may disagree, and St. Renatus may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions if these activities are determined, or are perceived, to be inconsistent with regulatory guidelines. Even though regulatory approval of Kovanaze® Nasal Spray dental anesthetic has been granted by the FDA, the approval is subject to limitations on the indicated uses (e.g., use in certain children) and surveillance to monitor the safety or efficacy of the product. Later discovery of previously unknown problems with Kovanaze® Nasal Spray dental anesthetic or its manufacture, or failure to comply with regulatory requirements, may result in, among other things, restrictions on such product or manufacturing processes, withdrawal of the product from the market, recalls, fines, suspension of regulatory approvals, product seizures, or injunctions or the imposition of civil or criminal penalties.

 

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If St. Renatus is slow to adapt, or unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, it may lose marketing approval for its product or face restrictions on the continued marketing of the product.

 

Failure to obtain regulatory approval in foreign jurisdictions could prevent St. Renatus from marketing its product internationally.

 

St. Renatus is considering marketing Kovanaze® Nasal Spray dental anesthetic outside the United States. In order to market the product in the European Union and many other non-U.S. jurisdictions, St. Renatus must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. St. Renatus has engaged a contract research organization, to assist it in preparing applications for approval in several foreign jurisdictions, but no such applications have yet been filed. St. Renatus may be unable to file for regulatory approvals and may not receive necessary approvals to commercialize its product in any market. The approval procedure varies among countries and can involve additional testing and data review. If any additional testing is required, the results of this testing could have an impact on approval in the United States, even though St. Renatus’ NDA has been approved by the FDA. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval discussed in these “Risk Factors.” St. Renatus may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries. The failure to obtain these approvals could harm St. Renatus’ business.

 

St. Renatus may experience difficulty in managing its growth.

 

St. Renatus plans to increase the scope of its operations both domestically and internationally, grow its workforce substantially and expand its sales and marketing, both domestically and internationally. This growth is likely to place a significant strain on management systems and resources. St. Renatus’ business, financial condition and results of operations will be materially and adversely affected if it is unable to effectively manage its expanding operations.

 

St. Renatus is subject to additional risks posed by its potential international expansion.

 

While St. Renatus is introducing Kovanaze® Nasal Spray dental anesthetic in the U.S., it intends to try to obtain foreign approval and offer the product in Europe or other foreign countries that offer a significant number of dental practices in affluent areas. Pursuit of international growth opportunities may require significant investment for an extended period before returns on such investments, if any, are realized. There can be no assurance as to the extent, if at all, that St. Renatus’ plans to expand in international markets will be successful due to a number of inherent risks, including but not limited to: changes in regulatory requirements and tariffs; reduced protection for intellectual property rights in some countries; potentially adverse tax consequences; political and economic instability; import or export licensing requirements; trade restrictions; and fluctuations in currency exchange rates. These risks may materially and adversely affect St. Renatus’ business, financial condition and results of operations.

 

St. Renatus must continue to keep pace with changes in its industry or its business will suffer.

 

St. Renatus’ success will depend in part on its ability to respond quickly to changes in the marketplace and the competitive landscape. St. Renatus cannot assure you that Kovanaze® Nasal Spray dental anesthetic will be successfully received by the marketplace, or that its product will not be rendered obsolete by changes in technology or the introduction of alternative needleless dental anesthetic techniques. Any enhancement to Kovanaze® Nasal Spray dental anesthetic or development and commercialization of additional products St. Renatus undertakes in response to such changes will require additional research and development expenditures and regulatory approvals.

 

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St. Renatus depends on vendors, consultants, and other third parties, and any change in these relationships could adversely affect its business.

 

St. Renatus’ operations are heavily dependent upon vendors and independent contractors, consultants and other companies. There is no assurance that these contractors, consultants and others will be successful in assisting St. Renatus in developing its business processes, or delivering product in a timely fashion. St. Renatus’ development, sales and marketing efforts would be materially and adversely affected if its product supply or development were interrupted or not completed by any of these vendors or up to St. Renatus’ or governmental agencies’ quality standards. In many cases these contractors, consultants and others may be sole source suppliers, and it is unknown whether alternative vendors could be established in the event of a failure to perform.

 

St. Renatus faces risks related to product liability claims, which could exceed the limits of available insurance coverage.

 

St. Renatus may be exposed to the risk of product liability claims that is inherent in the biopharmaceutical and dental industries. If product liability lawsuits are brought against St. Renatus, it may incur substantial liabilities and may be required to limit commercialization of its products. Product liability claims could divert management’s attention away from its core business, be expensive to defend and result in sizable damage awards against St. Renatus. A product liability claim may also damage St. Renatus’ reputation by raising questions about its product’s safety and efficacy, and could limit its ability to sell Kovanaze® Nasal Spray dental anesthetic by preventing or interfering with commercialization of the product. In addition, product liability insurance for the biopharmaceutical industry is generally expensive to the extent it is available at all. There can be no assurance that St. Renatus will be able to obtain and maintain such insurance on acceptable terms or that it will be able to secure increased coverage if the commercialization of its product progresses, or that future claims against it will be covered by it product liability insurance. Although St. Renatus currently has product liability insurance coverage, the insurance coverage may not reimburse St. Renatus or may be insufficient to reimburse it for any or all expenses or losses it may suffer. A successful claim against St. Renatus with respect to uninsured liabilities or in excess of insurance coverage could have a material adverse effect on St. Renatus’ business, financial condition and results of operations.

 

The FDA has identified certain adverse reactions for Kovanaze® that may result in future medical issues for patients and potential claims against St. Renatus.

 

The FDA-approved package insert identifies the following warnings and precautions for Kovanaze®:

 

•     hypertension;

•     epistaxis;

•     dysphagia;

•     methemoglobinemia; and

•     anaphylactic reactions.

 

The package insert also discusses the adverse reactions seen from the clinical trials experience, noting that no serious adverse events occurred with Kovanaze® in the clinical trials. The most common adverse reactions to occur in Phase 3 trials were rhinorrhea (runny nose), nasal congestion, nasal discomfort, oropharyngeal pain (sore throat) and lacrimation increased (watery eyes). In addition, the following adverse reactions were also seen in greater than or equal to 2% of patients: intranasal hypoesthesia, pharyngeal hypoesthesia (numb throat), throat irritation, rhinalgia, sneezing, epistaxis, nasal dryness, headache, dysphagia, sinus headache, dizziness, sensory disturbance, oral discomfort, blood pressure systolic increased, blood pressure diastolic increased, bradycardia, and hypertension. The package insert also notes “Intranasal ulcerations, some of which were transient, were noted to have occurred following treatment with KOVANAZE. In Phase 3 trials, six (3%) patients who received KOVANAZE, but no patients who received placebo, developed nasal ulcers that were present on exam the same day as KOVANAZE dosing. Three (2%) KOVANAZE and 2 (2%) placebo-treated patients without nasal ulcerations on the day of KOVANAZE or placebo dosing were observed to have nasal ulcerations at the next day follow-up visit.” The insert also states that “Dysphagia (i.e., the sensation of difficult swallowing) is a notable adverse reaction reported in Phase 3 trials, occurring in 1.15% of patients.” St. Renatus carries product liability insurance to protect against such potential claims, but any product liability claims could exceed the limits of available insurance coverage.

 

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St. Renatus previously settled a dispute regarding the composition of its Board of Directors

 

St. Renatus previously settled a dispute regarding the composition of its Board of Directors. On December 13, 2016, Renatus Holdings LLC, an entity controlled by Dr. Mark Kollar, a founder of St. Renatus and then a director, filed a lawsuit in the Delaware Court of Chancery against five of the members of St. Renatus’ Board of Directors alleging that certain actions were inconsistent with the Board of Directors’ fiduciary duties, allegations that were denied by the defendant directors (the “Kollar Litigation”). On February 13, 2017, the parties to the Kollar Litigation entered into a full and final settlement agreement with regard to all claims, and the Delaware Court of Chancery issued a Stipulation of Dismissal with Prejudice on February 14, 2017.  The settlement agreement provided for the voluntary resignation of five of St. Renatus’ directors and the election of seven continuing directors, including Dr. Kollar, and three new directors.

 

Claims for indemnification by St. Renatus’ directors and officers may reduce its available funds to satisfy successful third-party claims against it and may reduce the amount of money available to it.

 

St. Renatus’ limited liability company agreement provides that it will indemnify its directors and officers to the fullest extent permitted by Delaware law. St. Renatus is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such directors or officers must undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification. To the extent that a claim for indemnification is brought by any of St. Renatus’ directors or officers, it would reduce the amount of funds available for use in its business.

 

If the Internal Revenue Service classifies St. Renatus as a corporation rather than a partnership, distributions to unitholders would be reduced under current tax law.

 

Although St. Renatus has filed its tax returns as a partnership and expect to be taxed as a partnership and not as a corporation, the Internal Revenue Service (IRS) has not ruled on any federal income tax issue relating to St. Renatus. If the IRS successfully contends that St. Renatus should be treated as a corporation for federal income tax purposes rather than as a partnership, then losses realized by St. Renatus would not be passed through to its members; its income would be taxed at tax rates applicable to corporations, thereby reducing cash available to distribute to its members; and distributions to members would be taxed as dividend income to the extent of current and accumulated earnings and profits.

 

St. Renatus will not apply for an IRS ruling that it will be classified as a partnership for federal income tax purposes. In addition, St. Renatus could be taxed as a corporation if it is treated as a “publicly traded partnership” by the IRS. To minimize this possibility, St. Renatus’ limited liability company agreement restricts members’ ability to transfer common units. St. Renatus’ Board of Directors, under certain circumstances described in the limited liability company agreement, may determine to convert St. Renatus into a corporation which would change the tax classification of St. Renatus from a partnership to a corporation.

 

The IRS may allocate more taxable income to any of St. Renatus’ members than its limited liability company agreement provides.

 

The IRS might successfully challenge St. Renatus’ allocations of profits or losses. If so, the IRS would require reallocation of taxable income and loss, resulting in more taxable income or less loss for St. Renatus’ members than St. Renatus’ limited liability company agreement allocates.

 

St. Renatus may not have the financial resources to repay its outstanding convertible notes at maturity.

 

St. Renatus currently has $2,050,000 in partially convertible notes maturing December 31, 2018, $7,678,962 in partially convertible notes maturing December 31, 2018 and $4,935,139 of fully convertible notes maturing December 31, 2019, $6,336,333 of fully convertible notes maturing between March and October 2021, with all of such notes due upon a sale of St. Renatus. If the partially and fully convertible notes are not converted, extended or repaid prior to maturity, St. Renatus will be obligated to repay the principal amount and interest under the existing notes at maturity in cash, subject to the ability of the holder to convert all or a portion of the principal into St. Renatus common units. St. Renatus’ ability to repay the notes will depend on its financial resources at that time. The above obligations include bridge financing of $6.336 million from certain key investors in the form of wholly convertible debt due in March through October 2021.

 

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To the extent not prohibited by written agreement or fiduciary obligations, St. Renatus’ limited liability company agreement allows directors, officers and unitholders to pursue other competitive opportunities without offering them to St. Renatus and engage in certain transactions that would be considered conflicts of interest.

 

Unless otherwise limited pursuant to a written agreement with St. Renatus, including the confidentiality provisions in the limited liability company agreement, or pursuant to other fiduciary obligations applicable to directors or officers, unitholders, including unitholders who are directors or officers, will be free to pursue other business opportunities even if such opportunities are in competition with St. Renatus or represent interests in businesses that are similar to St. Renatus’. In addition, any business opportunity which St. Renatus might be able to undertake which is identified by a unitholder, director or officer will not need to be offered to St. Renatus or any other unitholder and such unitholder will have no duty to communicate such opportunity to St. Renatus, the Board of Directors or to any other unitholders. Members, directors, officers and their affiliates can engage in transactions with St. Renatus that may be considered a conflict of interest provided that any such transaction is made on arm’s-length terms and conditions or it is approved by non-participating directors on the Board of Directors.

 

St. Renatus relies on a “designated representative” who is a full-time company employee, and the loss of such person could cause St. Renatus to be fined or temporarily lose its licenses to sell Kovanaze® if such person could not be replaced by another qualified designated representative.

 

The loss of the services of the person serving as St. Renatus’ “designated representative” under Colorado pharmacy regulations could have a material adverse effect on St. Renatus since a “designated representative” is required in order to retain its Colorado wholesale pharmacy license. Other states issue licenses to St. Renatus to sell its product in those states in part by reference to its Colorado license, and also based on those states individual “designated representative” or similar rules where applicable. If St. Renatus’ designated representative were no longer employed by St. Renatus, it would need to immediately find a replacement full-time employee to be its “designated representative” who met the various state law requirements. Due to the required background check by the Colorado Bureau of Investigation for any “designated representative” there is no assurance that St. Renatus could promptly replace its “designated representative.” If St. Renatus did not succeed in attracting a new “designated representative” it could lose some or all of its licenses or be fined until such replacement could be made and its licenses were renewed or reinstated, with St. Renatus’ business being adversely affected during any such delay.

 

St. Renatus’ internal computer systems, or those of its contract manufacturers or vendors or other consultants, may fail or suffer security breaches, which could result in a material disruption of its commercialization efforts.

 

Despite the implementation of security measures, St. Renatus’ internal computer systems and those of its contract manufacturers or vendors or other consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While, to St. Renatus’ knowledge, it has not experienced a material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in its operations, it could result in a material disruption of its commercialization efforts.

 

St. Renatus will incur increased costs if it inadvertently becomes a public company.

 

St. Renatus has no current plans to become a publicly traded company in the United States or any other jurisdiction. St. Renatus monitors its total number of unitholders and restricts transfers of interests in the company so as to avoid being required to register as a public company in the United States. If St. Renatus were forced to register as a public company, it would incur significant legal, accounting and other expenses that it does not incur as a private company, including costs associated with public company reporting requirements. St. Renatus also would incur substantial costs associated with attempting to comply with more stringent corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and the National Association of Securities Dealers. St. Renatus expects these rules and regulations would significantly increase its legal and financial compliance costs and make some activities more time-consuming and costly. St. Renatus also expects these rules and regulations would make it more difficult and more expensive for it to retain and obtain directors’ and officers’ liability insurance. As a result, if St. Renatus were unexpectedly to become a public company, it may be more difficult for it to attract and retain qualified individuals to serve on its Board of Directors or as executive officers.

 

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The St. Renatus units are not listed on any stock exchange or trading market and no public market may ever develop for the St. Renatus units.

 

Currently there is no public market for St. Renatus’ securities, including its units to be issued in the Merger, and the St. Renatus units are not listed on any stock exchange or trading market. St. Renatus does not currently have any plans to list its units on any stock exchange or trading market. Even if St. Renatus did intend to list its units on a stock exchange or trading market in the future, its ability to do is uncertain, and therefore you should not assume that the St. Renatus units will ever be listed.

 

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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

This proxy statement/offering circular, including information included or incorporated by reference in this proxy statement/offering circular, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about the benefits of the Merger of St. Renatus and Apollonia, including future financial and operating results and performance; statements about St. Renatus’ and Apollonia’s plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “should,” “may” or words of similar meaning. These forward-looking statements are based upon the current beliefs and expectations of St. Renatus’ and Apollonia’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond the control of St. Renatus and Apollonia. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements.

 

In addition to the items discussed under “Risk Factors” in this proxy statement/​offering circular, the following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

 

Apollonia will no longer operate independently from St. Renatus and it will be dependent on the successful operation of St. Renatus to achieve a return;

 

St. Renatus was, until recently, a development stage company with no operating history and it expects future losses;

 

St. Renatus has received a going concern qualification with its 2017 audit opinion;

 

St. Renatus may have difficulty attracting and retaining qualified personnel;

 

St. Renatus needs to raise additional capital;

 

Kovanaze® may not be accepted by the market and St. Renatus’ sales and marketing efforts may not be successful;

 

St. Renatus may not obtain adequate intellectual property protection for its product;

 

St. Renatus operates in a highly regulated industry and may not obtain all required regulatory approvals;

 

St. Renatus faces the risk of product liability claims, including those related to adverse reactions from its product; and

 

there is no public market for the St. Renatus units.

 

You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this proxy statement/offering circular or the date of any document incorporated by reference in this proxy statement/offering circular. All subsequent written and oral forward-looking statements concerning the Merger or other matters addressed in this proxy statement/offering circular and attributable to St. Renatus and Apollonia or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, St. Renatus and Apollonia undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/offering circular or to reflect the occurrence of unanticipated events.

 

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APOLLONIA SPECIAL MEETING OF unitholders

 

Overview

 

This proxy statement/offering circular is being provided to Apollonia unitholders as part of a solicitation of proxies by the Apollonia board of governors for use at the special meeting of Apollonia unitholders and at any adjournments of such meeting. This proxy statement/offering circular is being furnished to Apollonia unitholders on or about  [    ], 2018. This proxy statement/offering circular provides Apollonia unitholders with information they need to be able to vote or instruct their votes to be cast at the Apollonia special meeting.

 

Date, Time and Place of the Apollonia Special Meeting

 

Apollonia will hold a special meeting of unitholders at [   ] on  [   ], 2018, at [   ][a.m./p.m.] Mountain Standard time.

 

Attendance

 

Only Apollonia voting unitholders on the Apollonia record date or persons holding a written proxy for any voting unitholder as of the record date may attend and vote at the Apollonia special meeting. Other Apollonia unitholders holding non-voting financial rights may attend the meeting but they are not entitled to vote at the meeting. If you are an Apollonia unitholder of record (that is, you hold your units in your own name) and you wish to attend the Apollonia special meeting, please bring your proxy to the Apollonia special meeting as evidence of your ownership. You should also bring valid picture identification. If your Apollonia voting common units are held in an account through a custodian or other nominee, you must instruct the custodian or other nominee how to vote your units by following the instructions that the custodian or other nominee provides you along with this proxy statement/offering circular. 

 

Proposals

 

At the Apollonia special meeting, Apollonia unitholders will vote upon:

 

 

Apollonia Proposal No. 1— Approval of the Merger Agreement and the Transactions Contemplated Thereby. Approve the merger agreement and the transactions contemplated thereby, including the Merger described in this Offering Circular; and

 

 

Apollonia Proposal No. 2— Approval of Possible Adjournment of the Apollonia Special Meeting. Adjourn the Apollonia special meeting, or any adjournments thereof, to another time or place to approve any motion to adjourn the special meeting, or any adjournment thereof, to another time or place if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement and the transactions contemplated thereby.

 

Record Date; Outstanding Units; Units Entitled to Vote

 

Only holders of Apollonia units entitled to vote as of the close of business on  [    ], 2018, the record date for the Apollonia special meeting, will be entitled to notice of, and to vote at, the Apollonia special meeting or any adjournments thereof. On the Apollonia record date, there were 830,045 Apollonia voting units outstanding. Each outstanding Apollonia common unit is entitled to one vote on each proposal and any other matter properly coming before the Apollonia special meeting. Apollonia financial rights units have no voting rights.

 

Quorum

 

The unitholders present, in person or by proxy, holding a majority of the outstanding Apollonia units entitled to vote as of the record date will constitute a quorum for the transaction of business at the Apollonia special meeting. Abstentions will not be counted as present at the meeting for the purpose of determining whether there is a quorum.

 

Vote Required; Recommendation of Apollonia Board of Governors 

 

Proposal 1— Approval of the Merger Agreement and the Transactions Contemplated Thereby

Apollonia unitholders are considering and voting on a proposal to approve the merger agreement and the transactions contemplated thereby, including the Merger. Apollonia unitholders should carefully read this proxy statement/offering circular in its entirety for more detailed information concerning the Merger. In particular, Apollonia unitholders are directed to the merger agreement, which is attached as Annex A to this proxy statement/offering circular. 

 

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The approval of the merger agreement and the transactions contemplated thereby requires the affirmative vote of holders of a majority of the Apollonia units outstanding and entitled to vote on the merger agreement proposal. Because the vote required to approve this proposal is based upon the total number of Apollonia voting common units outstanding and entitled to vote as of the Apollonia record date, abstentions and failures to vote will have the same effect as a vote against the merger agreement proposal.

 

The Apollonia board of governors recommends that Apollonia unitholders vote “FOR” approval of the merger agreement and the transactions contemplated thereby, including the Merger.

 

Proposal 2— Approval of Possible Adjournment of the Apollonia Special Meeting

Apollonia unitholders may be asked to vote on a proposal to adjourn the Apollonia special meeting, or any adjournments thereof, to approve any motion to adjourn the special meeting, or any adjournment thereof, to another time or place if necessary or appropriate to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement and the transactions contemplated thereby. Approval of the Apollonia adjournment proposal requires the affirmative vote of holders of a majority of the Apollonia units represented, in person or by proxy, at the special meeting, whether or not a quorum is present. Because the vote required to approve this proposal is based upon the total number of Apollonia units represented in person or by proxy, abstentions will have the same effect as a vote against this proposal.

 

The Apollonia board of directors recommends that Apollonia unitholders vote “FOR” the Apollonia adjournment proposal.

 

Unit Ownership and Voting by Apollonia Officers and Governors

 

It is anticipated that as of the Apollonia record date, the Apollonia governors and executive officers will have the right to vote approximately [   ] Apollonia units, representing approximately [   ]% of the Apollonia units then outstanding and entitled to vote at the meeting. Apollonia governors and executive officers who are unitholders of Apollonia (except for Mr. Buchholz who abstained from the vote on the Merger by the board because he is a significant creditor of Apollonia and the potential conflict existed between his interest as an owner and as a creditor) evidenced their support “FOR” the proposal to approve the merger agreement and the Merger and “FOR” the Apollonia adjournment proposal.

 

Voting Your Units

 

Apollonia unitholders may vote in person at the Apollonia special meeting, or by executing and returning a proxy. Apollonia recommends that you submit your proxy even if you plan to attend the Apollonia special meeting. If you vote by proxy, you may change your vote, among other ways, if you attend and vote at the Apollonia special meeting.

 

If you own Apollonia units in your own name, you are considered, with respect to those units, the “unitholder of record.” If your Apollonia units are held by a custodian or other nominee, you are considered the beneficial owner of units held by the custodian or nominee.

 

If you are an Apollonia unitholder of record you may use the enclosed proxy card to tell the persons named as proxy holders how to vote your units. If you properly complete, sign and date your proxy card, your units will be voted in accordance with your instructions. The named proxy holders will vote all units at the meeting for which proxy holders have been properly submitted and not revoked. If you sign and return your proxy card but do not mark your card to tell the proxy holders how to vote, your units will be voted “FOR” the proposals to approve the merger agreement and the transactions contemplated thereby and to adjourn the Apollonia special meeting in accordance with the recommendations of the Apollonia board of governors.

 

Units Held by Custodian or Nominee

 

If your Apollonia voting common units are held in an account through a custodian or other nominee, you must instruct the custodian or other nominee how to vote your units by following the instructions that the custodian or other nominee provides you along with this proxy statement/offering circular. Your custodian or other nominee may have an earlier deadline by which you must provide instructions to it as to how to vote your units, so you should read carefully the materials provided to you by your custodian or other nominee.

 

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Revocation of Proxy

 

If you are an Apollonia unitholder of record, you may revoke your proxy and change your vote at any time before it is voted at the special meeting by:

 

 

by properly completing, signing, dating, and returning another proxy card with a later date;

 

 

if you are a registered unitholder, by voting in person at the meeting;

 

 

if you are a registered unitholder, by giving written notice of such revocation to Apollonia’s Chairman of the Board prior to or at the meeting; or

 

 

if your units are held by a custodian or other nominee, you should follow the instructions of your custodian or other nominee regarding the revocation of proxies.

 

Your attendance at the Apollonia special meeting itself will not revoke your proxy unless you give written notice of revocation to Apollonia’s Chairman of the Board before the polls are closed at the meeting.

 

Costs of Solicitation

 

Apollonia will bear the cost of soliciting proxies from its unitholders as well as the costs associated with the filing, printing, publication and mailing of this proxy statement/offering circular to Apollonia unitholders.

 

Apollonia unitholders should not send in their unit certificates with their proxy cards.

 

As described under “The Merger Agreement—Surrender and Exchange of Apollonia Unit Certificates”, Apollonia unitholders of record and non-voting unitholders will be sent materials for exchanging Apollonia units for St. Renatus common units shortly after the effective time of the Merger.

 

Other Business

 

The Apollonia board of governors is not aware of any other business to be acted upon at the Apollonia special meeting. If, however, other matters are properly brought before the Apollonia special meeting, the proxy holders will vote your units in accordance with their best judgment.

 

Assistance

 

If you need assistance in completing your proxy card or have questions regarding the Apollonia special meeting, please contact:

 

Linda Hult

1000 Centre Avenue

Fort Collins, CO 80526

Telephone: 970-282-0156 x 3512

E-mail: lhult@kovanaze.com

 

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THE MERGER

 

This section of the proxy statement/offering circular describes the material aspects of the proposed Merger. This section may not contain all of the information that is important to you. You should carefully read this entire proxy statement/offering circular and the documents incorporated herein by reference, including the full text of the merger agreement for a more complete understanding of the Merger. A copy of the merger agreement is attached as Annex A hereto.

 

Effect of the Merger

 

Subject to the terms and conditions of the merger agreement and in accordance with Minnesota law, the merger agreement provides for the merger of Apollonia with SR Merger Sub. Apollonia, which is sometimes referred to following the merger as the surviving entity, will survive the merger and the separate limited liability company existence of SR Merger Sub will cease. As a result of the Merger, St. Renatus will become the sole member of Apollonia. After the completion of the Merger, the articles of organization and the limited liability company agreement of SR Merger Sub in effect immediately prior to the effective time of the Merger will be the articles of organization and the limited liability company agreement of Apollonia (except to the extent the limited liability company agreement is amended by the merger agreement to reflect the admission of St. Renatus as the sole member of Apollonia), in each case, until amended in accordance with its terms and applicable law.

 

The merger agreement provides that, at the effective time, each Apollonia common unit or financial rights unit issued and outstanding or deemed issued and outstanding as of immediately prior to the effective time will be converted into the right to receive a portion of the aggregate merger consideration consisting of 200,000 voting common units of St. Renatus. St. Renatus will not issue any fractional units in the merger. The aggregate merger consideration will be allocated to the Apollonia unitholders and financial rights holders as provided in “The Merger Agreement—Allocation of Merger Consideration to St. Renatus Unitholders.” Instead, each holder of Apollonia common units or financial rights units that are converted pursuant to the merger agreement who otherwise would have received a fraction of a St. Renatus common unit will instead have that fraction rounded to the nearest whole St. Renatus common unit.

 

Background of the Merger

 

The senior management and boards of directors and governors of each of St. Renatus and Apollonia regularly review operational and strategic opportunities to maximize value for investors of St. Renatus and Apollonia, respectively. In connection with these reviews, the management and boards of directors of St. Renatus and board of governors of Apollonia from time to time evaluate potential transactions that would further their respective strategic objectives.

 

As part of St. Renatus’ and Apollonia’s strategy to maximize value for investors, both St. Renatus and Apollonia have from time to time evaluated transactions with each other.

 

During 2017 and 2018, the St. Renatus board of directors at its regular meetings held a number discussions regarding St. Renatus management’s analysis related to a potential merger with Apollonia and the benefits to St. Renatus of such a transaction. At these meetings, after reviewing and discussing the merits of the proposed transaction based on the deal terms recommended by St. Renatus management, the St. Renatus board of directors approved making a proposal to Apollonia on those terms, which included acquiring all equity interests in Apollonia in exchange for 200,000 newly issued voting common units of St. Renatus, which transaction would be subject to the approval of the Apollonia board or governors, the St. Renatus board of directors and the voting unitholders of Apollonia, as well as customary regulatory approvals.

 

On March 2, 2018, at a St. Renatus board of directors meeting duly called and held, the St. Renatus board (i) determined that it is in the best interests of St. Renatus and its members, and declared it advisable, for St. Renatus to enter into the merger agreement and (ii) approved and adopted the merger agreement and the transactions contemplated thereby.

 

On October 12, 2018, at an Apollonia board of governors meeting duly called and held, the Apollonia board (i) determined that it is in the best interests of Apollonia and its members, and declared it advisable, for Apollonia to enter into the merger agreement and (ii) approved and adopted the merger agreement and the transactions contemplated thereby.

 

Following the Apollonia and St. Renatus board meetings, on November 7, 2018, the parties finalized and executed the merger agreement.

 

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Recommendation of the Apollonia Special Committee, the Apollonia Board and Their Reasons for the Merger

 

The Apollonia special committee consisting of three independent directors: Michael Herold, Ryan Martorano, and Mick Occhiato, was established by the Apollonia board of governors. The Apollonia board authorized the Apollonia special committee to (i) review, evaluate and negotiate with St. Renatus the terms and conditions of the Merger, together with the form, terms and provisions of the merger agreement, on behalf of Apollonia, (ii) make a recommendation to the Apollonia board whether to approve the Merger and (iii) determine whether to give or withhold the Apollonia special committee’s approval of the Merger.

 

The Apollonia special committee retained Robert Gust as its outside legal counsel, and Palladian Valuation, LLC, to provide a fairness opinion on the potential transaction. The Apollonia special committee oversaw the performance of financial and legal due diligence by its advisors, conducted an extensive review and evaluation of St. Renatus’ proposal as opposed to maintaining the status quo, and conducted extensive negotiations with St. Renatus and its representatives with respect to the merger agreement and other related agreements.

 

The Apollonia special committee, by unanimous vote at a meeting held on October 12, 2018, (i) determined that the Merger is fair and reasonable and in the best interests of Apollonia and Apollonia’s common unitholders and financial rights holders, (ii) approved the Merger and the execution and delivery of the merger agreement, (iii) recommended approval of the merger agreement by voting Apollonia members and (iv) recommended that the Apollonia board approve the Merger, authorize the entry into the merger agreement, submit the merger agreement to a vote of the voting members of Apollonia and recommend approval of the merger agreement by the voting members of Apollonia.

 

Based on the Apollonia special committee’s recommendation, the Apollonia board (with Mr. Buchholz abstaining) at a meeting held on October 12, 2018, (i) determined that the Merger is in the best interests of Apollonia and the unaffiliated Apollonia unitholders, (ii) approved the Merger, the merger agreement and the execution, delivery and performance of the merger agreement and (iii) directed that the merger agreement be submitted to a vote of voting members of Apollonia.

 

The Apollonia special committee and the Apollonia board viewed the following factors as being generally positive or favorable in coming to their determinations and recommendation with respect to the Merger:

 

 

The merger agreement provides for Apollonia unitholders to receive 200,000 St. Renatus voting common units in exchange for all outstanding Apollonia common units and financial rights.

 

 

The Apollonia special committee and board retained financial and legal advisors with knowledge and experience with respect to Merger and acquisition transaction, as well as substantial experience advising other companies with respect to transactions similar to the Merger.

 

 

The Merger is expected to create operating efficiencies and cost savings in administrative and interest costs as well as other combined benefits.

 

 

Apollonia’s existence is dependent upon the success of St. Renatus, and senior management of St. Renatus indicated that a merger was necessary to pursue its various alternatives and that Apollonia’s future existence without the merger was unlikely.

 

 

The alternative of attempting to recover the intellectual property rights from St. Renatus was doubtful as a matter of law, and Apollonia lacks the resources to either pursue such litigation or develop the intellectual property independently.

 

The foregoing discussion is not intended to be exhaustive, but is intended to address the material information and principal factors considered by the Apollonia special committee and the Apollonia board in considering the Merger. In view of the number and variety of factors and the amount of information considered, the Apollonia special committee and the Apollonia board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the Apollonia special committee and the Apollonia board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the Apollonia special committee and the Apollonia board may have given different weights to different factors. The Apollonia special committee and the Apollonia board made their recommendations based on the totality of information presented to, and the investigation conducted by, the Apollonia special committee and the Apollonia board. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Note Concerning Forward-Looking Statements.”

 

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The Apollonia special committee and the Apollonia board each recommend that Apollonia voting unitholders vote “FOR” the approval of the merger agreement and “FOR” the adjournment of the special meeting, if necessary to solicit additional proxies if there are not sufficient votes to approve the merger agreement at the time of the special meeting.

 

 Reasons of the St. Renatus Board for the Merger

 

The St. Renatus board of directors, at a meeting held on March 2, 2018, (i) determined that it is in the best interests of St. Renatus and its members, and declared it advisable, for St. Renatus to enter into the merger agreement and (ii) approved and adopted the merger agreement and the transactions contemplated thereby, including the Merger.

 

The reasons for the St. Renatus board approving the merger agreement, and the Merger at this time include:

 

 

The opportunity for St. Renatus to benefit from owning all the assets of Apollonia, thereby mitigating disputes between St. Renatus and Apollonia and reducing its royalty obligations upon the sale of certain products.

 

 

The structure of the Merger, which does not require St. Renatus unitholder approval, enhances deal certainty.

 

 

The opportunity for St. Renatus and Apollonia to achieve synergies in the form of cost savings and other efficiencies related to the simplification of their organizational structure, including the elimination of intercompany indebtedness and disputes regarding the assignment of intellectual property as well as the benefit of presenting a single entity to a purchaser of St. Renatus.

 

 

The elimination of risks arising from potential conflicts between St. Renatus and Apollonia as a result of common ownership of St. Renatus and Apollonia and their past history as related persons.

 

 

The relatively low execution risk in integrating businesses due to existing shared services.

 

 

The foregoing discussion is not intended to be exhaustive, but is intended to address the material information and many of the principal factors considered by the St. Renatus board in considering the merger. In view of the number and variety of factors and the amount of information considered, the St. Renatus board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the St. Renatus board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the St. Renatus board may have given different weights to different factors. The St. Renatus board made its recommendations based on the totality of information presented to, and the investigation conducted by, the St. Renatus board. It should be noted that certain statements and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Note Concerning Forward-Looking Statements.”

 

Indemnification and Insurance

 

The Apollonia member control agreement requires Apollonia, among other things, to indemnify the governors and executive officers of Apollonia against certain liabilities that may arise by reason of their service as governors or officers. In addition, the merger agreement provides that, for a period of six years from the effective time, Apollonia’s governors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies from the surviving entity.

 

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FAIRNESS OPINION OF APOLLONIA ADVISOR

 

Apollonia has obtained a written opinion from Palladian Valuation, LLC (“Palladian”) that, based upon and subject to certain matters stated in the opinion, the proposed merger agreement between Apollonia, St. Renatus, LLC, and SR Merger Sub, LLC, is fair to the Members of Apollonia. A copy of the opinion is attached to the proxy statement/offering circular as Annex B. Palladian’s opinion is not a recommendation to any Member as to how to vote on the proposed Merger. You should read the opinion completely to understand the procedures followed, matters considered, and limitations and qualifications on the work done by Palladian in providing its opinion.

 

Palladian is an investment banking firm that was retained solely to opine on the fairness of the Merger from a financial point of view. Palladian is an affiliate of Oberon Securities and has substantial experience with valuations and merger transactions. It has not acted as Apollonia’s financial advisor in connection with the Merger or any related transactions, although it may seek to provide investment banking or other financial services to Apollonia or St. Renatus in the future.

 

Palladian reviewed the merger agreement, certain Apollonia financial statements that it deemed relevant, certain business and operating information provided by Apollonia management, certain information provided by a third-party service, publicly available information regarding other businesses and business combinations, and information regarding certain publicly traded companies deemed relevant. Palladian also held discussions with members of senior management of Apollonia and St. Renatus. Palladian relied upon the accuracy of the information that it received and did not independently verify any of the information received.

 

Palladian did not attempt to value Apollonia or its assets. Instead, it analyzed the value of what Apollonia will receive in the merger, namely 10% of St. Renatus. The opinion indicates that the only current source of income for Apollonia is the 6% net royalty payments it receives from St. Renatus and that management of St. Renatus has indicated that it will likely cease business if the Merger is not consummated. The opinion notes the possibility that Apollonia could seek to reclaim the intellectual property rights previously assigned to St. Renatus, but further notes that the legal process would be uncertain and that there are no funds available for a protracted legal battle. Furthermore, the patent for which Apollonia has the strongest claim expires on March 20, 2020, and it is unlikely litigation would be resolved in time to realize anything significant with respect to it.

 

The analysis consisted of three valuation methodologies: (1) comparable public companies; (2) comparable transactions; and (3) discounted cash flow. All of the methodologies require assumptions regarding St. Renatus’ operations and ability to obtain funding. Furthermore, whether a company or a transaction is “comparable” is necessarily subjective.

 

The comparable public company analysis reviewed seven companies deemed similar, although most were substantially larger. Those companies were found to have a range of multiples of 2.7 to 7.8 times revenue, with a mean of 4.3. Using the present value of St. Renatus’ projected fiscal 2020 revenues, the analysis determined an implied equity value for 10% of St. Renatus to be between $3.5 and $14.9 million, with a mean of $7.1 million.

 

The comparable transaction analysis reviewed nine transactions deemed similar, although most were acknowledged to be substantially larger. The value of those transactions was divided by revenue in order to obtain a range of multiples. The analysis then used St. Renatus’ projected 2020 revenue to conclude that the 10% implied equity value of St. Renatus ranges from $10.6 to $20.3 million, with a mean of $11.9 million.

 

The discounted cash flow analysis is based on St. Renatus’ projections for the three-year period through fiscal 2021. Those projections are discounted by rates of 50 –60% to reflect the speculative nature of the forecasts. Revenue multiples of 6x, 7.5x, and 9x were then applied to arrive at the projected present value of the cash flows and the present value of Apollonia in 2021. Depending upon the discount rate and revenue multiple used, the range of values for Apollonia’s implied equity is between $9,646,161 and $19,513,744.

 

Ultimately, the fairness opinion indicates that, without the Merger, management of St. Renatus estimates that the present value to Apollonia unitholders is zero. The valuations based upon the Merger are subject to assumptions and limitations, including management’s estimate that revenue will grow to more than $81 million for fiscal 2021. The fairness opinion, therefore, compares zero with the possibility of receiving something substantially in excess of zero, and concludes that the proposed transaction is fair.

 

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THE MERGER AGREEMENT

 

 

This section of the proxy statement/offering circular describes certain terms of the merger agreement. It is not intended to include every term of the Merger, but rather addresses only the significant aspects of the Merger. This discussion is qualified in its entirety by reference to the merger agreement, which is attached as Annex A to this proxy statement/offering circular and is incorporated herein by reference. We urge you to read the merger agreement as well as the discussion in this document carefully.

 

General; Business and Operations after the Merger

 

If the unitholders of Apollonia approve the merger agreement and the other conditions to the consummation of the Merger are satisfied, St. Renatus will acquire Apollonia. St. Renatus will issue a cumulative amount of 200,000 St. Renatus common units for all of the outstanding Apollonia equity interests. Each of the St. Renatus common units issued and outstanding immediately prior to the effective date of the Merger, will remain issued and outstanding and unchanged as a result of the Merger.

 

Upon the consummation of the Merger, Apollonia will merge with and into SR Merger Sub with Apollonia surviving the Merger as a wholly owned subsidiary of St. Renatus. One current Apollonia governor, Ryan A. Martorano, will be appointed to the board of directors of St. Renatus following the Merger. With the exception of the aforementioned addition, it is expected that the current directors and executive officers of St. Renatus will remain in place following the Merger. The current Apollonia directors and officers in place prior to the Merger will all resign in connection with the Merger.

 

What Apollonia Unitholders Will Receive in the Merger

 

Merger Consideration

 

If the Merger is completed, holders of Apollonia equity interests will receive a specified number of St. Renatus common units based on the distribution provisions set forth below under “Allocation of Merger Consideration to Apollonia Unitholders.”

 

Neither St. Renatus common units nor Apollonia equity interests are traded on any securities exchange or quotation system. However, given the historical absence of any market for St. Renatus common units or Apollonia equity interests, neither the price at which St. Renatus common units were last sold nor the price of St. Renatus common units that was used for determining the distribution preference to Apollonia equity holders in this transaction should be considered indicative of the value of St. Renatus common units following this transaction. 

 

Fractional Units

 

No fractional units of St. Renatus common units will be issued in connection with the merger. Instead, the number of St. Renatus common units will be rounded up or down to the nearest whole St. Renatus common unit when St. Renatus common units are issued to Apollonia unitholders in connection with the Merger.

 

Allocation of Merger Consideration to Apollonia Unitholders

 

As a result of the Merger, each Apollonia unitholder will receive a right to a specified number of St. Renatus common units in exchange for all of their Apollonia equity interests, including all Apollonia common units, all Apollonia financial rights units and all related Apollonia governance rights. After the Merger, Apollonia holders will receive a specified number of whole St. Renatus common units equal to the amount they are entitled to receive under Sections 8.3 and 4.2 of Apollonia’s LLC agreement, as if Apollonia contributed all its assets and liabilities to St. Renatus in exchange for the Aggregate Merger Consideration, consisting of 200,000 St. Renatus common units, valued at $70 per common unit, with such common units then distributed in kind to Apollonia holders in the manner required by Section 8.3(c)(ii) of the Apollonia member control agreement which directs that such distributions should be made pursuant to Section 4.2 of Apollonia’s member control agreement. An excerpt of the relevant provisions of the Apollonia member control agreement governing distributions, including the definition of capitalized terms used therein, is included as Exhibit A to the merger agreement, with the merger agreement attached hereto as Annex A.

 

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Pursuant to Section 4.2 of the Apollonia member control agreement, distributions are to be made first to the Apollonia members and financial assignees in proportion to and to the extent of each such person’s “invested cash” that has not previously been repaid, as set forth in Apollonia’s books and records. “Invested cash” means any cash amount that Apollonia holders invested in either Apollonia or invested through the purchase of financial rights from the founding members (with respect to any of the financial assignees). After each Apollonia member and the financial assignees have received a return of their invested cash in the form of St. Renatus common units (with a value determined to be equal to such invested cash owing to such Apollonia unitholder), further distributions of the remaining St. Renatus common units available for distribution will be made in proportion to each Apollonia member’s and financial assignee’s percentage interests. No fractional common units in St. Renatus will be issued, any fraction will be rounded up or down to the nearest whole St. Renatus common unit. Apollonia will determine the total amount of invested cash for each Apollonia unitholder and has valued the St. Renatus common units at $70 per common unit for this purpose, a value determined by a special committee of the Apollonia board of governors. Apollonia holders who have an invested cash amount will first receive the balance due of their invested cash in the form of St. Renatus common units, after reflecting prior cash distributions made in previous years. The remaining St. Renatus common units, after all invested cash has been repaid as described above, will be allocated to all Apollonia holders (including those who had no invested cash) based on their respective percentage interests, as measured by the number of Apollonia common units and/or Apollonia financial rights units that they hold as compared to all outstanding Apollonia common units and Apollonia financial rights units.

 

Prior to voting on the Merger, each Apollonia unitholder will receive a statement from Apollonia as part of the proxy voting materials that will show the Apollonia unitholder’s holdings of Apollonia common units and/or Apollonia financial rights units pursuant to the Company records and their balance, if any, of “invested cash” as of immediately prior to the Merger. In addition, the statement will show the number of whole St. Renatus common units that such Apollonia unitholder will receive in the Merger in exchange for the Apollonia equity interests such person holds.

 

Dissenters’ Rights

 

Holders of equity interests in Apollonia will have no dissenters’ or appraisal rights in connection with the Merger under applicable Minnesota law.

 

 

Closing and Effective Time of the Merger

 

The Merger will be completed only if all of the following occur:

 

 

the merger agreement is approved by Apollonia’s voting unitholders;

 

all required regulatory consents and approvals are obtained; and

 

all other conditions to the Merger discussed in this proxy statement/offering circular and the merger agreement are either satisfied or waived.

 

If all of these conditions are met, the closing of the Merger will occur no later than 10 business days following the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions (other than those conditions that by their nature are to be satisfied or waived at the closing, but subject to the satisfaction or waiver of such conditions at such time), unless another time or date is determined by mutual agreement of St. Renatus and Apollonia.

 

Representations and Warranties in the Merger Agreement

 

Apollonia and St. Renatus have made customary representations and warranties to each other as part of the merger agreement. The assertions embodied in those representations and warranties are qualified by information in the disclosure schedule that Apollonia has provided St. Renatus. Apollonia and St. Renatus do not believe that this disclosure schedule contains information that securities laws require the parties to publicly disclose. Accordingly, unitholders should not rely on the representations and warranties as characterizations of the actual state of facts, since they were only made as of the date of the merger agreement and certain representations and warranties may have been modified in part by the underlying disclosure schedule. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement. Apollonia’s representations and warranties are contained in article 4 of the merger agreement and relate to, among other things: 

 

 

its organization and authority to enter into the merger agreement;

 

its capitalization, lack of subsidiaries and financial statements;

 

pending and threatened litigation against Apollonia;

 

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the absence of certain changes or events since December 31, 2017;

 

its intellectual property rights, including its rights and obligations under existing assignment agreements;

 

the validity of the claimed ownership of the Apollonia equity interests;

 

its legal and regulatory compliance;

 

its LLC Agreement, other contractual obligations and contingent liabilities; and

 

its lack of tax liabilities or other undisclosed liabilities.

 

St. Renatus’ and merger sub’s representations and warranties are contained in Article 5 of the merger agreement and relate to, among other things:

 

 

their organization and authority to enter into the merger agreement;

 

their financial statements;

 

pending and threatened litigation against them;

 

the absence of certain changes or events since July 31, 2018;

 

the validity of the claimed ownership of the St. Renatus equity interests;

 

St. Renatus’ investment intent;

 

St. Renatus LLC Agreement, other contractual obligations and contingent liabilities; and

 

its lack of undisclosed liabilities.

 

Each party’s representations and warranties are for the benefit of the other; they are not for the benefit of and may not be relied upon by any unitholders. The representations and warranties of the parties will not survive the closing of the Merger.

 

Conditions to the Merger

 

The merger agreement contains a number of conditions that must be satisfied or waived (if they are waivable) to complete the Merger. The conditions include, among other things:

 

 

approval by Apollonia’s unitholders of the merger agreement by the required vote;

 

 

approval of the Merger and the transactions contemplated thereby by applicable regulatory authorities without imposing conditions which would have a material adverse effect on (1) the financial position, business, results of operations or prospects of either St. Renatus or Apollonia, or (2) either party’s ability to perform its obligations under the merger agreement;

 

 

receipt of all third-party consents necessary to consummate the Merger, other than those that would not have a material adverse effect on the party required to obtain the consent;

 

 

the absence of a stop order suspending the qualification of St. Renatus’ offering circular under the Securities Act with respect to St. Renatus common units to be issued to the Apollonia unitholders;

 

 

St. Renatus’ receipt of all required approvals by state securities or “blue sky” authorities with respect to the issuance of St. Renatus common units to Apollonia unitholders;

 

 

the absence of an order, decree or injunction enjoining or prohibiting completion of the Merger;

 

 

the appointment of Ryan A. Martorano to St. Renatus’ board of directors to serve following the Merger; and

 

 

each party’s certification to the other as to the continued accuracy of the representations and warranties contained in the merger agreement, compliance with covenants and closing conditions and the satisfaction of all other matters applicable to the transaction.

 

The conditions to closing the Merger, termination provisions and closing deliverables are set forth in articles 6, 7 and 8 of the merger agreement. The parties intend to complete the Merger as soon as practicable after all conditions have been satisfied or waived; however, we cannot assure you that all conditions will be satisfied or waived.

 

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Waiver and Amendment

 

Nearly all of the conditions to completing the Merger may be waived at any time by the party for whose benefit they were created; however, the merger agreement provides that the parties may not waive any condition that would result in the violation of any law or regulation. Also, the parties may amend or supplement the merger agreement at any time by written agreement. Any change in the terms of the merger agreement after the Apollonia special unitholders meeting may require a re-solicitation of votes from Apollonia’s unitholders with respect to the amended merger agreement.

 

Business of Apollonia Pending the Merger

 

The merger agreement requires Apollonia to continue to operate its business as usual and to preserve its business organization, rights and franchises pending the Merger and to refrain from taking any action that would materially adversely affect the receipt of required regulatory or other consents or materially adversely affect either party’s ability to perform its covenants and agreements under the merger agreement. The restrictions on Apollonia’s business activities are set forth in section 6.1 of the merger agreement.

 

Termination upon Receipt of Superior Proposal

 

Apollonia has not had any negotiations with any person regarding any alternative acquisition transaction as of the time the merger agreement was executed and thereafter. Notwithstanding the foregoing, the Apollonia board of governors has a right to consider a “Superior Proposal” in the exercise of its fiduciary duties. “Superior Proposal” means any bona fide proposal or offer made by a third party pursuant to which such third party would acquire, directly or indirectly, more than 50% of the Apollonia units or substantially all of the assets of Apollonia; (A) on terms which the Apollonia board determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) to be more favorable from a financial point of view to the holders of Apollonia units, taking into account all the terms and conditions of such proposal and the merger agreement (including any changes proposed by St. Renatus to the terms of the merger agreement) and (B) the conditions to the consummation of which are all reasonably capable of being satisfied, taking into account all financial, regulatory, legal and other aspects of such proposal (including certainty of financing and certainty of closing). Should Apollonia terminate the merger agreement as a result of a Superior Proposal, it or the acquiring company will be required to pay St. Renatus a termination fee equal to $500,000.

 

Apollonia was also required to instruct its respective officers, governors, agents, and affiliates to refrain from taking action prohibited by Apollonia and is required to notify St. Renatus immediately if it receives any inquiries from third parties. However, no director or officer of Apollonia is prohibited from taking any action that the board of governors of Apollonia determines in good faith, after consultation with counsel, is required by law or is required to discharge such governor’s or officer’s fiduciary duties including with respect to a Superior Proposal. 

 

Termination of the Merger Agreement; Termination Fee

 

The merger agreement specifies the circumstances under which the parties may terminate the agreement and abandon the Merger. Those circumstances are:

 

 

by mutual consent of Apollonia’s board of governors and St. Renatus’ board of directors;

 

 

by either party if the other party materially breaches any representation, warranty or covenant, such breach cannot be, or is not, cured within 15 days after written notice and the existence of such breach would result in a “material adverse effect,” as defined in the merger agreement, on the breaching party;

 

 

by either party if Apollonia’s unitholders do not approve the merger agreement or if any required consent of any regulatory authority is denied or issued subject to conditions which would have a material adverse effect on (1) the financial position, business, results of operations or prospects of either St. Renatus or Apollonia, or (2) either party’s ability to perform its obligations under the merger agreement;

 

 

by either party if the merger has not been consummated or a condition precedent cannot be satisfied or waived by December 31, 2018;

 

 

by St. Renatus if Apollonia’s board of governors withdraws, modifies or changes its recommendation to its unitholders regarding approving the merger agreement; cancels the unitholders or board meeting at which the unitholders or governors will vote on the merger agreement; recommends or approves a merger, sale of assets or other business combination or substantial investment by a third party (other than the St. Renatus Merger); or resolves or announces any agreement to do any of those things;

 

 

by Apollonia if Apollonia receives a Superior Proposal (as described above), which termination will require that a $500,000 termination fee be paid to St. Renatus.

 

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Payment of Expenses Relating to the Merger

 

The parties will pay all of their own expenses related to negotiating and completing the Merger. 

 

Interests of Certain Persons in the Merger

 

One of Apollonia’s governors has an interest in the transaction in addition to his interests generally as a unitholder of Apollonia. Apollonia’s board of governors was aware of this interest and considered it, in addition to other matters, in approving the merger agreement, including it use of a special committee of independent directors to advise the board of governors on the terms of the Merger (and the abstention of the interested governor from the vote on approving the Merger).

 

Appointment of One Apollonia Governor to St. Renatus’ Boards of Directors

 

Upon the consummation of the Merger, current Apollonia governor Ryan M. Martorano will be appointed to the St. Renatus Board of Directors.

 

Indemnification and Insurance

 

After the merger, Apollonia as a wholly owned subsidiary of St. Renatus, will continue to indemnify all past and present directors and officers of Apollonia to the extent such right to indemnification existed prior to the Merger.

 

Additionally, St. Renatus has agreed to allow Apollonia to cause the persons serving as Apollonia officers or governors prior to the Merger to be covered for a period of six years from the effective time of the Merger by the directors’ and officers’ liability insurance policy maintained by Apollonia with respect to acts or omissions occurring prior to or at the effective time. 

 

Surrender and Exchange of Apollonia Unit Certificates

 

At the effective time of the Merger, Apollonia unitholders who will receive St. Renatus common units in the Merger will automatically become entitled to all of the rights and privileges afforded to St. Renatus unitholders as of that time. However, the actual physical exchange of Apollonia equity interest certificates for St. Renatus common unit certificates will occur after the Merger.

 

St. Renatus personnel will serve as the exchange agent for the Merger. Prior to the closing of the Merger, St. Renatus will send or cause to be sent to all Apollonia’s unitholders a letter of transmittal with instructions for exchanging their Apollonia equity certificates (if any) for the merger consideration to which they are entitled. Each Apollonia equity certificate issued and outstanding immediately prior to the effective time of the Merger will be deemed for all purposes to evidence the right to receive the merger consideration to which such holder is entitled, regardless of when they are actually exchanged.

 

St. Renatus will delay paying former unitholders of Apollonia who become holders of St. Renatus common units pursuant to the Merger any distributions that may become payable to holders of record of St. Renatus common units following the effective time of the Merger until they have surrendered their certificates evidencing their Apollonia equity interests, at which time St. Renatus will pay any such distributions without interest.

 

You should not send in your Apollonia equity interest certificate(s) until you have received a letter of transmittal and further written instructions from Apollonia. Please do NOT send in your unit certificates with your proxy card.

 

After the exchange agent receives your Apollonia certificate(s), together with a properly completed election form/letter of transmittal, it will deliver to you the merger consideration to which you are entitled, consisting of any St. Renatus common units.

 

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Unitholders who cannot locate their Apollonia equity interest certificates are urged to promptly contact:

 

Linda Hult

1000 Centre Avenue

Fort Collins, CO 80526

Telephone: 970-282-0156 x 3512

E-mail: lhult@kovanaze.com 

 

Apollonia will issue a new unit certificate to replace the lost certificate(s) or waive the need to issue a new certificate only if the unitholder of Apollonia signs an affidavit certifying that his, her or its certificate(s) cannot be located and containing an agreement to indemnify Apollonia and St. Renatus against any claim that may be made against Apollonia or St. Renatus by the owner of the certificate(s) alleged to have been lost or destroyed. Apollonia or St. Renatus may also require the unitholder to post a bond in an amount sufficient to support the unitholder’s agreement to indemnify Apollonia and St. Renatus.

  

 Resale of St. Renatus Common Units

 

The St. Renatus common units to be issued in the Merger will be qualified under the Regulation A exemption from registration under the Securities Act. Nevertheless, due to restrictions on transfer imposed under the St. Renatus LLC agreement and applicable securities and tax laws, Apollonia unitholders will not be able to freely trade their St. Renatus common units upon completion of the merger.

 

In addition to restrictions on transfer imposed by the St. Renatus LLC agreement, those unitholders who are deemed to be affiliates of St. Renatus may only sell their St. Renatus common units as provided by Rule 144 under the Securities Act or as otherwise permitted under the Securities Act. The term “affiliate” generally means each person who is an executive officer, director or 10% unitholder of St. Renatus after the merger. Rule 144 requires the availability of current public information about the issuer, a holding period for units issued without SEC registration, volume limitations and other restrictions on the manner of sale of the units.

 

Regulatory and Other Required Approvals

 

In connection with or as a result of the Merger, St. Renatus or Apollonia may be required, pursuant to other laws and regulations, either to notify or obtain the consent of other regulatory authorities and organizations to which such companies or subsidiaries of either or both of them may be subject. The St. Renatus common units to be issued in exchange for Apollonia equity interests in the merger have been qualified with the SEC under Regulation A of the Securities Act and will be issued pursuant to available exemptions from registration under state securities laws.

 

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UNAUDITED HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS

 

The following unaudited financial statements of St. Renatus and Apollonia are set forth below: balance sheets, and related statements of operations and cash flows, as of June 30, 2018 and December 31, 2017 and 2016.

 

The following unaudited pro forma consolidated financial information of St. Renatus reflects the pro forma impacts of Apollonia’s proposed merger with St. Renatus. The pro forma condensed consolidated balance sheets for June 30, 2018, December 31, 2017 and December 31, 2016 give effect to the merger as if it has occurred on December 31, 2015 and the unaudited pro forma condensed statement of operations and cash flows for the six months ending June 30, 2018 and the years ending December 31, 2017 and 2016 assume the merger was completed on January 1, 2016. The stand-alone financial statements of each entity were used to generate the pro forma statements.

 

The unaudited pro forma condensed consolidated financial statements are for illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the merger had been completed on the dates indicated, nor are they necessarily indicative of the financial position or results of operations in the future. The pro forma adjustments are based upon available information and certain assumptions that are believed to be reasonable as of the date of this document. The merger is expected to close in the fourth quarter of 2018.

 

Under the terms of the merger agreement, holders of Apollonia equity interest will receive a specified number of St. Renatus common units based on the distribution provisions as set forth above in “allocation of Merger Consideration to Apollonia Unitholders”. No fractional common units in St. Renatus will be issued, any fraction will be rounded up or down to the nearest whole St. Renatus common unit. Apollonia will determine the total amount of invested cash for each Apollonia unitholder and has valued the St. Renatus common units at $70 per common unit for this purpose, a value determined by a special committee of the Apollonia board of governors. Apollonia holders who have an invested cash amount will first receive the balance due of their invested cash in the form of St. Renatus common units, after reflecting prior cash distributions made in previous years. The remaining St. Renatus common units, after all invested cash has been repaid as described above, will be allocated to all Apollonia holders (including those who had no invested cash) based on their respective percentage interests, as measured by the number of Apollonia common units and/or Apollonia financial rights units that they hold as compared to all outstanding Apollonia common units and Apollonia financial rights units.

 

Prior to voting on the Merger, each Apollonia unitholder will receive a statement from Apollonia as part of the proxy voting materials that will show the Apollonia unitholder’s holdings of Apollonia common units and/or Apollonia financial rights units pursuant to the Company records and their balance, if any, of “invested cash” as of immediately prior to the Merger. In addition, the statement will show the number of whole St. Renatus common units that such Apollonia unitholder will receive in the Merger in exchange for the Apollonia equity interests such person holds.

 

37

 

 

St Renatus, LLC and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Balance Sheet

June 30, 2018

(in Thousands)

 

   

St Renatus
Historical

   

Apollonia
Historical

   

Pro Forma

Adjustments

   

St Renatus
Pro Forma with

Apollonia Merger

 

Current Assets

                               

Cash and equivalents

  $ 920     $ 30             $ 950  

Accounts receivable

    18                       18  

Due from Related Company

                            0  

Inventories

    1,725                       1,725  

Prepaid expenses and other

    805                       805  

Total current assets

    3,468       30       0       3,498  
                                 

Non-current assets

                               

Notes receivable - Related Company

    4,340       9,016       (13,340 )     16  

Notes receivable - members

    1,469       1,841               3,310  

Interest receivable - related parties

    1,598               (1,557 )     41  

Intangible assets, net

    5,943       4       (4,672 )     1,275  

Equipment, net

    1,952       4               1,956  

Total non-current assets

    15,302       10,865       (19,569 )     6,598  
                                 

Total Assets

  $ 18,770     $ 10,895     $ (19,569 )   $ 10,096  
                                 

Current Liabilities

                               

Accounts payable

  $ 1,237     $ 182             $ 1,419  

Accrued expenses

    2,794               6       2,800  

Due to related parties

    0       197               197  

Current portion of long-term notes payable

    9,729                       9,729  

Total current liabilities

    13,760       379       6       14,145  
                                 

Non-current liabilities

                               

Notes payable, less current portion

    9,971                       9,971  

Notes payable - Related Company

    9,000       5,903       (14,903 )     0  

Total liabilities

    32,731       6,282       (14,897 )     24,116  
                                 

Commitments and contingencies

                            0  
                                 

Members' (deficit) equity

    (13,961 )     4,613       (4,672 )     (14,020 )
                                 

Total liabilities and members' (deficit) equity

  $ 18,770     $ 10,895     $ (19,569 )   $ 10,096  

 

38

 

 

St Renatus, LLC and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations and Cash Flows

For the Six Months Ended June 30, 2018

(in Thousands)

 

   

St Renatus
Historical

   

Apollonia
Historical

   

Pro Forma

Adjustments

   

St Renatus
Pro Forma with

Apollonia Merger

 

Sales

    1       0               1  
                                 

Costs and Expenses

                               

Cost of goods sold

    80       0               80  

Payroll, benefits and related

    682                       682  

Clinical trials and regulatory submission

    155                       155  

Professional fees

    513       99               612  

Advertising and marketing

    191                       191  

General and administrative

    449       25               474  

Depreciation and amortization

    1,589       1       (1,332 )     258  

Total costs and expenses

    3,659       125       (1,332 )     2,452  

Operating Income / (Loss)

    (3,658 )     (125 )     1,332       (2,451 )

Other Income / (Expense)

                               

Interest income

    138       18       (106 )     50  

Interest expense

    (977 )     (116 )     106       (987 )

Other, net

    0                       0  

Net Profit / (Loss)

    (4,497 )     (223 )     1,332       (3,388 )
                                 
                                 

Cash flow from operating activities:

                               

Net Income / (Loss)

    (4,497 )     (223 )     1,332       (3,388 )

Adjustments to reconcile net loss to net cash used in operating activities:

                               

Depreciation and amortization

    1,589       1       (1,332 )     258  

Changes in assets and liabilities

    (668 )     201               (467 )

Net Cash provided / (used) in operating activities

    (3,576 )     (21 )     0       (3,597 )
                                 

Cash flow from investing activities:

                               

Purchases of equipment and intangible assets

    (103 )     0       0       (103 )
                                 

Cash flows from financing activities:

                               

Advances to members, net

    0       0               0  

Debt issuance costs

    (32 )     0               (32 )

Proceeds from sale of Member Units

    0       0               0  

Proceeds from issuance of notes payable

    5,236       0               5,236  

Payments on notes payable

    (1,000 )     0               (1,000 )

Net Cash provided / (used) by financing activities

    4,204       0       0       4,204  
                                 

Net increase / (decrease) in cash and cash equivalents

    525       (21 )     0       504  
                                 

Cash and cash equivalents - beginning of period

    395       51       0       446  
                                 

Cash and cash equivalents - end of period

    920       30       0       950  

 

39

 

 

St Renatus, LLC and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Balance Sheet

December 31, 2017

(in Thousands)

 

   

St Renatus
Historical

   

Apollonia
Historical

   

Pro Forma

Adjustments

   

St Renatus
Pro Forma with

Apollonia Merger

 

Current Assets

                               

Cash and equivalents

  $ 395     $ 51             $ 446  

Accounts receivable

    17                       17  

Due from Related Company

    105                       105  

Inventories

    1,739                       1,739  

Prepaid expenses and other

    618       8               626  

Total current assets

    2,874       59       0       2,933  
                                 

Non-current assets

                               

Notes receivable - Related Company

    4,340       9,000       (13,340 )     0  

Notes receivable - members

    1,469       1,879               3,348  

Interest receivable - related parties

    1,459               (1,452 )     7  

Intangible assets, net

    7,284               (6,004 )     1,280  

Equipment, net

    2,097       4               2,101  

Total non-current assets

    16,649       10,883       (20,796 )     6,736  
                                 

Total Assets

  $ 19,523     $ 10,942     $ (20,796 )   $ 9,669  
                                 

Current Liabilities

                               

Accounts payable

  $ 3,427     $ 134             $ 3,561  

Accrued expenses

    224       28               252  

Due to related parties

    894       152               1,046  

Current portion of long-term notes payable

    10,729                       10,729  

Total current liabilities

    15,274       314       0       15,588  
                                 

Non-current liabilities

                               

Notes payable, less current portion

    4,735                       4,735  

Notes payable - Related Company

    9,000       5,792       (14,792 )     0  

Total liabilities

    29,009       6,106       (14,792 )     20,323  
                                 

Commitments and contingencies

                            0  
                                 

Members' (deficit) equity

    (9,486 )     4,836       (6,004 )     (10,654 )
                                 

Total liabilities and members' (deficit) equity

  $ 19,523     $ 10,942     $ (20,796 )   $ 9,669  

 

40

 

 

St Renatus, LLC and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations and Cash Flows

For the Year Ended December 31, 2017

(in Thousands)

 

   

St Renatus
Historical

   

Apollonia
Historical

   

Pro Forma

Adjustments

   

St Renatus
Pro Forma with

Apollonia Merger

 

Sales

    212       129       0       341  
                                 

Costs and Expenses

                               

Cost of goods sold

    4,962       61       87       5,110  

Payroll, benefits and related

    5,074       73               5,147  

Clinical trials and regulatory submission

    172       0               172  

Professional fees

    1,379       292               1,671  

Advertising and marketing

    829       0               829  

General and administrative

    1,549       27               1,576  

Depreciation and amortization

    3,120       2       (2,664 )     458  

Total costs and expenses

    17,085       455       (2,577 )     14,963  

Operating Income / (Loss)

    (16,873 )     (326 )     2,577       (14,622 )

Other Income / (Expense)

                               

Interest income

    234       34       (206 )     62  

Interest expense

    (1,151 )     (206 )     206       (1,151 )

Other, net

    (246 )     77               (169 )

Net Profit / (Loss)

    (18,036 )     (421 )     2,577       (15,880 )
                                 
                                 

Cash flow from operating activities:

                               

Net Income / (Loss)

    (18,036 )     (421 )     2,577       (15,880 )

Adjustments to reconcile net loss to net cash used in operating activities:

                               

Depreciation and amortization

    3,120       2       (2,664 )     458  

Changes in assets and liabilities

    (1,717 )     399       87       (1,231 )

Net Cash provided / (used) in operating activities

    (16,633 )     (20 )     0       (16,653 )
                                 

Cash flow from investing activities:

                               

Purchases of equipment and intangible assets

    (884 )                     (884 )
                                 

Cash flows from financing activities:

                               

Advances to members, net

    (767 )                     (767 )

Debt issuance costs

    0                       0  

Proceeds from sale of Member Units

    5,000       65               5,065  

Proceeds from issuance of notes payable

    13,414                       13,414  

Payments on notes payable

    (81 )                     (81 )

Net Cash provided / (used) by financing activities

    17,566       65       0       17,631  
                                 

Net increase / (decrease) in cash and cash equivalents

    49       45       0       94  
                                 

Cash and cash equivalents - beginning of period

    345       6               351  
                                 

Cash and cash equivalents - end of period

    394       51       0       445  

 

 

41

 

 

St Renatus, LLC and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Balance Sheet

December 31, 2016

(in Thousands)

 

   

St Renatus
Historical

   

Apollonia
Historical

   

Pro Forma

Adjustments

   

St Renatus
Pro Forma with

Apollonia Merger

 

Current Assets

                               

Cash and equivalents

  $ 345     $ 6             $ 351  

Accounts receivable

    637                       637  

Due from Related Company

    0                       0  

Inventories

    4,281                       4,281  

Prepaid expenses and other

    947       7               954  

Total current assets

    6,210       13       0       6,223  
                                 

Non-current assets

                               

Notes receivable - Related Company

    4,340       9,000       (13,340 )     0  

Notes receivable - members

    2,880       1,804               4,684  

Interest receivable - related parties

    1,278               (1,246 )     32  

Intangible assets, net

    9,679               (8,668 )     1,011  

Equipment, net

    2,184       8               2,192  

Total non-current assets

    20,361       10,812       (23,254 )     7,919  
                                 

Total Assets

  $ 26,571     $ 10,825     $ (23,254 )   $ 14,142  
                                 

Current Liabilities

                               

Accounts payable

  $ 9,129     $ 7             $ 9,136  

Accrued expenses

    216       3       2       221  

Due to related parties

    0       0               0  

Current portion of long-term notes payable

    2,131       0               2,131  

Total current liabilities

    11,476       10       2       11,488  
                                 

Non-current liabilities

                               

Notes payable, less current portion

    0       0               0  

Notes payable - Related Company

    9,000       5,588       (14,588 )     0  

Total liabilities

    20,476       5,598       (14,586 )     11,488  
                                 

Commitments and contingencies

            0               0  
                                 

Members' (deficit) equity

    6,095       5,227       (8,668 )     2,654  
                                 

Total liabilities and members' (deficit) equity

  $ 26,571     $ 10,825     $ (23,254 )   $ 14,142  

 

42

 

 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

 

The following is a discussion of the material U.S. federal income tax consequences of the Merger that may be relevant to Apollonia unitholders. This discussion is based upon current provisions of the Code, existing and proposed Treasury regulations promulgated under the Code (the “Treasury Regulations”) and current administrative rulings and court decisions, all of which are subject to change, possibly with retroactive effect. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below.

 

This discussion does not purport to be a complete discussion of all U.S. federal income tax consequences of the Merger. Moreover, the discussion focuses on Apollonia unitholders who are individual citizens or residents of the United States (for U.S. federal income tax purposes) and has only limited application to corporations, estates, trusts, nonresident aliens or other unitholders subject to specialized tax treatment, such as tax-exempt institutions, employee benefit plans, foreign persons, financial institutions, insurance companies, real estate investment trusts (REITs), individual retirement accounts (IRAs), mutual funds, traders in securities that elect mark-to-market, persons who hold Apollonia units or St. Renatus common units as part of a hedge, straddle or conversion transaction, persons who acquired Apollonia units by gift, or directors and employees of Apollonia that received (or are deemed to receive) Apollonia units as compensation or through the exercise (or deemed exercise) of options, unit appreciation rights, phantom units or restricted units granted under a Apollonia equity incentive plan. Also, the discussion assumes that the Apollonia units are held as capital assets at the time of the Merger (generally, property held for investment).

 

Neither St. Renatus nor Apollonia has sought a ruling from the IRS or an opinion of counsel with respect to any of the tax consequences discussed below, and the IRS would not be precluded from taking positions contrary to those described herein. As a result, no assurance can be given that the IRS will agree with all of the tax characterizations and the tax consequences described below. Some tax aspects of the Merger are not certain, and no assurance can be given that the statements contained herein with respect to tax matters would be sustained by a court if contested by the IRS. Furthermore, the tax treatment of the merger may be significantly modified by future legislative or administrative changes or court decisions. Any modifications may or may not be retroactively applied.

 

Accordingly, St. Renatus and Apollonia strongly urge each Apollonia unitholder to consult with, and depend upon, such unitholder’s own tax advisor in analyzing the U.S. federal, state, local and foreign tax consequences particular to the unitholder of the Merger.

 

Assumptions Related to the U.S. Federal Income Tax Treatment of the Merger

 

The discussion below assumes that St. Renatus will be classified as a partnership for U.S. federal income tax purposes at the time of the Merger. The discussion below also assumes that Apollonia will be classified as a partnership for U.S. federal income tax purposes at the time of the Merger. Both St. Renatus and Apollonia have filed all federal and state income tax returns since their formation as partnerships for federal and state income tax purposes and believe they have been classified as partnerships since their formation. Following the Merger, an Apollonia unitholder that receives St. Renatus common units will be treated as a partner in St. Renatus regardless of the U.S. federal income tax classification of Apollonia.

 

Additionally, the discussion below assumes that all of the liabilities of Apollonia that are deemed assumed by St. Renatus in the Merger qualify for an exception to the “disguised sale” rules. St. Renatus and Apollonia believe that such liabilities qualify for one or more of the exceptions to the “disguised sale” rules and intend to take the position that neither St. Renatus nor Apollonia will recognize any income or gain as a result of the “disguised sale” rules.

 

U.S. Federal Income Tax Treatment of the Merger

 

Upon the terms and subject to the conditions set forth in the merger agreement, Apollonia will merge with SR Merger Sub, with Apollonia surviving and becoming a wholly owned subsidiary of St. Renatus, and all Apollonia units and financial rights will be converted into the right to receive St. Renatus voting common units. For U.S. federal income tax purposes, the merger will be a “merger” of St. Renatus and Apollonia within the meaning of Treasury Regulations promulgated under Section 708 of the Code, with St. Renatus being treated as the continuing partnership and Apollonia being treated as the terminated partnership.

 

43

 

 

As a result, the following is deemed to occur for U.S. federal income tax purposes: (1) Apollonia will be deemed to contribute its assets to St. Renatus in exchange for (i) the issuance to Apollonia of St. Renatus voting common units and (ii) the assumption of Apollonia’s liabilities and (2) Apollonia will be deemed to liquidate, distributing such St. Renatus common units to the Apollonia unitholders in exchange for their Apollonia units in a liquidating redemption (the “Assets-Over Form”).

 

The remainder of this discussion, except as otherwise noted, assumes that the Merger and the transactions contemplated thereby will be treated for U.S. federal income tax purposes in the manner described above.

 

Tax Consequences of the Merger to Apollonia

 

Under the Assets-Over Form, Apollonia will be deemed to contribute all of its assets to St. Renatus in exchange for St. Renatus voting common units and the assumption of Apollonia’s liabilities. In general, the deemed contribution of assets from Apollonia to St. Renatus in exchange for St. Renatus common units will not result in the recognition of gain or loss by Apollonia. Under Section 707 of the Code and the Treasury Regulations thereunder, a transfer of property by a partner to a partnership, coupled with a related transfer of money or other consideration (other than a partnership interest) by the partnership to such partner (including the partnership’s assumption of, or taking of property subject to, certain liabilities), may be characterized, in part, as a “disguised sale” of property, rather than as a non-taxable contribution of the property to the partnership under Section 721 of the Code. If the merger were characterized, in part, as a “disguised sale” of property by Apollonia, such disguised sale could result in taxable gain being allocated to the Apollonia unitholders. St. Renatus and Apollonia believe that all of the liabilities of Apollonia that are deemed assumed by St. Renatus in the merger qualify for one or more exceptions to the “disguised sale” rules and intend to take the position that neither St. Renatus nor Apollonia will recognize any income or gain as a result of the “disguised sale” rules.

 

Tax Consequences of the Merger to Apollonia Unitholders

 

Under the Assets-Over Form, Apollonia unitholders will be deemed to receive distributions in liquidation of Apollonia consisting of St. Renatus voting common units. In general, the receipt of St. Renatus voting common units will not result in the recognition of taxable gain or loss to an Apollonia unitholder. Any actual or deemed receipt of cash by an Apollonia unitholder (including, as discussed below, a deemed distribution of cash resulting from a net reduction in the amount of nonrecourse liabilities allocated to an Apollonia unitholder) will result in the recognition of taxable gain if such receipt exceeds the adjusted tax basis in the Apollonia units surrendered in the Merger.

 

As a partner in Apollonia, an Apollonia unitholder is entitled to include the nonrecourse liabilities of Apollonia attributable to such person’s Apollonia units in the tax basis of its Apollonia units. As a partner in St. Renatus after the merger, an Apollonia unitholder will be entitled to include the nonrecourse liabilities of St. Renatus attributable to the St. Renatus voting common units received in the Merger in the tax basis of such units received. The nonrecourse liabilities of St. Renatus will include the nonrecourse liabilities of Apollonia after the Merger, except for any nonrecourse liabilities owing from Apollonia to St. Renatus prior to the Merger. The amount of nonrecourse liabilities attributable to an Apollonia unit or a St. Renatus voting common unit is determined under complex regulations under Section 752 of the Code.

 

If the nonrecourse liabilities attributable to the St. Renatus voting common units received by an Apollonia unitholder in the Merger exceed the nonrecourse liabilities attributable to the Apollonia units surrendered by the Apollonia unitholder in the Merger, the Apollonia unitholder’s tax basis in the St. Renatus voting common units received will be correspondingly higher than the unitholder’s tax basis in the Apollonia units surrendered. If the nonrecourse liabilities attributable to the St. Renatus voting common units received by an Apollonia unitholder in the Merger are less than the nonrecourse liabilities attributable to the Apollonia units surrendered by the Apollonia unitholder in the Merger, the Apollonia unitholder’s tax basis in the St. Renatus voting common units received will be correspondingly lower than the unitholder’s tax basis in the Apollonia units surrendered. Please read “Material U.S. Federal Income Tax Consequences of the Merger—Tax Basis and Holding Period of the St. Renatus Units Received” below.

 

Any reduction in liabilities described in the preceding paragraph will be treated as a deemed cash distribution to the Apollonia unitholder. If the amount of any such deemed distribution of cash to the Apollonia unitholder exceeds such Apollonia unitholder’s tax basis in the Apollonia units surrendered, such Apollonia unitholder will recognize taxable gain in an amount equal to such excess. While there can be no assurance, St. Renatus and Apollonia expect that Apollonia unitholders will generally not recognize gain in this manner provided that they did not take losses in prior years in excess of their cash investment in Apollonia. Each Apollonia unitholder should consult such unitholder’s own tax advisor in analyzing whether the Merger causes such unitholder to recognize deemed distributions in excess of the tax basis of Apollonia units surrendered in the Merger.

 

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Tax Basis and Holding Period of the St. Renatus Units Received

 

An Apollonia unitholder’s initial tax basis in its Apollonia units or financial rights consisted of the amount the Apollonia unitholder paid for the Apollonia units or financial rights plus the Apollonia unitholder’s share of Apollonia’s nonrecourse liabilities, if any. That basis has been and will be increased by the Apollonia unitholder’s share of income, if any, and by any increases in the Apollonia unitholder’s share of nonrecourse liabilities. That basis has been and will be decreased, but not below zero, by distributions, by the Apollonia unitholder’s share of losses, by any decreases in the Apollonia unitholder’s share of nonrecourse liabilities and by the Apollonia unitholder’s share of expenditures that are not deductible in computing taxable income and are not required to be capitalized.

 

An Apollonia unitholder’s initial aggregate tax basis in the St. Renatus voting common units the Apollonia unitholder will receive in the Merger will be equal to the Apollonia unitholder’s adjusted tax basis in the Apollonia units exchanged therefor, decreased by any basis attributable to the Apollonia unitholder’s share of Apollonia’s nonrecourse liabilities and increased by the Apollonia unitholder’s share of St. Renatus’ nonrecourse liabilities immediately after the Merger.

 

As a result of the Assets-Over Form, an Apollonia unitholder’s holding period in the St. Renatus voting common units received in the Merger will not be determined by reference to its holding period in the Apollonia units exchanged therefor. Instead, an Apollonia unitholder’s holding period in the St. Renatus voting common units received in the Merger that are attributable to Apollonia’s capital assets or assets used in its business as defined in Section 1231 of the Code will include Apollonia’s holding period in those assets. The holding period for St. Renatus voting common units received by an Apollonia unitholder attributable to other assets of Apollonia, such as inventory and receivables, if any, will begin on the day following the merger.

 

Effect of Termination of Apollonia’s Tax Year at Closing of Merger

 

Apollonia uses the year ending December 31 as its taxable year and the accrual method of accounting for U.S. federal income tax purposes. As a result of the merger, Apollonia’s taxable year will end as of the effective date of the Merger, and Apollonia will be required to file a final U.S. federal income tax return for the taxable year ending upon the effective date of the Merger. Each Apollonia unitholder will receive a Schedule K-1 from Apollonia for the taxable year ending upon the effective date of the Merger and will be required to include in income its share of income, gain, loss and deduction for this period.

 

 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

OF ST. RENATUS COMMON UNIT OWNERSHIP

 

Federal Income Tax Consequences

 

Holding St. Renatus common units will have the same general tax consequences as holding Apollonia units since both St. Renatus and Apollonia are classified as “partnerships” under the Internal Revenue Code of 1986, as amended (the “Code”). Like Apollonia, St. Renatus expects to be treated as a partnership for federal income tax purposes under the Code. St. Renatus does not intend to seek a private letter ruling from the IRS or tax opinion of counsel with respect to the classification of St. Renatus as a partnership for tax purposes. There can be no assurance that the IRS could not successfully challenge the classification of St. Renatus. Moreover, St. Renatus will impose various restrictions on the transfer of its common units to avoid publicly traded partnership status under Section 7704 of the Code and the related regulations. If, however, as expected, St. Renatus is treated as a partnership for federal income tax purposes, St. Renatus will not pay federal income taxes, but each unitholder will be required to report its distributive share (whether or not distributed) of the income, gains, losses, deductions and credits of the character specified in Section 702 of the Code. It is possible that the unitholders could incur income tax liabilities without receiving from St. Renatus sufficient distributions to defray such tax liabilities. In addition, the characterization of income from an operating business operating as a limited liability company as “self-employment income” to individual unitholders is subject to some uncertainty, especially for unitholders who may provide services to St. Renatus. In the discretion of the Board of Directors, St. Renatus may be converted into a corporation in which case its classification as a partnership would cease and it would be taxable as a corporation thereafter.

 

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The United States Congress has recently enacted comprehensive tax legislation that may have a generally favorable impact on certain investors who receive “qualified business income” from pass-through entities for taxable years beginning in 2018. The tax legislation also provides for significantly lower tax rates for taxable C corporations which may cause the Company’s Board of Directors to consider changing the Company to C corporation status after analyzing the tax advantages and costs associated with such a conversion. You are advised to consult with your tax advisor as to the scope and status of any new tax legislation and its impact on you as an investor in the Company.

 

Although we believe that the allocation of profits, losses, deductions and credits set forth in the LLC Agreement will be respected, it is possible that the IRS could challenge such allocation and assert that the unitholders should be allocated a greater share of taxable profit (or a lesser share of losses, deductions or credits) without a corresponding increase in any cash distributions.

 

St. Renatus’ taxable year will be the calendar year, or such other year as required by the Code. Tax information will be distributed to each unitholder as soon as possible after the end of each year.

 

A unitholder in St. Renatus may not deduct allocated losses to the extent they exceed the investor’s tax basis in St. Renatus. Generally, a unitholder’s tax basis in St. Renatus will be the amount of money contributed to St. Renatus, increased by the unitholder’s share of St. Renatus income, gain and the investor’s share, if any, of St. Renatus liabilities, and reduced by the unitholder’s share of St. Renatus losses and distributions. As long as a unitholder remains a unitholder in St. Renatus, losses denied under this limitation may be carried forward and deducted in subsequent tax years against income in such years, to the extent the unitholder’s tax basis in St. Renatus exceeds zero. Additionally, an individual unitholder’s ability to deduct St. Renatus losses will be limited by the “at risk” and “passive loss” rules.

 

With regard to the “at risk” rules, the deductibility of St. Renatus losses will be limited to the amount the unitholder is “at risk,” which includes (a) the unitholder’s cash contributions to St. Renatus, (b) the adjusted basis of other property, if any, contributed by the unitholder to St. Renatus and (c) the unitholder’s share of amounts borrowed by St. Renatus for which the unitholder is personally liable or which are secured by property of the unitholder (not otherwise used by St. Renatus) to the extent of the fair market value of such property, in each case increased by the unitholder’s share of income and decreased by the unitholder’s share of losses and distributions. Losses denied by the “at risk” rules may be carried forward and deducted in subsequent tax years if the unitholder is then “at risk” or has disposed of the unitholder’s interest in St. Renatus.

 

With regard to the “passive loss” rules, the deductibility of St. Renatus losses will be limited to the unitholder’s amount of income from passive activities, if such St. Renatus losses are considered losses from a passive activity. Passive activities include any trade or business in which the owner subject to the limitation does not materially participate. Unitholders are generally deemed not to materially participate, unless they have some actual level of participation. Losses denied by the “passive loss” rules may be carried over and deducted in subsequent tax years if the unitholder has available passive income or has completely disposed of his, her or its interest in St. Renatus. Unitholders who are passive owners with respect to St. Renatus may also be subject to the 3.8% tax on net investment income with respect to income or gains derived from St. Renatus.

 

Interest on any amount borrowed by a unitholder (other than a corporation) to purchase an interest in St. Renatus may be considered “investment interest,” subject to a limitation on deductibility. In general, investment interest will be deductible only to the extent of the taxpayer’s “net investment income.” For this purpose, “net investment income” will generally include net income from St. Renatus and other income from property held for investment (other than property which generates passive business income). However, long-term capital gain is excluded from the definition of net investment income unless the taxpayer makes a special election to treat such gain as ordinary income rather than long-term capital gain. Interest which is not deductible in the year incurred because of the investment interest limitation may be carried forward and deducted in a future year in which there is sufficient investment income.

 

Prospective unitholders should recognize that the present federal income tax treatment of an investment in a partnership may be modified by legislative, administrative or judicial action at any time, and that any such action may affect investments previously made. Changes in federal income tax laws have been proposed in the past and may be proposed again that, if enacted, would adversely affect investments in St. Renatus. Further, the rules dealing with federal income taxation are constantly under review by Congress, the U.S. Treasury Department and the IRS, resulting in revisions of the Code, regulations and revised interpretations of established concepts.

 

No ruling has been or will be requested from the IRS and no opinion of counsel will be obtained, therefore no assurance can be given that the IRS will concur with the tax consequences as set forth above. Each prospective unitholder is advised to consult the unitholder’s own tax counsel or adviser as to the federal income tax consequences of an investment in St. Renatus.

 

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There is a possibility that we will be audited by the IRS and/or by state and local taxing authorities. Any audit of St. Renatus could result in an adjustment not only of St. Renatus’ tax return, but could also lead to an audit of its unitholders’ tax returns with respect to both St. Renatus and non-St. Renatus items.

 

Unrelated Business Taxable Income

 

Our income is expected to constitute “unrelated business taxable income” within the meaning of Section 512 of the Code (“UBTI”) and, in that event, each tax-exempt unitholder would be subject to United States federal income tax on its share of such income in excess of certain de minimis thresholds (and the receipt of UBTI could give rise to additional tax liability for certain limited categories of tax-exempt unitholders). If a tax-exempt unitholder borrows any amount to fund its capital commitment, some or all of its distributive share of income from St. Renatus would be UBTI even if St. Renatus passed through income or gain that would otherwise be exempt from UBTI, such as interest or dividends. Such borrowing would cause the otherwise exempt income to be taxable to such tax-exempt unitholder (and which could give rise to additional tax liability for certain limited categories of tax-exempt unitholders). St. Renatus income, if any, from the sale of Kovanaze® Nasal Spray dental anesthetic is expected to be UBTI. See “Investment by Tax-Exempt Entities and ERISA Considerations” below.

 

State Taxes

 

In addition to federal income tax considerations, an investment in St. Renatus may be affected by potential state and local income tax consequences. In particular, a unitholder may be required to report taxable income and pay any state and local tax on such unitholder’s distributive share of the profits of St. Renatus in any state or municipality in which our income is deemed to be sourced, as well as in the unitholder’s state of residence (with a tax credit and/or deduction for taxes paid in other states, if any). Moreover, certain states may require us to withhold state taxes on St. Renatus income sourced in such state. To the extent possible, we plan to file returns on behalf of our unitholders in states where we are subject to tax, pay any required tax and deduct such amount from distributions otherwise payable to our unitholders. Each unitholder is advised to consult with the unitholder’s own tax counsel or advisor with respect to the possible effect of state and local taxes on an investment in St. Renatus.

 

Foreign Investors

 

Special considerations may apply to prospective unitholders who are not United States persons or entities, and such unitholders are advised to consult their tax advisors with regard to the United States, state and foreign tax consequences of an investment in St. Renatus. To the extent St. Renatus is viewed as operating a U.S. trade or business, unitholders who are not U.S. persons, such as foreign corporations or non-resident alien individuals, will likely be considered to be engaged in a U.S. trade or business as a result of their ownership of interests in St. Renatus, may be subject to U.S. withholding taxes on distributions and such unitholders may be required to file federal and state income tax returns in the United States. A foreign individual unitholder that owns an interest in St. Renatus at the time of his death may be subject to U.S. estate taxation unless provided otherwise by an applicable treaty.

 

Investment By Tax-Exempt Entities And Erisa Considerations

 

General

 

Our Board of Directors will allow investment in St. Renatus by qualified retirement plans, Keogh plans, individual retirement accounts (“IRAs”) and other entities that are tax-exempt under the Code. In considering an investment in St. Renatus of a portion of the assets of a retirement plan, however, the plan’s fiduciary should consider all applicable provisions of the Code and ERISA, including the possible imposition of tax on “unrelated business taxable income” that St. Renatus may generate and the need to calculate and fund “required minimum distributions” for some beneficiaries. IRAs that are not sponsored or endorsed by an employer or by an employee organization and Keogh Plans under which only investors or a sole proprietor are participants generally are not subject to the provisions of ERISA; however, fiduciaries of such accounts should review carefully the exceptions set forth below.

 

In general, qualified plan fiduciaries should consider (i) whether the investment is in accordance with the documents and instruments governing such qualified plan; (ii) whether the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA; (iii) whether the investment will result in “unrelated business taxable income” to the qualified retirement plan or to an investing IRA, Keogh Plan or other tax-exempt entity; (iv) whether there is sufficient liquidity for the qualified plan after taking this investment into account; (v) the need to value the assets of the qualified plan annually; (vi) whether the investment would constitute or give rise to a prohibited transaction under either Section 406 of ERISA or Section 4975 of the Code; and (vii) the need to calculate and fund any required minimum distribution by the qualified retirement plan.

 

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ERISA also requires generally that the assets of employee benefit plans be held in trust and that the trustee, or a duly authorized investment manager within the meaning of Section 3(38) of ERISA, have exclusive authority and discretion to manage and control the assets of the plan. All fiduciaries of employee benefit plans subject to ERISA have certain duties imposed on them by ERISA and, as noted above, certain transactions between an employee benefit plan and the parties in interest with respect to such plan, including fiduciaries, are prohibited. The Code imposes similar prohibitions on retirement plans, and IRAs and Keogh Plans covering only self-employed individuals that are not subject to ERISA are, nevertheless, subject to the “prohibited transaction” rules under the Code. For purposes of both ERISA and the Code, any person who exercises any authority or control with respect to the management or disposition of the assets of a retirement plan is considered to be a fiduciary of such retirement plan subject to certain exceptions not here relevant.

 

ERISA provides a comprehensive statutory scheme regarding the investment in and management of a retirement plan’s assets. As noted above, any person who exercises any authority or control over the management or disposition of a plan’s assets is considered to be a fiduciary of such plan. We will attempt to structure and operate St. Renatus to avoid characterization of the assets of St. Renatus as assets of the retirement plans investing as investors, but no assurance can be given that such status can be maintained.

 

Annual Valuation

 

Fiduciaries of retirement plans are required to determine at least annually the fair market value of the assets of such retirement plans, typically, as of the close of a plan’s fiscal year. To enable the fiduciaries of retirement plans subject to the annual reporting requirements of ERISA to prepare reports relating to an investment in St. Renatus, we will, upon request, provide financial information for St. Renatus to fiduciaries of retirement plans invested in St. Renatus. We may not value portfolio securities in a manner that is suitable for a fiduciary representing a tax-exempt investor to meet its reporting obligations.

 

ANY FIDUCIARY OF A QUALIFIED PLAN SHOULD CONSULT ITS LEGAL ADVISOR CONCERNING THE ERISA CONSIDERATIONS DISCUSSED ABOVE BEFORE MAKING AN INVESTMENT IN ST. RENATUS.

 

THE FIDUCIARY OF AN IRA OR OF AN EMPLOYEE BENEFIT PLAN NOT SUBJECT TO TITLE I OF ERISA BECAUSE IT IS A GOVERNMENTAL OR CHURCH PLAN OR BECAUSE IT DOES NOT COVER COMMON LAW EMPLOYEES (A “NON-ERISA PLAN”) SHOULD CONSIDER THAT SUCH AN IRA OR NON-ERISA PLAN MAY ONLY MAKE INVESTMENTS THAT ARE AUTHORIZED BY THE APPROPRIATE GOVERNING DOCUMENTS, NOT PROHIBITED UNDER CODE SECTION 4975 AND PERMITTED UNDER APPLICABLE STATE LAW.

 

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DESCRIPTION OF ST. RENATUS UNITS

 

The following summary description of the material features of St. Renatus’ units is qualified in its entirety by reference to the applicable provisions of Delaware law and by St. Renatus’ limited liability company agreement (the “St. Renatus LLC Agreement”), each as amended.

 

As a result of the Merger, Apollonia members who receive St. Renatus units in the Merger will become members of St. Renatus. Your rights as members of St. Renatus will be governed by Delaware law and by St. Renatus’ limited liability company agreement, each as amended. We urge you to read the applicable provisions of the Delaware Limited Liability Company Act and St. Renatus’ limited liability company agreement carefully and in their entirety. To find out where copies of the St. Renatus LLC Agreement can be obtained, see “Where You Can Find More Information.”

 

St. Renatus’ authorized capital consists of 2,640,000 common units, and its Board of Directors may increase its authorized capital at any time with the consent of at least 70% of the company’s voting unitholders, determined on a fully diluted basis.

 

Common Units

 

General. As of the date of this proxy statement/offering circular, prior to the Merger there were 1,874,176 St. Renatus common units outstanding, held by approximately 695 holders of record. This excludes reserved common units into which any St. Renatus convertible debt is convertible. The holders of voting common units are entitled to one vote for each common unit held of record on all matters voted upon by members and may not cumulate votes for the election of directors. Subject to the rights of holders of any future series of preferred units and the rights of holders of restricted profits interests in common units, each outstanding common unit is entitled to participate equally in any distribution of net assets made to the unitholders in a liquidation of St. Renatus, and is entitled to participate equally in distributions as and when declared by the Board of Directors. The common units are not subject to any redemption, sinking fund, preemptive or conversion rights. Generally, all common units are voting common units, except to the extent (i) St. Renatus’ Board of Directors determines that common units held by its advisor members or directors are non-voting common units, (ii) St. Renatus’ Board of Directors determines to issue non-voting common units to one or more unitholders and such non-voting status is disclosed in the related offering materials, (iii) certain common units are converted to non-voting status in the event of a transfer of voting common units held by either of St. Renatus’ founding members, or (iv) units issued upon conversion of its partially convertible debt or otherwise converted into non-voting units under the St. Renatus LLC Agreement.

 

Information Rights. For each fiscal year, St. Renatus will provide to its unitholders, upon request, as soon as available, its and its subsidiaries’ audited consolidated balance sheets and audited consolidated statements of income and retained earnings and cash flows for St. Renatus and its subsidiaries. St. Renatus will provide to the unitholders, upon request, as soon as available, for the first three fiscal quarters, its and its subsidiaries’ unaudited consolidated balance sheets and consolidated statements of income and retained earnings and cash flows. St. Renatus will also provide other information requested by a unitholder subject to certain restrictions set out below. See “Description of St. Renatus Units--Summary of St. Renatus LLC Agreement – Access to St. Renatus’ Books and Records; Inspection Rights.”

 

Restrictions on Transfer of Common Units

 

Right of First Refusal. Except for a transfer to a permitted transferee (as defined in the St. Renatus LLC Agreement), St. Renatus has a right to purchase the common units of a transferring unitholder on the same terms and conditions as offered to the transferring unitholder by a third party. St. Renatus has the option to purchase all, but not less than all, of such common units.

 

Tag-Along Rights. The holders of St. Renatus common units have “tag-along” rights to transfer a pro rata portion of their common units, which could be in the form of a sale or exchange, if members holding a majority of the common units enter into an agreement to transfer their common units, other than to a permitted transferee or by reason of a public sale (as defined in the St. Renatus LLC Agreement).

 

Drag-Along Rights. If a majority of the holders of St. Renatus’ outstanding common units approve a sale of the company, then all members are required to vote for, consent to and raise no objections against such sale of the company. If a sale triggers the drag-along rights, a holder of common units will not be able to avail itself of dissenters’ rights or similar rights in the event of a merger and must sell all of its common units on the terms approved by the holders of a majority of the outstanding common units in the event of a sale of units.

 

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Other Restrictions on Transfer. All transfers must be made in compliance with Code Section 7704 regarding publicly traded partnerships and the related treasury regulations. See “Description of St. Renatus Units--Summary of the St. Renatus LLC Agreement – Transfer of Units.” Also, all transfers must be made in compliance with the federal and state securities laws restrictions.

 

Summary of the St. Renatus LLC Agreement

 

The following is a summary of the material provisions of the St. Renatus LLC Agreement. The St. Renatus LLC Agreement sets forth the terms and conditions upon which St. Renatus will conduct its business and affairs, and it sets forth the rights and obligations of the members who we will refer to herein as unitholders. This summary is not complete and is subject to and qualified by the detailed provisions of the St. Renatus LLC Agreement. If the Merger is completed, each Apollonia member will become a party to the St. Renatus LLC Agreement.

 

Establishment and Nature of St. Renatus

 

St. Renatus was formed as a limited liability company under the Delaware Limited Liability Company Act, with its Board of Directors managing and controlling its business. A limited liability company is a non-corporate business entity usually having one or more managers. In St. Renatus’ case, the directors on its board are its managers, and the board may delegate certain of their management powers to various officers. A unitholder who is not also a manager, director or officer ordinarily does not play a role in the management or control of a limited liability company’s affairs. A unitholder’s liability for limited liability company obligations is generally limited to the unitholder’s investment.

 

Duration of St. Renatus

 

St. Renatus’ existence commenced when it filed a Certificate of Formation with the Delaware Secretary of State on September 6, 2006. The St. Renatus LLC Agreement will terminate and St. Renatus will dissolve as provided below in the section entitled “—Dissolution and Winding-Up.”

 

Capital Contributions

 

Founding Member, Advisor Member, Consultants and Employee Contributions. St. Renatus’ founding members, advisor members, consultants and employees have contributed cash and/or services (including future services) in exchange for the number of common units set forth on Schedule A to the St. Renatus LLC Agreement or in the company books and records, as more fully described below in “—Types of Units.” Common units issued to advisor members, employees and consultants are generally subject to vesting over a three- or four-year period and are restricted profits interests (as described below). This includes common units into which any —convertible debt is convertible. The board may establish other vesting schedules in its discretion.

 

Unitholders’ Contributions. A capital account will be maintained for each unitholder that will reflect such unitholder’s capital contributions and that will be adjusted for the unitholder’s allocable share of profits or losses and reduced by any distributions to the unitholder. No unitholder will be required to contribute any additional capital to St. Renatus.

 

Types of Units

 

Common Units. A description of St. Renatus’ common units can be found above under the heading “Description of Units.”

 

Common Unit Incentive Plan. The St. Renatus board has adopted an incentive plan, which is included in the terms of the St. Renatus LLC Agreement, for the benefit of certain employees, advisors, consultants or directors, with 528,000 common units reserved for issuance thereunder, subject to increase from time to time by action of the board, not to exceed 20% of all issued and outstanding and reserved common units at any time. In connection with administering the incentive plan, the board is empowered to cause St. Renatus to sell or grant from time to time to members or any other persons, including, without limitation, employees, consultants, advisors and directors, common units in such amounts, with such terms and conditions and in such manner (including, without limitation, options, restricted common unit grants, restricted profits interests or any similar plan or arrangement as determined by the board) (collectively, the “Incentive Units”) as permitted by such incentive plan or otherwise determined by the board. Incentive Units may be issued in exchange for cash, services performed or to be performed for or on behalf of St. Renatus, or any of its affiliates, in-kind contributions of property to St. Renatus or such other consideration as may be deemed advisable by the board from time to time. Holders of Incentive Units may be admitted as additional members, all upon such terms and subject to such conditions as may be determined by the board from time to time and as permitted by this incentive plan. As a condition to the issuance of Incentive Units to any person, or the retention of such Incentive Units, St. Renatus may require a participant to execute and deliver to St. Renatus a joinder agreement if such person is not already a party to the St. Renatus LLC Agreement. Upon such execution and delivery, the books and records of St. Renatus will include the name of such additional member and such individual shall be deemed to be a member and unitholder for all purposes of the St. Renatus LLC Agreement.

 

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Restricted Profits Interests. As of the date of this proxy statement/offering circular, the St. Renatus board has chosen to implement the incentive plan described in the preceding section only through the issuance of restricted profits interests in exchange for past and future services to be provided by the recipients thereof, which restricted profits interests have been issued at various times and in various amounts since the formation of St. Renatus, all as reflected in board actions and recorded in the books and records of St. Renatus with such issuance all upon such terms and subject to such conditions as may be determined by the Board from time to time. As of the date of this proxy statement/offering circular, out of the 528,000 maximum authorized incentive units, 463,450 incentive units in the form of restricted profits interests have been issued by the board, including: 160,000 incentive common units issued to the former chief executive officer as voting restricted profits interests; 84,000 incentive common units issued to a former member of the Board as voting restricted profits interests and 219,450 incentive common units issued to directors (including former directors), employees, former employees, consultants and advisor members as restricted profits interests. Any future issuances of incentive common units under the incentive plan may be limited by the number of available authorized units and subject to such restrictions, vesting, voting and forfeiture provisions as determined in the discretion of the board or under terms of an employment or consulting agreement approved by the board. Persons holding restricted profits interests are subject to the forfeiture provisions contained in the definition thereof in the St. Renatus LLC Agreement upon the occurrence of a forfeiture event while they hold non-vested restricted profits interests. In addition, to the extent that the Internal Revenue Code or Treasury Regulations are revised after the effective date of the St. Renatus LLC agreement to provide for special elections, special allocations or other rules, or St. Renatus’ tax advisors determine that other provisions may be necessary to ensure that St. Renatus’ existing outstanding profits interests retain their status as profits interests, the board by written resolutions thereof, shall be entitled to adopt resolutions that shall be considered as modifications and amendments to the St. Renatus LLC Agreement without any further consent or approval of any other members or unitholders required to make such amendments to the St. Renatus LLC Agreement effective.

 

Management of St. Renatus

 

Board of Directors’ Powers. Except as otherwise specifically provided in the St. Renatus LLC Agreement, the Board of Directors will have complete and exclusive discretion in the management and control of all of its affairs and business, and will be authorized to employ all powers necessary or advisable to carry out its purposes, conduct its business and affairs, and exercise its powers. Unless you are elected to the St. Renatus board or you become an officer, you will not be permitted to participate in the company’s management. The St. Renatus Board of Directors currently consists of six directors with a maximum of 11 directors authorized. At the annual meeting of St. Renatus members on October 30, 2017, the unitholders authorized the Board of Directors to appoint up to two additional directors as soon as acceptable candidates are identified by the Board of Directors and such persons agree to serve as directors; subject to any such directors so appointed by the Board of Directors being approved by a majority vote of the voting members of St. Renatus at its next annual meeting scheduled to be held in late 2018. Each director has one vote on any matter that comes before the board, and the board will generally take action by a majority vote of the directors, either at a meeting or pursuant to written consent resolutions. Except to the extent limited by Delaware law or the St. Renatus LLC Agreement, the Board of Directors may delegate its powers under the St. Renatus LLC Agreement to officers. The St. Renatus LLC Agreement authorizes the Board of Directors to designate the company’s tax matters partner, and authorizes and requires such tax matters partner or partnership representative to represent the company in connection with all examinations of its affairs by tax authorities, any resulting administrative or judicial proceedings, and to expend company funds in doing so.

 

Unitholders’ Powers. Except as provided in the St. Renatus LLC Agreement, no unitholder can participate in or have any control over the company’s business or have any right or authority to act for, or to bind or otherwise obligate the company. Directors on the board are elected or removed by a majority vote of the holders of voting common units, other than vacancies and newly created directorships, each of which are filled by a representative designated by the Board of Directors. Each voting common unit has the same voting power as other voting common units.

 

Change of Management

 

Voluntary Withdrawal of Director. Any director may voluntarily withdraw upon delivering written notice to the Board of Directors.

 

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Involuntary Withdrawal of Director. A director or the entire Board of Directors may be removed by the holders of a majority of the voting common units for any reason or for no reason.

 

Election of Replacement Director. A director may be elected to the Board of Directors by the vote of a majority of the holders of common units entitled to vote. There is no cumulative voting for the directors. Vacancies and newly created directorships are filled by a representative elected to the Board of Directors by the vote of a majority of the holders of common units entitled to vote.

 

Board of Directors’ Power to Convert St. Renatus to Corporate Form

 

The Board of Directors may, without the consent of the unitholders, cause St. Renatus to convert from a limited liability company to a corporation under applicable state law in order to facilitate a public offering of securities of the resulting corporation. Such a conversion will be structured to provide that each unitholder will receive common stock in the resulting corporation with a value equal to the common units exchanged for such common stock. In addition, upon such a conversion, or if St. Renatus determines to enter into a public offering without such a conversion, St. Renatus will enter into an agreement granting the members certain demand and “piggyback” registration rights with respect to the common stock received in the conversion, or St. Renatus equity if there is no conversion. Also, if such a conversion occurs, St. Renatus will no longer be classified as a partnership for federal income tax purposes but will be classified as a corporation.

 

Investment and Corporate Opportunities; Conflicts of Interest

 

Unless otherwise limited pursuant to a written agreement with St. Renatus, or pursuant to other fiduciary obligations applicable to directors or officers, unitholders, including unitholders who are directors or officers, will be free to pursue other business opportunities even if such opportunities are in competition with St. Renatus or represent interests in businesses that are similar to St. Renatus’. In addition, any business opportunity which St. Renatus might be able to undertake which is identified by a unitholder, director or officer will not need to be offered to us or any other unitholder, and such unitholder will have no duty to communicate such opportunity to St. Renatus, the board or to any other unitholders. Members, directors, officers and their affiliates can engage in transactions with us that may be considered a conflict of interest provided that any such transaction is made on arm’s-length terms and conditions or it is approved by non-participating directors on the Board of Directors.

 

Confidentiality

 

Each unitholder agrees that, to the extent such unitholder receives confidential information from St. Renatus, the unitholder will not disclose such confidential information except under certain specific circumstances that are described in the St. Renatus LLC Agreement.

 

Indemnification

 

The St. Renatus LLC Agreement provides that St. Renatus will, under certain circumstances, and subject to certain limitations, indemnify its directors and officers and their respective agents and affiliates who are made or are threatened to be made a party to a suit or proceeding, by reason of that director’s, officer’s or such other person’s former or present official capacity with St. Renatus, against losses, liabilities, damages, judgments, penalties, fines, settlements and reasonable expenses (including attorneys’ fees). Any such person is also entitled, subject to certain limitations, to payment or reimbursement of reasonable expenses in advance of the final disposition of the proceeding. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to St. Renatus’ directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, St. Renatus has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.

 

Liability

 

St. Renatus’ debts, obligations and liabilities will be solely its debts, obligations and liabilities, and unitholders will not be obligated personally for any such debt, obligation or liability solely by reason of being a unitholder. However, unitholders are required to return to St. Renatus any distribution made due to a clear and manifest accounting or similar error. Further, Delaware law provides that, for a period of three years from the date on which any distribution is made to you, you may be liable to St. Renatus for return of the distribution if both of the following are true: (i) after giving effect to the distribution, all of St. Renatus’ liabilities exceed the fair value of its assets; and (ii) you knew at the time you received the distribution that it was made in violation of the limitation described in clause (i).

 

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Non-Assessability of Common Units

 

The common units are not assessable. After members pay for their units, they do not have any further obligations to St. Renatus and are not subject to any assessment or required to contribute any additional capital to, or loan any funds to, St. Renatus. However, under certain circumstances, members may be required to return distributions made to them in violation of Delaware law as described in the immediately preceding section.

 

Cash Distributions

 

The board has the sole discretion to determine the amount of cash on hand that is to be reinvested and the amount that is to be distributed. The board’s decision regarding the amount of reserves to establish and the amount of funds to reinvest may affect St. Renatus’ ability to make cash distributions. Distributions will generally be made on a pro-rata basis to all unitholders based on the number of common units held by a unitholder compared to the total common units outstanding at such time. St. Renatus will also use its best efforts to make a tax distribution to its unitholders within 75 days of the end of each fiscal quarter in an amount equal to the taxable income expected to be allocated to all unitholders for the prior fiscal quarter less the amount of taxable loss for any prior fiscal quarters and other appropriate adjustments multiplied by the combined maximum federal, state and local income tax rate to which an individual resident in Minnesota may be subject, with any such tax distribution made in the same proportion that the taxable income is expected to be allocated to the unitholders for such fiscal quarter. To the extent that tax distributions are made disproportionately to unitholders, subsequent distributions in excess of tax distributions will first be made to achieve the intended pro-rata distribution to each unitholder as described above. In addition, to the extent that St. Renatus pays any state income tax or other withholding taxes for a unitholder such amount will reduce distributions otherwise owing to a unitholder to the extent of such withholding or other taxes submitted to a governmental authority on a unitholder’s behalf.

 

Allocations of Profits and Losses

 

As a general rule, St. Renatus’ profits and losses for a fiscal year (for both book and tax purposes) will be allocated among the unitholders on a pro-rata basis to all unitholders based on the number of common units held by a unitholder compared to the total common units outstanding at such time.

 

Transfer of Units

 

Withdrawal of a Unitholder. Unitholders may withdraw as a member only by selling, transferring or assigning their common units, or having all of their common units repurchased or redeemed in accordance with the St. Renatus LLC Agreement, in each such case subject to any applicable securities laws.

 

Restriction on Transfers of Units. There are severe restrictions on the transfer of all or a portion of units, including a right of first refusal in favor of St. Renatus and drag-along and tag-along rights. Such restrictions may be necessary to ensure that St. Renatus complies with the governing securities laws and that St. Renatus will continue to be classified as a “partnership” for federal income tax purposes and not be considered a “publicly traded partnership” under the applicable statutory code and regulations. See “Description of St. Renatus Units – Restrictions on Transfer of Common Units.”

 

Dissolution and Winding-Up

 

Dissolution. St. Renatus will be dissolved when any of the following events occur:

 

 

at any time determined by the board by a majority vote thereof; or

 

 

upon the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Act.

 

Liquidation of St. Renatus. When a dissolution event occurs, the investments and St. Renatus’ other assets will be liquidated and the proceeds thereof will be distributed to the unitholders after the liquidator pays liquidation expenses and pays St. Renatus’ debts, in the order of priority set forth in the St. Renatus LLC Agreement. Liquidating distributions will be made in accordance with each unitholder’s positive capital account balances after adjustment for any profit or loss arising (or deemed to arise) from such liquidation. After St. Renatus’ assets are distributed, its existence will then be terminated. Unitholders are not guaranteed the return of, or a return on, their investment.

 

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Access to St. Renatus Books and Records; Inspection Rights

 

In General. St. Renatus will maintain appropriate books and records for its business. Such books and records include, among other things, quarterly and annual financial statements and other information required by the Delaware Limited Liability Company Act. Financial statements will be issued promptly on request to unitholders after they are prepared. The annual financial statements will be audited. Tax information will also be provided promptly after it becomes available after each fiscal year end.

 

Inspection Rights. St. Renatus will, to the extent required by the Delaware Limited Liability Company Act, deliver or cause to be delivered to each unitholder with reasonable promptness, such other information and financial data concerning St. Renatus as any unitholder shall from time to time reasonably request; provided that furnishing such information shall not be financially burdensome on St. Renatus or the Board of Directors, or any subsidiary of St. Renatus or its Board of Directors, or unreasonably time consuming for the employees of St. Renatus or its subsidiaries.

 

Meetings and Voting Rights of Unitholders

 

Meetings. The unitholders may call a meeting of the unitholders at any time by the request of unitholders holding 35% or more of the fully-diluted outstanding common units entitled to vote. In addition, in lieu of a meeting, any matter that could be voted upon at a meeting of the unitholders may be submitted for action by written consent of the unitholders holding the number of common units that would be necessary to authorize or take such action at a meeting at which all unitholders entitled to vote on the item were present. Prompt notice of any such written action will be given to any unitholders entitled to vote or consent who did not consent to the action in writing.

 

Voting Rights of Unitholders. The units to be issued in the Merger are voting common units. Holders of such units will have the right to vote with respect to such units on any matters to be voted upon by the St. Renatus members. An affirmative vote of the unitholders entitled to vote who own a majority of St. Renatus’ common units is required to elect or remove a director. No cumulative voting will apply to any unitholder vote.

 

Power of Attorney

 

Each unitholder, pursuant to the St. Renatus LLC Agreement, will constitute and appoint the board (including any director thereof designated by the board) and any liquidator as such unitholder’s power of attorney. Such power of attorney will authorize such director or liquidator to execute the St. Renatus LLC Agreement and other instruments, amendments, documents and conveyances related to the activities of St. Renatus as more fully described in the St. Renatus LLC Agreement.

 

Amending the St. Renatus LLC Agreement

 

The St. Renatus LLC Agreement may be amended from time to time by the vote of a majority of the holders of common units entitled to vote, with the exception of the articles or sections relating to units, capital contributions, distributions, redemption, allocations, limited liability, confidentiality, and amendments, which may be amended only by the unitholders entitled to vote who hold 70% or more of the fully diluted common units entitled to vote, all as more fully described in the St. Renatus LLC Agreement. Further, no amendment or modification that would materially adversely affect any common unitholders in a manner different than other common unitholders will be effective against the holders of such class of common units without the prior written consent of holders of at least a majority of common units of such class so materially adversely affected and provided further that no amendment that would affect the rights of a unitholder or group of unitholders specifically granted such rights by name will be allowed without that unitholder’s (or a majority of that group of unitholders’) consent.

 

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COMPARISON OF RIGHTS OF APOLLONIA UNITHOLDERS AND ST. RENATUS UNITHOLDERS

 

Apollonia is a Minnesota limited liability company and Apollonia unitholders’ rights are currently governed by the Apollonia articles of organization and member control agreement (also known as an operating agreement), and Minnesota law. St. Renatus is a Delaware limited liability company and St. Renatus unitholders’ rights are currently governed by the St. Renatus certificate of formation and limited liability company (LLC) agreement, and Delaware law. If the Merger is completed, Apollonia unitholders will become unitholders of St. Renatus and the combined company unitholders’ rights will be governed by the St. Renatus certificate of formation and LLC Agreement, and Delaware law.

 

The following description summarizes material differences that may affect the rights of Apollonia unitholders and St. Renatus unitholders but does not purport to be a complete statement of all those differences, or a complete description of the specific provisions referred to in this summary. The Apollonia member control agreement (operating agreement) and the St. Renatus LLC Agreement are subject to amendment in accordance with their terms, as described below. Copies of such governing company documents are attached to the merger agreement attached hereto as Annex A. In addition, the characterization of some of the differences in the rights of Apollonia unitholders and St. Renatus unitholders as material is not intended to indicate that other differences do not exist or are not important. You should read carefully the relevant provisions of Delaware law, Minnesota law, the St. Renatus certificate of formation and LLC Agreement, and the Apollonia articles of organization and member control agreement (operating agreement). We urge you to read carefully this entire proxy statement/offering circular for a more complete understanding of the differences between the rights of an Apollonia unitholder and the rights of a St. Renatus unitholder.

 

Capitalization

 

St. Renatus

 

St. Renatus’ authorized capital is described elsewhere under “Description of St. Renatus Units.

 

Apollonia

 

The total number of authorized units of Apollonia is 2,000,000 common units. At the close of business on November 7, 2018, there were 830,045 Apollonia common units and 530,209 Apollonia financial rights units outstanding.

 

Number, Election, Vacancy and Removal of Directors

 

St. Renatus

 

The St. Renatus LLC agreement provides that the total number of St. Renatus directors will be from time to time fixed by resolutions adopted by the St. Renatus board of directors. The LLC agreement currently provides for a maximum of 11 directors. St. Renatus currently has six directors. Directors are not subject to periodic election but they may be removed and replaced by a majority of the outstanding voting common units. Directors are elected by a majority of the outstanding voting common units whether or not the holders of such voting common units are present at a unitholder meeting.

 

St. Renatus unitholders do not have cumulative voting rights in the election of directors. The St. Renatus LLC agreement provides that vacancies on the St. Renatus board of directors may be filled by a majority vote of the voting members of St. Renatus. The St. Renatus LLC agreement provides that directors may be removed at any time by a majority of the voting St. Renatus unitholders, with or without cause.

 

Apollonia

 

The Apollonia member control agreement provides that the total number of Apollonia directors (referred to as “governors” in the member control agreement), will be five (5). Apollonia currently has five governors. The governors serve a three year term with initial expirations occurring on October 31, 2019. Replacement governors will be appointed by a more than fifty percent (50%) vote of the Apollonia voting members. No governors can serve consecutive terms and no person having certain connections or affiliations with St. Renatus may serve as an Apollonia governor. The Apollonia member control agreement does not provide for any cumulative voting of units. At any regular meeting or at any designated special meeting of Apollonia unitholders, successors to any removed or newly appointed governors must be appointed by a majority of the Apollonia voting unitholders.

 

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Amendments to Organizational Documents

 

St. Renatus

 

The St. Renatus certificate of formation and LLC agreement may be amended by a majority vote of the voting common unitholders of St. Renatus; provided that certain sections of the LLC Agreement including those related to capital contributions and distributions require a 70% approval of the fully diluted voting units of St. Renatus. In addition, if an amendment has an adverse impact on a specific group of unitholders, approval will require approval of a majority of that group and if rights under the LLC agreement were specifically granted to a member by name, revisions will require approval of the specified member.

 

Apollonia

 

The Apollonia articles of organization and member control agreement requires the affirmative vote of holders of at least a majority of the outstanding units entitled to vote in order to effect any amendment to the member control agreement and provide that any amendment that has a disproportionate financial effect on any member will require that member’s consent.

 

Unitholder and Director Action by Written Consent

 

St. Renatus

 

Any action required or permitted to be taken at a meeting of unitholders or a meeting of the Board of Directors may be taken without a meeting, without prior notice and without a vote, upon the written consent of unitholders or directors who would have been entitled to cast the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all units entitled to vote thereon were present and voted. A unitholder may vote by proxy at a meeting of the members.

 

Apollonia

 

Any action required or permitted to be taken at a meeting of unitholders or a meeting of the Board of Governors may be taken without a meeting, without prior notice and without a vote, upon the written consent of unitholders or directors (governors) who would have been entitled to cast the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all units entitled to vote thereon were present and voted. A unitholder may vote by proxy at a meeting of the members.

 

Unitholder Meetings

 

St. Renatus

 

The St. Renatus LLC agreement provides that written notice of the time, place and purpose or purposes of any regular or special meeting of unitholders must be given not less than 5 days before the date of a regular meeting to each unitholder entitled to vote at the meeting unless the requisite number of unitholders waive the notice requirement at the meeting or otherwise consent to the meeting. A meeting may be called at any time by unitholders holding 35% or more of the voting fully diluted common units of St. Renatus upon not less than 5 days’ notice, subject to the waiver and consent described above.

 

Apollonia

 

Minnesota law provides that any member may demand a meeting and written notice of any meeting of unitholders must be given not less than 20 days’ before the date of the meeting to each unitholder entitled to vote at the meeting. Written notice of a unitholder meeting must contain the date, time, and place of the meeting.

 

 

Unitholder Information Inspection Rights

 

St. Renatus

 

Under its LLC agreement, St. Renatus will, to the extent required by the Delaware Act, deliver or cause to be delivered to each unitholder with reasonable promptness, such other information and financial data concerning St. Renatus as any unitholder shall from time to time reasonably request; provided that furnishing such information shall not be financially burdensome on St. Renatus or the board of directors, or unreasonably time consuming for the employees of St. Renatus.

 

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Apollonia

 

Under Minnesota law, during regular business hours and at a reasonable location specified by the company, a member may obtain from the company and inspect and copy full information regarding the activities, financial condition, and other circumstances of the company as is just and reasonable if:

 

(i) the member seeks the information for a purpose material to the member's interest as a member;

 

(ii) the member makes a demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information; and

 

(iii) the information sought is directly connected to the member's purpose.

 

Within ten days after receiving a demand, the company will in a record inform the member that made the demand:

 

(i) of the information that the company will provide in response to the demand and when and where the company will provide the information; and

 

(ii) if the company declines to provide any demanded information, the company's reasons for declining.

 

In addition to any restriction or condition stated in its operating agreement, a limited liability company, as a matter within the ordinary course of its activities, may impose reasonable restrictions and conditions on access to and use of information to be furnished, including designating information confidential and imposing nondisclosure and safeguarding obligations on the recipient.

 

Indemnification of Directors and Officers

 

St. Renatus

 

The St. Renatus LLC Agreement provides that St. Renatus will, under certain circumstances, and subject to certain limitations, indemnify its directors and officers and their respective agents and affiliates who are made or are threatened to be made a party to a suit or proceeding, by reason of that director’s, officer’s or such other person’s former or present official capacity with St. Renatus, against losses, liabilities, damages, judgments, penalties, fines, settlements and reasonable expenses (including attorneys’ fees). Any such person is also entitled, subject to certain limitations, to payment or reimbursement of reasonable expenses in advance of the final disposition of the proceeding. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to St. Renatus’ directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, St. Renatus has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable. St. Renatus is authorized to purchase directors’ and officers’ liability insurance.

 

Apollonia

 

The Apollonia member control agreement provides that certain “covered persons” are to be indemnified, to the fullest extent permitted by Minnesota law, for any loss, damage or claim incurred by such covered person by reason of any act performed or omitted by such covered person in good faith and that is reasonably believed to be within the scope of authority of such covered person, unless the covered person’s actions involved gross negligence or willful misconduct or a material breach of the member control agreement. A covered person means any past or present member or affiliate and any past or present governor, officer, employee, consultant, representative or agent of Apollonia. Apollonia is authorized to purchase directors’ and officers’ liability insurance.

 

Distributions 

 

St. Renatus

 

The St. Renatus board of directors has the sole discretion to determine the amount of cash on hand that is to be reinvested and the amount that is to be distributed. The board’s decision regarding the amount of reserves to establish and the amount of funds to reinvest may affect St. Renatus’ ability to make cash distributions. Distributions will generally be made on a pro-rata basis to all unitholders based on the number of common units held by a unitholder compared to the total common units outstanding at such time. St. Renatus will also use its best efforts to make a tax distribution to its unitholders within 75 days of the end of each fiscal quarter in an amount equal to the taxable income expected to be allocated to all unitholders for the prior fiscal quarter less the amount of taxable loss for any prior fiscal quarters and other appropriate adjustments multiplied by the combined maximum federal, state and local income tax rate to which an individual resident in Minnesota may be subject, with any such tax distribution made in the same proportion that the taxable income is expected to be allocated to the unitholders for such fiscal quarter. To the extent that tax distributions are made disproportionately to unitholders, subsequent distributions in excess of tax distributions will first be made to achieve the intended pro-rata distribution to each unitholder as described above. In addition, to the extent that St. Renatus pays any state income tax or other withholding taxes for a unitholder such amount will reduce distributions otherwise owing to a unitholder to the extent of such withholding or other taxes submitted to a governmental authority on a unitholder’s behalf.

 

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Apollonia

 

Pursuant to the Apollonia member control agreement, distributions are to be made first to the Apollonia members and financial assignees in proportion to and to the extent of each such person’s “invested cash” that has not previously been repaid, as set forth in Apollonia’s books and records. “Invested cash” means any cash amount that Apollonia holders invested in either Apollonia or invested through the purchase of financial rights from the founding members (with respect to any of the financial assignees). After each Apollonia member and the financial assignees have received a return of their invested cash, further distributions will be made in proportion to each Apollonia member’s and financial assignee’s percentage interests. Apollonia holders who have an invested cash amount will first receive the balance due of their invested cash, after reflecting prior cash distributions made in previous years. After all invested cash has been repaid as described above, remaining distributions will be made to all Apollonia holders (including those who had no invested cash) based on their respective percentage interests, as measured by the number of Apollonia common units and/or Apollonia financial rights units that they hold as compared to all outstanding Apollonia common units and Apollonia financial rights units.

 

Voting Rights; Required Vote for Authorization of Certain Actions

 

St. Renatus

Each holder of St. Renatus voting common units is entitled to one vote for each unit held of record. St. Renatus also has a class of nonvoting common units. St. Renatus takes action generally by majority consent of the directors on the Board of Directors except for certain actions that require the approval of a majority of the members holding voting interests, such as the appointment or removal of directors. Certain amendments to the LLC agreement require a more than seventy (70%) vote of the fully diluted voting interests held by the members.

 

Apollonia

 

Each holder of Apollonia voting common units is entitled to one vote for each share held of record. Financial rights holders at Apollonia have no voting rights with respect to their financial rights units. Apollonia requires special majority member approval with respect to (i) entering into an agreement with St. Renatus or its affiliates or any amendment to any such agreement, and (ii) any agreement or amendment to any agreement that Apollonia has with any third party with respect to any Apollonia technology.

 

Appraisal Rights and Dissenters’ Rights

 

St. Renatus

 

Under Delaware law and the St. Renatus limited liability company agreement, unitholders have no right to dissent from any plan of merger or consolidation to which the limited liability company is a party, or to demand payment for the fair value of their units.

 

Apollonia

 

Under Minnesota law, Apollonia unitholders have no right to dissent from any plan of merger in which Apollonia is a constituent organization and to demand payment for the fair value of their units.

 

Limitation of Fiduciary Duties

 

St. Renatus

 

St. Renatus has established fiduciary duties with respect to its directors and officers that are equivalent to the duties applicable to directors and officers of a Delaware corporation and limited to the duties of loyalty and due care applicable to directors and officers under Delaware corporate law. Delaware limited liability company law also provides that an LLC agreement may not:

 

•        Eliminate the implied contractual covenant of good faith and fair dealing; or

 

•        Limit or eliminate liability for breach of contract or breach of duty for acts or omissions that constitute a bad faith violation of the implied contractual covenant of good faith and fair dealing.

 

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Apollonia

 

Apollonia has not adopted any specific provisions limiting the fiduciary duties between and among its members, directors and officers. Minnesota law will not allow the following modifications to fiduciary duties except as follows:

 

Elimination of the duty of loyalty; however, the operating agreement may:

 

 

identify activities that do not violate the duty of loyalty, if not manifestly unreasonable; or

 

specify the method by which specific acts or transactions that would otherwise violate the duty of loyalty may be authorized or ratified.

 

 

Eliminate the contractual obligation of good faith and fair dealing, but the operating agreement may prescribe standards to measure the performance of the obligation, if not manifestly unreasonable.

 

 

Alter the duty of care in a manner that:

 

 

is manifestly unreasonable; or

 

authorizes intentional misconduct or knowing violation of law.

 

 

Apollonia has made no modifications to the statutory fiduciary duties applicable under Minnesota law.

 

 

Interested Directors

 

St. Renatus

 

Unless otherwise limited pursuant to a written agreement with St. Renatus, or pursuant to other fiduciary obligations applicable to directors or officers, unitholders, including unitholders who are directors or officers, will be free to pursue other business opportunities even if such opportunities are in competition with St. Renatus or represent interests in businesses that are similar to St. Renatus’. In addition, any business opportunity which St. Renatus might be able to undertake which is identified by a unitholder, director or officer will not need to be offered to St. Renatus or any other unitholder, and such unitholder will have no duty to communicate such opportunity to St. Renatus, the board or to any other unitholders. Members, directors, officers and their affiliates can engage in transactions with St. Renatus that may be considered a conflict of interest provided that any such transaction is made on arm’s-length terms and conditions or it is approved by non-participating directors on the Board of Directors.

 

Apollonia

 

Under Minnesota law, and because Apollonia is managed by a board, a member does not generally have any fiduciary duty to the company or to any other member solely by reason of being a member. A member, director or officer in a limited liability company must discharge the person's duties and exercise any rights consistently with the contractual obligation of good faith and fair dealing, including acting in a manner that is honest, fair, and reasonable In addition, a majority in interest of the members may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty (described below) applicable to directors and officers. The Apollonia directors (governors) are subject to a duty of care and duty of loyalty. The duty of care, unless limited in a member control or operating agreement, requires a director in the conduct and winding up of the company's activities to act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the director reasonably believes to be in the best interests of the company. In discharging this duty, a director may rely in good faith on opinions, reports, statements, or other information provided by another person that the director reasonably believes is a competent and reliable source for the information. The duty of loyalty, unless limited in a member control or operating agreement, includes the duties:

 

(1) to account to the company and to hold as trustee for it any property, profit, or benefit derived by the director:

 

(i) in the conduct or winding up of the company's activities;

 

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(ii) from a use by the director of the company's property; or

 

(iii) from the appropriation of a limited liability company opportunity;

 

(2) to refrain from dealing with the company in the conduct or winding up of the company's activities as or on behalf of a person having an interest adverse to the company; and

 

(3) to refrain from competing with the company in the conduct of the company's activities before the dissolution of the company.

 

Apollonia has not modified the statutory fiduciary duties applicable to members and directors in its member control (operating) agreement.

 

For further information on the application of Delaware law to St. Renatus voting common units to be issued in the merger, see “Description of St. Renatus Units.”

 

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INFORMATION ABOUT ST. RENATUS

 

The following provides additional information regarding St. Renatus and should be read in conjunction with St. Renatus’ financial statements and the notes thereto and the other information on St. Renatus included elsewhere in this proxy statement/offering circular.

 

General

 

St. Renatus is a privately-held company that was formed to bring to market a proprietary Nasal Spray dental anesthetic product, the world’s first intranasal dental anesthesia. This product, sprayed into the nasal cavity, is a needle-free local anesthetic suitable for use in dental procedures involving most of the upper teeth. On June 29, 2016, the U.S. Food and Drug Administration (FDA) approved St. Renatus’ “Kovanaze® (tetracaine HCl and oxymetazoline HCl) Nasal Spray” for use and commercialization in the United States. St. Renatus’ first sales of product occurred in November 2016. Kovanaze® Nasal Spray is a prescription product for dental anesthesia, available only by dentist authorization.

 

The St. Renatus units are not listed on any stock exchange or trading market and St. Renatus does not currently have any plans to list its units on any stock exchange or trading market. Even if St. Renatus did intend to list its units on a stock exchange or trading market in the future, its ability to do is uncertain, and therefore Apollonia members should not assume that the St. Renatus units will ever be listed.

 

St. Renatus’ corporate offices are located at 1000 Centre Avenue, Suite 120, Fort Collins, Colorado 80526, and its telephone number is (970) 282-0156.

 

Background

 

St. Renatus was formed to bring to market a proprietary Nasal Spray dental anesthetic, the world’s first intranasal dental anesthetic. St. Renatus’ new drug application for Kovanaze® Nasal Spray dental anesthetic was approved by the FDA on June 29, 2016 for marketing in the United States. St. Renatus’ product, sprayed into the nasal cavity, is a needle-free local anesthetic, suitable for use in dental procedures involving the upper teeth. The “indications for use” on St. Renatus’ FDA-approved label and package insert do not cover all of the upper teeth (and none of the lower teeth); they cover only upper teeth No. 4 to 13 in adults and upper teeth A to J in children who weigh 40 kg or more. St. Renatus’ patent rights cover all the upper teeth, and are more extensive than St. Renatus’ current FDA label indication.

 

Dental anxiety – including needle injection or “shot” discomfort and phobia – is a long-standing barrier to regular dental care. 27% of the people surveyed by the American Dental Association indicated “fear of pain” as a reason to avoid dental visits. Needle injection of local anesthetic is recognized as the most anxiety-provoking procedure in dentistry. Not only can the injection of local anesthetics produce fear and pain, but the increased stress of injection can result in fainting, hyperventilation, convulsions, bronchospasm and angina. In rare cases, a severe overdose of injectable anesthetic can even lead to death. The act of injecting is invasive, both conceptually and physically, and is a major reason worldwide why people avoid regular dental care and see their dentists only in an emergency. Without regular dental care, cavities and gum disease may be left undetected and result in infection and serious, systemic health issues.

 

St. Renatus commissioned independent market research studies in 2006, 2011 and 2015, including more than 850 dentists and 1,700 potential patients, which studies have consistently demonstrated that:

 

 

Dentists do not like to give injections.

 

Patients do not like to receive injections.

 

Both dentists and patients are willing to pay for a product such as Kovanaze®. A 2015 market research report determined that over 50% of 1,027 potential patients (ranging from low pain and low anxiety to high pain and high anxiety) would pay more than $40 out-of-pocket for Kovanaze®.

 

Needlesticks occur regularly in dental offices, with a related risk exposure of approximately $3,500 to test the patient and employees and prescribe a treatment plan.

 

The 2001 Needlestick Safety and Prevention Act reinforces the need for needleless delivery methods.

 

97% of dentists are very or somewhat likely to recommend a non-injectible local anesthetic over needle-injected anesthetics for procedures on the upper teeth.

 

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In addition to the discomfort and phobia surrounding injected anesthetic, the risk of exposure to bloodborne pathogens via needlesticks is a recognized occupational hazard in dentistry. Since 1991, the Occupational Safety and Health Administration (OSHA) has enforced a Bloodborne Pathogens Standard that requires employers to identify, evaluate and implement safer medical devices to eliminate or minimize employee exposure to bloodborne pathogens. The standard was revised in 2001 when Congress passed the Needlestick Safety and Prevention Act. The Act set forth in greater detail employers’ obligations under the Bloodborne Pathogens standard, and specifically indicated that a “safer medical device” includes needleless systems. Thus, further incentive exists to develop anesthetics that can be delivered without the use of needles.

 

Lidocaine, the most widely used local dental anesthetic today, was first introduced in the 1940s. Several needle-free anesthetic products have been developed but they do not provide adequate anesthesia to perform restorative procedures. For example, one non-injectable, subsurface local anesthetic commercially available today is Oraqix® (lidocaine and prilocaine periodontal gel). While Oraqix can be used in periodontal pockets during scaling or root-planing procedures, it does not provide adequate anesthesia for use in restorative procedures such as fillings, crowns and root canals. The cost per cartridge for Oraqix is about $6.32 each, and up to five cartridges can be used in one procedure because the gel only lasts about 20 minutes. Further, while many advances in the comfort of dentistry have been made, such as behavior modification therapy, hypnosis, topical numbing around the injection site, pneumatic injectors, anesthesia buffering systems, conscious sedation, and nitrous oxide, none of these advances (except hypnosis) has eliminated the need for needle injection.

 

It was discovered that the active drug in Kovanaze® Nasal Spray dental anesthetic, when sprayed into the nasal cavity, could act as a needle-free local anesthetic that does not numb the face, and it is suitable for use in dental procedures involving one or more of a majority of the upper teeth. In 2002, Dr. Clay was granted a patent directed to a method of using a Nasal Spray dental anesthetic to anesthetize at least a portion of the upper teeth.

 

Kovanaze® Nasal Spray dental anesthetic technology is based on delivering anesthetic to nerve paths in the nasal cavity. The nerves of the upper teeth are like branches of a tree that extend through the nasal cavity down into the teeth. Using current needle injection technology, these nerve pathways are anesthetized by inserting a needle into the patient’s mouth close to the pathways and injecting an anesthetic. In contrast, Kovanaze® Nasal Spray dental anesthetic is sprayed into the nasal cavity, affecting the base, or “trunk,” of the nerve pathways. The current indication of the spray anesthetizes the branches that transmit nerve impulses from all of the upper teeth, other than the wisdom teeth and molars on each side. The molars and wisdom teeth have not been studied enough to pursue commercialization of an anesthetization method at this time. In addition to the anesthetic, Kovanaze® Nasal Spray dental anesthetic includes a nasal decongestant which acts as a vasoconstrictor to prevent increased blood flow, thus increasing the duration of the anesthetic’s effectiveness.

 

The use of Kovanaze® Nasal Spray dental anesthetic eliminates the pain of needle injections and the need for topical agents that numb the injection site. It also has the potential for reducing or eliminating serious complications associated with injections, such as:

 

 

Injection site pain

 

Potential nerve damage

 

Needle-stick injuries

 

Risk of blood-borne pathogens

 

Fainting

 

Paresthesia/Dysesthesia

 

By reducing or eliminating possible complications related to needle injection of anesthesia, St. Renatus believes that dentists may reduce the likelihood of costly malpractice claims for these types of reactions. Adverse events encountered with the use of Kovanaze® in St. Renatus’ clinical trials are identified on the FDA-approved labeling, and a summary of those adverse events is set forth below. See “Adverse Reactions for Kovanaze®” below. Kovanaze® product label and package insert information on the FDA website sets forth certain “Warnings and Precautions” regarding potential adverse reactions with respect to the use of Kovanaze®, as well as a table of common adverse reactions experienced during St. Renatus’ clinical trials.

 

Markets

 

Kovanaze® is indicated for regional anesthesia when performing a restorative procedure on Teeth 4-13 and A-J in adults and children who weigh 40 kg or more.” Actual usage will, of course, be dependent on market acceptance of Kovanaze® Nasal Spray dental anesthetic.

 

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The U.S. dental market represents a $134 billion industry with an annual growth rate of 2.6%. As of October 2018, there were a reported 189,780 dentists working in the United States. Of these nearly 200,000 dentists currently practicing in the U.S., roughly 152,560 are general practitioners and prosthodontists who regularly complete restorative procedures: those for which Kovanaze® Nasal Spray is indicated. Using the latest market research data from the American Dental Association’s comprehensive survey of dental professionals, St. Renatus estimates that there are roughly 83 million procedures annually for which Kovanaze® is indicated: restorative procedures on teeth 4-13 and A-J in adults and children weighing 40 kgs or more. St. Renatus proprietary marketing program, The Kovanaze® Dental Alliance™, however, can be marketed and sold to any of the nearly 200,000 U.S. dentists regardless of specialty and/or procedures offered. Kovanaze® Dental Alliance™ monthly subscriptions are currently priced at $1,599 per month representing a total annual subscription charge of $19,188 per membership. With 500 dentists enrolled in the Kovanaze® Dental Alliance™ annual revenues would surpass $9.5 million. Enrolling 2,000 dentists, or 1% of all U.S. dentists, would yield revenues of $38.3 million annually.

 

Product

 

Kovanaze® Nasal Spray dental anesthetic is an intranasal, profound, pulpal, needle-free dental anesthetic that, unlike traditional injected dental anesthesia, is sprayed into the nostrils. After a short period of time, the nerves of most of the upper teeth of adult subjects (and children who weigh 40 kg or more, per the indication) are anesthetized without facial or soft tissue numbness, permitting a dentist to perform a variety of procedures.

 

St. Renatus packages Kovanaze® Nasal Spray dental anesthetic in a spray device pre-filled with its newly developed formulation. The spray is a very fine spray that St. Renatus believes is more effective for drug delivery than the drippy squeeze bottles used for over-the-counter nasal decongestants. St. Renatus is using an FDA-approved spray device to deliver the Nasal Spray dental anesthetic, called the BD Accuspray device. Kovanaze® is administered in two sprays, four minutes apart. Approximately 10 minutes after the second spray is administered, numbness results and lasts for approximately 60 to 90 minutes in duration. Kovanaze® Nasal Spray dental anesthetic is only available by prescription, with a dentist’s authorization.

 

St. Renatus believe that Kovanaze® Nasal Spray dental anesthetic technology offers other significant benefits over existing dental anesthetic techniques, including:

 

 

Delivery of anesthetic through the nasal cavity is far less technique-sensitive than needle injection, minimizing the risks of the anesthetic not taking effect or prematurely losing its anesthetizing effect.

 

Unlike injectable anesthetics, Kovanaze® Nasal Spray dental anesthetic can potentially be delivered by dental professionals other than a dentist, including dental hygienists and assistants. Both groups can currently deliver a topical anesthetic in most states under the overall general supervision of a dentist. This allows the dentist to focus on other, more profitable procedures prohibited from being completed by a dental auxillary.

 

It is believed that Kovanaze® Nasal Spray will achieve local anesthesia for up to 60 to 90 minutes in duration. While there is some numbness on the roof of the patient’s mouth, there is no “fat lip” feeling that accompanies injected anesthesia.

 

Needleless delivery of anesthetic eliminates the risk of needlestick injuries to dental professionals and patients.

 

Sales and Marketing

 

In response to an unsatisfactory initial launch of the Kovanaze® product in 2016 and 2017, St. Renatus completely revamped its marketing and sales strategy to focus on consumer engagement and dental practitioner interest in using no-needle Kovanaze® to build their practice. Execution of this new strategy began in July 2018. St. Renatus’ current marketing strategy leverages two distinct campaigns converging to drive sales of Kovanaze® Nasal Spray. The first campaign, directed to dentists and their key gatekeepers, which include hygienists and dental assistants, is known as a “push-through” campaign and is fueled primarily by clinical education and practice-building education, demonstrating how Kovanaze® can increase dental practice revenue as a practice building tool. A key tenet of this campaign aimed at dental professionals involves the promotion and sale of St. Renatus’ proprietary Kovanaze® Dental Alliance™, a monthly subscription practice-building package that bundles Kovanaze® product with a customized digital and social marketing campaign offered exclusively to Kovanaze® dental providers. The Kovanaze® Dental Alliance™ uses disruptive digital marketing technology to geo-target consumers within a specified area of each participating dental office, and is powered by iHeartMedia®, the largest media outlet in the U.S. Customized audio and video spots, professionally produced and positioned on 300,000 websites and 150,000 mobile sites, including Google, Facebook, Instagram and the iHeartRadio® app, will brand each Kovanaze® Dental Alliance™ office while capturing consumer attention via “no-needle” dentistry messaging. Mobile blueprinting technology facilitates targeting and retargeting of those people who express interest in any of the Kovanaze® Dental Alliance™ ads and increases the likelihood of converting interested consumers into new patients. The Kovanaze® Dental Alliance™ provides practitioners with both a quarterly supply of Kovanaze® for use in their practice and a turnkey practice-building campaign that has significant potential to bring in new patients: the number one objective in today’s hyper-competitive dental services market. The Kovanaze® Dental Alliance™ maximizes valuable practice marketing dollars by coupling a compelling consumer message of “no-needle” dentistry with the unmatched marketing reach and impact of the iHeartMedia® platform. St. Renatus believes offering an exclusive, robust turnkey digital and social marketing package capable of bringing new patients to dental practitioners fulfills a significant unmet need in the marketplace and advances Kovanaze® adoption and market uptake.

 

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In addition to St. Renatus’ “push-through” marketing efforts, it will conduct a parallel “pull-through” consumer campaign, targeted principally to women (responsible for 80% of healthcare buying decisions). This consumer campaign, also powered by iHeartMedia®, will create visibility and excitement about the benefits of no-needle, no-numb lip Kovanaze®, and will augment the push strategy to unaware or reluctant dental professionals, encouraging them to learn about and purchase, Kovanaze®. St. Renatus expects to complement both of these campaigns with significant professional engagement initiatives to generate awareness, advocacy and adoption of Kovanaze® and the Kovanaze® Dental Alliance™ among various constituencies in the dental industry. These efforts will be focused on both small and fragmented entities (such as local and regional study clubs across the country) and large and influential organizations (such as Delta Dental, the Seattle Study Club, the American Academy of Cosmetic Dentistry, and the American Dental Hygienists Association). St. Renatus has been significantly encouraged by the early feedback it has received from key dental opinion leaders and prominent dental organizations that view Kovanaze® as a vehicle for driving meaningful growth in the dental services market: a market that is otherwise projected to remain stagnant through at least 2023. These entities have expressed significant interest in facilitating and supporting St. Renatus’ market penetration efforts. St. Renatus’ major challenge is to obtain sufficient funds to support both its strategic “push” and “pull” marketing campaigns. St. Renatus’ current models estimate that it will require approximately $20 million to properly fund and staff relaunch operations beginning in Colorado, and quickly following to Minnesota, Texas, Georgia and the Carolinas. St. Renatus currently estimates it may require as much as $10 million more to fund a nationwide consumer campaign. While this is an ambitious undertaking, the Board believes that the change in strategy executing regional penetration prior to nationwide commercialization is critical to St. Renatus’ growth and future prospects and lays the necessary foundation for a possible liquidity event in 24 to 36 months either through a sale or through an initial public offering.

 

Five critical steps were taken to develop this new sales and marketing plan.

 

 

1.

St. Renatus reviewed other marketing plans of major consumer-oriented businesses, both successful and unsuccessful and analyzed dental industry research to better refine our value proposition to both dental patients and practitioners;

 

2.

St. Renatus engaged industry giant Delta Dental of Colorado and its 1.7 million members with the expectation of leveraging this relationship across the U.S.;

 

3.

St. Renatus mapped out the target market segments for Kovanaze®;

 

4.

St. Renatus researched the most effective means for achieving a strong return on investment for consumer advertising, including broadcast and digital strategies; and

 

5.

St. Renatus developed a strategic relationship with iHeartMedia®, that allows St. Renatus to leverage our consumer advertising spend to secure an attractive marketing that would otherwise be cost prohibitive for individual dentists.

 

This new marketing and sales strategy is aimed at driving significant dental industry and consumer awareness of Kovanaze® and the Kovanaze® Dental Alliance™. Through tactical execution of this new sales and marketing strategy St. Renatus will capitalize on consumers’ interest in no-needle dentistry and practitioners’ desire to build their dental practices and combat significant competition from corporate and Dental Service Organizations (DSOs).

 

The first launch market for St. Renatus’ reorganized sales and marketing plan was its home state of Colorado, with 3,600 dentists mostly concentrated in the Denver and Front Range areas. St. Renatus hired several Colorado-based Kovanaze® sales representatives to support St. Renatus’ consumer campaign efforts and drive enrollment in the Kovanaze® Dental Alliance™. Additionally, St. Renatus has leveraged its strong dental relationship throughout the country, particularly in Minnesota, to promote, educate and sell both Kovanaze® and the Kovanaze® Dental Alliance™. Utilizing the new strategy, St. Renatus was successful in securing 60 Kovanaze® Dental Alliance™ memberships in the first three months of execution an