Acquisition Obligation

9 Months Ended

Sep. 30, 2022

Acquisition Obligation

Acquisition Obligation

Note 7. Acquisition Obligation

As a result of the Aceragen Acquisition, the Company assumed an obligation pursuant to the Arrevus Merger Agreement (as defined below), Aceragen is obligated to make an aggregate future payment of $7.5 million to the former stockholders Arrevus, Inc., $6.0 million and $1.5 million of which was originally due in October 2022 and January 2023, respectively. The estimated fair value of the acquisition obligation at the Aceragen acquisition date was $7.5 million. The Company imputes interest expense using the effective interest method and based on the difference between the estimated fair value and the notional value. Interest expense for the three and nine months ended September 30, 2022 was immaterial.

In connection with the closing of the Acquisition of Aceragen, Aceragen entered into a binding term sheet (the “Term Sheet”) with the representative of certain former stockholders of Arrevus, Inc. (the “Former Stockholders”), pursuant to which Aceragen and the Former Stockholders agreed to defer certain payments owed by Aceragen to the Former Stockholders under that certain Agreement and Plan of Merger, dated October 18, 2021, by and among Aceragen, Arrevus, Inc., and their respective affiliates (the “Arrevus Merger Agreement”), in an aggregate amount of $6.0 million (the “Deferred Payments”) until October 24, 2023. The Deferred Payments will bear annual interest at 12%, paid quarterly beginning on April 1, 2023. Aceragen may prepay the Deferred Payments at any time, subject to payment in full in cash of the Deferred Payments, plus accrued interest up until the date of such prepayment. Any prepayment of the Deferred Payments must be made on a pro-rata basis among

the holders of the Convertible Notes (as defined below) in proportion to their respective shares of the Deferred Payments; provided that prior to any such prepayment, the holder of each Convertible Note shall be given written notice thereof and the option to convert the principal balance into shares of common stock pursuant to the terms of the Convertible Note.

The Term Sheet provides that the Deferred Payments will be memorialized in an unsecured promissory note to be issued by the Company, pursuant to which each Former Stockholder will have the right to convert such Former Stockholder’s portion of its right to receive the Deferred Payments into shares of common stock (the “Convertible Notes”), provided that issuance of any common stock in a subsequent conversion is expressly contingent on approval by the Company’s stockholders of the issuance of the common stock underlying the Convertible Notes, which shall be contingent on approval of the Charter Amendment Proposal and the Reverse Stock Split Proposal by the Company’s stockholders at the Special Meeting. The Term Sheet further provides that the Company will provide customary registration rights for such converted common stock. Aceragen, the Company, and the Former Stockholder expect to enter into definitive agreements with respect to the Convertible Notes as soon as practicable, which definitive agreements are expected to replace and supersede the Term Sheet

Future principal payments as of September 30, 2022 are as follows:

(In thousands)	Amounts
2022	$	1,534
2023		5,942
Total	$	7,476