As filed with the Securities and Exchange Commission on June 30, 2021

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ACASTI PHARMA INC.

(Exact name of registrant as specified in its charter)

 

 

 

Québec, Canada		2834		98-1359336
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

Acasti Pharma Inc.

3009 boul. De la Concorde E., Suite 102

Laval, Québec, Canada H7E 2B5

(450) 686-4555

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

C T Corporation System

28 Liberty Street

New York, New York 10005

(212) 894-8940

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Jason Comerford François Paradis Osler, Hoskin & Harcourt LLP 620 8th Avenue, 36th Floor New York, NY 10018 (212) 867-5800		George Kottayil Grace Therapeutics Inc. 2 Tower Center Boulevard Suite 1101G East Brunswick, NJ 08816 (646) 809-6839		Niket Rele Jennifer W. Cheng Reed Smith LLP 599 Lexington Avenue 22nd Floor New York, NY, 10022 (212) 521-5400

 

 

Approximate Date of Commencement of Proposed Sale of the Securities to the Public: As soon as

practicable after the effective date of this Registration Statement.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be registered†		Proposed maximum offering price per share		Proposed maximum aggregate offering price		Amount of registration fee(3)
Common shares, no par value		170,500,000(1)		Not applicable		$2,414(2)		$1.00

†	Pursuant to Rule 416, this registration statement also covers an indeterminate number of additional securities of Acasti Pharma Inc. (“Acasti”) as may be issuable as a result of stock splits, stock dividends or similar transactions.

(1)

Represents the estimated maximum number of Acasti common shares, no par value (“Acasti common shares”), to be issued in connection with the proposed merger (the “merger”) of Acasti Pharma U.S. Inc., a Delaware corporation and a wholly-owned subsidiary of Acasti, with and into Grace Therapeutics Inc., a Delaware corporation (“Grace”) to holders of Grace common stock, $0.0001 par value per share (“Grace common stock”). The number of Acasti common shares to be registered is based on the estimated maximum number of Acasti common shares that are expected to be issued in connection with the merger plus an additional amount Acasti common shares to ensure a sufficient number of shares are registered.

(2)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f)(2) of the Securities Act of 1933, as amended. Grace is a private company, no market exists for its securities, and Grace has an accumulated capital deficit. Therefore, the proposed maximum aggregate offering price is one-third of the aggregate par value of the Grace securities expected to be exchanged in the proposed merger.

(3)	This fee has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended, and has been rounded up to the nearest $1.00.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information contained herein is not complete and may be changed. These securities may not be issued until the registration statement filed with the United States Securities and Exchange Commission is effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of such securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to appropriate registration or qualification under the securities laws of such jurisdiction.

 

PRELIMINARY PROXY STATEMENT/PROSPECTUS—SUBJECT TO COMPLETION

DATED JUNE 30, 2021

 

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

As previously announced on May 7, 2021, Acasti Pharma Inc. (“Acasti”), Acasti Pharma U.S., Inc. (“MergerCo”), a wholly-owned subsidiary of Acasti, and Grace Therapeutics Inc. (“Grace”) entered into an Agreement and Plan of Merger (the “merger agreement”), pursuant to which MergerCo will be merged with and into Grace, with Grace as the surviving corporation and a wholly-owned subsidiary of Acasti (the “merger”).

If the merger is completed, at the effective time of the merger, each issued and outstanding share of Grace common stock (after giving effect to the acceleration of the Grace restricted stock and the conversion of the Grace convertible promissory notes) will automatically be converted into the right to receive a number of Acasti common shares per share of Grace common stock equal to the equity exchange ratio set forth in the merger agreement such that, immediately following the consummation of the merger, existing Acasti shareholders will own at least 55% and existing Grace stockholders will own at most 45% of the outstanding capital stock of the combined company on a fully-diluted basis. The equity exchange ratio is subject to upward adjustment in favor of Acasti shareholders based on each company’s capitalization and net cash balance at the effective time of the merger, as specified in the merger agreement. For more information on the equity exchange ratio, see the section entitled “Merger Agreement—Equity Exchange Ratio” beginning on page 121. Acasti shareholders will continue to own their existing Acasti common shares after the merger.

Acasti common shares are traded on the NASDAQ Capital Market (“NASDAQ”) and the TSX Venture Exchange (the “TSXV”) under the symbol ACST. On June 29, 2021, the last trading day before the date of this proxy statement/prospectus, the closing price of Acasti common shares on NASDAQ was $0.58 per share and on the TSXV was C$0.71 per share.

As part of the Acasti annual and special meeting, Acasti will be seeking the shareholder approvals necessary to complete the merger, elect directors and for other related matters. The 2021 annual and special meeting of Acasti shareholders will be held virtually on                , 2021, at 1:00 p.m. (Eastern Time), unless postponed or adjourned to a later date.

At the annual and special meeting of Acasti shareholders, Acasti will ask its shareholders to, among other things:

 

1.

Proposal No. 1—Approve the issuance of Acasti common shares necessary to complete the transactions contemplated by the merger agreement (the “share issuance proposal”);

 

2.

Proposal No. 2—Elect Roderick N. Carter, Jan D’Alvise, Jean-Marie (John) Canan and Donald Olds as directors to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his or her successor is elected and qualified or until his or her earlier resignation or removal (the “annual directors election proposal”);

 

3.

Proposal No. 3—Elect each of William A. Haseltine and Vimal Kavuru, conditional upon and to be effective only at the closing of the merger, as a director to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his successor is elected and qualified or until his earlier resignation or removal, as provided in the merger agreement (the “merger directors election proposal”);

 

4.

Proposal No. 4—Appoint KPMG LLP to hold office as Acasti’s auditors until the close of the next annual meeting of shareholders and to authorize the board of directors of Acasti to fix their remuneration (the “auditor proposal”);

 

5.

Proposal No. 5—Adopt an advisory (non-binding) resolution approving the compensation of Acasti’s named executive officers, as disclosed in this proxy statement/prospectus (the “compensation proposal”);

 

6.

Proposal No. 6—Approve amendments to the Acasti stock option plan to provide for a 10% rolling plan by setting the total number of Acasti common shares reserved for issuance pursuant to options granted under the stock option plan to 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to awards issued under the equity incentive plan, as described in this proxy statement/prospectus (the “stock option plan proposal”);

 

7.

Proposal No. 7—Approve amendments to the Acasti equity incentive plan to set the total number of Acasti common shares reserved for issuance pursuant to awards granted under the equity incentive plan

at the lesser of (i) 10% of the issued and outstanding Acasti common shares as of June 24, 2021, representing 20,837,554 Acasti common shares, and (ii) 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to options issued under the stock option plan, as described in this proxy statement/prospectus (the “equity incentive plan proposal”);

 

8.

Proposal No. 8—If necessary to regain compliance with NASDAQ’s minimum bid price rules, adopt an advisory (non-binding) resolution to amend to the articles of incorporation of Acasti, as amended, to effect a reverse stock split of Acasti common shares, within a range of 1-     to 1-     with such specific ratio to be approved by the Acasti board; provided that the Acasti board may determine to accelerate the timing of the proposed reverse stock split through a directors resolution without shareholder approval pursuant to the Business Corporations Act (Québec), if deemed advisable by the Acasti board (the “reverse stock split proposal”); and

 

9.

Transact such other business as may be properly brought before the meeting.

The approval of the share issuance proposal at the Acasti annual and special meeting is a condition to the completion of the merger. Approval of the annual directors election proposal, the merger directors election proposal, the auditor proposal, the compensation proposal, the stock option proposal and the equity incentive plan proposal at the meeting are not conditions to the completion of the merger.

The Acasti board unanimously recommends that Acasti shareholders vote “FOR” the share issuance proposal, “FOR” the annual directors election proposal, “FOR” the merger directors election proposal, “FOR” the auditor proposal, “FOR” the compensation proposal, “FOR” the stock option plan proposal, “FOR” the equity incentive plan proposal and “FOR” the reverse stock split proposal.

Based on the Grace common stock and Acasti common shares outstanding on June 30, 2021, up to a maximum of 170,500,000 Acasti common shares are issuable to Grace stockholders as merger consideration.

The approval and adoption of the merger agreement and the transactions contemplated by the merger agreement by the requisite Grace stockholders is required to complete the merger. Grace is sending this proxy statement/prospectus to its stockholders to request that they approve and adopt the merger agreement and the transactions contemplated by the merger agreement by executing and returning the written consent furnished with this proxy statement/prospectus.

We cannot complete the merger unless Acasti shareholders approve the share issuance proposal. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the Acasti annual and special meeting, please vote your shares as promptly as possible so that your shares may be represented and voted at the meeting. Please note that a failure to vote your Acasti common shares may result in a failure to establish a quorum for the Acasti annual and special meeting, and a failure of the merger to be approved.

After careful consideration, the boards of directors of Acasti and Grace have each approved the merger agreement and the transactions contemplated thereby. The Acasti board of directors recommends that the Acasti shareholders vote “FOR” each of the proposals to be submitted at the Acasti annual and special meeting.

The obligations of Acasti and Grace to complete the merger are subject to the satisfaction or waiver of the conditions in the merger agreement. Additional information about Acasti, Grace and the merger is contained in this proxy statement/prospectus. You should read this entire proxy statement/prospectus carefully. In particular, we urge you to read the section entitled “Risk Factors” beginning on page 33.

We thank you for your consideration and continued support.

 

Sincerely,
Jan D’Alvise		George Kottayil
Chief Executive Officer		Chief Executive Officer
Acasti Pharma Inc.		Grace Therapeutics Inc.

Neither the Securities and Exchange Commission nor any state securities commission, nor any securities regulatory authority in Canada, has approved or disapproved of the securities to be issued under this proxy statement/prospectus or determined that this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated                 , 2021, and is first being mailed to Acasti shareholders on or about                 , 2021.

 

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD VIRTUALLY ON                     , 2021

To the shareholders of Acasti Pharma Inc.

NOTICE IS HEREBY GIVEN that an annual and special meeting of shareholders of Acasti Pharma Inc., a Québec corporation (“Acasti”), will be held virtually on                    , 2021 at 1:00 p.m. (Eastern Time). To mitigate risks to health and safety of our shareholders, employees, communities and other stakeholders related to the coronavirus disease 2019, also known as COVID-19, and in order to comply with federal, provincial and municipal restrictions that are or may be imposed in connection with the COVID-19 mitigation efforts, the meeting will take place online only via a virtual meeting portal through which you can listen to the meeting, submit questions and vote online. Registered shareholders and duly appointed proxyholders can attend the meeting online at https://             where they can participate, vote, or submit questions during the meeting’s live webcast.

The purpose of the Acasti annual and special meeting will be to consider and act upon the following matters:

 

1.

Proposal No. 1—To approve the issuance of Acasti common shares necessary to complete the transactions contemplated by the merger agreement (the “share issuance proposal”);

 

2.

Proposal No. 2—To elect Roderick N. Carter, Jan D’Alvise, Jean Marie (John) Canan and Donald Olds as directors to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his or her successor is elected and qualified or until his or her earlier resignation or removal (the “annual directors proposal”);

 

3.

Proposal No. 3—To elect each of William A. Haseltine and Vimal Kavuru, conditional upon and to be effective only at the closing of the merger, as a director to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his successor is elected and qualified or until his earlier resignation or removal, as provided in the merger agreement (the “merger directors election proposal”);

 

4.

Proposal No. 4—To appoint KPMG LLP to hold office as Acasti’s auditors until the close of the next annual meeting of shareholders and to authorize the board of directors of Acasti to fix their remuneration (the “auditor proposal”);

 

5.

Proposal No. 5—To adopt an advisory (non-binding) resolution approving the compensation of Acasti’s named executive officers, as disclosed in this proxy statement/prospectus (the “compensation proposal”);

 

6.

Proposal No. 6—To approve amendments to the Acasti stock option plan to provide for a 10% rolling plan by setting the total number of Acasti common shares reserved for issuance pursuant to options granted under the stock option plan to 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to awards issued under the equity incentive plan, as described in this proxy statement/prospectus (the “stock option plan proposal”);

 

7.

Proposal No. 7—To approve amendments to the Acasti equity incentive plan to set the total number of Acasti common shares reserved for issuance pursuant to awards granted under the equity incentive plan

at the lesser of (i) 10% of the issued and outstanding Acasti common shares as of June 24, 2021, representing 20,837,554 Acasti common shares, and (ii) 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to options issued under the stock option plan, as described in this proxy statement/prospectus (the “equity incentive plan proposal”);

 

8.

Proposal No. 9—If necessary to regain compliance with NASDAQ’s minimum bid price rules, to adopt an advisory (non-binding) resolution to amend to the articles of incorporation of Acasti, as amended, to effect a reverse stock split of Acasti common shares, within a range of 1-     to 1-     with such specific ratio to be approved by the Acasti board; provided that the Acasti board may determine to accelerate the timing of the proposed reverse stock split through a directors resolution without shareholder approval pursuant to the Business Corporations Act (Québec), if deemed advisable by the Acasti board (the “reverse stock split proposal”); and

 

9.

To transact such other business as may be properly brought before the meeting.

The approval of the share issuance proposal at the Acasti annual and special meeting is a condition to the completion of the merger. Approval of the annual directors election proposal, merger directors election proposal, the auditor proposal, the compensation proposal, the stock option proposal, the equity incentive plan proposal and the reverse stock split proposal at the meeting are not conditions to the completion of the merger.

The members of the Acasti board unanimously recommend that Acasti shareholders vote “FOR” the share issuance proposal, “FOR” the annual directors election proposal, “FOR” the merger directors election proposal, “FOR” the auditor proposal, “FOR” the compensation proposal, “FOR” the stock option plan proposal, “FOR” the equity incentive plan proposal and “FOR” the reverse stock split proposal.

These items of business are described in detail in the accompanying proxy statement/prospectus. Please read this document carefully in deciding how to vote.

Approval by Acasti shareholders of the issuance of Acasti common shares necessary to effect the transactions contemplated by the merger agreement is a condition to the merger and requires the affirmative vote of a majority of the votes cast on such proposal at the special meeting of Acasti shareholders. Therefore, your vote is very important. Whether or not you plan to attend the Acasti annual and special meeting, please promptly vote your proxy by telephone or by accessing the internet site, following the instructions in the accompanying proxy statement/prospectus, or by marking, dating, signing and returning the accompanying instrument of proxy.

Important Notice Regarding the Availability of Proxy Materials for the annual and special meeting to be held virtually on                     , 2021:

This proxy statement/prospectus is available at www.            .com by clicking on “2021 Annual and Special Meeting of Shareholders, Proxy Statement and Annual Report”.

You are entitled to receive notice of and attend the Acasti annual and special meeting, and may vote at the annual and special meeting, if you were a shareholder of Acasti at the close of business on                    , 2021 (the “Acasti record date”). If you were a registered shareholder on the Acasti record date and you are unable to attend the annual and special meeting, you may vote by proxy on the matters to be considered at the annual and special meeting. Please read the notes accompanying the instrument of proxy enclosed with these materials and then follow the instructions for voting by proxy contained in the accompanying proxy statement/prospectus. If on the Acasti record date, your Acasti common shares were held of record by your brokerage firm, securities dealer, trust company, bank or another similar organization, you may vote at the annual and special meeting if you complete a voting information form received from that organization issued in your name and carefully follow any instructions that are provided to you in connection with that voting information form.

In order for it to be voted at the annual and special meeting, a proxy must be received (whether delivered by mail, telephone or Internet) by no later than         a.m. (Eastern Time) on                     , 2021 by Acasti’s registrar and transfer agent, Computershare Investor Services Inc., Attention: Proxy Department, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1, telephone number: 1-866-732-VOTE (8683), website: www.investorvote.com. The Chairperson of the annual and special meeting may determine, in his or her sole discretion, to accept or reject an instrument of proxy that is delivered to the Chairperson at the annual and special meeting as to any matter in respect of which a vote has not already been cast.

The enclosed instrument of proxy is solicited by the Acasti board of directors and management, but you may amend it if you wish by striking out the names listed in the instrument of proxy and inserting in the space provided the name of the person you wish to represent you at the annual and special meeting.

The proxy statement/prospectus provides a detailed description of the merger and the merger agreement and related matters. We urge you to read the proxy statement/prospectus, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the merger or the proxy statement/prospectus, would like additional copies of this document or need help voting your Acasti common shares, please contact Acasti’s proxy solicitor:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Banks and Brokers Call Collect: (212) 269-5550

All Others Call Toll-Free: (800) 884-4725

Email: ACST@dfking.com

We do not know of any other matters to be presented at the Acasti annual and special meeting, but if other matters are properly presented, the persons named as proxies will vote on such matters at their discretion.

SIGNED IN LAVAL, QUÉBEC, AS AT

                     , 2021

 

ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about Acasti from other documents that are not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see the section entitled “Where You Can Find Additional Information.” This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into this proxy statement/prospectus through the United States Securities and Exchange Commission (“SEC”) website at www.sec.gov and also on the SEDAR website maintained by the Canadian Securities Administrators (the “CSA”) at www.sedar.com.

You may also obtain documents incorporated by reference into this proxy statement/prospectus by requesting them in writing or by telephone from D.F. King & Co., Inc., Acasti’s proxy solicitor, at the following address and telephone numbers:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Banks and Brokers Call Collect: (212) 269-5550

All Others Call Toll-Free: (800) 884-4725

Email: ACST@dfking.com

To receive timely delivery of the documents in advance of the Acasti annual and special meeting, you should make your request no later than five business days prior to the date of the meeting, or no later than    , 2021.

ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Acasti, constitutes a prospectus of Acasti under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the common shares, no par value, of Acasti (“Acasti common shares”) to be issued to Grace stockholders pursuant to the merger of MergerCo with and into Grace (the “merger”). This proxy statement/prospectus also constitutes a proxy statement for Acasti under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and constitutes a notice of meeting and proxy circular with respect to the annual and special meeting of Acasti shareholders under applicable Canadian corporate and securities laws.

You should rely only on the information contained in, or incorporated by reference into, this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus and neither Acasti nor Grace takes any responsibility for and cannot provide any assurances as to the reliability of, any other information that others may give you. This proxy statement/prospectus is dated                    , 2021. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date or that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement/prospectus to Acasti shareholders nor the issuance of Acasti common shares in connection with the transactions contemplated by the merger agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which it is unlawful to make any such offer or solicitation. Information contained in this proxy statement/prospectus regarding Acasti has been provided by Acasti and information contained in this proxy statement/prospectus regarding Grace has been provided by Grace.

 

i

All references in this proxy statement/prospectus to “Acasti” refer to Acasti Pharma Inc., a corporation incorporated under the laws of Québec; all references in this proxy statement/prospectus to “Grace” refer to Grace Therapeutics Inc., a corporation incorporated under the laws of the State of Delaware; all references in this proxy statement/prospectus to “MergerCo” refer to Acasti Pharma U.S., Inc., a corporation incorporated under the laws of the State of Delaware and a wholly-owned subsidiary of Acasti; and, unless otherwise indicated or as the context requires, all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of May 7, 2021 by and among Grace, Acasti and MergerCo, a copy of which is included as Annex A to this proxy statement/prospectus.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus, including the information included or incorporated by reference herein, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, Section 27A of the Securities Act and Section 21E of the Exchange Act and may be forward-looking information as defined under applicable Canadian securities legislation (collectively, “forward-looking statements”). These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of the management of Acasti, as well as assumptions made by, and information currently available to, management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “expect,” “estimate,” “plan,” “believe,” “anticipate,” “intend,” “look forward,” and other similar expressions among others. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance.

Forward-looking statements contained in this document may include, without limitation, statements regarding the proposed merger between Acasti and Grace; the timing and financial and strategic benefits thereof; the expected impact of the transaction on the cash balance of Acasti following the merger; Acasti’s future strategy, plans and expectations after the merger; and the anticipated timing of clinical trials and approvals for, and the commercial potential of, Acasti’s products and pipeline product candidates and those of its subsidiaries (including Grace, if the merger is completed).

Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including the failure to receive, on a timely basis or otherwise, the required approvals by Acasti shareholders or Grace stockholders, as applicable, in connection with the merger; the risk that a condition to closing of the merger may not be satisfied; the possibility that the anticipated benefits of the proposed merger may not be fully realized or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of the businesses of Acasti and Grace will be greater than expected; the ability of the companies following the merger to commercialize drug candidates in line with the companies’ expectations; the ability to retain and hire key personnel and maintain relationships with customers, key opinion leaders, suppliers or other business partners; the impact of legislative, regulatory, competitive and technological changes; and other risk factors relating to the companies’ businesses and the biopharmaceutical industry, as detailed from time to time in Acasti’s reports filed with the SEC and the CSA, which you are encouraged to review. Investors should not place undue reliance on forward-looking statements.

For a discussion of the factors that may cause Acasti’s, Grace’s or the combined company’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, and for a discussion of risks associated with the ability of Acasti and Grace to complete the merger and the effect of the merger on the business of Acasti, Grace and the combined company, see the section titled “Risk Factors” beginning on page 33.

The forward-looking statements reflect management’s current knowledge, assumptions, beliefs, estimates and expectations and express management’s current view of future performance, results and trends. If any of

 

ii

these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of Acasti, Grace or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus are current only as of the date on which the statements were made, or in the case of a document incorporated by reference, as of the date of that document. Except as required by applicable law, neither Acasti nor Grace undertakes any obligation to update publicly any forward-looking statements for any reason after the date of this proxy statement/prospectus or to conform these statements to actual results or to changes in expectations.

 

iii

TABLE OF CONTENTS

 

		Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND ACASTI ANNUAL AND SPECIAL MEETING			1
SUMMARY			18
The Companies			18
The Merger			18
Recommendation of the Acasti Board of Directors			19
Recommendation of the Grace Board of Directors			19
Opinion of Acasti’s Financial Advisor			19
Grace Voting Agreements			20
Interests of Acasti Directors and Executive Officers in the Merger			20
Interests of Grace Directors and Executive Officers in the Merger			20
Board of Directors and Executive Officers Following the Merger			20
Regulatory Clearances Required for the Merger			23
Certain United States Federal Income Tax Considerations Related to the Merger			24
Certain United States Federal Income Tax Considerations related to the Acasti Reverse Stock Split			25
Governing Documents Following the Merger			25
Expected Timing of the Merger			25
Conditions to Completion of the Merger			26
Termination of the Merger Agreement			26
Termination Fee and Expenses			27
Comparison of Rights of Shareholders			27
Listing of Acasti Common Shares			28
The Acasti Annual and Special Meeting			28
Accounting Treatment of the Merger			30
Selected Unaudited Pro Forma Condensed Combined Financial Data			31
Comparative Per Share Data			32
RISK FACTORS			33
Risk Factors Relating to the Merger			33
Risks Related to the Proposed Reverse Stock Split			39
Risk Factors Relating to the Acasti Common Shares Following the Merger			40
Risk Factors Relating to Acasti’s Business			42
Risk Factors Relating to Grace’s Business			43
Risks Related To Development, Testing and Commercialization of Our Products			45
Risks Relating to Our Intellectual Property			57
Risks Related to Our Dependence on Third Parties			61
General			65
THE COMPANIES			67
ACASTI ANNUAL AND SPECIAL MEETING			68
Date, Time and Place			68
Purpose of the Acasti Annual and Special Meeting			68
Recommendation of the Acasti Board of Directors			69
Acasti Record Date; Shareholders Entitled to Vote			69
Voting by Acasti’s Directors and Executive Officers			69
Quorum; Adjournment			69
CONSENT OF CERTAIN GRACE STOCKHOLDERS			93

 

iv

TABLE OF CONTENTS

(continued)

 

		Page
THE MERGER			94
Effects of the Merger			94
Background of the Merger			94
Recommendation of the Acasti Board of Directors; Acasti’s Reasons for the Merger			104
Opinion of Acasti’s Financial Advisor			106
Recommendation of the Grace Board of Directors; Grace’s Reasons for the Merger			112
Governing Documents Following the Merger			113
Interests of Acasti Directors and ExecutiveOfficersin the Merger			113
Interests of Grace Directors and Executive Officers in the Merger			115
Board of Directors and Management Following the Merger			116
Regulatory Clearances Required for the Merger			116
Exchange of Shares in the Merger			117
Restrictions on Resales			117
Treatment of Grace Restricted Stock			117
Dividend Policy			118
NASDAQ Listing of Acasti Common Shares			118
THE MERGER AGREEMENT			119
Closing of the Merger			119
Merger Consideration			119
Exchange of Grace Stock Certificates Following the Merger			120
Treatment of Grace Promissory Notes			121
Treatment of Grace Restricted Stock			121
Equity Exchange Ratio			121
Representations and Warranties			123
Acasti and MergerCo Representations and Warranties			123
Grace Representations and Warranties			124
Covenants			126
Consents and Regulatory Approvals			132
Governing Documents Following the Merger			132
Indemnification			133
Board Recommendations; Acasti Annual and Special Meeting and Grace Written Resolution of Stockholders			133
Third-Party Acquisition Proposals			133
Board of Directors and Executive Officers Following the Merger			136
Conditions to the Completion of the Merger			136
Termination of the Merger Agreement			138
Termination Fee			139
Injunctive Relief			140
Obligations in the Event of Termination			140
Amendment			140
Expenses			140
No Third-Party Beneficiaries			140
Governing Law			141
GRACE VOTING AGREEMENTS			142

 

v

TABLE OF CONTENTS

(continued)

 

		Page
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS			143
U.S. Tax Residence of Acasti as a Result of the Merger			144
U.S. Federal Income Tax Treatment of the Merger to U.S. Holders			149
U.S. Federal Income Tax Consequences of the Acasti Reverse Stock Split to Existing U.S. Holders of Acasti Common Shares			156
Information Reporting and Backup Withholding			156
ACCOUNTING TREATMENT			158
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			159
Comparative Per Share Data			165
GRACE BUSINESS			166
Clinical Pipeline and Near-Term Milestones			167
GTX-104 Overview			167
Overall Commercialization Strategy			179
Overall Competition			180
Manufacturing and Supply			180
Intellectual Property Portfolio			180
Regulation			181
Grace Founders, Board and Employees			187
Property			187
Legal Proceedings			187
GRACE MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			188
Overview			188
Revenues			188
General and Administrative Expenses			188
Research and Development Expenses			188
Loss From Operations			190
Interest Expense			190
Loss on Extinguishment of Debt			190
Change in fair value of derivative liability			190
Liquidity and Capital Resources			191
Critical Accounting Policies			192
Inflation			193
Off-Balance Sheet Arrangements			193
Recent Accounting Pronouncements			193
GRACE EXECUTIVE COMPENSATION			194
Compensation Paid to Named Executive Officers			194
Compensation Paid to Non-Executive Directors			194
RELATED PARTY TRANSACTIONS OF GRACE DIRECTORS AND EXECUTIVE OFFICERS			195
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS			196
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS OF ACASTI			197

 

vi

TABLE OF CONTENTS

(continued)

 

		Page
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS OF GRACE			198
COMPARISON OF RIGHTS OF ACASTI SHAREHOLDERS AND GRACE STOCKHOLDERS			200
APPRAISAL AND DISSENTER’S RIGHTS			212
LEGAL MATTERS			213
EXPERTS			213
Acasti			213
Grace			213
FUTURE SHAREHOLDER PROPOSALS			214
WHERE YOU CAN FIND ADDITIONAL INFORMATION			215
ANNEX A AGREEMENT AND PLAN OF MERGER			A-1
ANNEX B OPINION OF OPPENHEIMER & CO. INC			B-1
SCHEDULE A STOCK OPTION PLAN			S-1
SCHEDULE B EQUITY INCENTIVE PLAN			S-15
PART II INFORMATION NOT REQUIRED IN PROSPECTUS			II-1
Item 20. Indemnification of Directors and Officers			II-1
Item 21. Exhibits and Financial Statement Schedules			II-2
EXHIBIT INDEX			II-2
Item 22. Undertakings			II-4
SIGNATURES			II-6
POWER OF ATTORNEY			II-6

 

vii

QUESTIONS AND ANSWERS ABOUT THE MERGER AND ACASTI ANNUAL AND SPECIAL MEETING

The following are brief answers to certain questions that you may have regarding the proposals being considered at the annual and special meeting of Acasti shareholders. Acasti and Grace urge you to carefully read this entire proxy statement/prospectus, including its Annexes, and the other documents to which this proxy statement/prospectus refers or incorporates by reference, because this section does not provide all the information that might be important to you as an Acasti shareholder. Also see the section entitled “Where You Can Find Additional Information” beginning on page 214.

Q. Why have I received this proxy statement/prospectus?

A. Acasti and Grace entered into the merger agreement providing for the merger of MergerCo with and into Grace. Upon completion of the merger, Grace will be the surviving corporation and, through the merger, will become a wholly-owned subsidiary of Acasti. Upon completion of the merger, stockholders of Grace will receive Acasti common shares in exchange for their shares of Class A common stock of Grace (“Grace Class A common stock”) and Class B common stock of Grace (“Grace Class B common stock” and together with Grace Class A common stock, “Grace common stock”), each with a par value $0.0001 per share. A copy of the merger agreement is included in this proxy statement/prospectus as Annex A.

In order to complete the merger, among other things, Acasti shareholders must approve Proposal No. 1 and Grace stockholders must execute the written consent to approve and adopt the merger agreement and the transactions contemplated therein.

Acasti will hold an annual and special meeting of its shareholders. This proxy statement/prospectus contains important information about the merger and the special and annual meeting of Acasti. You should read all the available information carefully and its entirety.

Q. What are the proposals on which I am being asked to vote?

A. At the annual and special meeting of shareholders, Acasti shareholders will vote on proposals to:

 

1.

Proposal No. 1—Approve the issuance of Acasti common shares necessary to complete the transactions contemplated by the merger agreement (the “share issuance proposal”);

 

2.

Proposal No. 2—Elect Roderick N. Carter, Jan D’Alvise, Jean-Marie (John) Canan and Donald Olds as directors to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his or her successor is elected and qualified or until his or her earlier resignation or removal (the “annual directors election proposal”);

 

3.

Proposal No. 3—Elect each of William A. Haseltine and Vimal Kavuru, conditional upon and to be effective only at the closing of the merger, as a director to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his successor is elected and qualified or until his earlier resignation or removal, as provided in the merger agreement (the “merger directors election proposal”);

 

4.

Proposal No. 4—Appoint KPMG LLP to hold office as Acasti’s auditors until the close of the next annual meeting of shareholders and to authorize the board of directors of Acasti to fix their remuneration (the “auditor proposal”);

 

5.

Proposal No. 5—Adopt an advisory (non-binding) resolution approving the compensation of the Acasti named executive officers, as disclosed in this proxy statement/prospectus (the “compensation proposal”);

 

6.

Proposal No. 6—Approve amendments to the Acasti stock option plan to provide for a 10% rolling plan by setting the total number of Acasti common shares reserved for issuance pursuant to options

 

1

granted under the stock option plan to 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to awards issued under the equity incentive plan, as described in this proxy statement/prospectus (the “stock option plan proposal”);

 

7.

Proposal No. 7—Approve amendments to the Acasti equity incentive plan to set the total number of Acasti common shares reserved for issuance pursuant to awards granted under the equity incentive plan at the lesser of (i) 10% of the issued and outstanding Acasti common shares as of June 24, 2021, representing 20,837,554 Acasti common shares, and (ii) 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to options issued under the stock option plan, as described in this proxy statement/prospectus (the “equity incentive plan proposal”);

 

8.

Proposal No. 8—If necessary to regain compliance with NASDAQ’s minimum bid price rules, to adopt an advisory (non-binding) resolution to an amend the articles of incorporation of Acasti, as amended, to effect a reverse stock split of Acasti common shares, within a range of 1-     to 1-     with such specific ratio to be approved by the Acasti board; provided that the Acasti board may determine to accelerate the timing of the proposed reverse stock split through a directors resolution without shareholder approval pursuant to the Business Corporations Act (Québec) (the “QBCA”), if deemed advisable by the Acasti board (the “reverse stock split proposal”); and

 

9.

Transact such other business as may be properly brought before the meeting.

As of the date of this proxy statement/prospectus, the board of directors of Acasti is not aware of any such other business.

Based on the Acasti and Grace securities outstanding on June 30, 2021, up to 170,500,000 Acasti common shares are issuable to Grace stockholders as merger consideration pursuant to Proposal No. 1.

The Acasti board unanimously recommends that Acasti shareholders vote “FOR” the share issuance proposal, “FOR” the annual directors election proposal, “FOR” the merger directors election proposal, “FOR” the auditor proposal, “FOR” the compensation proposal, “FOR” the stock option plan proposal, “FOR” the equity incentive plan proposal and “FOR” the reverse stock split proposal.

The approval and adoption of the merger agreement and the transactions contemplated by the merger agreement by the requisite Grace stockholders holding a majority of the issued and outstanding shares of Grace Class A common stock is required to complete the merger. Grace is sending this proxy statement/prospectus to its stockholders to request that they approve and adopt the merger agreement and the transactions contemplated by the merger agreement by executing and returning the written consent furnished with this proxy statement/prospectus. The board of directors of Grace has unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interests of Grace and its stockholders, (ii) approved the merger agreement, and all of the transactions contemplated thereby, including, without limitation, the merger, and (iii) recommended that the holders of Grace Class A common stock vote to adopt the merger agreement and the transactions contemplated therein.

Q. What will I receive if the merger is completed?

A. Acasti shareholders will continue to own their existing Acasti common shares after the merger. If the merger is completed, at the effective time of the merger, each issued and outstanding share of Grace common stock (after giving effect to the acceleration of the Grace restricted stock and the conversion of the Grace convertible promissory notes) will automatically be converted into the right to receive a number of Acasti common shares per share of Grace common stock equal to the equity exchange ratio set forth in the merger agreement such that, immediately following the consummation of the merger, existing Acasti shareholders are expected to own at least 55% and existing Grace stockholders are expected to own at most 45% of the outstanding capital stock of the combined company on a fully-diluted basis. The equity exchange ratio is subject to upward adjustment in favor of Acasti shareholders based on

 

2

each company’s capitalization and net cash balance at the effective time of the merger, as specified in the merger agreement. For more information on the equity exchange ratio, see the section entitled “Merger Agreement – Equity Exchange Ratio” beginning on page 121.

Q. What effect will the proposed merger transaction have on Acasti and Grace?

A. Pursuant to the merger agreement, MergerCo will be merged with and into Grace, and Grace will be the surviving corporation and will become a wholly-owned subsidiary of Acasti. Grace stockholders will become Acasti shareholders.

Upon completion of the merger, based on the equity exchange ratio, Acasti shareholders immediately prior to the merger will own at least 55% of the combined company, on a fully diluted basis, and Grace stockholders immediately prior to the merger will own at most 45% of the combined company, on a fully diluted basis. The equity exchange ratio is subject to upward adjustment in favor of Acasti shareholders based on each company’s capitalization and net cash balance at the effective time of the merger, as specified in the merger agreement. For more information on the equity exchange ratio see the section entitled “Merger Agreement—Equity Exchange Ratio” beginning on page 121.

Q. What is the value of the merger consideration?

A. Because Acasti will issue a fixed number of Acasti common shares in exchange for each share of Grace common stock based on the equity exchange ratio, the market value of the merger consideration that Grace stockholders will receive will depend on the price per Acasti common share at the time the merger is completed. The market value of the merger consideration will not be known at the time of the Acasti annual and special meeting and may be more or less than the current Acasti common share market price or the market price at the time of the annual and special meeting.

Q. What are the material U.S. federal income tax consequences of the merger to U.S. holders of Grace common stock? Will I be taxed on the Acasti common shares that I receive in connection with the merger?

A. See “Certain United States Federal Income Tax Considerations” beginning on page 143.

Q. When do you expect the merger to be completed?

A. Acasti and Grace are working to complete the merger and expect the merger to close by             2021. Acasti and Grace hope to complete the merger as soon as reasonably practicable after the approval of Acasti shareholders at the Acasti annual and special meeting. However, the closing of the merger is subject to various conditions that must be satisfied or waived before the parties are obligated to complete the merger and it is possible that factors outside the control of both companies could result in the merger being completed at a later time, or not at all. For more information about the conditions to the merger, see the question below entitled “—What are the conditions to the merger?” and the sections entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 136 and “Risk Factors” beginning on page 33.

Q. What are the conditions to the merger?

A. Completion of the merger is subject to a number of closing conditions, including, among other things:

 

•

the requisite Acasti shareholder and Grace stockholder approvals shall have been obtained;

 

•

the registration statement on Form S-4 of which this proxy statement/prospectus is a part shall be effective;

 

•

the Acasti common shares to be issued in connection with the transactions contemplated by the merger agreement shall have been approved for listing on NASDAQ;

 

3

•

no applicable law or order shall be in effect that imposes, and no action shall be pending or threatened that seeks to impose, any material limitations on Acasti’s ownership of Grace;

 

•

no governmental authority shall have enacted any law or order that prevents or prohibits consummation of the merger or any of the other transactions contemplated in the merger agreement, and no governmental authority shall have instituted any proceeding seeking to prohibit consummation of the merger;

 

•

the representations and warranties made in the merger agreement by Grace, Acasti and MergerCo, respectively, shall be true and correct, subject to certain materiality thresholds;

 

•

there shall not have occurred any result, fact, change, effect, event, circumstance, occurrence or development that would reasonably be expected to have a material adverse effect on either party; and

 

•

each party shall have performed, in all material respects, all obligations to be performed by such party at or prior to the effective time of the merger.

Q. Does the Acasti board of directors support the merger? How does the Acasti board of directors recommend that I vote?

A. Yes. The Acasti board of directors has determined that the terms of the merger agreement and the transactions contemplated by it are advisable and in the best interests of Acasti and its shareholders. The Acasti board of directors recommends that Acasti shareholders vote:

 

•

“FOR” the share issuance proposal;

 

•

“FOR” the annual directors proposal;

 

•

“FOR” the merger directors election proposal;

 

•

“FOR” the auditor proposal;

 

•

“FOR” the compensation proposal;

 

•

“FOR” the stock option plan proposal;

 

•

“FOR” the equity incentive plan proposal; and

 

•

“FOR” the reverse stock split proposal.

For more information on the recommendation of the Acasti board of directors, see the section entitled “The Merger—Recommendation of the Acasti Board of Directors; Acasti’s Reasons for the Merger” beginning on page 104.

Q. Who will the members of the combined company’s board of directors be after the merger?

A. Pursuant to the terms of the merger agreement, Acasti and Grace have agreed to use commercially reasonable best efforts to take such action to cause the Acasti board of directors following the closing, and continuing until the 2022 annual general meeting of Acasti shareholders, to consist of: (i) two (2) individuals designated by Grace in this proxy statement/prospectus, being William A. Haseltine and Vimal Kavuru, each a current director of Grace, (ii) one (1) individual to be designated by Grace stockholders holding a majority of the Acasti common shares held by Grace stockholders at the relevant time, and (iii) four (4) individuals designated by Acasti in this proxy statement/prospectus, being Roderick N. Carter, Jean-Marie (John) Canan, Jan D’Alvise and Donald Olds, each a current director of Acasti. To the extent that Acasti shareholder approval to effect this board composition is not obtained prior to the closing, Acasti has agreed to take all actions necessary so that the Acasti board of directors will consist of four (4) individuals designated by Acasti and three (3) individuals designated by Grace.

 

4

Q. Do any of Acasti’s directors or executive officers have interests in the merger that may differ from or be in addition to my interests as an Acasti shareholder?

A. Yes. In considering the recommendation of the Acasti board of directors, you should be aware that Acasti’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Acasti shareholders generally.

See “The Merger—Interests of Acasti Directors and Executive Officers in the Merger” for more information regarding the interests of Acasti’s directors and executive officers in the merger.

Q. Does the Grace board of directors support the merger?

A. Yes. The Grace board of directors has unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to, and in the best interests of, Grace and its stockholders, (ii) approved the merger agreement, and all of the transactions contemplated thereby, including, without limitation, the merger, and (iii) recommended that the holders of Grace Class A common stock vote to adopt the merger agreement.

For more information on the recommendation of the Grace board of directors, see the section entitled “The Merger—Recommendation of the Grace Board of Directors; Grace’s Reasons for the Merger” beginning on page 112.

Q. When and where will the Acasti shareholder meeting be held?

A. The Acasti annual and special meeting will be held virtually on                    , 2021, at 1:00 p.m. (Eastern Time).

Q. How do I participate in the Acasti shareholder meeting virtually?

A. Acasti shareholders can attend the annual and special meeting online by going to https://            .

It is important that you are connected to the internet at all times during the meeting in order to vote when balloting commences.

Registered Acasti shareholders and duly appointed proxyholders can participate in the meeting by clicking “I have a login” and entering a username and password before the start of the meeting.

In order to participate online, Acasti shareholders must have a valid    -digit control number and proxyholders must have received an email from Computershare Investor Services Inc. (“Computershare”) containing a username. For registered shareholders, the    -digit control number located on the form of proxy or in the email notification you received is the username and the password is “    ”. For duly appointed proxyholders, Computershare will provide the proxyholder with a username after the voting deadline has passed. The password is “    ”. Voting at the meeting will only be available for registered Acasti shareholders and duly appointed proxyholders. Non-registered shareholders who have not appointed themselves may attend the meeting by clicking “I am a guest” and completing the online form.

 

5

Acasti shareholders who wish to appoint a third-party proxyholder to represent them at the online meeting must submit their proxy or voting instruction form (as applicable) prior to registering their proxyholder. Registering the proxyholder is an additional step once a shareholder has submitted their proxy/voting instruction form. Failure to register a duly appointed proxyholder will result in the proxyholder not receiving a username to participate in the meeting. To register a proxyholder, Acasti shareholders MUST visit https://                 by 5:00 p.m. Eastern Time on                     , 2021 and provide Computershare with their proxyholder’s contact information, so that Computershare may provide the proxyholder with a username via email.

Registered Acasti shareholders that have a    -digit control number, along with duly appointed proxyholders who were assigned a username by Computershare will be able to vote and submit questions during the meeting. To do so, please go to www.                prior to the start of the meeting to login. Click on “I have a login” and enter your    -digit control number or username along with the password “    ”. Non-registered shareholders who have not appointed themselves to vote at the meeting may login as a guest, by clicking on “I am a Guest” and complete the online form. Non-registered shareholders who do not have a    -digit control number or username will only be able to attend as a guest, which allows them listen to the meeting; however, they will not be able to vote or submit questions. Please see the information below for an explanation of why certain Acasti shareholders may not receive a form of proxy.

If you are using a    -digit control number to login to the online meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies. However, in such a case, you will be provided the opportunity to vote by ballot on the matters put forth at the meeting. If you DO NOT wish to revoke all previously submitted proxies, do not accept the terms and conditions, in which case you can only enter the meeting as a guest.

If you are eligible to vote at the meeting, it is important that you are connected to the internet at all times during the meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the meeting.

To attend and vote at the virtual meeting, a beneficial holder must first obtain a valid legal proxy from your broker, bank or other agent and then register in advance to attend the meeting. Follow the instructions from your broker or bank included with these proxy materials or contact your broker or bank to request a legal proxy form. After first obtaining a valid legal proxy from your broker, bank or other agent, to then register to attend the meeting, you must submit a copy of your legal proxy to Computershare. Requests for registration should be directed to Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada, M5J 2Y1 or service@computershare.com. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m. Eastern Time on                    , 2021. You will receive a confirmation of your registration by email after we receive your registration materials. Please note that you are required to register your appointment at https://www.                                .

Q. Who is entitled to attend the Acasti shareholder meeting?

A. All Acasti shareholders as of                    , 2021 (the “Acasti record date”) are invited to attend the Acasti annual and special meeting, including shareholders whose shares are held by their brokerage firm or another similar organization, or who otherwise do not hold their common shares in their own name, who are considered “beneficial shareholders.” Beneficial shareholders fall into two categories—those who object to their identity being made known to the issuers of securities which they own (“OBOs”) and those who do not object to their identity being made known to the issuers of the securities which they own (“NOBOs”). Beneficial shareholders should note that only proxies deposited by Acasti shareholders who appear on the records maintained by Acasti’s registrar and transfer agent as registered holders of Acasti common shares will be recognized for the purposes of attending and voting at the Acasti annual and special meeting. If Acasti common shares are listed in an account statement provided to a beneficial shareholder by a broker, then those Acasti common shares will, in all

 

6

likelihood, not be registered in the shareholder’s name. Such Acasti common shares will more likely be registered under the name of the shareholder’s broker or an agent of that broker. Without specific instructions, brokers and their agents and nominees are prohibited from voting Acasti common shares for the broker’s clients. Therefore, each beneficial shareholder should ensure that voting instructions are communicated to the appropriate person well in advance of the Acasti annual and special meeting.

Although a beneficial shareholder may not be recognized directly at the Acasti annual and special meeting for the purposes of voting Acasti common shares registered in the name of such shareholders’ broker, a beneficial shareholder may attend the Acasti annual and special meeting as proxyholder for the registered shareholder and vote the Acasti common shares in that capacity. A beneficial shareholder who wishes to attend the Acasti annual and special meeting and to vote their Acasti common shares as proxyholder for the registered shareholder, should enter their own name in the blank space on the voting instruction form and return the same to their broker (or the broker’s agent) in accordance with the instructions provided by such broker. Alternatively, National Instrument 54-101—Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”) allows a beneficial shareholder in Canada to submit to the applicable intermediary any document in writing that requests that the beneficial shareholder, or a nominee of the beneficial shareholder, be appointed as proxyholder. If such a request is received, the applicable intermediary must arrange, without expense to the beneficial shareholder, to appoint such beneficial shareholder or its nominee as a proxyholder and to deposit that proxy within the time specified in this proxy statement/prospectus, provided that the intermediary receives such written instructions from the beneficial shareholder at least one business day prior to the time by which proxies are to be submitted at the Acasti annual and special meeting, with the result that such a written request must be received by    p.m. (Eastern Time) on the day which is at least three business days prior to the Acasti annual and special meeting.

Q. Who is entitled to vote at the Acasti shareholder meeting?

A. Acasti shareholders registered as at                    , 2021 are entitled to attend and vote at the meeting. Acasti shareholders who wish to be represented by proxy at the meeting must, to entitle the person appointed by the proxy to attend and vote, deliver their proxies at the place and within the time set forth in this proxy statement/prospectus.

Acasti’s authorized capital consists of an unlimited number of no par value Class A common shares (defined herein as the Acasti common shares) and an unlimited number of no par value Class B, Class C, Class D and Class E preferred shares, issuable in one or more series.

As at June 29, 2021, there were a total of 208,375,549 Acasti common shares issued and outstanding and no preferred shares issued and outstanding. Each Acasti common share entitles its holder to one vote.

Q. What vote is required to approve each of the proposals at the Acasti annual and special meeting?

A. The required votes by Acasti shareholders are as follows:

Proposal No. 1: Share Issuance Proposal

You may select “For”, “Against” or “Abstain” with respect to Proposal No. 1. The affirmative vote of a majority of the votes cast at the meeting is required for the approval of the issuance of Acasti common shares to Grace stockholders pursuant to the merger agreement.

Proposal No. 2: Annual Directors Election Proposal

You may select “For” or “Withhold” with respect to each nominee for director under Proposal No. 2. The affirmative vote of a majority of the votes cast at the meeting is required for the approval of the election of the directors pursuant to the annual directors election proposal.

 

7

Proposal No. 3: Merger Directors Election Proposal

You may select “For” or “Withhold” with respect to each nominee for director under Proposal No. 3. The affirmative vote of a majority of the votes cast at the meeting is required for the approval of the election of the directors pursuant to the merger directors election proposal. Such election is conditional upon and shall be effective only at the closing of the merger.

Proposal No. 4: Auditor Proposal

You may select “For” or “Withhold” your vote with respect to Proposal No. 4. The affirmative vote of a majority of the votes cast at the meeting is required for the approval for KPMG LLP to hold office as Acasti’s auditors until the close of the next annual meeting of Acasti shareholders and to authorize the board to fix their remuneration.

Proposal No. 5: Compensation Proposal

You may select “For”, “Against” or “Abstain” with respect to Proposal No. 5. The affirmative vote of a majority of the votes cast at the meeting is required for the approval, on an advisory (non-binding) basis, of the compensation of Acasti’s named executive officers, as disclosed in this proxy statement/prospectus. The results of the vote on the proposal are not binding on the Acasti board.

Proposal No. 6: Stock Option Plan Proposal

You may select “For”, “Against” or “Abstain” with respect to Proposal No. 6. The affirmative vote of a majority of the votes cast at the meeting by the disinterested Acasti shareholders is required for the approval of the amended stock option plan.

Proposal No. 7: Equity Incentive Plan Proposal

You may select “For”, “Against” or “Abstain” with respect to Proposal No. 7. The affirmative vote of a majority of the votes cast at the meeting by the disinterested Acasti shareholders is required for the approval of the amended equity incentive plan.

Proposal No. 8: Reverse Stock Split Proposal

You may select “For”, “Against” or “Abstain” with respect to Proposal No. 8. The affirmative vote of a majority of the votes cast at the meeting is required for the approval, on an advisory (non-binding) basis, if necessary to regain compliance with NASDAQ’s minimum bid price rules, of the proposal to effect a reverse stock split of Acasti common shares, within a range of 1-     to 1-     with such specific ratio to be approved by the Acasti board, as disclosed in this proxy statement/prospectus. The results of the vote on the proposal are not binding on the Acasti board and the Acasti board may determine to accelerate the timing of the proposed reverse stock split through a directors resolution without shareholder approval pursuant to the QBCA, if deemed advisable by the Acasti board.

Failures to vote, abstentions and broker non-votes, if any, will not count as a vote “Against” any proposal.

Q. What constitutes a quorum at the Acasti annual and special meeting?

A. At least two persons present, each being an Acasti shareholder entitled to vote at the Acasti annual and special meeting or a duly appointed proxyholder or representative for an Acasti shareholder so entitled, and together holding or representing Acasti common shares having not less than 33¹/3% of the outstanding votes entitled to be cast at the Acasti annual and special meeting, constitute a quorum for the transaction of business at the Acasti

 

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annual and special meeting. All Acasti common shares represented at the Acasti annual and special meeting, including broker non-votes and Acasti common shares that are represented but that abstain from voting, will be treated as present and entitled to vote for purposes of determining the presence or absence of a quorum.

Q. How are broker non-votes treated?

A. Acasti common shares that are represented by “broker non-votes” (i.e., Acasti common shares held by a bank, broker or other holder of record holding shares for a beneficial shareholder that are represented at the Acasti annual and special meeting but with respect to which the bank, broker or other holder of record is not empowered to vote on a particular proposal) and Acasti common shares held by Acasti shareholders who abstain from voting (or vote “withhold”) on any proposal will have no effect on the legal outcome of the proposal, but are included for quorum purposes.

All Acasti shareholders that hold shares through a bank, broker or other holder of record are urged to follow the voting instructions provided by your broker, bank or other nominee so as to ensure that such parties may vote your Acasti common shares on your behalf at the Acasti annual and special meeting. Please note that you may not vote your Acasti common shares held in street name by returning a proxy card directly to Acasti or by voting at the Acasti annual and special meeting unless you first obtain a proxy from your broker, bank or other nominee.

Q. How many votes do I have?

A. On a show of hands, every Acasti common shareholder present has one vote, and on a poll, every Acasti common shareholder present has one vote for each Acasti common share registered in such Acasti shareholder’s name as of the close of business on the Acasti record date.

Q. How do I vote?

A. A registered Acasti shareholder or a non-registered shareholder who has appointed themselves or a third-party proxyholder to represent them at the meeting will appear on a list of Acasti shareholders prepared by Computershare, which Acasti’s the transfer agent and registrar for the meeting. To have their Acasti common shares voted at the meeting, each registered shareholder or proxyholder will be required to enter their control number or username provided by Computershare at https://www.                     prior to the start of the meeting. In order to vote, non-registered shareholders who appoint themselves as a proxyholder MUST register with Computershare at https://www.                     after submitting their voting instruction form in order to receive a username.

Most non-registered shareholders who have not waived the right to receive proxy materials will receive a voting instruction form. Registered shareholders will, and some non-registered shareholders may, receive a form of proxy. Acasti shareholders should follow the procedures set out below, depending on what type of form they receive.

1. Voting Instruction Form. If you are a non-registered shareholder and do not wish to attend and vote at the meeting (or have another person attend and vote on your behalf), the voting instruction form must be completed, signed and returned in accordance with the directions on the form, so that the intermediary may vote on your behalf.

If you are a non-registered shareholder who wishes to attend and vote at the meeting (or have another person attend and vote on your behalf), you must complete, sign and return the voting instruction form in accordance with the directions provided and a form of proxy giving the right to attend and vote will be forwarded to you.

OR

 

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2. Form of Proxy. If you are a registered shareholder, you will receive a form of proxy to be completed, signed and returned in accordance with the directions on the form, if you do not wish to attend and vote at the meeting (or have another person attend and vote on your behalf).

Less frequently, a non-registered shareholder will receive, as part of the proxy materials, a form of proxy that has already been signed by the intermediary (typically by a facsimile or stamped signature), which is restricted as to the number of Acasti common shares beneficially owned by the non-registered shareholder but which is otherwise uncompleted. In such a case, if you are a non-registered shareholder and do not wish to attend and vote at the meeting (or have another person attend and vote on your behalf), you must complete the form of proxy and deposit it with Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Canada, M5J 2Y1. If you are a non-registered shareholder and you wish to attend and vote at the meeting (or have another person attend and vote on your behalf), you must strike out the names of the persons named in the proxy and insert your (or such other person’s) name in the blank space provided.

To attend and vote at the virtual meeting, a non-registered beneficial holder must first obtain a valid legal proxy from your broker, bank or other agent and then register in advance to attend the meeting. Follow the instructions from your broker or bank included with these proxy materials or contact your broker or bank to request a legal proxy form. After first obtaining a valid legal proxy from your broker, bank or other agent, to then register to attend the meeting, you must submit a copy of your legal proxy to Computershare. Requests for registration should be directed to Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada, M5J 2Y1 or service@computershare.com. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m. Eastern Time on                    , 2021. You will receive a confirmation of your registration by email after we receive your registration materials. You may attend the meeting and vote your shares at    during the meeting. Please note that you are required to register your appointment at https://www.                    .

Acasti shareholders should follow the instructions on the forms they receive, and non-registered shareholders should contact their intermediaries promptly if they need assistance.

The proxy materials are being sent or made available to both registered and non-registered owners of Acasti common shares. Acasti is sending proxy materials indirectly to non-objecting beneficial owners (as defined in NI 54-101). Acasti intends to pay for intermediaries to forward to objecting beneficial owners (as defined in NI 54-101) the proxy materials.

Q. How do I request a copy of the proxy materials?

A. To request a printed copy of the proxy materials, please contact your intermediary, if you are a non-registered (beneficial) shareholder, or if you are a registered shareholder, contact Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada, M5J 2Y1.

Q. How do I change my vote?

A. An Acasti shareholder who has given a proxy may revoke it, as to any motion on which a vote has not already been cast pursuant to the authority conferred by it, by an instrument in writing executed by the shareholder or by the shareholder’s attorney authorized in writing or, if the shareholder is a corporation, under its corporate seal or by an officer or attorney thereof duly authorized. The revocation of a proxy, in order to be acted upon, must be deposited with Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada, M5J 2Y1 at any time but no less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the day of the meeting, or any adjournment thereof at which the proxy is to be used, or, by a registered shareholder, with the Secretary or the Chairperson of the meeting on the day of the meeting or any adjournment thereof, or in any other manner permitted by law.

 

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In addition, a proxy may be revoked by the shareholder executing another form of proxy bearing a later date and depositing same at the offices of Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada, M5J 2Y1 no less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the day of the meeting or, by a registered shareholder, with the Secretary or the Chairperson of the meeting at the time and place of the meeting or any adjournment thereof or by the shareholder personally attending the meeting and voting his or her shares.

Q. What is the difference between registered and non-registered (beneficial) shareholders?

A. The voting process is different depending on whether you are a registered or non-registered (i.e., beneficial) shareholder:

Registered Shareholders

You are a registered shareholder if your name appears on your share certificate or in the registers of Acasti maintained by Computershare. Your proxy form tells you whether you are a registered shareholder. Acasti will mail copies of the Notice of Meeting, this proxy statement/prospectus and the form of proxy directly to registered shareholders. Acasti has previously mailed its annual report to all registered shareholders.

Only registered shareholders or the persons they appoint as their proxies are permitted to vote at the meeting.

Non-Registered Shareholders

In many cases, Acasti common shares beneficially owned by a non-registered shareholder are registered either:

 

a)

in the name of an intermediary that the non-registered shareholder deals with in respect of the Acasti common shares, such as securities dealers or brokers, banks, trust companies, and trustees or administrators of self-administered RRSPs, RRIFs, RESPs, 401(k)s and similar plans; or

 

b)

in the name of a clearing agency, of which the intermediary is a participant. In accordance with NI 54-101, and pursuant to Rule 14a-13 of the Exchange Act, Acasti has distributed copies of the Notice of Meeting and this proxy statement/prospectus (collectively, the “Meeting Materials”) to the clearing agencies and intermediaries for distribution to non-registered Acasti shareholders.

Intermediaries are required to forward the Meeting Materials to non-registered shareholders, and often use a service provider for this purpose. Non-registered shareholders will either:

 

a)

typically, be provided with a computerized form (often called a “voting instruction form”) which is not signed by the intermediary and which, when properly completed and signed by the non-registered shareholder and returned to the intermediary or its service provider, will constitute voting instructions which the intermediary must follow. The non-registered shareholder will generally be given a page of instructions which contains a removable label containing a bar-code and other information. In order for the applicable computerized form to validly constitute a voting instruction form, the non-registered shareholder must remove the label from the instructions and affix it to the computerized form, properly complete and sign the form and submit it to the intermediary or its service provider in accordance with the instructions of the intermediary or its service provider. In certain cases, the non-registered shareholder may provide such voting instructions to the intermediary or its service provider through the internet or through a toll-free telephone number; or

 

b)

less commonly, be given a proxy form which has already been signed by the intermediary (typically by a facsimile, stamped signature), which is restricted to the number of Acasti common shares beneficially owned by the non-registered shareholder, but which is otherwise not completed. In this case, the non-registered shareholder who wishes to submit a proxy should properly complete the proxy form and submit it to Computershare Investor Services Inc., 100 University Avenue, 8th Floor, Toronto, Ontario, Canada, M5J 2Y1.

 

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Under applicable securities laws, a beneficial owner is an OBO if such beneficial owner has or is deemed to have provided instructions to the intermediary holding the securities on such beneficial owner’s behalf objecting to the intermediary disclosing ownership information about the beneficial owner in accordance with such laws. If you are an OBO, you received these materials from your intermediary or its agent and your intermediary is required to seek your instructions as to how to vote your Acasti common shares. Acasti has agreed to pay for intermediaries to deliver to OBOs the proxy-related materials and the relevant voting instruction form. The voting instruction form that is sent to an OBO by the intermediary or its agent should contain an explanation as to how you can exercise your voting rights, including how to attend and vote directly at the meeting. Please provide your voting instructions to your intermediary as specified in the voting instruction form.

In either case, the purpose of these procedures is to permit non-registered shareholders to direct the voting of the Acasti common shares they beneficially own.

If you are a non-registered shareholder who receives a voting instruction form and who wishes to vote at the meeting (or have another person attend and vote on your behalf), you should print your name, or that of such other person, on the voting instruction form and return it to the intermediary or its service provider. If you are a non-registered shareholder who receives a proxy form and who wishes to vote at the meeting (or have another person attend and vote on your behalf), you should strike out the names of the persons set out in the proxy form and write your name or such other person in the blank space provided and submit it to Computershare at the address set out at (b) above.

In all cases, non-registered shareholders should carefully follow the instructions of their intermediary, including those regarding when, where and by what means the voting instruction form or proxy form must be delivered.

A non-registered shareholder may revoke voting instructions which have been given to an intermediary at any time by written notice to the intermediary.

If your Acasti common shares are registered directly in your name with Acasti’s transfer agent, Computershare, you are considered the shareholder of record with respect to those Acasti common shares. As the shareholder of record, you have the right to grant your proxy directly to Acasti or to a third party, or to vote at the Acasti annual and special meeting.

If your Acasti common shares are held by a bank, brokerage firm or other nominee, you are considered the beneficial shareholder of shares held in “street name,” and your bank, brokerage firm or other nominee is considered the shareholder of record with respect to those Acasti common shares. Your bank, brokerage firm or other nominee will send you, as the beneficial shareholder, a package describing the procedure for voting your Acasti common shares. You should follow the instructions provided by them to vote your Acasti common shares. You may not vote these shares at the Acasti annual and special meeting unless you obtain a “legal proxy” from your bank, brokerage firm or other nominee that holds your Acasti common shares, giving you the right to vote the shares at the Acasti annual and special meeting.

Q. If my shares are held in “street name” by my bank, brokerage firm or other nominee, will my bank, brokerage firm or other nominee vote my shares for me?

A. Canadian and U.S. regulations require brokers and other intermediaries to seek voting instructions from beneficial shareholders in advance of the Acasti shareholder meeting. The various brokers and other intermediaries have their own mailing procedures and provide their own return instructions to clients, which should be carefully followed by beneficial shareholders in order to ensure that their Acasti common shares are voted at the Acasti annual and special meeting. The form of proxy supplied to a beneficial shareholder by its broker (or the agent of the broker) is substantially similar to the instrument of proxy provided directly to registered Acasti shareholders by Acasti. However, its purpose is limited to instructing the registered Acasti

 

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shareholder (i.e., the broker or agent of the broker) how to vote on behalf of the beneficial shareholder. A beneficial shareholder who receives a voting instruction form from its broker or other intermediary cannot use that form to vote Acasti common shares directly at the Acasti annual and special meeting. The voting instruction form must be returned to your broker or other intermediary (or instructions respecting the voting of Acasti common shares must otherwise be communicated to your broker or other intermediary) well in advance of the Acasti annual and special meeting in order to have the Acasti common shares voted. If you have any questions respecting the voting of Acasti common shares held through a broker or other intermediary, please contact that broker or other intermediary for assistance.

This proxy statement/prospectus and the instrument of proxy and voting instruction form, as applicable, are being provided to both registered Acasti shareholders and beneficial shareholders. Subject to the provisions of NI 54-101 and Rule 14a-13 under the Exchange Act, issuers may request and obtain a list of their NOBOs from intermediaries directly or via their transfer agent and may obtain and use the NOBO list for the distribution of proxy-related materials directly to such NOBOs.

Acasti has distributed copies of this proxy statement/prospectus, instrument of proxy and voting instruction form to intermediaries for distribution to NOBOs. Unless you have waived your right to receive these materials, intermediaries are required to deliver them to you as a NOBO of Acasti and to seek your instructions on how to vote your Acasti common shares.

Acasti’s OBOs can expect to be contacted by their brokers or their broker’s agents.

Q. What does it mean to appoint a proxy and what happens if I do not designate a proxy?

A. The persons named in the enclosed form of proxy are directors or officers of Acasti. Each shareholder who is entitled to vote at the meeting is entitled to appoint a person, who need not be a shareholder, to represent him or her at the meeting other than those whose names are printed on the accompanying form of proxy by inserting such other person’s name in the blank space provided in the form of proxy and signing the form of proxy or by completing and signing another proper form of proxy. To be valid, the duly completed form of proxy must be deposited at the offices of Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada, M5J 2Y1 no less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the day of the meeting or, by a registered shareholder, with the Secretary or the Chairperson of the meeting at the time and place of the meeting or any adjournment thereof. The instrument appointing a proxy-holder must be executed by the shareholder or by his attorney authorized in writing or, if the shareholder is a corporate body, by its authorized officer or officers.

All Acasti common shares represented at the meeting by properly executed proxies will be voted, and where a choice with respect to any matter to be acted upon has been specified in the instrument of proxy, the Acasti common shares represented by the proxy will be voted in accordance with such specifications. In the absence of any such specifications, the management designees, if named as proxy, will vote FOR of all the matters set out herein. Instructions with respect to voting will be respected by the persons designated in the enclosed form of proxy. With respect to amendments or variations to matters identified in the Notice of Meeting and with respect to other matters that may properly come before the meeting, such Acasti common shares will be voted by the persons so designated at their discretion. At the time of printing this proxy statement/prospectus, management of Acasti knows of no such amendments, variations or other matters.

Q. Who will solicit and pay the cost of soliciting proxies?

A. The Acasti board of directors and Acasti management are soliciting your proxy for use at the Acasti annual and special meeting and any adjournment or postponement thereof. All associated costs of the proxy solicitation will be borne by Acasti. In addition to the use of the mail, proxies may be solicited by directors, officers and other employees of Acasti, without additional remuneration, by personal interview, telephone, facsimile or

 

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otherwise. Acasti will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to beneficial shareholders and will provide customary reimbursement to such firms for the cost of forwarding these materials. Acasti has retained D.F. King & Co., Inc. to assist in its solicitation of proxies and has agreed to pay them a fee estimated to be up to approximately $20,000, plus reasonable expenses, for these services. If you have any questions or need assistance you may contact D.F. King & Co. at (800) 848-3416 or ACST@dfking.com. The cost of solicitation of proxies will be borne by Acasti.

Q. If a shareholder gives a proxy, how are the Acasti common shares voted? What will happen if an Acasti shareholder returns a proxy card without indicating how to vote?

A. If you designate the individuals named on the enclosed proxy card as your proxy, your Acasti common shares will be voted as specified by you on your proxy card.

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the Acasti common shares represented by your properly signed proxy will be voted as the Acasti board of directors recommends and, therefore, “FOR” each of the proposals being submitted to a vote of Acasti shareholders at the Acasti annual and special meeting.

Q. How do I appoint a third-party proxyholder?

A. Acasti shareholders who wish to appoint a third-party proxyholder to represent them at the online meeting must submit their proxy or voting instruction form (if applicable) prior to registering your proxyholder. Registering your proxyholder is an additional step once you have submitted your proxy or voting instruction form. Failure to register the proxyholder will result in the proxyholder not receiving a username to participate in the meeting. To register a proxyholder, shareholders MUST visit https://     by 5:00 p.m. Eastern Time on                    , 2021 and provide Computershare with their proxyholder’s contact information, so that Computershare may provide the proxyholder with a username via email.

A proxy can be submitted to Computershare either in person, or by mail or courier, to 100 University Avenue, 8th Floor, Toronto, Ontario, Canada, M5J 2Y1, or via the internet at service@computershare.com. The proxy must be deposited with Computershare by no later than 5:00 p.m. Eastern Time on                    , 2021, or if the meeting is adjourned or postponed, not less than 48 hours, excluding Saturdays, Sundays and statutory holidays, before the commencement of such adjourned or postponed meeting. If a shareholder who has submitted a proxy attends the meeting via the webcast and has accepted the terms and conditions when entering the meeting online, any votes cast by such shareholder on a ballot will be counted and the submitted proxy will be disregarded.

Without a username, proxyholders will not be able to vote at the meeting.

Q. What do I do if I receive more than one proxy or set of voting instructions?

A. This means that you own Acasti common shares that are registered under different accounts. For example, you may own some Acasti common shares directly as a registered shareholder and other Acasti common shares as a non-registered shareholder through an intermediary, or you may own Acasti common shares through more than one such organization. In these situations, you will receive multiple sets of proxy materials. It is necessary for you to complete and return all proxy cards and voting instruction forms in order to vote all of the Acasti common shares you own. Please make sure you return each proxy card or voting instruction form in the accompanying return envelope. You may also vote by internet, telephone, facsimile or email by following the instructions on your proxy materials.

Q. How can I make a shareholder proposal for the 2022 Annual General Meeting?

A. Shareholder proposals intended to be presented in proxy materials relating to Acasti’s 2022 annual meeting of shareholders must be received by Acasti on or before                    , 2022, unless the date of the meeting is

 

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changed by more than 30 calendar days from the date of the meeting (in which case proposals must be received a reasonable time before Acasti begins to print and mail its proxy materials), and must satisfy the requirements of the proxy rules promulgated by the SEC. For a proposal to be valid, it must comply with both the QBCA and the Exchange Act.

In order for a shareholder proposal to be eligible for inclusion in the proxy statement for Acasti’s 2022 annual meeting of shareholders under the QBCA, the proposal must be in writing, accompanied by the requisite declarations and signed by the submitter and qualified shareholders who at the time of signing are the registered or non-registered owners of Acasti common shares that, in the aggregate: (a) constitute at least 1% of the issued Acasti common shares; or (b) have a fair market value in excess of C$2,000. For the submitter or a qualified shareholder to be eligible to sign the proposal, that shareholder must have been the registered or non-registered owner of the Acasti common shares for an uninterrupted period of at least 6 months before the date the proposal is submitted.

In order for a shareholder proposal to be eligible for inclusion in the proxy statement for Acasti’s 2022 annual meeting of shareholder under the Exchange Act, the shareholder must submit the proposal in accordance with Rule 14a-8 of the Exchange Act, and the shareholder must have continuously held at least $2,000 in market value for at least 3 years, $15,000 in market value for at least 2 years, or $25,000 in market value for 1 year by the date the shareholder submits the proposal. Alternatively, if the shareholder continuously held at least $2,000 Acasti common shares for at least one year as of January 4, 2021, and has continuously maintained a minimum investment of at least $2,000 of Acasti common shares from January 4, 2021 through the date the proposal is submitted to Acasti, the shareholder will be eligible to submit a proposal for Acasti’s 2022 annual meeting of shareholders. In each case, the shareholder must continue to hold those Acasti common shares through the date of Acasti’s 2022 annual meeting of shareholders.

A shareholder wishing to nominate an individual to be a director, other than pursuant to a requisition of a meeting made pursuant to the QBCA or a shareholder proposal made pursuant to the QBCA and Exchange Act proxy access provisions described above, is required to comply with Acasti’s advance notice bylaw (the “Advance Notice Bylaw”). The Advance Notice Bylaw provides, inter alia, that proper written notice of any such director nomination (the “Nomination Notice”) for an annual general meeting of shareholders must be provided to the Secretary of Acasti not less than 30 days nor more than 65 days prior to the date of the annual general meeting of shareholders; provided, however, that if the annual general meeting of shareholders is to be held on a date that is less than 50 days after the date (the “Notice Date”) on which the first public announcement of the date of the annual general meeting was made, the Nomination Notice must be provided no later than the close of business on the 10^th day following the Notice Date. The foregoing is merely a summary of provisions contained in the Advance Notice Bylaw and is qualified by the full text of the Advance Notice Bylaw provisions. The full text is set out in the Advance Notice Bylaw, a copy of which is filed under Acasti’s profile at www.sedar.com or www.sec.gov.

For any other shareholder proposals to be presented at Acasti’s 2022 annual meeting of shareholders, Rule 14a-4(c) under the Exchange Act provides that if a proponent of a proposal fails to notify Acasti at least 45 days prior to the first anniversary of the date of first mailing of this proxy statement/prospectus (or any date specified in the Advance Notice Bylaw), then brokers or nominees will be allowed to use their discretionary voting authority with respect to the voting of proxies when the proposal is presented at the meeting, without any discussion of the matter in the proxy statement. With respect to Acasti’s 2022 annual meeting of shareholders, if Acasti is not provided notice of a shareholder proposal, which the shareholder has not previously sought to include in Acasti’s proxy statement for that meeting, by                    , 2022 (or any date specified in the Advance Notice Bylaw), brokers or nominees will be allowed to use their discretionary authority with respect to the voting of proxies.

 

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Q. What happens if I sell my Acasti common shares before the applicable special meeting?

A. The record date for the Acasti annual and special meeting is earlier than the date of the Acasti annual and special meeting and the date that the merger is expected to be completed. If you transfer your Acasti common shares after the Acasti record date but before the Acasti annual and special meeting, you will retain your right to vote at the Acasti annual and special meeting.

Q. What do I need to do now?

A. You should carefully read and consider the information contained in, and incorporated by reference into, this proxy statement/prospectus, including its Annexes. Once you have reviewed this proxy statement/prospectus, please authorize a proxyholder to vote your Acasti common shares as soon as possible, to ensure your shares are voted.

Q. Are Acasti shareholders or Grace stockholders entitled to dissenter or appraisal rights?

A. Neither Acasti shareholders nor Grace stockholders are entitled to appraisal or dissenter’s rights in connection with the merger or any of the other transactions described in this proxy statement/prospectus. See the section entitled “Appraisal and Dissenter’s Rights” beginning on page 211.

Q. What if amendments are made to the proposals or if other matters are brought before the meeting?

A. If there are any amendments or variations in any of the proposals shown in the proxy statement/prospectus, or any other matters which may properly come before the meeting, Acasti common shares will be voted by the appointed proxyholder as he or she in their sole discretion sees fit.

As of the date of this proxy statement/prospectus, the Acasti board is not aware of any such amendments, variations or other matters to come before the meeting. However, if any such changes that are not currently known to the Acasti board should properly come before the meeting, the Acasti common shares represented by your proxyholders will be voted in accordance with the best judgment of your proxyholders.

Q. Who will tabulate the votes?

A. Acasti currently expects that Computershare will tabulate the votes, and Acasti’s Corporate Secretary will be its inspector of elections for the meeting.

Q. When will voting results be disclosed?

A. Preliminary voting results will be announced at the meeting. Final voting results will be filed with the Canadian provincial securities regulatory authorities on SEDAR at www.sedar.com and will also be published in a Current Report on Form 8-K filed with the SEC on EDGAR at www.sec.gov within 4 business days of the meeting.

Q. Who may adjourn the meeting?

A. The meeting may be adjourned to any other time and any other place by the shareholders present or represented at the meeting and entitled to vote even when such shareholders do not constitute a quorum.

 

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Q. Who can help answer any other questions I might have?

A. Acasti shareholders who have questions about the merger, the matters to be voted on at the Acasti annual and special meeting, or how to submit a proxy or who desire additional copies of this proxy statement/prospectus or additional proxy cards should contact:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Banks and Brokers Call Collect: (212) 269-5550

All Others Call Toll-Free: (800) 884-4725

Email: ACST@dfking.com

 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote for the Acasti proposals. In addition, you should read and consider the risks associated with each of the businesses of Acasti and Grace because these risks also will affect the companies following the merger. These risks relating to Aacsti’s business can be found in Acasti’s latest annual report on Form 10-K which was filed with the SEC and the CSA and is incorporated by reference into this proxy statement/prospectus, and in the section entitled “Risk Factors—Risk Factors Relating to Grace’s Business”. You also should read and consider the other information in this proxy statement/prospectus, including the Annexes, and the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find Additional Information” beginning on page 214.

Risk Factors Relating to the Merger

The equity exchange ratio will not be adjusted in the event of any change in Acasti’s share price.

If the merger is completed, at the effective time of the merger, each issued and outstanding share of Grace common stock (after giving effect to the acceleration of the Grace restricted stock and the conversion of the Grace convertible promissory notes) will automatically be converted into the right to receive a number of Acasti common shares per share of Grace common stock equal to the equity exchange ratio set forth in the merger agreement such that, immediately following the consummation of the merger, existing Acasti shareholders are expected to own at least 55% and existing Grace stockholders are expected to own at most 45% of the outstanding capital stock of the combined company on a fully-diluted basis. The equity exchange ratio is subject to upward adjustment in favor of Acasti shareholders based on each company’s capitalization and net cash balance at the effective time of the merger, as specified in the merger agreement. For more information on the equity exchange ratio, see the section entitled “Merger Agreement—Equity Exchange Ratio” beginning on page 121. The equity exchange ratio will not be adjusted for changes in the market price of Acasti common shares. As a result, changes in the price of Acasti common shares prior to completion of the merger will affect the market value of the share consideration that Grace stockholders will receive in the merger. Changes in the Acasti common share price may result from a variety of factors (many of which are beyond Acasti’s control), including the following:

 

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changes in Acasti’s and Grace’s respective businesses, operations and prospects, or the market assessments thereof;

 

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market assessments of the likelihood that the merger will be completed; and

 

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general market and economic conditions and other factors generally affecting the price of Acasti common shares.

The price of Acasti common shares at the closing of the merger may vary from the price on the date the merger agreement was executed, the date of this proxy statement/prospectus and the date of the annual and special meeting of Acasti shareholders. As a result, the market value of the merger consideration will also vary. For example, based on the range of closing prices of Acasti common shares during the period from May 6, 2021, which was the last trading day before the public announcement of the execution of the merger agreement, through June 29, 2021, which was the last trading day before the date of this proxy statement/prospectus, the equity exchange ratio represented a market value ranging from a low of $2.47 to a high of $3.67 for each share of Grace common stock.

Because the merger will be completed after the date of the Acasti annual and special shareholders meeting and the Grace stockholder approval, you will not know, at the time of the Acasti annual and special shareholder meeting or the Grace stockholder approval, the market value of the Acasti common shares that Grace stockholders will receive upon completion of the merger.

If the price of Acasti common shares increases between the time of the Acasti annual and special meeting or the Grace stockholder approval and the time at which Acasti common shares are distributed to Grace

 

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stockholders following completion of the merger, Grace stockholders will receive Acasti common shares that have a market value that is greater than the market value of such shares at the time of the Acasti annual and special meeting or the Grace stockholder approval. Conversely, if the price of Acasti common shares decreases between the time of the Acasti annual and special meeting or Grace stockholder approval and the time at which Acasti common shares are distributed to Grace stockholders following completion of the merger, Grace stockholders will receive Acasti common shares that have a market value that is less than the market value of such shares at the time of the Acasti annual and special meeting or the Grace stockholder approval. Therefore, Grace stockholders and Acasti shareholders will not have certainty at the time of the Acasti annual and special meeting or the Grace stockholder approval of the market value of the consideration that will be paid to Grace stockholders upon completion of the merger.

Failure to complete the merger could negatively impact the share prices and the future business and financial results of Acasti and Grace.

If the merger is not completed, the ongoing businesses of Acasti and Grace may be adversely affected. Additionally, if the merger is not completed and the merger agreement is terminated, in certain circumstances, either Acasti or Grace may be required to pay to the other a termination fee of $1,000,000 and may be required to reimburse the other party’s expenses up to a maximum of $500,000. Even if a termination fee or expenses of the other party are not payable in connection with a termination of the merger agreement, Acasti and Grace have incurred significant transaction expenses in connection with the merger regardless of whether the merger is completed. The foregoing risks, or other risks arising in connection with the failure of the merger, including the diversion of management attention from conducting the respective businesses of Acasti and Grace and pursuing other opportunities during the pendency of the merger, may have an adverse effect on the business, operations and financial results of Acasti and Grace as well the price of Acasti common shares. In addition, either of Acasti or Grace could be subject to litigation related to any failure to consummate the merger transaction or any related action that could be brought to enforce a party’s obligations under the merger agreement.

The merger agreement contains provisions that could discourage a potential competing acquirer of either Acasti or Grace.

The merger agreement contains “no shop” provisions that, subject to limited exceptions, restrict Acasti’s and Grace’s ability to solicit, encourage, facilitate or discuss competing third party proposals to acquire shares or assets of Acasti or Grace. In specified circumstances, upon termination of the merger agreement, Acasti or Grace will be required to pay the termination fee to the other party. In the event that either Acasti or Grace receives an alternative acquisition proposal, the other party has the right to propose changes to the terms of the merger agreement before the Acasti or Grace board of directors may withdraw or qualify its recommendation with respect to the merger and related transactions.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Acasti or Grace from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances. Acasti’s and Grace’s right to match specified alternative acquisition proposals with respect to the other party could also discourage potential competing acquirers from considering or proposing that acquisition.

If the merger agreement is terminated and either Acasti or Grace determines to seek another transaction, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.

 

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The merger may be completed even though certain events occur prior to the closing that materially and adversely affect Acasti or Grace.

The merger agreement provides that either Acasti or Grace can refuse to complete the merger if there is a material adverse change affecting the other party prior to the closing. However, certain types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on Acasti or Grace, including, among others:

 

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changes, developments or conditions in or relating to general international, political, economic or financial or capital market conditions, or political, economic or financial or capital market conditions in any jurisdiction in which Acasti and Grace operate or carry on business;

 

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changes, developments or conditions resulting from any act of sabotage or terrorism or any outbreak of hostilities or declared or undeclared war, or any escalation or worsening of such acts of sabotage, terrorism, hostilities or war;

 

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any natural disaster;

 

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changes or developments in or relating to currency exchange or interest rates;

 

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changes or developments affecting the pharmaceutical industry in general;

 

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any change in applicable laws (other than orders against a party or a subsidiary thereof) or U.S. GAAP;

 

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except for purposes of representations regarding required approvals in connection with the merger and the absence of violations of law, the parties’ respective constating documents or material contracts of the parties or changes in permits held by the parties as a result of the consummation of the transactions contemplated by the merger agreement, the announcement of the execution of the merger agreement or the transactions contemplated thereby;

 

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any actions taken (or omitted to be taken) by Acasti or Grace upon the express written request of the other;

 

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any changes in the share price or trading volume of Acasti common shares or any failure of Grace to meet projections, guidance, milestones, forecasts or published financial or operating predictions or measures (although the facts and circumstances giving rise to any of the foregoing events or failures, unless expressly excluded in the merger agreement, may be taken into account in determining whether a material adverse effect has occurred);

 

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the COVID-19 pandemic or other epidemic or pandemic outbreaks, including any continuation or worsening thereof; or

 

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a reverse stock split consolidation of Acasti common shares.

If an adverse change occurs and Acasti and Grace still complete the merger, the business, operations or prospects of the combined company, or the market price of its common shares, may suffer. This in turn may reduce the value received by the shareholders of Acasti or the stockholders of Grace in connection with the merger.

If the conditions to the merger are not satisfied or waived, the merger may not occur. If the merger is consummated, it will result in substantial dilution to Acasti shareholders and may not deliver the anticipated benefits Acasti expects.

Even if the proposals referred to herein are approved by Acasti shareholders and Grace stockholders, specified other conditions must be satisfied or waived to complete the merger. These conditions are set forth in the merger agreement and described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger.” Acasti and Grace cannot assure you that all of the conditions will be satisfied or waived. Certain of the closing conditions are legally incapable of being waived. If the conditions are not satisfied or waived, the

 

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merger may not occur or will be delayed, and Acasti and Grace each may lose some or all of the intended benefits of the merger. If consummated, the merger will result in dilution to Acasti’s shareholders and could result in other restrictions that may affect its business. Further, if completed, the merger ultimately may not deliver the anticipated benefits or enhance shareholder value.

The directors and executive officers of Acasti and Grace have interests in the merger that may be different from, or in addition to, those of other Acasti shareholders and Grace stockholders, which could have influenced their decisions to support or approve the merger.

In considering whether to approve the proposals at the Acasti annual and special meeting, Acasti shareholders should recognize that the directors and executive officers of Acasti have interests in the merger that may be different from, or in addition to, the interests of Acasti shareholders generally. These interests may include, among others, continued service as a director and/or an executive officer of the combined company following the merger, retention payments and the potential ability to sell an increased number of common shares of the combined company in accordance with Rule 144 under the Securities Act.

These interests, among others, may influence the directors and executive officers of Acasti to support or approve the proposals at the Acasti annual and special meeting. Directors and executive officers also have rights to indemnification and directors’ and officers’ liability insurance that will survive completion of the merger.

The Acasti board of directors was aware of these interests at the time it approved the merger agreement and the transactions contemplated by the merger agreement, including the merger. These interests may cause Acasti’s directors and executive officers to view the merger proposal differently and more favorably than you may view it. See “The Merger—Interests of Acasti Directors and Executive Officers in the Merger” beginning on page 113.

In considering the recommendation of the Grace board of directors with respect to the merger, Grace stockholders should be aware that the directors and executive officers of Grace have interests in the merger that may be different from, or in addition to, the interests of Grace stockholders generally. These interests may include, among other things, continued services as a director and/or an executive officer of the combined company following the merger, the acceleration of restricted stock vesting and indemnification and directors’ and officers’ liability insurance that will survive the merger. These interests may cause Grace’s directors and executive officers to view the merger differently and more favorably than others may view it. The Grace board of directors was aware of these interests and considered them, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the Grace stockholders adopt the merger agreement. These interests are described in further detail in “The Merger—Interests of Grace Directors and Executive Officers in the Merger” beginning on page 114.

Acasti may be treated as converting to a U.S. domestic corporation for U.S. federal income tax purposes as a result of the merger, which could have adverse tax consequences for Acasti and its shareholders (including Acasti’s current shareholders).

Acasti, which is and will continue to be organized as a Canadian company at the time of the merger, generally would be classified as a non-U.S. corporation under general rules of U.S. federal income taxation. Section 7874 of the Code, however, contains rules that, in certain circumstances, may result in a non-U.S. corporation being taxed as a U.S. corporation for U.S. federal income tax purposes, as described more fully under “Certain United States Federal Income Tax Considerations—U.S. Tax Residence of Acasti as a Result of the Merger—Application of the Anti- Inversion Rules to the Merger” on page 144. If the merger were treated as an 80% Inversion of Acasti, Acasti would be treated as converting to a U.S. corporation for U.S. federal income tax purposes at the end of the day immediately preceding the date of the merger in a reorganization that is described in Section 368(a)(1)(F) of the Code. It is also possible that a future change in law could expand the scope of Section 7874 on a retroactive basis with the result that Acasti could be treated as a U.S. corporation for U.S.

 

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federal income tax purposes even if an 80% Inversion does not occur, as described under “Certain United States Federal Income Tax Considerations—U.S Tax Residence of Acasti as a Result of the Merger—Possible Changes to the Anti-Inversion Rules” on page 148.

If the merger were treated as an 80% Inversion of Acasti, the following adverse consequences would be applicable to Acasti, U.S. Holders and Existing U.S. Holders of Acasti common shares:

First, under Section 367(b) of the Code, the deemed conversion of Acasti to a U.S. corporation may be taxable to an Existing U.S. Holder of Acasti common shares, depending on such holder’s particular circumstances. More specifically, an Existing U.S. Holder of Acasti common shares that have an aggregate fair market value of $50,000 or more (but that owns less than 10% of the total combined voting power of all classes of shares of Acasti) as of the end of the day prior to the closing of the merger will be required to either (i) recognize gain (if any) but not loss on such Acasti common shares or (ii) elect to recognize as a dividend the “all earnings and profits amount” attributable to such shares. An Existing U.S. Holder of Acasti common shares that owns 10% or more of the total combined voting power of all classes of shares of Acasti as of the end of the day prior to the closing of the merger (a “10% U.S. Holder”) will be required to recognize as a dividend the “all earnings and profits amount” attributable to such shares. In general, all the earnings and profits amount attributable to a block of stock in a foreign corporation for this purpose is the ratably allocated portion of the foreign corporation’s earnings and profits generated during the period the shareholder held the block of stock. Accordingly, the “all earnings and profits amount” attributable to the Acasti common shares held by an Existing U.S. Holder of Acasti common shares should generally depend on Acasti’s accumulated earnings and profits (as determined under U.S. federal income tax principles) from the date that such shares were acquired by such U.S. Holder through the day before the merger. Acasti has not determined whether it will provide shareholders with information regarding Acasti’s earnings and profits in the event that the merger is treated as an 80% Inversion (or if Acasti is otherwise treated as converting to a U.S. corporation under Section 7874 of the Code). Importantly, if Acasti was classified as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes during any portion of the holding period of an Existing U.S. Holder of Acasti common shares in its Acasti common shares, such holder could be subject to adverse PFIC rules with respect to any gain on its Acasti common shares as if such holder had disposed of such shares in connection with the deemed conversion of Acasti to a U.S. corporation for U.S. federal income tax purposes (regardless of whether such holder is able to make an “all earnings and profits” election with respect to such shares). See “Certain United States Federal Income Tax Considerations—U.S Tax Residence of Acasti as a Result of the Merger—Tax Treatment of Existing U.S. Holders of Acasti Common Shares” on page 146.

Second, the U.S. federal income tax consequences of holding Acasti common shares after the merger could be adverse compared to the consequences if Acasti were not treated as a U.S. corporation for U.S. federal income tax purposes. See “Certain United States Federal Income Tax Considerations—U.S. Tax Residence of Acasti as a Result of the Merger—Tax Treatment of Acasti if the Merger Results in an 80% Inversion of Acasti” on page 145.

Finally, Acasti would generally be subject to U.S. federal income tax on its worldwide income, and any such U.S. federal income tax liability could have a material adverse effect on the results of Acasti’s operations.

See “Certain United States Federal Income Tax Considerations—U.S. Tax Residence of Acasti as a Result of the Merger” beginning on page 144.

The rules of Section 7874, Section 367(b) and the PFIC rules are complex and, in the case of Section 367(b) and the PFIC rules, are subject to the particular circumstances of a holder. Existing U.S. Holders of Acasti common shares should consult their tax advisors with respect to the U.S. federal income tax consequences that could apply to them if, under the anti-inversion rules of Section 7874 of the Code, Acasti were treated as converting to a U.S. corporation for U.S. federal income tax purposes as a result of the merger.

Acasti’s actual financial performance may differ materially from the pro forma financial information included in this proxy statement/prospectus.

The pro forma financial information contained in this proxy statement/prospectus is presented for illustrative purposes only and may not be an indication of what Acasti’s financial condition or results of

 

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operations will in fact be after giving effect to the merger and related transactions. The pro forma financial information has been derived from the audited and unaudited historical financial statements of Acasti and Grace and certain adjustments and assumptions have been made regarding the companies after giving effect to the merger and related transactions. Differences between preliminary estimates used in preparing pro forma financial information and the final acquisition accounting will occur and could have a material impact on the financial results of Acasti indicated by the pro forma financial information and Acasti’s financial condition and future results of operations.

In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect Acasti’s financial condition or results of operations following the completion of the merger and related transactions. In particular, the pro forma financial information does not take into account the consequences that would result if Acasti were to be treated as a U.S. corporation for U.S. federal income tax purposes under the inversion rules discussed above. See “Certain United States Federal Income Tax Considerations—U.S Tax Residence of Acasti as a Result of the Merger—Application of the Anti-Inversion Rules to the Merger” beginning on page 144. Any potential decline in Acasti’s financial condition or results of operations may cause significant volatility in the price of Acasti common shares.

Acasti may not be able to use its or Grace’s net operating loss carryforwards to offset future taxable income for Canadian or U.S. federal income tax purposes.

At March 31, 2021, Grace had net operating loss carryforwards (“NOLs”) for U.S. federal income tax purposes of approximately $9.1 million, which begin to expire in 2038.

It is currently expected that Grace will undergo an “ownership change” within the meaning of Section 382 of the Code as a result of the merger, and therefore Grace may become subject to an annual limit on the amount of NOLs that may be used to offset future taxable income of Grace for U.S. federal income tax purposes. Such annual limit is generally equal to the product of (i) the total value of the loss company’s (in this case, Grace’s) outstanding equity immediately prior to an “ownership change” (subject to certain adjustments); and (ii) the applicable federal long term tax exempt interest rate for the month that includes the “ownership change”.

At March 31, 2021, Acasti had NOLs for Canadian federal income tax purposes of approximately $108.3 million, which expire at various dates through 2041. The extent to which Acasti can utilize any or all of Acasti’s NOLs will depend on many factors, including the jurisdiction applicable to any future taxable revenue of Acasti.

The ability of Acasti to use NOLs will also depend on the amount of taxable income generated in future periods. The NOLs may expire before Acasti can generate sufficient taxable income to use the NOLs.

The combined company may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business, and insurance coverage may not be sufficient to cover all costs and damages.

In the past, securities class action or shareholder derivative litigation often follows certain significant business transactions, such as the sale of a business division or announcement of a merger. The combined company may become involved in this type of litigation in the future. Litigation is often expensive and diverts management’s attention and resources, which could adversely affect the combined company’s business.

Acasti has received notice from NASDAQ of non-compliance with the NASDAQ Listing Rules.

On May 11, 2021, Acasti received written notice from the NASDAQ Listing Qualifications Department notifying Acasti that based upon Acasti’s non-compliance with the $1.00 bid price requirement set forth in NASDAQ Listing Rule 5550(a) as of May 10, 2021, Acasti common shares were subject to delisting unless Acasti timely requested a hearing before the NASDAQ Hearings Panel.

 

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Acasti requested a hearing, which stayed any further action by NASDAQ pending the conclusion of the hearing process.

At the hearing, on June 17, 2021, Acasti presented a detailed plan of compliance for the NASDAQ Listing Panel’s consideration, which included Acasti’s commitment to implement the reverse stock split to evidence compliance with NASDAQ’s listing rules. Acasti expects to receive the NASDAQ Listing Panel’s decision within 30 days from the hearing date. There can be no assurance that NASDAQ will accept Acasti’s plan or that Acasti will be able to regain compliance with NASDAQ’s listing rules or maintain compliance with any other NASDAQ requirement in the future. The approval by NASDAQ of (i) the continued listing of Acasti’s common shares on NASDAQ following the effective time of the merger and (ii) the listing of the Acasti common shares being issued to Grace stockholders in connection with the merger on NASDAQ at or prior to the effective time are conditions to the closing of the merger.

Risks Related to the Proposed Reverse Stock Split

If implemented to regain compliance with NASDAQ’s minimum bid price rule, Acasti’s proposed reverse stock split may not increase the combined company’s share price over the long-term.

One of the purposes of Acasti’s proposed reverse stock split is to increase the per share market price of Acasti’s common shares, if necessary to regain compliance with NASDAQ’s minimum bid price rule. It cannot be assured, however, that the proposed reverse stock split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding Acasti common shares will proportionally increase the market price of Acasti common shares, it cannot be assured that the proposed reverse stock split, if implemented, will increase the market price of Acasti common shares commensurately with the proposed reverse stock split ratio, or result in any permanent or sustained increase in the market price of Acasti common shares, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions and prospects for future success. While the share price of the combined company might meet the continued listing requirements for the NASDAQ Capital Market initially, it cannot be assured that it will continue to do so.

Acasti’s proposed reverse stock split may decrease the liquidity of the combined company’s common shares.

Although the Acasti board of directors believes that the anticipated increase in the market price of the combined company’s common shares resulting from the proposed reverse stock split, if implemented, could encourage interest in its common shares from institutional investors and possibly promote greater liquidity for Acasti’s shareholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the proposed reverse stock split. A reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Acasti common shares.

If implemented to regain compliance with NASDAQ’s minimum bid price rule, Acasti’s proposed reverse stock split may lead to a decrease in the combined company’s overall market capitalization.

Should the market price of the combined company’s common shares decline after the proposed reverse stock split, if implemented, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the proposed reverse stock split. A reverse stock split may be viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the proposed reverse stock split ratio, then the value of the combined company, as measured by its share capitalization, will be reduced. In some cases, the per-share price of companies that have effected reverse stock splits subsequently declines back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Acasti common shares will remain the same if the proposed reverse stock split is effected, or that the proposed reverse stock split will not have an adverse effect on the price of Acasti common shares due to the reduced number of shares outstanding after the proposed reverse stock split.

 

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Risk Factors Relating to the Acasti Common Shares Following the Merger

A failure to successfully integrate the businesses of Acasti and Grace in the expected timeframe would adversely affect the future results of Acasti following the merger.

The ability of Acasti and Grace following the merger to successfully integrate the operations of Acasti and Grace will depend, in part, on the ability of the companies to realize the anticipated benefits from the merger. If the companies are not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected, and the value of Acasti common shares may be adversely affected. In addition, the integration of Acasti’s and Grace’s respective businesses will be a time consuming and expensive process. Proper planning and effective and timely implementation will be critical to avoid any significant disruption to the companies’ operations. It is possible that the integration process could result in the loss of key employees, the disruption of its ongoing business or the identification of inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ abilities to maintain relationships with key opinion leaders, suppliers, manufacturers, creditors, lessors, clinical trial investigators or managers and other business partners or to achieve the anticipated benefits of the merger. Delays encountered in the integration process could have a material adverse effect on the companies’ revenue prospects, expenses, operating results and financial condition, including the value of Acasti’s common shares.

Specifically, risks in integrating Acasti’s and Grace’s operations in order to realize the anticipated benefits of the merger include, among other factors, the companies’ potential inability to effectively:

 

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coordinate standards, compliance programs, controls, procedures and policies, business cultures and compensation structures;

 

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integrate and harmonize financial reporting and information technology systems of the two companies;

 

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coordinate research and drug candidate development efforts to effectuate their product capabilities;

 

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compete against companies serving the market opportunities expected to be available to the combined company following the merger;

 

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manage inefficiencies associated with integrating the operations of the companies;

 

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identify and eliminate redundant or underperforming personnel, operations and assets;

 

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manage the diversion of management’s attention from business matters to integration issues;

 

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control additional costs and expenses in connection with, and as a result of, the merger;

 

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conduct successful clinical development programs for their respective strategic product candidates and products and achieve regulatory approval for product candidates in major geographic areas;

 

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define and develop successful commercial strategies;

 

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commercialize their strategic products at commercially attractive margins and generate revenues in line with the companies’ expectations; and

 

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raise capital through equity or debt financing on attractive terms to support the development and commercialization of their product candidates.

In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. If Acasti is not able to adequately address these challenges, it may be unable to successfully integrate the operations of the business of Grace, or to realize the anticipated benefits. The anticipated benefits assume a successful integration and are based on projections, which are inherently uncertain. Even if integration is successful, anticipated benefits may not be as expected.

 

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Acasti’s future results will suffer if it does not effectively manage its expanded operations.

As a result of the merger, Acasti will become a larger company than either of Acasti or Grace prior to the merger, and Acasti’s business will become more complex. There can be no assurance that Acasti will effectively manage the increased complexity without experiencing operating inefficiencies or control deficiencies. Significant management time and effort is required to effectively manage the increased complexity of the larger organization and Acasti’s failure to successfully do so could have a material adverse effect on its business, financial condition, results of operations and growth prospects. In addition, as a result of the merger, the companies’ financial statements and results of operations in prior years may not provide meaningful guidance to form an assessment of the prospects or potential success of Acasti’s future business operations.

The pendency of the merger could have an adverse effect on the trading price of Acasti’s common shares and Acasti’s business, financial condition, results of operations or business prospects.

While there have been no significant adverse effects to date, the pendency of the merger could disrupt Acasti’s businesses, including:

 

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the attention of Acasti’s management may be directed toward the closing of the merger and related matters and may be diverted from the day-to-day business operations; and

 

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third parties may seek to terminate or renegotiate their relationships with Acasti as a result of the merger, whether pursuant to the terms of their existing agreements with Acasti or otherwise.

Should they occur, any of these matters could adversely affect the trading price of Acasti’s common shares or harm Acasti’s financial condition, results of operations or business prospects.

The market price of Acasti’s common shares after the merger may be affected by factors different from those currently affecting Acasti common shares and may decline as a result of the merger.

Upon completion of the merger, holders of Grace common stock will become holders of Acasti’s common shares. The business of Grace differs from that of Acasti in important respects and, accordingly, the results of operations of Acasti and the market price of Acasti’s common shares following the merger may be affected by factors different from those currently affecting the independent results of operations of Acasti and Grace.

Additionally, the market price of Acasti’s common shares following the merger may decline as a result of the merger for a number of reasons, including if:

 

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investors react negatively to the prospects of the combined company’s product candidates, business and financial condition following the merger;

 

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the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

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the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.

Acasti and Grace have incurred and expect to continue to incur substantial expenses related to the merger transaction and integration of the companies.

Both Acasti and Grace have incurred significant expenses in connection with the drafting and negotiation of the merger agreement and the documentation of transactions contemplated thereby. Upon closing, there are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, marketing, billing, payroll, research and development, human resources and benefits. In addition, the ongoing operation of locations in Laval, Québec and East Brunswick, New Jersey could result in inefficiencies, creating additional expenses for the combined company. While Acasti

 

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and Grace have assumed that a certain level of expenses will be incurred, there are many factors beyond their control that could affect the total amount or timing of transaction and integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses likely will result in the companies’ taking significant charges against consolidated earnings following the completion of the merger, and the amount and timing of such charges are uncertain at present.

Grace, Acasti and, subsequently the combined company, must continue to retain, motivate and recruit executives and other key employees, which may be difficult in light of the uncertainty regarding the merger, and failure to do so could negatively affect the companies.

For the merger to be successful, during the period before the merger is completed, both Acasti and Grace must continue to retain, recruit and motivate executives and other key employees. Acasti also must be successful at retaining, recruiting and motivating key employees following the completion of the merger. Experienced employees in the biopharmaceutical and biotechnology industries are in high demand and competition for their talents can be intense. Employees of both Acasti and Grace may experience uncertainty about their future roles with their respective company until, or even after, strategies with regard to Acasti are announced or executed following the merger. These potential distractions of the merger may adversely affect the ability of Grace or Acasti to attract, motivate and retain executives and other key employees and keep them focused on applicable strategies and goals. A failure by Grace or Acasti to retain and motivate executives and other key employees during the period prior to or after the completion of the merger could have an adverse impact on the business of Grace or Acasti.

Acasti may be treated as a passive foreign investment corporation for U.S. federal income tax purposes.

Acasti has not yet determined whether it will be a PFIC for its taxable year that includes the merger or the likelihood that it will be a PFIC in future taxable years, but Acasti believes that it may not be classified as a PFIC for the current taxable year or future taxable years. However, the determination PFIC status of a non-U.S. corporation is fundamentally factual in nature, depends on the application of complex U.S. federal income tax rules (which are subject to differing interpretations), generally cannot be determined until the close of the taxable year in question and is determined annually. Accordingly, there can be no assurance that Acasti will not be a PFIC in its current taxable year or subsequent years. The PFIC rules are complex, and each U.S. Holder should consult its tax advisor regarding the application of the PFIC rules to Acasti as well as the potential impact of the PFIC rules on such holder if Acasti were determined to be a PFIC.

The rules governing PFICs can have adverse tax effects on U.S. Holders, which effects may be mitigated by making certain elections for U.S. federal income tax purposes, which elections may or may not be available. If Acasti is a PFIC in any year, a U.S. Holder of Acasti common shares in such year will be required to file an annual information return with the IRS on IRS Form 8621 regarding distributions received on such common shares, any gain realized on disposition of such common shares and any other information required by such form. Additionally, if Acasti is classified as a PFIC in any taxable year with respect to which a U.S. Holder owns Acasti common shares, Acasti generally will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding taxable years, regardless of whether Acasti continues to meet the tests described above, unless the U.S. Holder makes a “deemed sale election.” See “Certain United States Federal Income Tax Considerations— U.S. Federal Income Tax Treatment of the Merger to U.S. Holders—Consequences of ownership and disposition of Acasti common shares—Passive Foreign Investment Company Rules” beginning on page 152.

Risk Factors Relating to Acasti’s Business

Risk factors relating to Acasti’s business are incorporated by reference herein to the risk factors described in Acasti’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

 

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Risk Factors Relating to Grace’s Business

In the below risk factors related to Grace’s business, references to “we,” “us,” “our” or the “Company” refer to Grace Therapeutics Inc.

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the principal members of our executive team. Any of our executive officers could leave our employment at any time, as all of our employees are “at will” employees. Recruiting and retaining other qualified employees for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical companies for individuals with similar skill sets. In addition, failure to succeed in clinical studies may make it more challenging to recruit and retain qualified personnel. The inability to recruit key executives or the loss of the services of any executive or key employee might impede the progress of our development and commercialization objectives.

If we fail to successfully develop, identify and acquire or in-license additional products or product candidates, we may have limited growth opportunities.

The process of proposing, negotiating and implementing the acquisition or in-license of a product or product candidate is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for these products or product candidates. We have limited resources to identify and execute acquisition or in-licensing transactions. Even if we acquire or in-license additional products or product candidates, we have limited resources to integrate the acquired or licensed assets into our current infrastructure. In addition, we may devote resources to potential acquisition or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts after expenditure of considerable time and resources. We may not be able to acquire the rights to additional products or product candidates on terms that we find acceptable, or at all.

Future acquisition and in-licensing transactions may entail numerous operational and financial risks including:

 

•

exposure to unknown liabilities;

 

•

disruption of our business and diversion of our management’s time and attention to the development of these products or product candidates;

 

•

incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions or in-licensing transactions; and

 

•

high acquisition and integration costs.

Product candidates that we acquire or in-license will likely require additional development efforts prior to commercial sale, including product development, extensive clinical testing and approval by the FDA and other applicable regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe or effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products or product candidates that we acquire or in-license will be manufactured profitably or achieve market acceptance.

 

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We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations and our ability to compete.

As our company matures, we expect to expand our employee base to increase our managerial, scientific and engineering, operational, sales, marketing, financial and other resources and to hire more consultants and contractors. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our existing or future product candidates. Our future financial performance and our ability to sell and commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage any future growth.

We face potential product liability, and, if claims are brought against us, we may incur substantial liability.

The use of our product candidates in clinical trials (if any), and the sale of any product candidates for which we obtain marketing approval, exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

•

impairment of our business reputation;

 

•

withdrawal of clinical study participants;

 

•

costs due to related litigation;

 

•

distraction of management’s attention from our primary business;

 

•

substantial monetary awards to patients or other claimants;

 

•

the inability to commercialize our product candidates.

Our current product liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

Despite the implementation of security measures, our internal computer systems, and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our product development and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of product development or clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our development programs and the development of our product candidates could be delayed.

 

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Risks Related To Development, Testing and Commercialization of Our Products

Even if our product candidates receive regulatory approval in the United States, we may never obtain regulatory approval or successfully commercialize our products outside of the United States.

Our business plan is highly dependent upon our ability to market and commercialize our lead products, GTX-104, GTX-102 and GTX-101. The failure to do so would have a material adverse effect on our ability to execute on our business plan and generate revenue.

We are subject to uncertainty relating to healthcare reform measures and reimbursement policies which, if not favorable to our product candidates, could hinder or prevent our product candidates’ commercial success.

Our ability to commercialize our product candidates successfully will depend in part on the extent to which governmental authorities, private health insurers and other third-party payors establish appropriate coverage and reimbursement levels for our product candidates and related treatments. As a threshold for coverage and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA. Third-party payors are increasingly imposing additional requirements and restrictions on coverage, and limiting reimbursement levels for medical products. These restrictions and limitations influence the purchase of healthcare services and products. The cost containment measures that healthcare payors and providers are instituting and the effect of any healthcare reform could significantly reduce our revenues from the sale of any approved product. We cannot provide any assurances that we will be able to obtain third-party coverage or reimbursement for our product candidates in whole or in part.

In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future revenues and profitability and the future revenues and profitability of our potential customers. Under the prescription drug benefit, Medicare beneficiaries can obtain prescription drug coverage from private sector plans that are permitted to limit the number of prescription drugs that are covered in each therapeutic category and class on their formularies. If our products are not widely included on the formularies of these plans, our ability to market our products to the Medicare population could be harmed.

There also have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare costs to contain or reduce costs of healthcare may adversely affect one or more of the following:

 

•

our ability to set a price that we desire for our products;

 

•

our ability to generate revenues and achieve profitability;

 

•

the future revenues of our potential customers, suppliers and collaborators; and

 

•

the availability of capital.

This could harm our ability to market our products and generate revenues. It is also possible that other proposals having a similar effect will be adopted.

Our commercial success depends upon attaining significant market acceptance of our products and product candidates, if approved, among physicians, nurses, pharmacists, patients and the medical community.

Even if we obtain regulatory approval for our product candidates, our product candidates may not gain market acceptance among physicians, nurses, pharmacists, patients, the medical community or third party payors, which is critical to commercial success. Market acceptance of our products and any product candidate for which we receive approval depends on a number of factors, including:

 

•

the timing of market introduction of the product candidate as well as competitive products;

 

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the clinical indications for which the product candidate is approved;

 

•

the convenience and ease of administration to patients of the product candidate;

 

•

the potential and perceived advantages of such product candidate over alternative treatments;

 

•

the cost of treatment in relation to alternative treatments, including any similar generic treatments;

 

•

the availability of coverage and adequate reimbursement and pricing by third party payors and government authorities;

 

•

relative convenience and ease of administration;

 

•

any negative publicity related to our or our competitors’ products that include the same active ingredient;

 

•

the prevalence and severity of adverse side effects, including limitations or warnings contained in a product’s FDA-approved labeling; and

 

•

the effectiveness of sales and marketing efforts.

If our products or product candidates, if approved, fail to achieve an adequate level of acceptance by physicians, nurses, pharmacists, patients and the medical community, we will be unable to generate significant revenues, and we may not become or remain profitable.

Guidelines and recommendations published by government agencies can reduce the use of our product candidates and negatively impact our ability to gain market acceptance and market share.

Government agencies promulgate regulations and guidelines applicable to certain drug classes which may include our products and product candidates that we are developing. Recommendations of government agencies may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Regulations or guidelines suggesting the reduced use of certain drug classes which may include our products and product candidates that we are developing or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our product candidates or negatively impact our ability to gain market acceptance and market share.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.

Although we intend to establish a small, focused, specialty sales and marketing organization to promote GTX104 and GTX102 if approved for marketing in the United States, we currently have no such organization and the cost of establishing and maintaining such an organization may exceed the benefit of doing so. Given the size of its potential market, we anticipate that in order to commercialize GTX 101, we would seek to enter into a strategic partnership with a larger marketing partner, if GTX 101 is approved by the FDA for marketing and we may not be successful in doing so. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If any of our product candidates are approved for commercialization, we may enter into agreements with third parties to market these products outside the United States. We expect that we will be subject to additional risks related to entering into international business relationships, including:

 

•

different regulatory requirements for drug approvals in foreign countries;

 

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•

reduced protection for intellectual property rights;

 

•

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

•

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

•

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

•

foreign taxes, including withholding of payroll taxes;

 

•

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

•

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

•

ability to secure third party marketing and selling agreements outside of the United States;

 

•

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

•

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

If we are unable to differentiate our product candidates from branded reference drugs or existing generic therapies for similar treatments, or if the FDA or other applicable regulatory authorities approve generic products that compete with any of our product candidates, the ability to successfully commercialize our product candidates would be adversely affected.

Although we believe that our product candidates will be clinically differentiated from branded reference drugs and their generic counterparts, if any, it is possible that such differentiation will not impact our market position. If we are unable to achieve significant differentiation for our product candidates against other drugs, the opportunity for our product candidates to achieve premium pricing and be commercialized successfully would be adversely affected.

In addition to existing branded reference drugs and the related generic products, the FDA or other applicable regulatory authorities may approve generic products that compete directly with our product candidates, if approved. Once an NDA, including a 505(b)(2) application, is approved, the product covered thereby becomes a “listed drug” which can, in turn, be cited by potential competitors in support of approval of an ANDA. The FDCA, FDA regulations and other applicable regulations and policies provide incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA for generic substitutes. These manufacturers might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labeling as our product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent as our product candidate. These generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly less costly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product is typically lost to the generic product. Accordingly, competition from generic equivalents of our product candidates would materially adversely impact our ability to successfully commercialize our product candidates.

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

The biopharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We expect to have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions.

 

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Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. If our competitors market products that are more effective, safer or less expensive than our product candidates, if any, or that reach the market sooner than our product candidates, if any, we may enter the market too late in the cycle and may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.

We could incur substantial costs and disruption to our business and delays in the launch of our product candidates if our competitors and/or collaborators bring legal actions against us, which could harm our business and operating results.

We cannot predict whether our competitors or potential competitors, some of whom we collaborate with, may bring legal actions against us based on our research, development and commercialization activities, as well as any product candidates or products resulting from these activities, claiming, among other things, infringement of their intellectual property rights, breach of contract or other legal theories. If we are forced to defend any such lawsuits, whether they are with or without merit or are ultimately determined in our favor, we may face costly litigation and diversion of technical and management personnel. These lawsuits could hinder our ability to enter the market early with our product candidates and thereby hinder our ability to influence usage patterns when fewer, if any, of our potential competitors have entered such market, which could adversely impact our potential revenue from such product candidates. Some of our competitors have substantially greater resources than we do and could be able to sustain the cost of litigation to a greater extent and for longer periods of time than we could. Furthermore, an adverse outcome of a dispute may require us: to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s patent or other intellectual property rights; to cease making, licensing or using products that are alleged to incorporate or make use of the intellectual property of others; to expend additional development resources to reformulate our products or prevent us from marketing a certain drug; and to enter into potentially unfavorable royalty or license agreements in order to obtain the rights to use necessary technologies. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all.

The COVID-19 pandemic, or a similar pandemic, epidemic, or outbreak of an infectious disease, may materially and adversely affect our business and our financial results and could cause a disruption to the development of our product candidates.

Public health crises such as pandemics or similar outbreaks could adversely impact our business. The coronavirus pandemic is evolving, and has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. Any negative impact COVID-19 has to patient enrollment or treatment or the execution of our product candidates could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results.

Additionally, timely enrollment in planned clinical trials is dependent upon clinical trial sites which could be adversely affected by global health matters, such as pandemics. We plan to conduct clinical trials for our product candidates in geographies which are currently being affected by the COVID-19 pandemic. Some factors from the COVID-19 pandemic that will delay or otherwise adversely affect enrollment in the clinical trials of our product candidates, as well as our business generally, include:

 

•

the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our prospective clinical trials;

 

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•

limitations on travel that could interrupt key trial and business activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry permissions, a loss of face-to-face meetings and other interactions with potential partners, any of which could delay or adversely impact the conduct or progress of our prospective clinical trials;

 

•

the potential negative affect on the operations of our third-party manufacturers;

 

•

interruption in global shipping affecting the transport of clinical trial materials, such as patient samples, investigational drug product and conditioning drugs and other supplies used in our prospective clinical trials;

 

•

disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments;

 

•

operations, staffing shortages, travel limitations or mass transit disruptions, any of which could adversely impact our business operations or delay necessary interactions with local regulators, ethics committees and other important agencies and contractors;

 

•

changes in local regulations as part of a response to the COVID-19 pandemic, which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue such clinical trials altogether; and

 

•

interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines.

These factors arising from COVID-19 could worsen in countries that are already afflicted with COVID-19 or could continue to spread to additional countries. Any of these factors, and other factors related to any such disruptions that are unforeseen, could have a material adverse effect on our business and our results of operation and financial condition. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the United States and other economies, which could impact our ability to raise the necessary capital needed to develop and commercialize our programs and product candidates.

Although we intend to seek to utilize various regulatory mechanisms which may accelerate drug development and approval for some of our product candidates, there is no guarantee that the FDA will permit us to do so or that these mechanisms would lead to accelerated drug development or approval.

Orphan drug designation from the FDA does not convey any advantage or shorten the duration of the regulatory review and approval process.

We are subject to numerous complex regulatory requirements and failure to comply with these regulations, or the cost of compliance with these regulations, may harm our business.

The research, testing, development, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, marketing, distribution, possession and use of our product candidates, among other things, are subject to regulation by numerous governmental authorities in the United States and elsewhere. The FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, and implementing regulations. Noncompliance with any applicable regulatory requirements can result in refusal of the governmental authority to approve products for marketing, criminal prosecution and fines, warning letters, product recalls or seizure of products, total or partial suspension of production, prohibitions or limitations on the commercial sale of products or refusal to allow the entering into of federal and state supply contracts. FDA and comparable governmental authorities have the authority to withdraw product approvals that have been

 

49

previously granted. In addition, the regulatory requirements relating to our products may change from time to time and it is impossible to predict what the impact of any such changes may be.

We are heavily dependent on the success of our lead product candidates

Our business and future success are substantially dependent on our ability to successfully and timely develop, obtain regulatory approval for, and commercialize our lead product candidate GTX-104. Any delay or setback in the development of any of these product candidates could adversely affect our business. Our planned development, approval and commercialization of these product candidates may fail to be completed in a timely manner or at all. Our other product candidates, GTX-102 and GTX-101, are at an earlier development stage and it will require additional time and resources to develop and seek regulatory approval for such product candidates and, if we are successful, to proceed with commercialization. We cannot provide assurance that we will be able to obtain approval for any of our product candidates from the FDA or any foreign regulatory authority or that we will obtain such approval in a timely manner.

If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful.

We intend to seek FDA approval through the 505(b)(2) regulatory pathway for each of our product candidates described in this prospectus. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug and Cosmetic Act, or FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant.

If the FDA does not allow us to pursue the 505(b)(2) regulatory pathway for our product candidates as anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for our product candidates would likely substantially increase. Moreover, the inability to pursue the 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the 505(b)(2) regulatory pathway for a product candidate, we cannot assure you that we will receive the requisite or timely approvals for commercialization of such product candidate.

In addition, we expect that our competitors may file citizens’ petitions with the FDA in an attempt to persuade the FDA that our product candidates, or the clinical studies that support their approval, contain deficiencies. Such actions by our competitors could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Failure can occur at any stage of clinical development.

Clinical testing, even when utilizing the 505(b)(2) pathway, is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process, even with active ingredients that have previously been approved by the FDA as safe and effective. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later stage clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.

 

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Our product candidates are in various stages of development, from early stage to late stage. Clinical trial failures may occur at any stage and may result from a multitude of factors both within and outside our control, including flaws in formulation, adverse safety or efficacy profile and flaws in trial design, among others. If the trials result in negative or inconclusive results, we or our collaborators may decide, or regulators may require us, to discontinue trials of the product candidates or conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. For these reasons, our future clinical trials may not be successful.

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and could jeopardize or delay our ability to obtain regulatory approval and commence product sales. We may also find it difficult to enroll patients in our clinical trials, which could delay or prevent development of our product candidates.

We may experience delays in clinical trials of our product candidates. Our planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of patients or be completed on schedule, if at all. Our clinical trials can be delayed for a variety of reasons, including:

 

•

inability to raise or delays in raising funding necessary to initiate or continue a trial;

 

•

delays in obtaining regulatory approval to commence a trial;

 

•

delays in reaching agreement with the FDA on final trial design;

 

•

imposition of a clinical hold for safety reasons or following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

 

•

delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, or failure by such CROs to carry out the clinical trial at each site in accordance with the terms of our agreements with them;

 

•

delays in obtaining required institutional review board, or IRB, approval at each site;

 

•

difficulties or delays in having patients complete participation in a trial or return for post-treatment follow-up;

 

•

clinical sites electing to terminate their participation in one of our clinical trials, which would likely have a detrimental effect on subject enrollment;

 

•

time required to add new clinical sites; or

 

•

delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

If initiation or completion of our planned clinical trials is delayed for any of the above reasons or other reasons, our development costs may increase, our regulatory approval process could be delayed and our ability to commercialize and commence sales of our product candidates could be materially harmed, which could have a material adverse effect on our business.

In addition, identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing our product candidates as well as completion of required follow-up periods. We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics or to complete our clinical trials in a timely manner. Patient enrollment is and completion of the trials is affected by factors including:

 

•

severity of the disease under investigation;

 

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•

design of the trial protocol;

 

•

size of the patient population;

 

•

eligibility criteria for the trial in question;

 

•

perceived risks and benefits of the product candidate under trial;

 

•

proximity and availability of clinical trial sites for prospective patients;

 

•

availability of competing therapies and clinical trials;

 

•

efforts to facilitate timely enrollment in clinical trials;

 

•

patient referral practices of physicians; and

 

•

ability to monitor patients adequately during and after treatment.

Our products or product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance, or result in significant negative consequences following marketing approval, if any.

As with many pharmaceutical and biological products, treatment with our products or product candidates may produce undesirable side effects or adverse reactions or events. Although the nature of our products or product candidates as containing active ingredients that have already been approved means that the side effects arising from the use of the active ingredient or class of drug in our products or product candidates is generally known, our products or product candidates may still cause undesirable side effects, which may harm our business, financial condition and prospects significantly.

Further, if any of our products cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result, including:

 

•

regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution;

 

•

the FDA may require implementation of a Risk Evaluation and Mitigation Strategy, or REMS;

 

•

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;

 

•

we may be required to change the way the product is administered or conduct additional clinical studies;

 

•

we could be sued and held liable for harm caused to patients; or

 

•

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or product candidate and could substantially increase the costs of commercializing our products and product candidates.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product

 

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candidate’s clinical development and may vary among jurisdictions. It is possible that none of our existing product candidates or any product candidates we may seek to develop will ever obtain regulatory approval in the United States or other jurisdictions.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

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the FDA or comparable foreign regulatory authorities may disagree that our changes to branded reference drugs meet the criteria for the 505(b)(2) regulatory pathway or foreign regulatory pathways;

 

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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective or comparable to its branded reference product for its proposed indication;

 

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the results of any clinical trials we conduct may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and

 

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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change significantly in a manner rendering our clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would harm our business, results of operations and prospects significantly.

We have limited experience using the 505(b)(2) regulatory pathway to submit an NDA or any similar drug approval filing to the FDA, and we cannot be certain that any of our product candidates will receive regulatory approval. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenue will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval. If the markets for patients or indications that we are targeting are not as significant as we estimate, we may not generate significant revenue from sales of such products, if approved.

An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuit that would delay or prevent the review or approval of our product candidate. The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

Our product candidates will be submitted to the FDA for approval under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies that were not conducted by, or for, the applicant and on which the applicant has not obtained a right of reference. The 505(b)(2) application would enable us to reference published literature and/or the FDA’s previous findings of safety and effectiveness for the branded reference drug. For NDAs submitted under Section 505(b)(2) of the FDCA, the patent certification and related provisions of the Hatch-Waxman Act apply. In accordance with the Hatch-Waxman Act, such NDAs may be required to include certifications, known as paragraph IV certifications, that certify that any patents listed in the Patent and Exclusivity Information Addendum of the FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book, with respect to any product referenced in the 505(b)(2) application, are

 

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invalid, unenforceable or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)(2) NDA.

Companies that produce branded reference drugs routinely bring litigation against abbreviated new drug application, or ANDA, or 505(b)(2) applicants that seek regulatory approval to manufacture and market generic and reformulated forms of their branded products. These companies often allege patent infringement or other violations of intellectual property rights as the basis for filing suit against an ANDA or 505(b)(2) applicant. Likewise, patent holders may bring patent infringement suits against companies that are currently marketing and selling their approved generic or reformulated products. When a drug, such as GTX-104 has orphan drug exclusivity, the FDA may not approve any other application to market the same drug for the same indication for a period of up to seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. In the United States, pediatric exclusivity adds six months to any existing exclusivity period.

Our business is subject to extensive regulatory requirements and our approved product and product candidates that obtain regulatory approval will be subject to ongoing and continued regulatory review, which may result in significant expense and limit our ability to commercialize such products.

Even after a product is approved, we will remain subject to ongoing FDA and other regulatory requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, import, export, record-keeping and reporting of safety and other post-market information. The holder of an approved NDA is obligated to monitor and report adverse events, or AEs, and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA laws and regulations and are subject to FDA review, in addition to other potentially applicable federal and state laws. In addition, the FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. For example, a product’s approval may contain requirements for potentially costly post-approval studies and surveillance to monitor the safety and efficacy of the product, or the imposition of a REMS program.

In addition, the FDA’s regulations, policies or guidance may change and new or additional statutes or government regulations in the United States and other jurisdictions may be enacted that could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. For example, the Food and Drug Administration Safety and Innovation Act, or FDASIA, requires the FDA to issue new guidance on permissible forms of internet and social media promotion of regulated medical products, and the FDA may soon specify new restrictions on this type of promotion. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our products and/or product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct that violates (1) the laws of the United States FDA and similar foreign regulatory bodies, including those laws requiring the reporting of true, complete and accurate information to such regulatory bodies; (2) healthcare fraud and abuse laws of the United States and similar foreign fraudulent misconduct laws; and (3) laws requiring the reporting of financial information or data

 

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accurately. Specifically, the promotion, sales and marketing of health care items and services, as well as certain business arrangements in the healthcare industry are subject to extensive laws designed to prevent misconduct, including fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, marketing, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. It is not always possible to identify and deter employee and other third-party misconduct. The precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws. If any such actions are instituted against us, and we are not successful in defending ourselves, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Any relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third party payors are and will continue to be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, marketing expenditure tracking and disclosure, or sunshine laws, government price reporting and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations.

Our business operations and activities may be directly, or indirectly, subject to various federal, state and local fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by the federal government, state governments and foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate include, but are not limited to:

 

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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs;

 

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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other third party payors that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government;

 

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

 

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•

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization;

 

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the federal Physician Payment Sunshine Act, created under Section 6002 of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively, ACA, and its implementing regulations requires manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services, or HHS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) (and beginning on January 1, 2021 this also includes Physician Assistants, Nurse Practitioners, Clinical Nurse Specialists, Certified Registered Nurse Anesthetists, and Certified Nurse Midwives (CNM) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members, with data collection required beginning August 1, 2013 and reporting to the Centers for Medicare & Medicaid Services required by March 31, 2014 and by the 90th day of each subsequent calendar year;

 

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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

 

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federal government price reporting laws, changed by ACA to, among other things, increase the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and offer such rebates to additional populations, that require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed drugs. Participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs and potentially limit our ability to offer certain marketplace discounts;

 

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the Foreign Corrupt Practices Act, a United States law which regulates certain financial relationships with foreign government officials (which could include, for example, certain medical professionals); and

 

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state law equivalents of each of the above federal laws.

In addition, any sales of our products or product candidates once commercialized outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.

We are required to obtain regulatory approval for each of our products in each jurisdiction in which we intend to market such products, and the inability to obtain such approvals would limit our ability to realize their full market potential.

In order to market products outside of the United States, we must comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country

 

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may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. However, the failure to obtain regulatory approval in one jurisdiction may adversely impact our ability to obtain regulatory approval in another jurisdiction. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional non-clinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approval in international markets is delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

Risks Relating to Our Intellectual Property

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Our commercial success also depends upon our ability and the ability of our future collaborators to develop, manufacture, market and sell our product candidates and to use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing products. Because patent applications can take many years to issue, there may be currently pending applications, which may later result in issued patents that our product candidates or proprietary technologies may infringe. Similarly, there may be issued patents relevant to our product candidates of which we are not aware.

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. And in particular, the generic drug industry is characterized by frequent litigation between generic drug companies and branded drug companies. If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

 

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infringement and other intellectual property claims which, with or without merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;

 

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substantial damages for infringement, including, but not limited to, treble damages, punitive damages, loss of profits and attorneys’ fees, which we may have to pay if a court decides that the product or proprietary technology at issue infringes on or violates the third party’s rights;

 

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if a license is available from the third party, we may have to pay substantial royalties, fees and/or grant cross licenses to our technology; and

 

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redesigning our product candidates or processes so they do not infringe, which may not be possible or may require substantial funds and time.

We have not conducted an extensive search of patents issued to third parties, and no assurance can be given that third party patents containing claims covering our product candidates, technology or methods do not exist, have not been filed, or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas or fields, we believe there is a significant risk that third parties may allege they have patent rights encompassing our products, technology or methods. Other product candidates that we may in-license or acquire could be subject to similar risks and uncertainties.

 

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We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed alleged confidential information or trade secrets of their other clients or former employers to us.

As is common in the biotechnology and pharmaceutical industry, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our product candidates, many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. There can be no assurance, however, that we would not be sued. Any such litigation would be protracted, expensive, and potentially subject to an unfavorable outcome.

Our success depends in part upon our ability to protect our intellectual property for our branded products, such as GTX-104, GTX-102 and GTX-101.

Our commercial success with respect to our products, including GTX-104, GTX-102 and GTX-101, depends on obtaining and maintaining patent protection in both the United States and in other countries and trade secret protection for our product candidates, proprietary technologies and their uses. Our ability to protect our drug products from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable patents.

Due to evolving legal standards relating to patentability, validity and enforceability of patents covering pharmaceutical inventions and the scope of claims made under these patents, our ability to maintain, obtain and enforce patents is uncertain and involves complex legal and factual questions. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value and the scope of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.

The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

 

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we might not have been the first to file patent applications for these or similar inventions;

 

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we might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

 

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others may independently develop similar or alternative technologies or duplicate any of our technologies;

 

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the patents of others may have an adverse effect on our business;

 

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it is possible that none of our or our licensors’ pending patent applications will result in issued patents;

 

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any patents we obtain or our licensors’ issued patents may not encompass commercially viable products, may not provide us with any competitive advantages, or may be challenged by third parties for lack of novelty, obviousness, lack of demonstrated or predicted utility, or other technical reasons related to the drafting of the patent itself;

 

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any patents we obtain or our in-licensed issued patents may not be valid or enforceable; or

 

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we may not develop additional proprietary technologies that are patentable.

 

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Proprietary trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with certain of our employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how, and we would not be able to prevent their use.

Our drug development strategy relies heavily upon the 505(b)(2) regulatory pathway, which requires us to certify that we do not infringe upon third-party patents covering approved drugs. Such certifications typically result in third-party claims of intellectual property infringement, the defense of which will be costly and time consuming, and an unfavorable outcome in any litigation may prevent or delay our development and commercialization efforts which would harm our business.

Litigation or other proceedings to enforce or defend intellectual property rights are often complex in nature, may be very expensive and time-consuming, may divert our management’s attention from other aspects of our business and may result in unfavorable outcomes that could adversely impact our ability to launch and market our product candidates, or to prevent third parties from competing with our products and product candidates.

In particular, our commercial success depends in large part on our avoiding infringement of the patents and proprietary rights of third parties for existing approved drug products. Because we utilize the 505(b)(2) regulatory pathway for the approval of our products and product candidates, we rely in whole or in part on studies conducted by third parties related to those approved drug products.

Because patent applications can take many years to issue, there may be currently pending or subsequently filed patent applications which may later result in issued patents that may be infringed by our products or product candidates. If any third-party patents were held by a court of competent jurisdiction to cover aspects of our product candidates, including the formulation, method of use, any method or process involved in the manufacture of any of our product candidates, any molecules or intermediates formed during such manufacturing process or any other attribute of the final product itself, the holders of any such patents may be able to block our ability to commercialize our product candidates unless we obtain a license under the applicable patents, or until such patents expire. In either case, such a license may not be available on commercially reasonable terms or at all.

Parties making claims against us may request and/or obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates on a temporary or permanent basis. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products or manufacturing processes, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research, manufacture clinical trial supplies or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly. We cannot provide any assurances that third party patents do not exist which might be enforced against our products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

 

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If we fail to comply with our obligations in the agreements under which we license rights to technology from third parties, or if the license agreements are terminated for other reasons, we could lose license rights that are important to our business.

We are a party to a number of technology licenses that are important to our business and expect to enter into additional licenses in the future. Our existing license agreements impose, and we expect that future license agreements will impose, on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. Under these agreements, we must rely on our licensor to comply with their obligations under the primary license agreements under which such third party obtained rights in the applicable intellectual property, where we may have no relationship with the original licensor of such rights. If our licensors fail to comply with their obligations under these upstream license agreements, the original third-party licensor may have the right to terminate the original license, which may terminate our sublicense. If this were to occur, we would no longer have rights to the applicable intellectual property unless we are able to secure our own direct license with the owner of the relevant rights, which we may not be able to do at a reasonable cost or on reasonable terms, which may impact our ability to continue to develop and commercialize our product candidates and companion diagnostic incorporating the relevant intellectual property. If we fail to comply with our obligations under our license agreements, or we are subject to a bankruptcy or insolvency, the licensor may have the right to terminate the license. In the event that any of our important technology licenses were to be terminated by the licensor, we would likely cease further development of the related program or be required to spend significant time and resources to modify the program to not use the rights under the terminated license.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates and companion diagnostic. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:

 

•

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed;

 

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•

we or our licensors or future collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

 

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we or our licensors or future collaborators might not have been the first to file patent applications covering certain of our inventions;

 

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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

 

•

it is possible that our pending patent applications will not lead to issued patents;

 

•

issued patents that we own or have exclusively licensed may be held invalid or unenforceable as a result of legal challenges by our competitors;

 

•

we may not develop additional proprietary technologies that are patentable; and

 

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the patents of others may have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business, results of operations and prospects.

Risks Related to Our Dependence on Third Parties

We do not have internal manufacturing capabilities, and if we fail to develop and maintain supply relationships with various third-party manufacturers, we may be unable to develop or commercialize our product candidates.

Our ability to develop and commercialize our product candidates depends, in part, on our ability to outsource their manufacturing at a competitive cost, in accordance with regulatory requirements and in sufficient quantities for clinical testing and eventual commercialization. All of our manufacturing is outsourced to third parties and we do not plan to build manufacturing capabilities.

Our contract manufacturers may encounter manufacturing failures that could delay the clinical development or regulatory approval of our product candidates, or their commercial production if approved.

Any performance failure on the part of any of our manufacturers could delay the clinical development or regulatory approval of our product candidates. Our manufacturers may encounter difficulties involving, among other things, production yields, regulatory compliance, quality control and quality assurance, as well as shortages of qualified personnel. Approval of our product candidates could be delayed, limited or denied if the FDA does not approve and maintain the approval of our contract manufacturer’s processes or facilities. Moreover, our contract manufacturers may encounter difficulties that have a negative impact on our operations and business. Our manufacturers may encounter difficulties with the manufacturing processes required to manufacture commercial quantities of our product candidates or the quantities needed for our pre-clinical studies or clinical trials. Such difficulties could result in delays in our pre-clinical studies, clinical trials and regulatory submissions, in the commercialization of our product candidates. Further, development of large-scale manufacturing processes may require additional validation studies, which the FDA must review and approve. If any of our manufacturers fail to deliver the required commercial quantities or quantities needed for our pre-clinical studies and clinical trials on a timely basis and upon terms that we find acceptable, we may be unable to meet demand for any of our product candidates that are approved and could lose potential revenue.

Certain changes in the manufacturing process or procedure, including a change in the location where the product candidate is manufactured or a change of a third-party manufacturer, generally require prior FDA, or foreign regulatory authority, review and/or approval of the manufacturing process and procedures in accordance with cGMP. We may need to conduct additional pre-clinical studies and clinical trials to support approval of such changes. This review may be costly and time-consuming, and could delay or prevent the launch of a product candidate.

 

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We rely on third parties to conduct and oversee our clinical trials. If these third parties do not meet our deadlines or otherwise conduct the trials as required, we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.

We rely on third parties to conduct and oversee our clinical trials. We also rely upon medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s good clinical practice regulations and DEA regulations governing the handling, storage, security and record-keeping for controlled substances. These CROs play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials.

There is no guarantee that CROs, investigators and third parties will devote adequate time and resources to our clinical trials or perform as required by contract and in accordance with regulatory requirements. If third parties upon which we rely for administration and conduct of our clinical trials fail to meet expected deadlines, fail to adhere to our clinical protocols or act in accordance with regulatory requirements, or otherwise perform in a substandard manner, our clinical trials may be extended, delayed or terminated, and we may not be able to commercialize our product candidates.

If any of our clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.

We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third party CROs to monitor and manage data for our preclinical and clinical programs. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with FDA laws and regulations regarding current good clinical practice, or GCP, which are also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in the form of International Conference on Harmonization, or ICH, guidelines for all of our products in clinical development. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. While we have agreements governing activities of our CROs, we have limited influence over their actual performance. In addition, portions of the clinical trials for our product candidates are expected to be conducted outside of the United States, which will make it more difficult for us to monitor CROs and perform visits of our clinical trial sites and will force us to rely heavily on CROs to ensure the proper and timely conduct of our clinical trials and compliance with applicable regulations, including GCP. Failure to comply with applicable regulations in the conduct of the clinical trials for our product candidates may require us to repeat clinical trials, which would delay the regulatory approval process.

 

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We rely on third parties to manufacture commercial and clinical supplies of our product candidates, and we intend to rely on third parties to manufacture commercial supplies of any other approved products. The commercialization of any of our products could be stopped, delayed or made less profitable if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices or fail to maintain or achieve satisfactory regulatory compliance.

We do not own any manufacturing facilities, and we do not currently, and do not expect in the future, to independently conduct any aspects of our product manufacturing and testing, or other activities related to the clinical development and commercialization of our product candidates. We currently rely, and expect to continue to rely, on third parties with respect to these items, and control only certain aspects of their activities.

Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it could delay our product candidate development and commercialization activities. Our reliance on these third parties reduces our control over these activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific standards and any applicable trial protocols. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed in completing, clinical trials required to support future regulatory submissions and approval of our product candidates.

More generally, manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to make product candidates available for clinical trials and development purposes or to commercialize any of our product candidates in the United States would be jeopardized. Any delay or interruption in our ability to meet commercial demand may result in the loss of potential revenues and could adversely affect our ability to gain market acceptance for approved products. In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. Regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

The occurrence of any of these factors could have a material adverse effect on our business, results of operations, financial condition and prospects.

The design, development, manufacture, supply, and distribution of our product candidates is highly regulated and technically complex.

All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP and equivalent foreign standards. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final

 

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product testing. The development, manufacture, supply, and distribution of our product candidates is highly regulated and technically complex. We, along with our third-party providers, must comply with all applicable regulatory requirements of the FDA and foreign authorities.

Regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biological product or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.

We may not be successful in establishing development and commercialization collaborations which could adversely affect, and potentially prohibit, our ability to develop our product candidates.

Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive, we are exploring collaborations with third parties outside of the United States that have more resources and experience.

In situations where we enter into a development and commercial collaboration arrangement for a product candidate, we may also seek to establish additional collaborations for development and commercialization in territories outside of those addressed by the first collaboration arrangement for such product candidate. There are a limited number of potential partners, and we expect to face competition in seeking appropriate partners. If we are unable to enter into any development and commercial collaborations and/or sales and marketing arrangements on acceptable terms, if at all, we may be unable to successfully develop and seek regulatory approval for our product candidates and/or effectively market and sell future approved products, if any, in all of the territories outside of the United States where it may otherwise be valuable to do so.

We may not be successful in maintaining development and commercialization collaborations, and any partner may not devote sufficient resources to the development or commercialization of our product candidates or may otherwise fail in development or commercialization efforts, which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results.

Even if we are able to establish collaboration arrangements, any such collaboration may not ultimately be successful, which could have a negative impact on our business, results of operations, financial condition and prospects. If we partner with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. It is possible that a partner may not devote sufficient resources to the development or commercialization of our product candidate or may otherwise fail in development or commercialization efforts, in which event the development and commercialization of such product candidate could be delayed or terminated and our business could be substantially harmed. In addition, the terms of any collaboration or other arrangement that we establish may not prove to be favorable to us or may not be perceived as favorable, which may negatively impact the trading price of our common stock. In some cases, we may be responsible for continuing development of a product candidate or research program under a collaboration, and the payment we receive from our partner may be insufficient to cover the cost of this development. Moreover, collaborations and sales and marketing arrangements are complex and time consuming to negotiate, document and implement, and they may require substantial resources to maintain.

 

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We are subject to a number of additional risks associated with our dependence on collaborations with third parties, the occurrence of which could cause our collaboration arrangements to fail. Conflicts may arise between us and our partners, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration. If any such conflicts arise, a partner could act in its own self-interest, which may be adverse to our interests. Any such disagreement between us and a partner could result in one or more of the following, each of which could delay or prevent the development or commercialization of our product candidates and harm our business:

 

•

reductions in the payment of royalties or other payments we believe are due pursuant to the applicable collaboration arrangement;

 

•

actions taken by a partner inside or outside our collaboration which could negatively impact our rights or benefits under our collaboration; and

 

•

unwillingness on the part of a partner to keep us informed regarding the progress of its development and commercialization activities or to permit public disclosure of the results of those activities.

General

Future interpretations of existing accounting standards could adversely affect our operating results.

Generally accepted accounting principles in the United States are subject to interpretation by FASB, the American Institute of Certified Public Accountants, or AICPA, the SEC and various other bodies that promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.

Our short operating history makes it difficult to evaluate our business and prospects.

We were incorporated in and have only been conducting operations since 2014. Our operations to date have been limited to developing and bringing to market a limited number of products and developing our other product candidates. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing a significant number of pharmaceutical products

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

We do not expect to pay any cash dividends for the foreseeable future.

The continued operation and expansion of our business will require substantial funding. Accordingly, we do not anticipate that we will pay any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

 

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Our ability to successfully consummate a strategic transaction may be materially and adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic is severely adversely affecting the U.S., Canadian and many other global economies. If the outbreak continues to spread, it may affect our operations and those of third parties upon which we rely, including limiting our ability to explore strategic alternatives to enhance shareholder value.

The extent to which the COVID-19 pandemic impacts our business and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions to contain the COVID-19 pandemic or treat its impact, among others.

Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity and adversely affect our business and overall financial condition.

 

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THE COMPANIES

Acasti

Acasti Pharma Inc., a corporation incorporated under the laws of Québec, is headquartered in Laval, Québec, Canada. Acasti is a biopharmaceutical innovator that has historically focused on the research, development and commercialization of prescription drugs using omega-3 fatty acids delivered both as free fatty acids and bound-to-phospholipid esters derived from krill oil for the treatment of cardiometabolic diseases, specifically hypertriglyceridemia.

Acasti’s principal executive offices are located at 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5 and its telephone number is (450) 686-4555. Acasti common shares are listed on the NASDAQ Capital Market and the TSX Venture Exchange and trade under the symbol “ACST”.

This proxy statement/prospectus incorporates important business and financial information about Acasti from other documents that are incorporated by reference; see the section entitled “Where You Can Find Additional Information” beginning on page 214.

Grace

Grace Therapeutics Inc., a Delaware corporation, is headquartered in East Brunswick, New Jersey. Grace is a privately-held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases.

Grace’s principal executive offices are located at 2 Tower Center Boulevard, Suite 1101G, East Brunswick, New Jersey 08816 and its telephone number is (646) 809-6839.

MergerCo

Acasti Pharma U.S., Inc. (“MergerCo”) is a corporation incorporated under the laws of the State of Delaware and is a wholly-owned subsidiary of Acasti. MergerCo was organized on May 3, 2021. MergerCo has conducted its operations only as contemplated by the merger agreement and has not incurred any material obligations or liabilities.

MergerCo’s registered office is located at Corporation Services Company, 251 Little Falls Drive, Wilmington, Delaware 19808, County of New Castle.

 

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ACASTI ANNUAL AND SPECIAL MEETING

This proxy statement/prospectus is being provided to the Acasti shareholders as part of a solicitation of proxies by the Acasti board of directors for use at the Acasti annual and special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof.

Date, Time and Place

The annual and special meeting of Acasti shareholders will be held virtually on                , 2021, at 1:00 p.m. (Eastern  Time).

Purpose of the Acasti Annual and Special Meeting

The purpose of the Acasti annual and special meeting will be to consider and act upon the following matters:

 

1.

Proposal No. 1—To approve the issuance of Acasti common shares necessary to complete the transactions contemplated by the merger agreement (the “share issuance proposal”);

 

2.

Proposal No. 2—Elect Roderick N. Carter, Jan D’Alvise, Jean-Marie (John) Canan and Donald Olds as directors to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his or her successor is elected and qualified or until his or her earlier resignation or removal (the “annual directors election proposal”);

 

3.

Proposal No. 3—Elect each of William A. Haseltine and Vimal Kavuru, conditional upon and to be effective only at the closing of the merger, as a director to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his successor is elected and qualified or until his earlier resignation or removal, as provided in the merger agreement (the “merger directors election proposal”);

 

4.

Proposal No. 4—To appoint KPMG LLP to hold office as Acasti’s auditors until the close of the next annual meeting of shareholders and to authorize the board of directors of Acasti to fix their remuneration (the “auditor proposal”);

 

5.

Proposal No. 5—To adopt an advisory (non-binding) resolution approving the compensation of Acasti’s named executive officers, as disclosed in this proxy statement/prospectus (the “compensation proposal”);

 

6.

Proposal No. 6—To approve amendments to the Acasti stock option plan to provide for a 10% rolling plan by setting the total number of Acasti common shares reserved for issuance pursuant to options granted under the stock option plan at 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to awards issued under the equity incentive plan, as described in this proxy statement/prospectus (the “stock option plan proposal”);

 

7.

Proposal No. 7—To approve amendments to the Acasti equity incentive plan to set the total number of Acasti common shares reserved for issuance pursuant to awards granted under the equity incentive plan at the lesser of (i) 10% of the issued and outstanding Acasti common shares as of June 24, 2021, representing 20,837,554 Acasti common shares, and (ii) 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to options issued under the stock option plan, as described in this proxy statement/prospectus (the “equity incentive plan proposal”);

 

8.

Proposal No. 8—If necessary to regain compliance with NASDAQ’s minimum bid price rules, to adopt an advisory (non-binding) resolution to amend to the articles of incorporation of Acasti, as amended, to effect a reverse stock split of Acasti common shares, within a range of 1-    to 1-    with such specific ratio to be approved by the Acasti board; provided that the Acasti board may determine to accelerate the timing of the proposed reverse stock split through a directors resolution without shareholder approval pursuant to the QBCA, if deemed advisable by the Acasti board (the “reverse stock split proposal”); and

 

9.

To transact such other business as may be properly brought before the meeting.

 

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Recommendation of the Acasti Board of Directors

The members of the Acasti board unanimously recommend that Acasti shareholders vote “FOR” the share issuance proposal, “FOR” the stock option plan proposal, “FOR” the annual directors election proposal, “FOR” the merger directors election proposal, “FOR” the auditor proposal, “FOR” the compensation proposal, “FOR” the equity incentive plan proposal and “FOR” the reverse stock split proposal.

Acasti Record Date; Shareholders Entitled to Vote

Only Acasti shareholders of record at the close of business on        , 2021, which is the record date for the Acasti annual and special meeting, are entitled to notice of, and to vote at, the Acasti annual and special meeting or any adjournments or postponements thereof. At the close of business on the Acasti record date, there were             Acasti common shares issued and outstanding.

Holders of record of Acasti common shares on the record date are entitled to one vote per share at the Acasti annual and special meeting on each proposal.

Voting by Acasti’s Directors and Executive Officers

At the close of business on the Acasti record date, directors and executive officers of Acasti and their affiliates were entitled to vote              Acasti common shares, representing approximately     % of the Acasti common shares outstanding on that date. Acasti expects that Acasti’s directors and executive officers will vote their shares in favor of each proposal being submitted to a vote of the Acasti shareholders at the Acasti annual and special meeting, although none of them has entered into any agreement obligating them to do so.

Quorum; Adjournment

A quorum must be present at the Acasti annual and special meeting before business can be conducted. A quorum for the transaction of business at the Acasti annual and special meeting is at least two persons present, each being an Acasti shareholder entitled to vote at the Acasti annual and special meeting or a duly appointed proxyholder or representative for an Acasti shareholder so entitled, and together holding or representing Acasti common shares having not less than 33¹/3% of the outstanding votes entitled to be cast at the Acasti annual and special meeting. If a quorum is not present within one half-hour from the time set for the holding of the meeting, the meeting stands adjourned to the same day in the next week at the same time and place. Whether or not a quorum is present or represented at the meeting, the chair of the annual and special meeting may, and if so directed by holders of a majority in number of the Acasti common shares entitled to vote at the meeting, must, adjourn the meeting. When a meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting; but if a new record date is fixed for the adjourned meeting (which must be done if the new date is more than two months after the date of the original meeting), or if the adjournment is for more than thirty days, a notice of the adjourned meeting will be given to each shareholder of record entitled to vote at the adjourned meeting. At the adjourned meeting, the shareholders may transact any business which might have been transacted by them at the original meeting.

Required Vote

Proposal No. 1: Share Issuance Proposal

The affirmative vote of a majority of the votes cast at the meeting is required for the approval of the issuance of Acasti common shares necessary to effect the merger and the other transactions contemplated by the merger agreement.

 

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Proposal No. 2: Annual Directors Election Proposal

You may select “For” or “Withhold” with respect to each nominee for director under Proposal No. 2. The affirmative vote of a majority of the votes cast at the meeting is required for the approval of the election of the directors pursuant to the annual directors election proposal.

Proposal No. 3: Merger Directors Election Proposal

You may select “For” or “Withhold” with respect to each nominee for director under Proposal No. 3. The affirmative vote of a majority of the votes cast at the meeting is required for the approval of the election of the directors pursuant to the merger directors election proposal. Such election is conditional upon and shall be effective only at the closing of the merger.

Proposal No. 4: Auditor Proposal

The affirmative vote of a majority of the votes cast at the meeting is required for the approval for KPMG LLP to hold office as Acasti’s auditors until the close of the next annual meeting of Acasti shareholders and to authorize the Acasti board of directors to fix their remuneration.

Proposal No. 5: Compensation Proposal

The affirmative vote of a majority of the votes cast at the meeting is required for the approval, on an advisory (non-binding) basis, of the compensation of Acasti’s named executive officers, as disclosed in this proxy statement/prospectus.

Proposal No. 6: Stock Option Plan Proposal

The affirmative vote of a majority of the votes cast at the annual and special meeting by Acasti’s disinterested shareholders is required for the approval of the amendments to the Acasti stock option plan to provide for a 10% rolling plan by setting the total number of Acasti common shares reserved for issuance pursuant to options granted under the stock option plan to 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to awards issued under the equity incentive plan.

Proposal No. 7: Equity Incentive Plan Proposal

The affirmative vote of a majority of the votes cast at the annual and special meeting by Acasti’s disinterested shareholders is required for the approval of the amendments to the Acasti equity incentive plan to set the total number of Acasti common shares reserved for issuance pursuant to awards granted under the equity incentive plan to the lesser of (i) 10% of the issued and outstanding Acasti common shares as of June 24, 2021, representing 20,837,554 Acasti common shares, and (ii) 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to options issued under the stock option plan.

Proposal No. 8: Reverse Stock Split Proposal

The affirmative vote of a majority of the votes cast at the meeting is required for the approval, on an advisory (non-binding) basis, if necessary to regain compliance with NASDAQ’s minimum bid price rules, of the proposal to effect a reverse stock split of Acasti common shares, within a range of 1-    to 1-    with such specific ratio to be approved by the Acasti board, as disclosed in this proxy statement/prospectus. The results of the vote on the proposal are not binding on the Acasti board and the Acasti board may determine to accelerate the timing of the proposed reverse stock split through a directors resolution without shareholder approval pursuant to the QBCA, if deemed advisable by the Acasti board.

 

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Voting at the Acasti Annual and Special Meeting

Whether or not you plan to attend the Acasti annual and special meeting, please vote your shares. If you are a registered or “record” holder, which means your shares are registered in your name with Computershare, Acasti’s transfer agent and registrar, you may vote at the Acasti annual and special meeting or be represented by proxy. If your shares are held in “street name,” which means your shares are held of record in an account with a bank, broker or other nominee, you must follow the instructions from your bank, broker or other nominee in order to vote.

Voting Virtually

Acasti shareholders can attend the special meeting online by going to https://                    .

It is important that you are connected to the internet at all times during the meeting in order to vote when balloting commences.

Registered shareholders and duly appointed proxyholders can participate in the meeting by clicking “I have a login” and entering a username and password before the start of the meeting.

In order to participate online, shareholders must have a valid        -digit control number and proxyholders must have received an email from Computershare containing a username. For registered shareholders, the        -digit control number located on the form of proxy or in the email notification you received is the username and the password is “        ”. For duly appointed proxyholders, Computershare will provide the proxyholder with a username after the voting deadline has passed. The password is “        ”. Voting at the meeting will only be available for registered shareholders and duly appointed proxyholders. Non-registered shareholders who have not appointed themselves may attend the meeting by clicking “I am a guest” and completing the online form.

Acasti shareholders who wish to appoint a third-party proxyholder to represent them at the online meeting must submit their proxy or voting instruction form (as applicable) prior to registering their proxyholder. Registering the proxyholder is an additional step once a shareholder has submitted their proxy/voting instruction form. Failure to register a duly appointed proxyholder will result in the proxyholder not receiving a username to participate in the meeting. To register a proxyholder, shareholders MUST visit https://                     by 5:00 p.m. Eastern Time on                , 2021 and provide Computershare with their proxyholder’s contact information, so that Computershare may provide the proxyholder with a username via email.

Registered shareholders that have a        -digit control number, along with duly appointed proxyholders who were assigned a username by Computershare will be able to vote and submit questions during the meeting. To do so, please go to         prior to the start of the meeting to login. Click on “I have a login” and enter your        -digit control number or username along with the password “        ”. Non-registered shareholders who have not appointed themselves to vote at the meeting may login as a guest, by clicking on “I am a Guest” and complete the online form. Non-registered shareholders who do not have a        -digit control number or username will only be able to attend as a guest, which allows them listen to the meeting; however, they will not be able to vote or submit questions. Please see the information below for an explanation of why certain shareholders may not receive a form of proxy.

If you are using a        -digit control number to login to the online meeting and you accept the terms and conditions, you will be revoking any and all previously submitted proxies. However, in such a case, you will be provided the opportunity to vote by ballot on the matters put forth at the meeting. If you DO NOT wish to revoke all previously submitted proxies, do not accept the terms and conditions, in which case you can only enter the meeting as a guest.

 

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If you are eligible to vote at the meeting, it is important that you are connected to the internet at all times during the meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the meeting.

To attend and vote at the virtual meeting, a United States beneficial holder must first obtain a valid legal proxy from your broker, bank or other agent and then register in advance to attend the meeting. Follow the instructions from your broker or bank included with these proxy materials or contact your broker or bank to request a legal proxy form. After first obtaining a valid legal proxy from your broker, bank or other agent, to then register to attend the meeting, you must submit a copy of your legal proxy to Computershare. Requests for registration should be directed to Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada, M5J 2Y1 or service@computershare.com. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m. Eastern Time on                , 2021. You will receive a confirmation of your registration by email after we receive your registration materials. You may attend the meeting and vote your shares at             during the meeting. Please note that you are required to register your appointment at https://www.computershare.com/acasti.

Voting by Proxy

If you are a holder of record, a proxy card is enclosed for your use. Acasti requests that you submit a proxy via the internet by logging onto         and following the instructions on your proxy card or by telephone by dialing         and listening for further directions or by signing the accompanying proxy card and returning it promptly in the enclosed postage-paid envelope. You should vote your proxy in advance of the meeting even if you plan to attend the Acasti annual and special meeting. You can always change your vote at the Acasti annual and special meeting. To be valid, a returned proxy card must be signed and dated. If you hold your Acasti common shares in street name, you will receive instructions from your bank, broker or other nominee that you must follow in order to vote your shares. All votes made by proxy must be received (whether delivered by mail, telephone or internet) no later than         (Eastern Time) on                , 2021 or 48 hours before the time at which any adjournment of the Acasti annual and special meeting is to be held.

All Acasti common shares represented by properly executed proxies received in time for the Acasti annual and special meeting will be voted at the meeting in the manner specified by the shareholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” the proposals.

Revocation of Proxies

Any Acasti shareholder may revoke his or her proxy at any time prior to its use by writing to the Corporate Secretary of Acasti, by voting again via mail, telephone or the internet, or by attending the Acasti annual and special meeting and casting his or her vote. A shareholder’s last timely vote will be the vote that is counted.

Please note that if your Acasti common shares are held in “street name” through a bank, broker or other nominee, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with its established procedures. If your Acasti common shares are held in the name of a bank, broker or other nominee and you decide to change your vote by attending and voting at the Acasti annual and special meeting, your vote at the Acasti annual and special meeting will not be effective unless you have obtained and present an executed proxy issued in your name from the record holder (your bank, broker or other nominee).

Solicitation of Proxies

The Acasti board of directors and Acasti management are soliciting proxies for the Acasti annual and special meeting and, in accordance with the merger agreement, the cost of proxy solicitation will be borne by Acasti, including expenses in connection with preparing, assembling and mailing the proxy materials. Acasti has

 

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retained the services of D.F. King & Co., Inc. to assist in the solicitation of proxies for an estimated fee of approximately $20,000, plus reimbursement of reasonable out-of-pocket expenses. Acasti will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of Acasti common shares held of record by them.

Failure to Vote, Broker Non-Votes and Abstentions

Banks, brokers, or other nominees holding shares of record may vote those shares in their discretion on certain routine proposals when they do not receive timely voting instructions from the beneficial holders. A “broker non-vote” occurs when a bank, broker, trust or other nominee holding shares of record is not permitted to vote on a matter without instructions from the beneficial owner of the shares because such matter is non-routine and no instruction is given.

Banks, brokers and other nominees who hold Acasti common shares in “street name” for their clients, but do not have discretionary authority to vote the shares, may not exercise their voting discretion with respect to any of the proposals. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of such shares, they may not vote such shares with respect to such proposals.

Failures to vote, abstentions and broker non-votes, if any, will not count as a vote “AGAINST” any proposal.

 

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MATTERS TO BE VOTED UPON BY ACASTI SHAREHOLDERS AT THE ANNUAL AND SPECIAL MEETING

ACASTI PROPOSAL NO. 1—SHARE ISSUANCE PROPOSAL

As discussed throughout this proxy statement/prospectus, Acasti is asking its shareholders to approve with or without variation, an ordinary resolution authorizing Acasti to issue the Acasti common shares necessary to complete the transactions contemplated by the merger agreement.

Pursuant to Proposal No.1, based on the Grace common stock and Acasti common shares outstanding on June 29, 2021, up to a maximum of 170,500,000 Acasti common shares are issuable to Grace stockholders as merger consideration.

Pursuant to the rules of the TSXV and NASDAQ, security holder approval is required in various instances, including where the number of securities issued or issuable in payment of the purchase price in a transaction such as the merger, combined with all other shares to be issued in the transaction, exceeds 25% and 20%, respectively, of the number of securities of the listed issuer which are outstanding, on a non-diluted basis. Because the merger agreement contemplates the issuance of greater than 25% of the current outstanding Acasti common shares on a non-diluted basis, the rules of the TSXV and NASDAQ require that Acasti obtain approval of the resolution approving the issuance of the Acasti common shares necessary to effect the transactions contemplated by the merger agreement by the holders of a majority of the Acasti common shares voted on the resolution at the Acasti annual and special meeting.

As of June 29, 2021, there were 208,375,549 Acasti common shares outstanding.

At the Acasti annual and special meeting, shareholders will be asked to approve those issuances by approving the following ordinary resolution:

“RESOLVED that:

 

1.

The issuance of the Acasti common shares necessary to complete the transactions contemplated by the Agreement and Plan of Merger dated as of May 7, 2021 among Acasti, Grace Therapeutics Inc. (“Grace”) and Acasti Pharma U.S., Inc., a Delaware corporation and a wholly-owned subsidiary of Acasti, as annexed to and described in the proxy statement/prospectus of Acasti and Grace dated    , 2021, is hereby approved.

 

2.

Any director or officer of Acasti shall be and is hereby authorized, for and on behalf of Acasti, to execute and deliver all documents and instruments and take such other actions as such director or officer may determine to be necessary or desirable to implement this ordinary resolution and the matters authorized hereby, such determination to be conclusively evidenced by the execution and delivery of any such documents or instruments and the taking of any such actions.”

Holders of Acasti common shares should read this proxy statement/prospectus carefully in its entirety, including the Annexes, for more detailed information concerning the transactions contemplated by the merger agreement. In particular, holders of Acasti common shares are directed to the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus.

The affirmative vote of a majority of the total number of Acasti common shares voted on the resolution at the Acasti annual and special meeting is required for Acasti to complete the transactions contemplated by the merger agreement.

The Acasti board of directors recommends that Acasti shareholders vote “FOR” the approval of the resolution authorizing Acasti to issue the securities of Acasti necessary to complete the transactions contemplated by the merger agreement.

 

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ACASTI PROPOSAL NO. 2—ANNUAL DIRECTORS ELECTION PROPOSAL

Acasti’s articles of incorporation currently provide that the Acasti board of directors may consist of a maximum of 10 directors. The Acasti board of directors has determined to nominate each of the 4 persons listed below for election as a director at the Acasti annual and special meeting to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his or her successor is elected and qualified or until his or her earlier resignation or removal. Each of the 4 nominees is currently serving as a director of Acasti. The Acasti board of directors recommends that Acasti shareholders vote FOR the election of each of the 4 nominees as directors.

The persons named in the enclosed form of proxy intend to vote for the election of the 4 nominees whose names are set forth below. Management does not contemplate that any such nominees will be unable to serve as a director of Acasti. However, if, for any reason, any of the proposed nominees do not stand for election or are unable to serve as such, proxies in favour of management designees will be voted for another nominee at their discretion unless the Acasti shareholder has specified in the Acasti shareholder’s proxy that the Acasti shareholder’s common shares are to be withheld from voting in the election of directors.

The directors are appointed at each annual meeting of Acasti shareholders to hold office for a term expiring at the close of the next annual meeting or until their respective successors are elected or appointed and will be eligible for re-election. A director appointed by the Acasti board of directors between meetings of Acasti shareholders or to fill a vacancy will be appointed for a term expiring at the conclusion of the next annual meeting or until his or her successor is elected or appointed and will be eligible for election or re-election.

Majority Voting Policy

The Acasti board of directors adopted a policy that entitles each Acasti shareholder to vote for each nominee on an individual basis (the “Majority Voting Policy”). The Majority Voting Policy also stipulates that if the votes in favour of the election of a director represent less than a majority of the Common Shares voted and withheld, the nominee will submit his or her resignation promptly after the Acasti annual and special meeting for the consideration of the Acasti board of directors. After reviewing the matter, the Acasti board of directors’ decision whether to accept or reject the resignation offer will be disclosed to the public within 90 days of the Acasti annual and special meeting. The Acasti board of directors has discretion to accept or reject a resignation. The nominee will not participate in any board deliberations on the resignation offer. The Majority Voting Policy does not apply in circumstances involving contested elections.

Nominees for Election as Director

The following table sets out the name and the province or state and country of residence of each of the persons proposed for election as directors, and all other positions and offices with Acasti held by such person, his or her principal occupation and the year in which the person became a director of Acasti.

 

Name, province or state, as the case may be, and country of residence of each director and proposed director		Principal occupation		First year as director
Roderick N. Carter California, United States Chairman of the Acasti board of directors Member of the Governance & Human Resources Committee Member of the Audit Committee		Principal, Aquila Life Sciences LLC			2015
Jean-Marie (John) Canan Florida, United States Chair of the Audit Committee Member of the Governance & Human Resources Committee		Corporate Director			2016
Jan D’Alvise California, United States		President and CEO of Acasti			2016
Donald Olds		Corporate Director			2018
Quebec, Canada Member of the Audit Committee Chairman of the Governance & Human Resources Committee

 

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The following is a brief biography of the proposed director nominees of Acasti pursuant to the annual directors election proposal:

Roderick N. Carter, M.D.—Chairman of the Acasti board of directors

Dr. Carter has a strong history of contributions to healthcare through clinical, research, business and people leadership. He has significant experience developing and commercializing nutraceutical and pharmaceutical products and has successfully led clinical research and business development strategies for cardiovascular and inflammation-related diseases. Dr. Carter is currently Principal at Aquila Life Sciences LLC, a consulting firm he founded in April 2008 focusing on pharmaceutical development and commercialization. Prior to this, he was Vice President of Clinical Development at Reliant Pharmaceuticals, which developed the omega-3 cardiovascular drug LOVAZA, and today is a wholly-owned subsidiary of GlaxoSmithKline. He also served as Executive Director at Merck and Co., USA, President and Chief Executive Officer of WellGen and Senior Medical Director at Pfizer Inc., USA. Dr. Carter received his Medical Degree from the University of Witwatersrand, Johannesburg, along with a Master of Science degree in Sports Medicine from Trinity College, Dublin. Dr. Carter currently resides in California, USA.

Dr. Carter makes valuable contributions to the Acasti board of directors based on his significant experience developing and commercializing nutraceutical and pharmaceutical products, successfully leading clinical research and business development strategies for cardiovascular and inflammation-related diseases and serving in various director and officer roles. Dr. Carter has served as a director of Acasti since 2015 and currently serves as Chairman of the Acasti board of directors, and as a member of the Governance & Human Resources Committee and the Audit Committee.

Jean-Marie (John) Canan, CPA—Director

    Mr. Canan is an accomplished business executive with over 38 years of strategic, business development and financial leadership experience in the pharmaceutical sector. Mr. Canan held a number of senior positions while at Merck. Mr. Canan retired in 2014 from Merck where his last senior position was as Senior Vice-President, Global Controller, and Chief Accounting Officer for Merck from November 2009 to March 2014. He has managed all interactions with the audit committee of the Merck board of directors, while participating extensively with the main board and the compensation & benefits committee. Mr. Canan serves as a director of REV Group, a public company, where he chairs the audit committee and is the lead independent director. Mr. Canan is also a member of the Board of Lectra SA, a public company listed on the Paris Euronext, where he also serves on the compensation, the strategic and the audit committees. He also serves on the board of trustees of Angkor Hospital for Children Inc. Mr. Canan is a graduate of McGill University, Montreal, Canada, and is a Canadian Professional Accountant. Mr. Canan currently resides in Florida, USA.

Mr. Canan makes valuable contributions to the Acasti board of directors based on over 38 years of strategic, business development and financial leadership experience and corporate governance in the both the pharmaceutical and other sectors. Mr. Canan has served as a director of Acasti since 2016 and currently serves as Chair of the Audit Committee and as a member of the Governance & Human Resources Committee.

Jan D’Alvise—Director, President and Chief Executive Officer

Ms. D’Alvise has extensive experience in the pharmaceutical, diagnostic, medical device, and drug discovery research segments of the healthcare industry. She has served as President and Chief Executive Officer of Acasti since 2016. Until 2016, Ms. D’Alvise was the President and Chairman of Pediatric Bioscience, a private company that was developing a diagnostic test for autism. Before that, she was the Chief Executive Officer of Gish Biomedical, a cardiopulmonary medical device company that she sold to the Sorin Group. Prior to Gish, Ms. D’Alvise was the Chief Executive Officer of the Sidney Kimmel Cancer Center (SKCC), a drug discovery research institute focused on translational medicine in oncology. Prior to SKCC, she was the Co- Founder/President/Chief Executive Officer/Chairman of NuGEN, Inc., and was also the Co-Founder and

 

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Executive VP/COO of Metrika Inc. Ms. D’Alvise built both companies from technology concept through to successful regulatory approvals, product introduction and sustainable revenue growth. Prior to Metrika, Ms. D’Alvise was a VP of Drug Development at Syntex/Roche and Business Unit Director of their Pain and Inflammation business, and prior to that, VP of Commercial Operations at SYVA, (Syntex’s clinical diagnostics division). Ms. D’Alvise began her career with Diagnostic Products Corporation. Ms. D’Alvise has a B.S. in Biochemistry from Michigan Technological University. She has completed post-graduate work at the University of Michigan, Stanford University, and the Wharton Business School. Ms. D’Alvise is currently on the board of Spectral Medical where she also serves on the audit committee and is the Chairman of the board of The ObG Project, a private healthcare media company. She has previously served on the boards of numerous private companies and non-profit organizations. Ms. D’Alvise currently resides in California, USA.

Ms. D’Alvise makes valuable contributions to the Acasti board of directors based on extensive operating experience in the pharmaceutical, diagnostic, medical device, and drug discovery research segments of the healthcare industry in various leadership roles as both a director and officer. Ms. D’Alvise has served as a director of Acasti since 2016.

Donald Olds—Director

Until May 2019, Mr. Olds was the President and Chief Executive Officer of the NEOMED Institute, a research and development organization dedicated to advancing research discoveries to commercial success. Prior to NEOMED, he was the Chief Operating Officer of Telesta Therapeutics Inc., a TSX-listed biotechnology company, where he was responsible for finance and investor relations, manufacturing operations, business development, human resources and strategy. In 2016, he led the successful sale of Telesta. Prior to Telesta, he was President and Chief Executive Officer of Presagia Corp., and Chief Financial Officer and Chief Operating Officer of Aegera Therapeutics, where he was responsible for clinical operations, business development, finance, and mergers and acquisitions. At both Telesta and Aegera, Mr. Olds was responsible for raising more than C$100 million in equity financing and leading regional and global licensing transactions with life sciences companies. Mr. Olds is currently lead director of Goodfood Market Corp (TSX:FOOD), lead director of Cannara Biotech Inc. (TSXV:LOVE), Chair of Aifred Health Inc., and director of Presagia Corp. He has extensive corporate governance experience serving on the boards of private and public for-profit and not-for-profit organizations and significant financing and licensing experience with a focus on life science and technology companies. He holds an MBA (Finance & Strategy) and M.Sc. (Renewable Resources) from McGill University. Mr. Olds currently resides in Quebec, Canada.

Mr. Olds makes valuable contributions to the Acasti board of directors based on extensive financial, strategic, business development and corporate governance and experience in investment banking, technology and life sciences. Mr. Olds has served as a director of Acasti since 2018 and currently serves as the Chair of the Governance & Human Resources Committee and as a member of the Audit Committee.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

To the knowledge of Acasti, none of the proposed directors is, or has been, as at the date of this prospectus/proxy statement or within the 10 years prior to the date of this prospectus/proxy statement, a director, chief executive officer (“CEO”) or chief financial officer (“CFO”) of any corporation (including Acasti) that:

 

(a)

was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant corporation access to any exemption under applicable securities legislation, that was in effect for a period of more than 30 consecutive days that was issued while the director or executive officer was acting in the capacity as director, CEO or CFO; or

 

(b)

was subject to an order that was issued after the director or executive officer ceased to be a director, CEO or CFO and which resulted from an event that occurred while that person was acting in the capacity as director, CEO or CFO.

 

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To the knowledge of Acasti, none of the proposed directors of Acasti:

 

(a)

is, or has been, as at the date of this prospectus/proxy statement or within the 10 years prior to the date of this prospectus/proxy statement, a director or executive officer of any corporation (including Acasti) that, while that person was acting in that capacity, or within 1 year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, with the exception of Ms. D’Alvise, who was the CEO and a board member of Pediatric Bioscience, Inc. a private company that, due to a failed pivotal clinical trial, filed a motion for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code, in the United States Bankruptcy Court, Southern District of California (San Diego), on March 2, 2016. The trustee issued a final report in April 2017; or

 

(b)

has, within the 10 years prior to the date of this prospectus/proxy statement, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

To the knowledge of Acasti, no proposed director has been subject to:

 

(a)

any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or

 

(b)

any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable Acasti shareholder in deciding whether to vote for a proposed director.

Voting for election of directors is by individual voting and not by slate voting. You can vote your Acasti common shares for the election of all of these nominees as directors of Acasti; or you can vote for some of these nominees for election as directors and withhold your votes for others; or you can withhold all of the votes attaching to the Acasti common shares you own and not vote for the election of any of these nominees as directors of Acasti.

THE ACASTI BOARD OF DIRECTORS RECOMMENDS THAT ACASTI SHAREHOLDERS VOTE FOR THE ELECTION OF THE PROPOSED NOMINEES AS DIRECTORS OF ACASTI FOR THE ENSUING YEAR.

The voting rights pertaining to Acasti common shares represented by duly executed proxies in favour of the persons named in the accompanying form of proxy will be exercised, in the absence of specifications to the contrary, FOR the election of the proposed nominees as directors of Acasti for the ensuing year.

 

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ACASTI PROPOSAL NO. 3—MERGER DIRECTORS ELECTION PROPOSAL

Pursuant to the terms of the merger agreement, Acasti and Grace have agreed to use commercially reasonable best efforts to take such action to cause the Acasti board of directors following the closing, and continuing until the 2022 annual general meeting of Acasti shareholders, to consist of: (i) two (2) individuals designated by Grace in this proxy statement/prospectus, being William A. Haseltine and Vimal Kavuru, each a current director of Grace, (ii) one (1) individual to be designated by Grace stockholders holding a majority of the Acasti common shares held by Grace stockholders at the relevant time (the “Additional Grace Nominee”), and (iii) four (4) individuals designated by Acasti in this proxy statement/prospectus, being Roderick N. Carter, Jean-Marie (John) Canan, Jan D’Alvise and Donald Olds, each a current director of Acasti. To the extent that Acasti shareholder approval to effect this board composition is not obtained prior to the closing, Acasti has agreed to take all actions necessary so that the Acasti board of directors will consist of four (4) individuals designated by Acasti and three (3) individuals designated by Grace.

Acasti’s articles of incorporation currently provide that the Acasti board of directors may consist of a maximum of 10 directors. In addition to the four persons nominated for election under “Acasti Proposal No. 2 – Annual Directors Election Proposal”, and in order to implement the board composition from closing of the merger that is contemplated in the merger agreement, the Acasti board of directors has determined to also nominate each of the 2 persons listed below for election as a director at the Acasti annual and special meeting, conditional upon and effective only at the closing of the merger, to serve for a term that expires at the 2022 annual meeting of Acasti shareholders, or until his successor is elected and qualified or until his earlier resignation or removal. It is anticipated that the Additional Grace Nominee, when selected in accordance with the merger agreement, will be appointed in between shareholder meetings through an appointment approved by the board of directors. The Acasti board of directors recommends that Acasti shareholders vote FOR the election of each of the 2 nominees as directors, conditional upon and effective at the closing of the merger.

The persons named in the enclosed form of proxy intend to vote for the election of the 2 nominees whose names are set forth below. Management does not contemplate that any such nominees will be unable to serve as a director of Acasti. However, if, for any reason, any of the proposed nominees do not stand for election or are unable to serve as such, proxies in favour of management designees will be voted for another nominee at their discretion unless the Acasti shareholder has specified in the Acasti shareholder’s proxy that the Acasti shareholder’s common shares are to be withheld from voting in the election of directors.

Nominees for Election as Director

The following table sets out the name and the province or state and country of residence of each of the persons proposed for election as directors, and all other positions and offices with Acasti held by such person, his or her principal occupation and the year in which the person became a director of Acasti.

 

Name, province or state, as the case may be, and country of residence of each director and proposed director		Principal occupation		First year as director
Vimal Kavuru New Jersey, United States		Chairman of the Grace board of directors		N/A
William A. Haseltine, Ph.D New York, United States		Chairman and President of ACCESS Healthcare International, Inc. and member of the Grace board of directors		N/A

The following is a brief biography of the proposed director nominees of Acasti pursuant to the merger directors election proposal:

 

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Vimal Kavuru—Current Chairman of the Grace board of directors

Mr. Kavuru has a track record of creating and leading several pharmaceutical companies. Mr. Kavuru brings, in his vision and management, a broad-based understanding of the global pharmaceutical industry with expertise in strategic planning, product and business development, and operations. In addition to serving as the Chairman of the Grace board of directors, Mr. Kavuru is the founder, chairman and Chief Executive Officer of Rising Pharma Holdings, Inc., a U.S. generic pharmaceutical company, and Acetris Pharma Holdings, LLC, a generic pharmaceutical company serving U.S. government agencies. Previously, Mr. Kavuru founded Citron Pharma & Lucid Pharma, which were sold to Aceto Corporation in 2016, Casper Pharma LLC, an emerging specialty brand pharmaceutical company, and Gen-Source RX, a national distributor of generic pharmaceuticals that was acquired by Cardinal in 2014. In 2007, Mr. Kavuru also co-founded Celon Labs, a specialty oncology and critical care pharmaceutical company acquired by Zanzibar Pharma, a portfolio company of CDC Group. He is a registered pharmacist in the state of New York, holds a B.S. in Pharmacy from HKE College of Pharmacy, Bulgarga, India, and attended Long Island University, Brooklyn, New York with specialization in industrial pharmacy.

Mr. Kavuru makes valuable contributions to the Grace board of directors based on his extensive experience in the pharmaceutical industry in various leadership roles. Mr. Kavuru has served as a director of Grace since 2014.

William A. Haseltine, Ph.D.—Current Grace Director

Mr. Haseltine is a well-respected industry leader in the medical and biotechnology fields with decades of experience. Mr. Haseltine also serves as the Chairman and President of ACCESS Healthcare International, Inc. and as the Chairman of the Haseltine Foundation for Science and the Arts. He is the founder of Human Genome Science and served as the Chairman and Chief Executive Officer for 12 years. Mr. Haseltine is also the founder and Chief Executive Officer of Demetrix, Inc., a biotechnology company specializing in pain and anxiety medications, and founder and director of X-VAX, which is developing a novel herpes simplex vaccine, in addition to more than a dozen other biotechnology companies. Mr. Haseltine was previously a professor at Harvard Medical School and the Harvard School of Public Health, where he was the founder and chairman of the Division of Biochemical Pharmacology and the Division of Human Retrovirology. He is well-known for his seminal work on cancer, HIV/AIDS and genomics, and has authored more than 200 manuscripts published in peer-reviewed journals. He is a lifetime member of the New York Academy of Sciences, a trustee of the New York Academy of Medicine, and an honorary trustee of the Brookings Institution. Mr. Haseltine holds a B.A. in chemistry from the University of California, Berkeley and a Ph.D. in biophysics from Harvard University. Mr. Haseltine has served as a director of Grace since 2018.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

To the knowledge of Acasti, none of the above proposed directors is, or has been, as at the date of this prospectus/proxy statement or within the 10 years prior to the date of this prospectus/proxy statement, a director, CEO or CFO of any corporation that:

 

(a)

was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant corporation access to any exemption under applicable securities legislation, that was in effect for a period of more than 30 consecutive days that was issued while the director or executive officer was acting in the capacity as director, CEO or CFO; or

 

(b)

was subject to an order that was issued after the director or executive officer ceased to be a director, CEO or CFO and which resulted from an event that occurred while that person was acting in the capacity as director, CEO or CFO.

 

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To the knowledge of Acasti, none of the above proposed directors:

 

(a)

is, or has been, as at the date of this prospectus/proxy statement or within the 10 years prior to the date of this prospectus/proxy statement, a director or executive officer of any corporation that, while that person was acting in that capacity, or within 1 year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or

 

(b)

has, within the 10 years prior to the date of this prospectus/proxy statement, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.

To the knowledge of Acasti, no above proposed director has been subject to:

 

(a)

any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or

 

(b)

any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable Acasti shareholder in deciding whether to vote for a proposed director.

Voting for election of directors is by individual voting and not by slate voting. You can vote your Acasti common shares for the election of all of these nominees as directors of Acasti; or you can vote for some of these nominees for election as directors and withhold your votes for others; or you can withhold all of the votes attaching to the Acasti common shares you own and not vote for the election of any of these nominees as directors of Acasti.

THE ACASTI BOARD OF DIRECTORS RECOMMENDS THAT ACASTI SHAREHOLDERS VOTE FOR THE ELECTION OF THE PROPOSED NOMINEES AS DIRECTORS OF ACASTI FOR THE ENSUING YEAR, CONDITIONAL UPON AND EFFECTIVE AT THE CLOSING OF THE MERGER.

THE VOTING RIGHTS PERTAINING TO ACASTI COMMON SHARES REPRESENTED BY DULY EXECUTED PROXIES IN FAVOUR OF THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY WILL BE EXERCISED, IN THE ABSENCE OF SPECIFICATIONS TO THE CONTRARY, FOR THE ELECTION OF THE PROPOSED NOMINEES AS DIRECTORS OF ACASTI FOR THE ENSUING YEAR.

 

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ACASTI PROPOSAL NO. 4—AUDITOR PROPOSAL

At the annual and special meeting, Acasti shareholders will be asked to appoint the firm of KPMG LLP to hold office as Acasti’s auditors until the close of the next annual meeting of Acasti shareholders and to authorize the Acasti board of directors to fix their remuneration. The auditors will hold office until the next annual meeting of Acasti shareholders or until their successors are appointed. KPMG LLP has been acting as auditors for Acasti since September 25, 2006. Representatives of KPMG LLP are not expected to attend the meeting.

THE ACASTI BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPOINTMENT OF KPMG LLP AS AUDITORS FOR ACASTI AND TO AUTHORIZE THE ACASTI BOARD OF DIRECTORS TO DETERMINE THEIR REMUNERATION.

The voting rights pertaining to Acasti common shares represented by duly executed proxies in favour of the persons named in the accompanying form of proxy will be exercised, in the absence of specifications to the contrary, “FOR” the appointment of KPMG LLP as auditors for Acasti and to authorize the Acasti board of directors to determine their remuneration.

 

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ACASTI PROPOSAL NO. 5—COMPENSATION PROPOSAL

General

As required by U.S. federal securities laws, Acasti is seeking a vote on an advisory (non-binding) basis to approve the compensation of Acasti’s Named Executive Officers (“NEOs”), as disclosed in Acasti’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021. This proposal, commonly known as a “say-on-pay” proposal, gives Acasti shareholders the opportunity to endorse or not endorse Acasti’s executive compensation program and policies.

Acasti believes that its executive compensation program and policies are designed to support Acasti’s long-term success by achieving the following objectives:

 

•

support Acasti’s corporate strategies by adopting a “pay for performance” philosophy that provides incentives to Acasti’s executive officers and employees for achievement;

 

•

align the interests of management with those of the Acasti shareholders; and

 

•

attract, retain, and motivate high quality executives.

Acasti urges the Acasti shareholders to read the section entitled “Compensation Paid to Named Executive Officers” and the related narrative and tabular compensation disclosure included in Acasti’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021. The section entitled “Compensation Paid to Named Executive Officers” therein provides detailed information regarding Acasti’s executive compensation program and policies, as well as the compensation of the NEOs.

Shareholder Approval

At the meeting, Acasti shareholders will be asked to consider, and if thought advisable, to approve, on an advisory (non-binding) basis, with or without variation, the following resolution:

RESOLVED THAT:

 

1.

the compensation paid to Acasti’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, compensation tables and related narrative discussion contained in Acasti’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, is hereby approved on an advisory basis.”

To be adopted, the advisory (non-binding) resolution approving the compensation of the NEOs (the “Say-on-Pay Resolution”) must be approved by at least a majority of the Acasti shareholders present or represented by proxy.

THE ACASTI BOARD OF DIRECTORS BELIEVES THE PASSING OF THE SAY-ON-PAY RESOLUTION IS IN THE BEST INTEREST OF ACASTI AND RECOMMENDS THAT ACASTI SHAREHOLDERS VOTE FOR THE SAY-ON-PAY RESOLUTION.

The voting rights pertaining to Acasti common shares represented by duly executed proxies in favour of the persons named in the accompanying form of proxy will be exercised, in the absence of specifications to the contrary, “FOR” the Say-on-Pay Resolution.

 

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ACASTI PROPOSAL NO. 6—STOCK OPTION PLAN PROPOSAL

Acasti’s stock option plan (the “Stock Option Plan”), in its current form, was last approved by Acasti shareholders at a meeting held on August 30, 2020. On June 24, 2021, the Acasti board of directors approved amendments to the existing limits of Acasti common shares reserved for issuance under the Stock Option Plan, as described below, which are subject to Acasti shareholder approval and the approval of the TSX Venture Exchange (“TSXV”).

At the meeting, Acasti shareholders will be asked to approve an amendment to the Stock Option Plan to provide for a 10% rolling plan by setting the total number of Acasti common shares reserved for issuance pursuant to options granted under the Stock Option Plan to 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to awards issued under Acasti’s equity incentive plan (the “Amended Stock Option Plan”).

Under the current terms of the Stock Option Plan and before the implementation of the proposed amendment, the total number of Acasti common shares reserved for issuance pursuant to options granted under the Stock Option Plan is equal to an aggregate number that shall not exceed to 15% of the issued and outstanding Acasti common shares as of August 26, 2020, representing 14,533,881 Acasti common shares.

The Stock Option Plan prescribes various limits to the number of Acasti common shares that can be reserved for issuance for specific grants made under the Stock Option Plan. A copy of the proposed Amended Stock Option Plan is attached hereto as Schedule “A”.

Acasti believes the proposed amendments to the Stock Option Plan are necessary for Acasti to be able to recruit and retain talent as Acasti continues to progress its business plan, will enable Acasti to continue implementing its business and compensation plans, and will provide Acasti with the flexibility to award grants under the Amended Stock Option Plan to achieve appropriate equity incentives, as affirmed by extensive benchmarking work conducted by an independent compensation expert and as reviewed and confirmed by the Acasti board of directors.

The benefits or amounts that will be awarded under the Amended Stock Option Plan for Acasti’s fiscal year ending March 31, 2022 (“Fiscal 2022”) cannot currently be determined because such awards are recommended by the GHR Committee to the Acasti board of directors following its annual review of employee and corporate performance.

The Amended Stock Option Plan must be approved by a majority of the votes cast by all Acasti shareholders at the meeting who are not insiders to whom stock options may be granted under the Stock Option Plan and their associates (the “Disinterested Shareholders”). As at the record date, and based on the information available to Acasti, holders of Acasti common shares are not entitled to vote on the resolution to approve the Amended Stock Option Plan.

Accordingly, Disinterested Shareholders will be asked to approve, with or without variation, the following ordinary resolution (the “Amended Stock Option Plan Resolution”):

RESOLVED THAT:

 

1.	the amended stock option plan (the “Amended Stock Option Plan”) of Acasti, as described in the proxy statement/prospectus dated     , 2021, is hereby approved, ratified and confirmed;

 

2.

the board of directors of Acasti be and is hereby authorized on behalf of Acasti to make any amendments to the Amended Stock Option Plan as may be required by regulatory authorities or otherwise made necessary by applicable legislation, without further approval of the Acasti shareholders, in order to ensure the adoption and efficient function of the Amended Stock Option Plan; and

 

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3.

any director or officer of Acasti be and is hereby authorized and directed to do such things and to execute and deliver all such instruments, deeds and documents, and any amendments thereto, as may be necessary or advisable in order to give effect to the foregoing resolutions, and to complete all transactions in connection with the implementation of the Amended Stock Option Plan.

To be adopted, the Amended Stock Option Plan Resolution must be approved by at least a majority of the Acasti shareholders present or represented by proxy.

THE ACASTI BOARD OF DIRECTORS BELIEVES THE PASSING OF THE AMENDED STOCK OPTION PLAN RESOLUTION IS IN THE BEST INTEREST OF ACASTI AND RECOMMENDS THAT ACASTI SHAREHOLDERS VOTE FOR THE AMENDED STOCK OPTION PLAN RESOLUTION.

The voting rights pertaining to Acasti common shares represented by duly executed proxies in favour of the persons named in the accompanying form of proxy will be exercised, in the absence of specifications to the contrary, “FOR” the Amended Stock Option Plan Resolution.

 

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ACASTI PROPOSAL NO. 7—EQUITY INCENTIVE PLAN PROPOSAL

Acasti’s equity incentive plan (the “Equity Incentive Plan”), in its current form, was last approved by Acasti shareholders at a meeting held on August 30, 2020. On June 24, 2021, the Acasti board of directors approved amendments to the existing limits of Acasti common shares reserved for issuance under the Equity Incentive Plan, as described below, which are subject to Acasti shareholder approval and the approval of the TSXV.

At the meeting, Acasti shareholders will be asked to approve a resolution to amend the Equity Incentive Plan to set the total number of Acasti common shares reserved for issuance pursuant to awards granted under the Equity Incentive Plan at the lesser of (i) 10% of the issued and outstanding Acasti common shares as of June 24, 2021, representing 20,837,554 Acasti common shares, and (ii) 10% of the issued and outstanding Acasti common shares from time to time, which 10% number shall include Acasti common shares issuable pursuant to options issued under the stock option plan (the “Amended Equity Incentive Plan”).

Under the current terms of the Equity Incentive Plan and before the implementation of the proposed amendment, the total number of Acasti common shares reserved for issuance pursuant to awards granted under the Equity Incentive Plan is equal to an aggregate number that shall not exceed the lesser of (x) 2,422,313 Acasti common shares (representing 2.5% of the number of Acasti common shares issued and outstanding as of August 26, 2020) and (y) 15% of the issued and outstanding Acasti common shares as of August 26, 2020, representing 14,533,881 Acasti common shares, which number includes Acasti common shares issuable pursuant to options issued under the Stock Option Plan.

As of the record date, no Acasti common shares were issuable under the Equity Incentive Plan. Further, the Equity Incentive Plan prescribes various limits to the number of Acasti common shares that can be reserved for issuance for specific grants made under the Equity Incentive Plan. A copy of the proposed Amended Equity Incentive Plan is attached hereto as Schedule “B”.

Acasti believes the proposed amendments to the Equity Incentive Plan are necessary for Acasti to be able to continue implementing its business plan and related compensation plan and provide Acasti with the flexibility to award grants under the Amended Equity Incentive Plan to achieve appropriate equity incentives as affirmed by extensive benchmarking work conducted by an independent compensation expert and as reviewed and confirmed by the Acasti board of directors.

The Amended Equity Incentive Plan must be approved by a majority of the votes cast by all Disinterested Shareholders at the Meeting. As at the record date, and based on the information available to Acasti, holders of              Acasti common shares are not entitled to vote on the resolution to approve the Amended Equity Incentive Plan.

Accordingly, Disinterested Shareholders will be asked to consider, and if deemed advisable, to pass, with or without variation, the following ordinary resolution (the “Amended Equity Incentive Plan Resolution”):

RESOLVED THAT:

 

1.

the amended equity incentive plan (the “Amended Equity Incentive Plan”) of Acasti, as set forth in the proxy statement/prospectus dated             , 2021, is hereby approved, ratified and confirmed;

 

2.

the board of directors of Acasti be and is hereby authorized on behalf of Acasti to make any amendments to the Amended Equity Incentive Plan as may be required by regulatory authorities or otherwise made necessary by applicable legislation, without further approval of Acasti shareholders, in order to ensure the adoption and efficient function of the Amended Equity Incentive Plan; and

 

3.

any director or officer of Acasti be and is hereby authorized and directed to do such things and to execute and deliver all such instruments, deeds and documents, and any amendments thereto, as may be necessary or advisable in order to give effect to the foregoing resolutions, and to complete all transactions in connection with the implementation of the Amended Equity Incentive Plan.

 

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To be adopted, the Amended Equity Incentive Plan Resolution must be approved by at least a majority of the Acasti shareholders present or represented by proxy.

THE ACASTI BOARD OF DIRECTORS BELIEVES THE PASSING OF THE AMENDED EQUITY INCENTIVE PLAN RESOLUTION IS IN THE BEST INTEREST OF ACASTI AND RECOMMENDS THAT ACASTI SHAREHOLDERS VOTE FOR THE AMENDED EQUITY INCENTIVE PLAN RESOLUTION.

The voting rights pertaining to Acasti common shares represented by duly executed proxies in favour of the persons named in the accompanying form of proxy will be exercised, in the absence of specifications to the contrary, “FOR” the Amended Equity Incentive Plan Resolution.

 

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ACASTI PROPOSAL NO. 8—APPROVAL ON AN ADVISORY (NON-BINDING BASIS) OF AN AMENDMENT TO THE ACASTI ARTICLES OF INCORPORATION EFFECTING THE ACASTI REVERSE STOCK SPLIT

General

At the Acasti annual and special meeting, Acasti shareholders will be asked to approve on an advisory (non-binding) basis, if necessary to regain compliance with NASDAQ’s minimum bid price rule, an amendment to the Acasti articles of incorporation effecting the reverse stock split. Upon the effectiveness of the amendment to the Acasti articles of incorporation effecting the reverse stock split (the “split effective time”), the issued Acasti common shares immediately prior to the split effective time will be reclassified into a smaller number of shares, within a range of 1-for-    to 1-for-    , with such specific ratio to be approved by the Acasti board.

The Acasti board may determine to accelerate the timing of the proposed reverse stock split through a directors resolution without shareholder approval pursuant to the QBCA and applicable stock exchange rules, if deemed advisable by the Acasti board in its sole discretion, so long as such ratio is not more than 1-for-10.

Purpose

The Acasti board approved the proposal to seek shareholder approval on an advisory (non-binding basis) to amend the Acasti articles of incorporation to effect the reverse stock split for the following reasons:

 

•

the reverse stock split may be necessary to increase Acasti’s share price to meet NASDAQ’s minimum bid price requirement;

 

•

the Acasti board believes effecting the reverse stock split is an effective means of avoiding a delisting of Acasti common shares from NASDAQ in the future;

 

•

the Acasti board believes a higher share price may help generate healthcare institutional investor and analyst interest in Acasti; and

 

•

if the reverse stock split successfully increases the price of Acasti common shares, the Acasti board believes this increase may increase trading volume in Acasti common shares and facilitate future financings by Acasti.

NASDAQ Requirements for Listing on NASDAQ

Acasti common shares are quoted on the NASDAQ Capital Market under the symbol “ACST.”

The principal reason for the reverse stock split will be if it is necessary to ensure the continued listing of Acasti common shares on the NASDAQ Capital Market by increasing the trading price of Acasti common shares in order to help ensure a share price high enough to continue to satisfy the $1.00 per share minimum bid price requirement, although there can be no assurance that the trading price of Acasti common shares would be maintained at such level or that Acasti will be able to maintain the listing of Acasti common shares on the NASDAQ Capital Market.

Potential Increased Investor Interest

Another principal reason for the reverse stock split would be to generate investor and analyst interest in Acasti common shares. On June 29, 2021, Acasti common shares closed on NASDAQ at $0.58 per share. An investment in Acasti common shares may not appeal to healthcare institutional investors and brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise

 

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provide coverage of lower priced stocks. Also, the Acasti board believes that most investment funds are reluctant to invest in lower priced stocks. Accordingly, the Acasti board believes that a higher share price may help to generate additional investor interest in Acasti common shares.

Criteria to be Used for Determining Whether to Implement the Reverse Stock Split

In determining whether to implement the reverse stock split and which reverse stock split ratio to implement, if any, Acasti may consider, among other things, various factors, such as:

 

•

whether the reverse stock split is necessary to continue listing of Acasti common shares on the NASDAQ Capital Market;

 

•

the historical trading price and trading volume of the Acasti common shares;

 

•

the then-prevailing trading price and trading volume of the Acasti common shares and the expected impact of the reverse stock split on the trading market for Acasti common shares in the short- and long-term;

 

•

which reverse stock split ratio would result in the least administrative cost to Acasti; and

 

•

prevailing general market and economic conditions.

Principal Effects of the Acasti Reverse Stock Split

If implemented, the principal effects of the reverse stock split would include the following, all of which have been considered by the Acasti board in submitting to Acasti shareholders for approval on an advisory (non-binding) basis of the reverse stock split:

 

•

The number of outstanding Acasti common shares will be reduced and each Acasti shareholder will own fewer shares than they currently own.

 

•

Except for adjustments that may result from the treatment of fractional shares resulting from the reverse stock split, which are explained below under the section entitled “—Fractional Shares,” each Acasti shareholder will hold the same percentage of Acasti common shares immediately following the reverse stock split as the shareholder held immediately prior to the reverse stock split. In addition, the reverse stock split would have the same effect on Grace stockholders who would become Acasti shareholders upon consummation of the merger as it would have on existing Acasti shareholders.

 

•

The number of Acasti common shares reserved and available for issuance under Acasti’s equity-based compensation plans and the number Acasti common shares issuable upon exercise of outstanding options and warrants will be reduced proportionately based on the reverse stock split ratio selected by the Acasti board, and the exercise price of all outstanding options and warrants will be increased proportionately.

 

•

The voting rights, rights to dividends and distributions and other rights of Acasti common shares will not be changed as a result of the reverse stock split.

 

•

The reverse stock split will not affect the number of authorized Acasti common shares, which will continue to be an unlimited number of common shares pursuant to the Acasti articles of incorporation.

The reverse stock split will not affect Acasti continuing to be subject to the periodic reporting requirements of the Exchange Act. The reverse stock split is not intended as, and will not have the effect of, a “going private transaction” covered by Rule 13e-3 under the Exchange Act.

The reverse stock split will be affected simultaneously for all outstanding Acasti common shares, including the Acasti common shares issuable to Grace stockholders in the proposed merger. The reverse stock split will affect all Acasti shareholders (including Grace stockholders who become Acasti shareholders upon consummation of the proposed merger) uniformly and will not affect any shareholder’s percentage interest in

 

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Acasti, except to the extent that the reverse stock split results in any Acasti shareholders owning a fractional share. Acasti common shares issued pursuant to the reverse stock split will remain fully paid and nonassessable. The reverse stock split does not affect the total proportionate ownership of Acasti for Acasti shareholders and Grace stockholders following the merger.

Acasti cannot predict whether the reverse stock split will increase the market price for Acasti common shares. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:

 

•

the bid price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by NASDAQ for continued listing;

 

•

the market price of Acasti common shares after the reverse stock split will rise in proportion to the reduction in the number of shares of Acasti common shares outstanding before the reverse stock split; or

 

•

the reverse stock split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks.

The market price of Acasti common shares will also be based on the performance of Acasti and other factors, some of which are unrelated to the number of shares outstanding. If the reverse stock split is effected and the market price of Acasti common shares declines, the percentage decline as an absolute number and as a percentage of the overall market capitalization of Acasti may be greater than would occur in the absence of the reverse stock split. Furthermore, the liquidity of Acasti common shares could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split. In addition, there can be no assurance that Acasti common shares will not be delisted due to a failure to meet other listing requirements even if the market price per share of Acasti common shares post reverse stock split remains in excess of the minimum bid price requirement.

The anticipated resulting increase in the per share price of Acasti common shares due to the reverse stock split is expected to encourage greater interest in its common shares by brokers and healthcare institutional investors and possibly promote greater liquidity for its Acasti shareholders. However, there is no assurance that such greater interest will occur.

Since the reverse stock split will decrease the number of shares held by Acasti shareholders, the reverse stock split may increase the number of Acasti shareholders who hold less than a “round lot,” or 100 shares. Typically, the transaction costs to shareholders selling “odd lots” are higher on a per share basis. Consequently, the reverse stock split could increase the transaction costs to existing Acasti shareholders in the event they wish to sell all or a portion of their shares.

Procedure for Effecting the Acasti Reverse Stock Split and Exchange of Stock Certificates

If the Acasti board determines that a reverse stock split is in the best interests of Acasti and Acasti shareholders and necessary to regain compliance with NASDAQ’s minimum bid price rule, Acasti will file the articles of amendment with the Quebec Enterprise Registrar at such time as the Acasti board has determined to be the appropriate reverse split effective time. Beginning at the reverse split effective time, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.

As soon as practicable after the split effective time, Acasti shareholders will be notified that the reverse stock split has been effected. Acasti expects that Computershare, Acasti’s transfer agent, will act as exchange agent for purposes of implementing the exchange of share certificates, if any. Holders of Acasti common shares holding all of their shares electronically in book-entry form with Computershare do not need to take any action (the exchange will be automatic) to receive post-split shares. Holders of pre-split shares held in certificated form

 

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will be asked to surrender to the exchange agent certificates representing pre-split shares in exchange for certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by Acasti. Upon receipt of the holder’s pre-split certificate(s) and the properly completed and executed letter of transmittal, the holder will be issued the appropriate number of common shares electronically in book-entry form under the Direct Registration System. No new shares in book-entry form will be reflected until the holder surrenders the holder’s outstanding pre-reverse stock split certificate(s), together with the properly completed and executed letter of transmittal, to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split shares. Acasti shareholders should not destroy any share certificate(s) and should not submit any certificate(s) unless and until requested to do so.

Fractional Shares

No fractional shares will be issued in connection with the proposed reverse stock split. Any fractional shares that would have otherwise been held by Acasti shareholders of record because they hold a number of pre-split shares not evenly divisible by the number of pre-split shares to be reclassified into one post-split share shall be (i) with respect to any fraction equal to or greater than 0.5, rounded up to the next highest whole number of Acasti common shares; and (ii) with respect to any fraction less than 0.5, rounded down to the next lowest whole number of Acasti common shares.

Alternatively, Acasti may elect in its sole discretion, that Acasti shareholders of record who otherwise would be entitled to receive fractional shares because they hold a number of pre-split shares not evenly divisible by the number of pre-split shares to be reclassified into one post-split share, will be entitled to a cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of the common shares on NASDAQ on the date of the split effective time; provided, however, holders of certificated shares must first surrender to the exchange agent the certificates representing such pre-split shares. The ownership of a fractional interest will not give the holder thereof any voting, dividend, or other rights except to receive payment therefor as described herein.

If applicable, Acasti shareholders should be aware that, under the escheat laws of the various jurisdictions where Acasti shareholders reside, where Acasti is domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the reverse stock split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by Acasti or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, Acasti shareholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state to which they were paid.

Accounting Consequences

If implemented, after the reverse stock split (and disregarding the impact of shares of Acasti common shares issued in the merger), net income or loss per share, and other per share amounts will be increased because there will be fewer Acasti common shares outstanding. In future financial statements, net loss per share and other per share amounts for comparative periods ending before the reverse stock split will be restated to give retroactive effect to the reverse stock split.

Certain United States Federal Income Tax Considerations related to the Acasti Reverse Stock Split

The reverse stock split should constitute a “recapitalization” under Section 368(a)(1)(E) of the Code for U.S. federal income tax purposes. Accordingly, an Existing U.S. Holder of Acasti common shares should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional Acasti common share. The aggregate tax basis of the Acasti common shares received pursuant to the reverse stock split should be the same as the aggregate adjusted tax basis of the Acasti common shares surrendered

 

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(excluding any portion of such basis that is allocated to any fractional Acasti common share), and the holding period of such received Acasti common shares should include the period during which the surrendered Acasti common shares were held by such holder.

U.S. Holders of Grace common stock should not have U.S. federal income tax consequences from the reverse stock split.

For a more complete discussion of certain U.S. federal income tax considerations relating to the reverse stock split, see “Certain United States Federal Income Tax Considerations—U.S. Federal Income Tax Consequences of the Acasti Reverse Stock Split to Existing U.S. Holders of Acasti Common Shares” beginning on page 156.

Vote Required

To be adopted, the advisory resolution approving the Acasti reverse stock split proposal as disclosed in this proxy statement/prospectus must be approved by at least a majority of the Acasti shareholders present or represented by proxy.

THE ACASTI BOARD OF DIRECTORS BELIEVES THE PASSING OF THE REVERSE STOCK SPLIT PROPOSAL IS IN THE BEST INTEREST OF ACASTI AND RECOMMENDS THAT ACASTI SHAREHOLDERS VOTE FOR THE REVERSE STOCK SPLIT PROPOSAL.

The voting rights pertaining to Acasti common shares represented by duly executed proxies in favour of the persons named in the accompanying form of proxy will be exercised, in the absence of specifications to the contrary, “FOR” the reverse stock split proposal.

 

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CONSENT OF CERTAIN GRACE STOCKHOLDERS

Under the terms of the Voting and Lock-up Agreements, certain Grace stockholders representing the requisite majority required to approve the proposed merger have agreed, within 5 business days after the Form S-4 registration statement of which this prospectus / proxy statement forms a part, has been declared effective by the SEC, to deliver a written consent approving the adoption of the merger agreement and the merger and the other transactions contemplated by the merger agreement.

 

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THE MERGER

Effects of the Merger

At the effective time of the merger, MergerCo will merge with and into Grace. Grace will survive the merger to become a wholly-owned subsidiary of Acasti.

At the effective time of the merger, each issued and outstanding share of Grace common stock (after giving effect to the acceleration of the Grace restricted stock and the conversion of the Grace promissory notes) will automatically be converted into the right to receive a number of Acasti common shares per share of Grace common stock equal to the equity exchange ratio set forth in the merger agreement such that, immediately following the consummation of the merger, existing Acasti shareholders are expected to own at least 55% and existing Grace stockholders are expected to own at most 45% of the outstanding capital stock of the combined company on a fully-diluted basis. The equity exchange ratio is subject to upward adjustment in favor of Acasti shareholders based on each company’s capitalization and net cash balance at the effective time of the merger, as specified in the merger agreement. For more information on the equity exchange ratio see the section entitled “Merger Agreement – Equity Exchange Ratio” beginning on page 121. Acasti shareholders will continue to own their existing Acasti common shares after the merger.

As of June 29, 2021, there were 208,375,549 Acasti common shares outstanding. It is currently estimated that, if the transactions contemplated by the merger agreement are completed, Acasti will issue up to a maximum of 170,500,000 additional Acasti common shares to holders of Grace common stock pursuant to the merger consideration.

The merger is an arm’s length transaction in accordance with the policies of the TSXV and does not constitute a “related party transaction” as defined under Regulation 61-101 – respecting Protection of Minority Security Holders in Special Transactions. Based on the information available to Acasti, no finder’s fees are payable in connection with the merger and the merger will not result in the creation of a new “control person” of Acasti as defined under the applicable policies of the TSXV. Pursuant to the applicable policies of the TSXV, disinterested shareholder approval is required to approve the creation of a new control person.

Background of the Merger

The terms of the merger agreement are the result of extensive arm’s-length negotiations between members of the management team of Acasti and the management team of Grace, along with their respective advisors, and under the direction of each company’s board of directors. Acasti followed a careful process assisted by experienced outside financial and legal advisors to rigorously examine potential candidates and transactions through broad outreach to life sciences companies and a thorough process of evaluation of prospective strategic partners. The following is a summary of the background of the events leading up to the decision by Acasti to engage in a strategic transaction, the process undertaken by Acasti to identify and evaluate prospective merger partners, and the negotiation of the merger agreement with Grace.

Acasti is a biopharmaceutical innovator that has historically focused on the research, development and commercialization of prescription drugs using OM3 fatty acids delivered both as free fatty acids and bound-to-phospholipid esters derived from krill oil for the treatment of cardiometabolic diseases, specifically hypertriglyceridemia. Acasti’s lead product candidate, CaPre, is an OM3 phospholipid therapeutic that has been the subject of two recently completed Phase 3 clinical trials. These trials, designated as TRILOGY 1 & 2, randomized a total of 242 and 278 patients, respectively, and were designed to evaluate the efficacy, safety and tolerability of CaPre in patients with severe hypertriglyceridemia. The top-line results were announced on January 13, 2020 and August 31, 2020, respectively, and neither TRILOGY 1 nor TRILOGY 2 met its primary endpoint for lowering triglycerides. Following the announcement of the TRILOGY 2 results, Acasti’s management and the Acasti board engaged in in-depth discussions relating to potential measures to preserve Acasti’s cash while exploring a range of strategic options to preserve and maximize shareholder value.

 

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In the months leading up to the anticipated top-line results for TRILOGY 2, Acasti initiated discussions with a potential strategic partner (Company A) concerning a potential in-licensing opportunity to complement a planned commercial launch of CaPre, had the TRILOGY results been conclusive and allowed for regulatory approval and commercial launch. The financing for this in-licensing transaction, which would have involved a material upfront payment from Acasti, became impossible to realize after TRILOGY 2 failed to meet its primary endpoint for lowering triglycerides. Nevertheless, following the announcement of TRILOGY 2 topline results but prior to the engagement of Oppenheimer as financial adviser in September 2020 as described below, Acasti refocused the discussions with Company A to assess whether an in-licensing arrangement on revised terms, or a potential merger transaction, could be contemplated between the parties, given the good level of knowledge it had acquired on Company A and its assets.

Following these discussions and additional financial, corporate and legal diligence conducted between the parties, Company A presented to Acasti on September 9, 2020 a non-binding merger offer that, in light of Acasti’s assets, market price, cash position and experienced personnel, did not provide adequate value to Acasti and its shareholders for the Acasti board to support it. Furthermore, the discussions with Company A on transaction structuring highlighted significant cross-jurisdictional complexities, including from a tax standpoint. Based on the Acasti board’s recommendation, Acasti management went back to Company A to determine whether the low valuation referenced in the non-binding indication of interest could be meaningfully increased, and received a negative response from Company A.

As a result, Acasti’s board determined to consider other alternatives with the intent to conduct a canvassing of potential strategic opportunities with the support of a life science financial advisor. The Acasti board interviewed three financial advisory firms and selected Oppenheimer based on its expertise in the pharmaceutical sector, and overall proposal to Acasti. Acasti management, under the oversight of the Acasti board, engaged in discussions with Oppenheimer regarding the terms of a potential engagement to assist Acasti in conducting a broad strategic review process and canvassing of potential transaction opportunities.

On September 8, 2020, the Acasti board held a telephonic special meeting at which a representative of Oppenheimer outlined a potential strategic review process for the Acasti board’s consideration. The strategic review process would include an evaluation of a range of reasonable options to maximize value for Acasti shareholders, including the potential sale of Acasti’s assets, possible business combinations with other life science companies and a reverse merger with or acquisition of a privately-held life sciences company, with Acasti common shares being the consideration in the transaction.

At the beginning of the process, with the announcement of Acasti’s results from its second Phase 3 trial in late August 2020, the Acasti common share price decreased, with much higher trading volumes than usual, from $0.82 per share immediately prior to the announcement of the TRILOGY 2 study results to a low price of $0.19/share on September 14, 2020. Acasti’s’s market capitalization had lowered drastically to under $20 million from over $80 million and Acasti’s’s cash resources were approximately $11 million. This profile left Acasti in a relatively weak position at the start of the process to negotiate a strategic transaction and made the prospects of a reverse takeover with a relatively small ownership position for Acasti shareholders the most likely outcome at the outset. As a strategic option, a reverse merger with a strategic partner using Acasti common shares as consideration appeared to initially be the most realistic strategic alternative in Acasti’s circumstances, given the limited value that the marketplace appeared to assign to Acasti’s remaining non-cash assets, its relatively limited cash runway at the time, and the value of Acasti’s public listing. Further, the Acasti board considered that a reverse merger transaction could provide Acasti shareholders with a meaningful stake in a combined company possessing potentially promising clinical prospects and the means to pursue them, establishing the opportunity for long-term value creation for Acasti shareholders.

At the same Acasti board meeting held on September 8, 2020, Jan D’Alvise, Acasti’s president and chief executive officer and a member of the Acasti board, provided a summary of management’s discussions with representatives of Oppenheimer and recommended that the Acasti board engage Oppenheimer as its financial

 

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advisor for the strategic review process. The Acasti board unanimously approved the engagement of Oppenheimer based on its strong experience with recent strategic review processes involving life science companies, as well as the competitiveness of its fees. The Acasti board also determined, with the advice of outside legal counsel, Osler, Hoskin & Harcourt LLP (“Osler”), that the establishment of a special committee in connection with the strategic review process was not necessary or practical given the relatively small size of the Acasti board, which is comprised of four directors (three of which are independent within the meaning of applicable securities laws and stock exchange rules). Representatives of Osler also provided advice on board fiduciary duties and process considerations in discharging such duties.

Oppenheimer was engaged to provide financial advisory services, including conducting a broad market search to identify and reach out to suitable strategic partners. Representatives of Oppenheimer recommended a two-step strategic review process, with an initial phase involving representatives of Oppenheimer issuing a process letter to a large number of prospective parties to solicit non-binding initial indications of interest with summaries of the proposed strategic partner’s indication of relative valuations and resulting ownership split of the combined company, board representation for Acasti shareholders, estimated financing needs, business strategy, diligence plan, proposed timing and other matters. Following the receipt of indications of interest, the Acasti board, with the assistance of management and representatives of Oppenheimer, reviewed the indications of interest to focus on selecting a subset of candidates to progress to the next round of consideration. This next round would include presentations by the management teams of the subset of potential strategic partners to members of Acasti’s management and the Acasti board, due diligence reviews of each party’s business, and refinement of the indications of interest. Thereafter, the Acasti board would select one or more potential finalists with which to negotiate a definitive agreement.

On September 29, 2020, Acasti issued a press release announcing that it had commenced a process to explore and evaluate strategic alternatives to enhance shareholder value and that it had engaged Oppenheimer as its financial advisor to assist in the strategic review process. The press release indicated that the potential range of strategic alternatives that may be explored or evaluated as part of the strategic review process could include an acquisition, merger, reverse merger, other business combination, sales of assets, and licensing or other strategic transactions involving Acasti, or a combination of these options. Acasti did not set a timetable for completion of the strategic review process in the press release.

Following the public announcement on September 29, 2020, at the direction of Acasti’s board, representatives of Oppenheimer initiated a process of broad outreach to potential strategic partners in the life science industry that were pursuing the development of product candidates in therapeutic areas that were of interest to life science investors. Such parties also included a limited number of parties known to Acasti, including Company A, which were included in the process and coordinated through representatives of Oppenheimer. As part of this process, representatives of Oppenheimer contacted a total of 118 companies. Ultimately, a total of 21 non-binding letters of intent were received from interested parties.

In the period between September 2020 and early January 2021, 18 companies signed a confidentiality agreement with Acasti, expressing their interest in learning more about a transaction with Acasti, and a small group of parties indicated interest without signing a confidentiality agreement based on their review of publicly available information. The confidentiality agreements included customary confidentiality provisions with standstill provisions prohibiting the potential strategic partners from engaging in certain types of actions, including making an acquisition proposal to Acasti shareholders without Acasti’s prior written consent. The potential strategic partners’ preclinical and clinical development programs and, in some cases, commercial products, were focused on a variety of indications and markets, including pharmaceuticals, medical devices and diagnostics. Acasti’s management, along with representatives of Oppenheimer, reviewed each of these potential strategic partners in detail and evaluated the candidates based on numerous factors, including their businesses model, differentiation of their products and technologies, strength of patents, stage of development, commercial opportunity, experience of their management team, cash position and financing needs, relative valuation proposals, certainty to close and other criteria.

 

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During that same period from September 2020 to early January 2021, representatives from Oppenheimer arranged numerous calls with representatives of the various individual potential bidders, with Acasti management present for a vast majority of those calls, to discuss their businesses and address a range of important diligence topics with their management teams. During those same months, Acasti devoted significant time and resources, with the support of external advisors and consultants, where appropriate, including Oppenheimer and Osler, to run an extensive first phase of due diligence with respect to the entire field of 21 potential bidders, through both documentary due diligence and calls with potential bidders, covering a range of diligence topics, including each bidder’s business model, pipeline products and unmet clinical needs being addressed, market potential, commercialization strategies, partnering prospects, financial projections, technologies and patents, clinical and regulatory plans, strength and experience of their management team, cash position, financing needs and ability to attract capital at or prior to closing, and their valuation proposal.

On October 29, 2020, the Acasti board held a telephonic meeting, with representatives of each of Acasti management, Oppenheimer and Osler present. At the meeting, the senior management team of Acasti, and a representative from Oppenheimer reviewed the indications of interest that had been received from potential strategic partners and discussed the strategic review process to date, noting that representatives of Oppenheimer initiated outreach to 109 companies and received 9 inbound inquiries, and that Acasti had received written initial indications of interest from 21 companies, all of which were structured as reverse merger transactions. An Oppenheimer representative discussed with the board the approach that representatives of Oppenheimer and Acasti had followed in evaluating the proposals and the various selection criteria considered, including each bidder’s business model, differentiation of their products and technologies, strength of patents, stage of development, commercial opportunity, experience of their management team, cash position and financing needs, relative valuation proposal, certainty and timing to close and other criteria. Representatives of Oppenheimer provided the Acasti board with a summary of the indicative proposals received from the 21 companies that provided initial indications of interest, and management provided feedback on findings to date on such companies. The Acasti board discussed the various preliminary proposals and completed an assessment of the companies that should continue in the process. In completing that assessment, the Acasti board considered valuation and pro forma Acasti shareholder ownership, quality of the product/technology and its stage of development, certainty and timing to close, potential for investor interest, strength of the management team and their capabilities, and financing needs going forward.

As a result of this assessment, the Acasti board, with inputs from senior management and in consultation with representatives of Oppenheimer, selected four companies, consisting of Company B, Company C, Company D and Company E, as transaction candidates that should proceed to the next round of the strategic review process. It was agreed at the board meeting that Acasti would engage primarily with those four parties for the next stage of the process, but that it would through representatives of Oppenheimer maintain contact as appropriate with other potential bidders of interest.

A brief summary of the initial indications of interest of the four parties that were identified as semi-finalists to continue to the next phase of the strategic review process is provided below:    

 

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Company E submitted on October 22, 2020 an initial indication of interest to representatives of Oppenheimer for a reverse merger transaction, which assigned a value of approximately $32.5 million for Acasti, assuming Acasti delivered at least $2.5 million cash at closing, $130 million for Company E, and included an assumption of a $25 million round of financing to be closed immediately prior to a merger closing, which would result in a post-closing ownership allocation of approximately 17.3% for Acasti shareholders and approximately 82.7% for Company E stockholders.

 

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Company B submitted on October 23, 2020 an initial indication of interest to representatives of Oppenheimer for a reverse merger transaction, which assigned a value of approximately $27.5 million for Acasti, assuming Acasti delivered at least $2.5 million cash at closing, $110 million for Company B, and included an assumption of a $35 million round of financing to be closed immediately prior to a merger closing, which would result in a post-closing ownership allocation of approximately 15.9% for Acasti shareholders and approximately 84.1% for Company B stockholders.

 

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Company D submitted on October 27, 2020 an initial indication of interest to representatives of Oppenheimer for a reverse merger transaction, which assigned a value of approximately $30 million for Acasti, $192 million for Company D, and included an assumption of a $20 million financing round to be closed upon the signing of a definitive agreement and an additional $60 million financing round to be closed immediately prior to a merger closing, which would result in a post-closing ownership allocation of approximately 9.3% for Acasti shareholders, approximately 82.5% for existing Company D stockholders, and approximately 8.2% for new investors that would invest in Company D prior to closing.

 

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Company C submitted on October 29, 2020 an initial indication of interest to representatives of Oppenheimer for a reverse merger transaction, which assigned a value of approximately $27.5 million for Acasti, assuming Acasti delivered at least $2.5 million cash at closing, $250 million for Company C, and included an assumption of a $25 million round of financing to be closed immediately prior to a merger closing, which would result in a post-closing ownership allocation of approximately 9.9% for Acasti shareholders and approximately 90.1% for Company C stockholders.

From the beginning of November 2020 to the end of January 2021:

 

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Representatives from Oppenheimer had discussions with representatives of the four semi-finalist bidders regarding the strategic review process and the bidders’ offers;

 

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Acasti management requested of Company B, Company C, Company D and Company E additional legal, patent, clinical, manufacturing, business and financial diligence information; and

 

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Company B, Company C, Company D and Company E responded to a number of Acasti management’s legal, patent, clinical, manufacturing, business and financial diligence requests.

During that second phase of due diligence focused on the four semi-finalist bidders, Acasti management conducted deeper due diligence of each of the semi-finalists, including conducting secondary and primary market research with key opinion leaders (KOLs) to better understand each company’s strengths, weaknesses/risks, opportunities and threats. Acasti also engaged a third-party market and technology research expert firm to conduct an in-depth technology, patent and market assessment. Acasti management had numerous additional conference calls with each of the four semi-finalists to discuss these additional due diligence items.

In November 2020, the Acasti board held meetings telephonically, with representatives of each of Acasti management and Oppenheimer present, to meet with, and receive presentations from selected potential bidders, including each of Company B, Company C, Company D and Company E. The presentations generally covered, among other things, a description of each company’s proposal, and a deeper analysis of certain aspects of its business, products and technologies, patent portfolio, commercial opportunity and strategies, regulatory pathway, management team, clinical development plans, proposed relative valuations, available cash, financing needs, financial models and budgets, and signing and closing timeline.

On January 12, 2021, following a general shift in stock market conditions that started in December 2020 with an upward trend in the Company’s share price, and an improved cash position of Acasti through capital raises under its ATM, Grace entered into the process and its financial advisor, William Blair & Company, L.L.C. (“William Blair”), submitted an initial indication of interest to representatives of Oppenheimer for a reverse merger transaction, which assigned a value of approximately $80 million for Acasti, assuming Acasti delivered at least $40 million of cash at closing, and $120 million for Grace, which would result in a post-closing ownership allocation of approximately 40% for Acasti shareholders and approximately 60% for Grace stockholders.

As a result of the favorable initial assessment of Grace’s business and product pipeline, and attractiveness of the proposal at that point in time, the Acasti board determined to add Grace as a semi-finalist in the process, along with the four semi-finalists previously selected. From that point, Acasti engaged in significant due diligence, to bring its diligence level on Grace to a similar level that it had performed on the other semi-finalist bidders.

 

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On January 28 and January 30, 2021, the Acasti board held a two-part telephonic meeting, with representatives of each of Acasti management, Oppenheimer and Osler present. Acasti management presented each of the four semi-finalist bidders that had been identified earlier in the process, along with Grace which had subsequently come to the process in January 2021, to the Acasti board in greater detail, including the findings to date from management’s diligence process into the bidders’ respective presentations, proposals, business plans, market research, financial models, management teams, technologies and patents, regulatory pathways, commercial opportunities, cash reserves and financing needs. After discussion, the Acasti board unanimously decided to identify Grace, Company B and Company C, as the finalists in the strategic review process due to, among other things, the Acasti board’s view that these bidders presented more meaningful opportunities for Acasti shareholders than the other remaining bidders. While Company D and Company E were not selected as finalists by the Acasti board for different reasons, including their relatively low valuation of Acasti (particularly given Acasti’s higher market capitalization at that time), the Acasti board reserved the ability to consider them as alternatives to the finalists in the event any of the finalists dropped out of the process before the presentation meetings.

At the same meeting, representatives of Oppenheimer discussed with the Acasti board and management the implications of Acasti’s recent significantly higher market capitalization and stronger cash position for a potential transaction. The Acasti board formulated as an objective that ownership consideration for Acasti shareholders offered by the finalists in the process should be negotiated upwards to better align with the value ascribed by the market to Acasti, and its stronger cash position. It was also determined to consider if, in the event of a successful upward negotiation of valuation, a transaction could be structured as an acquisition by Acasti, with potential additional benefits, in addition to the greater ownership by Acasti shareholders, of a simpler transaction and tax structuring, shorter timing to close, and better representation of the best interests of Acasti shareholders after the transaction.

On February 3, 2021, Acasti management, with representatives of Oppenheimer and Osler attending, held a call with management of Company C to discuss at a high level a potential process to explore terms and structuring of a potential transaction between the parties.

On February 6, 2021, the Acasti board approved the entering into of a 30-day exclusivity agreement with Company C to explore in more detail whether a transaction with Company C could be entered into, with the more specific objective to assess whether (i) a transaction could be structured in a mutually acceptable manner, principally from a tax perspective, and (ii) the valuation of Acasti by Company C could be negotiated upwards in a way that would result in a more favorable equity exchange ratio for Acasti shareholders.

On February 6, 2021, Acasti entered into an exclusivity agreement with Company C (the “Company C Exclusivity Agreement”). The Company C Exclusivity Agreement provided that the parties would work exclusively together on pursuing a strategic transaction for an initial 30-day period.

Following the signing of the Company C Exclusivity Agreement, Acasti and Company C promptly entered into discussions concerning potential structuring of a transaction, with inputs from their respective financial, tax and legal advisors. It became apparent from such discussions that significant cross-border complexities, including from a tax standpoint, may arise from a transaction between the parties structured as a reverse takeover. While a preliminary assessment of potential structuring alternatives was discussed, those were highly complex, raised material transaction risk, and did not provide reasonable assurances on the absence of negative tax consequences for Acasti and its shareholders.

No mutually acceptable structure emerged from discussions between Acasti and Company C, and as a result the parties agreed to terminate the Company C Exclusivity agreement by mutual consent on February 16, 2021. The parties agreed that Acasti would keep Company C informed of its process, despite termination of the exclusivity.

 

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In parallel to Acasti’s process and its consideration of strategic alternatives, and in particular the proposals made by the three finalists, market and financing developments continued to fundamentally improve Acasti’s valuation in the market and financial position.

Acasti’s share price continued to rise through January and February 2021, reaching $1.20 by February 10, 2021, resulting in a market capitalization for Acasti of approximately $230 million as of that date. Continued access to its ATM program and exercises of outstanding warrants enabled Acasti to raise over $50 million between December 2020 and February 2021, ultimately providing Acasti with $61 million in cash at March 31, 2021.

On February 18, 2021, the Acasti board held a two-part telephonic meeting, with representatives of each of Acasti management, Oppenheimer and Osler present. As a result of Acasti’s increased market capitalization, and stronger cash position resulting from proceeds raised under the ATM, the Acasti board, consistent with advice received from Oppenheimer, stipulated that a transaction should appropriately reflect Acasti’s higher market valuation at that time. In the context of the three finalists that were still part of the process in February 2021, this stipulation implied a renegotiation of their proposals to reflect such higher valuation, with a shift of the transaction structure from a reverse take-over to an acquisition in which, after issuance of Acasti shares as acquisition consideration, current Acasti shareholders would continue to hold more than 50% of the outstanding shares of the combined company (on a non-diluted basis) at the closing of the transaction.    

As a result of the above, the Acasti board and management instructed representatives of Oppenheimer to present non-binding acquisition proposals to each of three finalists, reflective of Acasti’s higher market valuation at that time.

On February 19, 2021, Acasti provided indications of interest to each of Grace, Company B and Company C, which, at Acasti’s direction, were discussed and negotiated with the assistance of representatives of Oppenheimer within the following days. Company B rejected the acquisition proposals on the same day of their receipt. Company C entered in discussions with representatives of Oppenheimer and Acasti management, but there was no pathway to change the structuring complexities and risks, including from a tax perspective, that had made reaching a mutually satisfactory structure likely.

Of the two remaining bidders, only Grace was accepting of substantially all of the key materials terms of Acasti’s proposal. The indication of interest provided by Acasti to Grace assumed Acasti would deliver at least $50 million of cash at closing with no additional financing from Grace required prior to a merger closing. This proposal would result in a post-closing ownership allocation of 55% for Acasti shareholders and 45% for Grace stockholders, with the ability to adjust the equity exchange ratio upwards in Acasti’s favor based on working capital adjustments at closing. Grace’s board was receptive to this acquisition proposal.

On February 22, 2021, the Grace and Acasti management teams met telephonically to discuss remaining diligence items, including research and development, commercial and marketing matters, and to address key terms and assumptions of a potential transaction.

On February 25, 2021, the Acasti board met telephonically to receive an update from Acasti management and representatives of Oppenheimer on the negotiations of the last few days, and to compare potential terms negotiated on a non-binding basis with Grace and Company C. At that meeting, after deliberation among Acasti board members and discussions with Acasti management, representatives of Oppenheimer and Osler, the Acasti board approved Acasti’s non-binding acquisition proposal for Grace and the signing of an exclusivity agreement for negotiating a definitive agreement. The decision to select Grace to advance exclusive negotiations was made after due consideration by the Acasti board of a range of key factors, including Grace (i) recognizing a valuation and formulating an equity exchange ratio for Acasti that aligned with Acasti’s then-applicable market capitalization and, as a result, accepting an acquisition of Grace by Acasti instead of a reverse takeover by Grace, (ii) Acasti shareholders owning a majority of the outstanding shares of Acasti on a fully-diluted basis at closing

 

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of the transaction, (iii) the assessment of the drug candidates of Grace, Grace’s deep pipeline of assets, relative late stage of development and Grace’s relatively low-complexity, low cost regulatory pathway, (iv) the simpler structuring considerations of an acquisition versus a reverse takeover and other bids, including from tax, transaction implementation and timing standpoints, (v) the greater ability for oversight of the interests of Acasti shareholders after the transaction, including through board composition, and (v) the synergies between the two companies and their management teams.

On February 25, 2021, at the direction of the Acasti board, representatives of Oppenheimer informed Grace management that the Acasti board had selected Grace as the primary bidder in the strategic review process. On February 25, 2021, at the direction of the Acasti board, representatives of Oppenheimer informed representatives of Company B and Company C that they were selected as alternates to a primary bidder in the strategic review process.

On February 26, 2021, Acasti and Grace entered into an exclusivity agreement (the “Grace Exclusivity Agreement”). The Grace Exclusivity Agreement provided that the parties would work exclusively together on pursuing a strategic transaction until March 26, 2021 (as automatically extended to April 12, 2021, as further extended by the parties to May 3, 2021, and as further extended by the parties to May 10, 2021).

On February 26, 2021, representatives of each of Acasti management, Grace management, Oppenheimer, Osler and Reed Smith LLP (“Reed Smith”), Grace’s legal counsel, and William Blair met telephonically to discuss various transaction matters, including transaction documents, transaction structure and timing.

Between February 26, 2021 and May 6, 2021, representatives of Acasti and Grace coordinated on several remaining diligence matters, and diligence calls between Grace and Acasti management teams took place relating to, among other things, program plans and timelines, employee compensation and benefits, financial models, patents and regulatory matters.

On March 3, 2021, the Grace and Acasti management teams met telephonically for preliminary integration planning purposes.

On March 5, 2021, the Acasti board met telephonically to discuss the status of the transaction and negotiations with Grace.

Also on March 5, 2021, Osler delivered an initial draft of the merger agreement and Grace voting agreement to Reed Smith.

Between March 8, 2021 and March 16, 2021, telephonic meetings were held between the Grace and Acasti management teams and representatives of each of their respective legal and financial advisors to discuss the merger announcement, the Acasti shareholders, Grace’s product pipeline, and open issues relating to the merger agreement and deal structure.

On March 12, 2021, Reed Smith delivered comments to the merger agreement to Osler.

Between March 12, 2021 and March 17, 2021, Reed Smith responded to a number of Osler’s legal diligence requests.

On March 18, 2021, the Acasti board held a telephonic special meeting, with representatives of Oppenheimer and Osler present. At the meeting, Ms. D’Alvise, representatives of Oppenheimer and Osler provided an update to the Acasti board regarding, among other things, the status of negotiations with Grace and the material open issues in the merger agreement.

On March 19, 2021, the research and development teams of Grace and Acasti met telephonically to conduct a virtual laboratory tour of Grace’s facilities.

 

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On March 23, 2021, the management teams of Grace and Acasti and their respective legal counsels met telephonically to discuss and resolve open issues relating to the merger agreement.

On March 23, 2021, Reed Smith delivered an issues list with respect to the merger agreement.

On March 24, 2021, Reed Smith delivered a revised draft of the Grace voting agreement.

On March 25, 2021, the Acasti board held a telephonic special meeting, with representatives of Oppenheimer and Osler present. At the meeting, Ms. D’Alvise, representatives of Oppenheimer and Osler provided an update to the Acasti board regarding, among other things, the status of negotiations with Grace and the material open issues in the merger agreement and voting agreement.

On March 26, 2021, Reed Smith delivered an updated draft of the merger agreement to Osler.

On March 26, 2021, the management teams of Grace and Acasti met telephonically to discuss open issues relating to the merger and the timeline.

On March 28, 2021, the exclusivity agreement was extended to April 12, 2021.

On April 2, 2021, the Acasti board held a telephonic special meeting, with representatives of Oppenheimer and Osler present. At the meeting, Ms. D’Alvise, representatives of Oppenheimer and Osler provided an update to the Acasti board regarding, among other things, the status of negotiations with Grace and the material open issues in the merger agreement and the voting agreement.

On April 12, 2021, the exclusivity agreement was extended to April 19, 2021. Also on April 12, 2021, the Acasti board met telephonically to discuss the status of the transaction and negotiations with Grace.

On April 13, 2021, members of Acasti and Grace management met telephonically on four occasions to resolve open issues relating to the merger agreement.

On April 14, 2021, the management teams of Grace and Acasti met telephonically to discuss the remaining open issues relating to the merger agreement and voting agreement.

On April 20, 2021, Osler delivered updated drafts of the merger agreement and the voting agreement and an initial draft of the Acasti disclosure schedules to the merger agreement to Reed Smith.

On April 22, 2021, the Acasti board held a telephonic special meeting, with representatives of Oppenheimer and Osler present. At the meeting, Ms. D’Alvise, representatives of Oppenheimer and Osler provided an update to the Acasti board regarding, among other things, the status of negotiations with Grace and the material open issues in the merger agreement.

On April 22, 2021, Reed Smith delivered updated drafts of the merger agreement and the voting agreement to Osler.

On April 23, 2021, members of the Acasti and Grace management teams met telephonically to discuss remaining business issues.

On April 23, 2021, Reed Smith delivered an initial draft of Grace’s disclosure schedules to the merger agreement to Osler.

On April 25, 2021, Osler delivered an updated draft of the voting agreement to Reed Smith.

 

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On April 26, 2021, the management teams of Grace and Acasti met telephonically to discuss the remaining open issues relating to the merger agreement and the Grace voting agreement.

On April 26, 2021, certain members of Acasti and Grace management met telephonically to discuss intellectual property matters. Also on April 26, 2021, certain members of Acasti and Grace management met telephonically to discuss the remaining open issues relating to the merger agreement and the Grace voting agreement.

Between April 26, 2021 and April 29, 2021, representatives of each of Acasti management, Grace management, Osler, Reed Smith, Oppenheimer and William Blair negotiated the material outstanding terms of the merger agreement, Grace voting agreement, ancillary agreements and disclosure schedules. Specific items that continued to be negotiated by Acasti included improving terms related to the following:

 

•

lock-up period and Grace shareholders subject to the lock-up;

 

•

board governance, board election and composition;

 

•

equity exchange ratio, and how to treat any Grace cash deficits;

 

•

termination fees;

 

•

tax matters; and

 

•

employee matters.

On April 29, 2021, the Acasti board held a telephonic special meeting, with representatives of Osler present, to review a near final version of the merger agreement and Grace voting agreement, which had previously been circulated to the Acasti board.

Between April 29, 2021 and May 6, 2021, the parties continued to finalize the outstanding terms of the merger agreement, voting agreement, ancillary agreements and disclosure schedules.

On May 3, 2021, the Grace board gave its unanimous approval by written consent for Grace to sign the merger agreement with Acasti.

On May 6, 2021, the Acasti board held a telephonic special meeting, with representatives of Oppenheimer and Osler present. At the meeting, the following occurred, among other things:

 

•

the Acasti board received a recap of the advice provided by representatives of Osler throughout the process on board fiduciary duties, and on considerations related to the discharge of such duties in connection with the potential approval of a merger agreement with Grace;

 

•

the Acasti board received a presentation from representatives of Oppenheimer regarding their financial analyses of the equity exchange ratio, and stated Oppenheimer’s oral opinion, to be confirmed in writing, to the effect and that based upon and subject to the various assumptions, qualifications, limitations and other matters set forth in its written opinion, as of that date, the equity exchange ratio in the proposed merger was fair, from a financial point of view, to Acasti;

 

•

the Acasti board engaged in discussions relating to Grace and the terms of the proposed merger and related transactions; and

 

•

after further discussion, the Acasti board unanimously determined that it was advisable and fair to, and in the best interests of, Acasti and Acasti shareholders to enter into the merger agreement and Grace voting agreements, approved the merger agreement and Grace voting agreements.

The presentation by Oppenheimer to the Acasti board contemplated an estimated equity exchange ratio of 6.13 shares of Acasti for 1 share of Grace, which was calculated pursuant to the merger agreement terms

 

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negotiated with Grace and based on (i) for Grace, an implied equity value of $71.5 million and (ii) for Acasti, an implied equity value of $100.8 million assuming reasonable estimates of net cash balances anticipated at closing for each of Acasti and Grace, based on the net cash adjustment provisions in the merger agreement.

On May 6, 2021, the Acasti board unanimously approved by written consent that Acasti sign the merger Agreement with Acasti.

On May 7, 2021, Acasti and Grace management signed the merger agreement and issued a joint press release announcing the execution of the merger agreement.

Recommendation of the Acasti Board of Directors; Acasti’s Reasons for the Merger

The Acasti board of directors recommends that the Acasti shareholders vote “FOR” each of the proposals being submitted to a vote at the Acasti annual and special meeting.

Acasti Reasons for the Merger

At a special meeting held on May 6, 2021, the Acasti board unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger are fair, advisable and in the best interests of Acasti and its shareholders, and (ii) approved and declared advisable the merger agreement and the merger, including the issuance of Acasti common shares to Grace stockholders pursuant to the terms of the merger agreement.

In the course of its evaluation of the merger agreement and merger with Grace, the Acasti board held weekly meetings, consulted with Acasti senior management, outside legal counsel and its financial advisor, and reviewed and assessed a significant amount of information, and considered a large range of factors, including the following:

 

•

Based in part on the scientific diligence and analysis of Grace’s product pipeline, the potential market opportunity for its products and the expertise of its scientific team, Acasti’s board of directors believes that Grace’s product candidates have the potential to meet unmet medical needs that currently exist and address a sizable market opportunity, thereby creating value for the shareholders of the combined organization and an opportunity for Acasti shareholders to participate in the potential growth of the combined organization.

 

•

Acasti’s board also reviewed its assessment of Grace’s drug development capabilities and technologies with Acasti’s management. Based in part on this analysis, Acasti’s board of directors believes that Grace has the potential to develop multiple new therapies using its drug formulation expertise and applying its platform drug delivery technologies that would broaden Acasti’s pipeline, which in turn may reduce the risk to the combined organization and its shareholders that one or more of its product candidates is not commercialized.

 

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Acasti’s board considered the strength of the balance sheet and sufficiency of the expected cash resources of the combined organization. Acasti and Grace believe that the approximately $60 million in cash resources expected to be held by Acasti at the time of the closing of the merger is sufficient to fund the combined organization for at least 2 years and to complete clinical development and file an NDA for GTX-104, while significantly advancing other key drug candidates in the Grace pipeline.

 

•

Acasti’s board of directors also reviewed with Acasti’s management the current operating plans of Grace to confirm the likelihood that the combined organization would possess sufficient financial resources to allow the management team to focus on implementing Grace’s business plan and growing Grace’s business. Acasti’s board also considered the ability of Grace to take advantage of the potential benefits resulting from becoming a part of a public reporting company listed on Nasdaq should the combined company be required to raise additional equity or debt in the future.

 

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•

Acasti’s board of directors considered the financial analyses of Oppenheimer, including its opinion to Acasti’s board (in its capacity as such) as to the fairness to Acasti, from a financial point of view and as of the date of the opinion, of the equity exchange ratio, as more fully described below under the caption “The Merger—Opinion of Acasti’s Financial Advisor.”

 

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Acasti’s board considered the strength of Grace’s management and scientific team, and their expertise in the biotechnology industry and in the fields of novel drug delivery technology and rare diseases.

 

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Acasti’s board concluded that the merger would provide Acasti’s current shareholders with a significant opportunity to participate in the potential increase in value of the combined organization following the merger.

Acasti’s board also reviewed various factors impacting the financial condition, results of operations and prospects for Acasti, including:

 

•

the strategic alternatives to the merger, including potential transactions that could have resulted from discussions that Acasti’s management conducted with other potential merger partners;

 

•

the consequences of the negative results from its TRILOGY clinical trials, and the likelihood that the resulting circumstances for Acasti would not change for the benefit of Acasti shareholders in the foreseeable future on a stand-alone basis without additional cash and new assets;

 

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the risks associated with, and the limited value and high costs of, liquidating Acasti and thereafter distributing the remaining proceeds to Acasti shareholders; and

 

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Acasti’s potential inability to maintain its Nasdaq listing without completing a merger or strategic combination.

Acasti’s board of directors also reviewed the terms and conditions of the merger agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:

 

•

that the equity exchange ratio used to establish the number of Aacsti shares to be issued to Grace stockholders in the merger is not subject to market volatility, and any adjustments to the equity exchange ratio will only benefit Acasti shareholders;

 

•

the limited number and nature of the conditions to Grace’s obligation to consummate the merger and the limited risk of non-satisfaction of such conditions as well as the likelihood that the merger will be consummated on a timely basis;

 

•

the respective rights of, and limitations on, Acasti and Grace under the merger agreement to consider certain unsolicited acquisition proposals under certain circumstances should Acasti or Grace receive a superior proposal (as defined in the section entitled “The Merger Agreement—Third Party Acquisition Proposals” below);

 

•

the reasonableness of the potential termination fee of $1,000,000, inclusive of related reimbursement of certain transaction expenses of up to $500,000, which could become payable by either Acasti or Grace to the other party if the merger agreement is terminated in certain circumstances;

 

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the Grace voting agreements, pursuant to which certain Grace stockholders have agreed to vote all of their shares of Grace common stock in favor of the adoption of the merger agreement and against competing transactions;

 

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the agreement of Grace to provide a written consent of its stockholders necessary to adopt the merger agreement thereby approving the merger and related transactions within 5 business days of the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, becoming effective; and

 

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•

the belief that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

In the course of its deliberations, Acasti’s board of directors also considered a variety of risks and other countervailing factors related to entering into the merger, including:

 

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the $1,000,000 termination fee or up to $500,000 in related expense reimbursement obligations payable by Acasti to Grace upon the occurrence of certain events and the potential effect of such fees in deterring other potential acquirers from proposing an alternative transaction that may be more advantageous to Acasti shareholders;

 

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the substantial expenses to be incurred in connection with the merger;

 

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the possible volatility, at least in the short term, of the trading price of Acasti common shares resulting from the announcement of the merger;

 

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the risk that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger or of the delay or failure to complete the merger on the reputation of Acasti;

 

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the likely detrimental effect on Acasti’s cash position, share price and ability to initiate another process and to successfully complete an alternative transaction should the merger not be completed;

 

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the risk to Acasti’s business, operations and financial results in the event that the merger is not consummated;

 

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the likelihood of disruptive shareholder litigation following announcement of the merger;

 

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the unproven, development-stage nature of Grace’s product candidates, which may not be successfully developed, commercialized, marketed and sold;

 

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the strategic direction of the combined organization following the completion of the merger, which will be determined by a board of directors initially comprised of a majority of the directors designated by Acasti;

 

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various other risks associated with the combined organization and the merger, including those described in the section entitled “Risk Factors” in this proxy statement/prospectus/information statement.

The foregoing information and factors considered by the Acasti board are not intended to be exhaustive but are believed to summarize key reasons considered by the Acasti board in entering into the transaction. A wide variety of factors were considered by members of the Acasti board in connection with its evaluation of the acquisition of Grace. To assist in their decision-making process with respect to these complex matters, the Acasti board used a decision matrix which assisted in assessment of the relative weight of different criteria, with a particular emphasis on valuation and pro forma Acasti ownership, quality of the products/patents/technology and stage of development, market opportunity, certainty and timing to close, potential for investor interest, management team capabilities and financing needs going forward. This decision matrix was used as a tool to support the board’s consideration of different alternatives and was not solely determinative of outcome which was the result of a multi-faceted and thorough board process and deliberations. In considering the factors described above, individual members of the Acasti board may have given different weight to different factors. The Acasti board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Acasti’s management team, members of the Acasti board, the legal and financial advisors of Acasti, other external advisors including an expert market and technology research firm and key opinion leaders (KOLs), and considered the factors overall to be favorable to, and to support, its determination.

Opinion of Acasti’s Financial Advisor

Acasti engaged Oppenheimer to render a written opinion, which we refer to as the opinion, to the Acasti board of directors as to the fairness, from a financial point of view, to Acasti of the equity exchange ratio in the

 

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proposed merger pursuant to the merger agreement. Acasti selected Oppenheimer because Oppenheimer is a nationally recognized investment banking firm with substantial experience in transactions similar to the proposed merger.

As part of Oppenheimer’s engagement, representatives of Oppenheimer attended (via conference call) the meeting of the Acasti board of directors held on May 6, 2021, at which the Acasti board of directors evaluated the proposed merger. At this meeting, Oppenheimer reviewed the financial aspects of the proposed merger and rendered its opinion, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Oppenheimer as set forth in its opinion, as to the fairness, from a financial point of view, to Acasti of the equity exchange ratio in the proposed merger pursuant to the merger agreement.

The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Oppenheimer in preparing its opinion. Oppenheimer’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Acasti board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed the fairness, from a financial point of view, to Acasti of the equity exchange ratio in the proposed merger pursuant to the merger agreement. It did not address the underlying business decision of the Acasti board of directors to engage in the merger or enter into the merger agreement. It does not constitute a recommendation to the Acasti board of directors in connection with the merger or a recommendation to any holder of Acasti common shares as to how to vote or act in connection with the merger or any other matter, nor does it constitute a recommendation on whether or not any Acasti shareholder should exercise any dissenters’ or appraisal rights that may be available to any Acasti shareholder.

In connection with the opinion, Oppenheimer reviewed, analyzed and relied upon information and material bearing upon the financial and operating condition of Acasti and the merger, including, among other things:

 

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a draft dated May 2, 2021 of the merger agreement;

 

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audited financial statements of Grace for the fiscal years ended December 31, 2020, 2019 and 2018, and financial information for the three months ended March 31, 2021;

 

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financial forecasts and estimates related to Grace prepared by the management of Grace, as adjusted by management of Acasti and approved for Oppenheimer’s use by Acasti (which we refer to as the “Projections”);

 

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discussions with the senior management and advisors of each of Acasti and Grace with respect to the business and prospects of each of Acasti and Grace, respectively;

 

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certain publicly available financial data for companies that Oppenheimer deemed relevant in evaluating Grace;

 

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certain publicly available financial information for transactions that Oppenheimer deemed relevant in evaluating the merger;

 

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other public information concerning Grace;

 

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a certificate addressed to Oppenheimer from senior management of Acasti which contained, among other things, representations regarding the accuracy of the information, data and other materials (financial or otherwise) provided to, or discussed with, Oppenheimer by or on behalf of Acasti; and

 

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certain other analyses, other information and other factors as Oppenheimer deemed appropriate.

In rendering the opinion, Oppenheimer relied upon and assumed, without independent verification or investigation, the accuracy and completeness of all of the financial and other information provided to or

 

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discussed with Oppenheimer by Acasti and its employees, representatives and affiliates or otherwise reviewed by Oppenheimer. With respect to the Projections, Oppenheimer assumed, at the direction of Acasti management and with Acasti’s consent, without independent verification or investigation, that those forecasts and estimates were reasonably prepared on bases reflecting the best available information, estimates and judgments of Grace, as adjusted by Acasti management, as to Grace’s future financial condition and operating results. At the direction of representatives of Acasti, Oppenheimer also assumed that the final terms of the merger agreement would not vary materially from those set forth in the draft reviewed by it. Oppenheimer also assumed, with Acasti’s consent, that the merger would be consummated in accordance with its terms without waiver, modification or amendment of any material term, condition or agreement and in compliance with all applicable laws and other requirements and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would result in the disposition of any assets of Acasti or Grace or otherwise have an adverse effect on Acasti, Grace or the merger. Oppenheimer also assumed that there were no material changes in the assets, liabilities, financial conditions, results of operations, business or prospects of either Acasti or Grace since the date of the last financial statements of Acasti and Grace, respectively, that were made available to Oppenheimer. Oppenheimer neither made nor obtained any independent evaluations or appraisals of the assets or liabilities, contingent or otherwise, of Acasti or Grace. For purposes of its opinion and its financial analyses underlying its opinion, Oppenheimer relied upon and assumed, at the direction of Acasti’s management with Acasti’s consent, without independent verification, that (i) Acasti and Grace had approximately 208,696,940 common shares issued and outstanding on a fully-diluted basis and approximately 24,136,327 shares of common stock issued and outstanding on a fully-diluted basis, respectively, (ii) upon consummation of the transaction, the then-current stockholders of Acasti would own approximately 58.7% of the combined company and the then-current stockholders of Grace would own approximately 41.3% of the combined company, (iii) the equity exchange ratio was 6.13 Acasti common shares for each share of Grace common stock, and (iv) Acasti’s equity value was equal to approximately $101 million.

The forecasts, projections and estimates of Grace provided to Oppenheimer were not prepared with the expectation of public disclosure. All such information was based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in those forecasts, projections and estimates. Oppenheimer assumed, based on discussions with Acasti management, that the Projections provided a reasonable basis upon which Oppenheimer could form its opinion and Oppenheimer expressed no view as to any such information or the assumptions or bases therefor. Oppenheimer relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.

Oppenheimer did not express any opinion as to Acasti’s underlying valuation, future performance or long-term viability of Acasti or the price at which Acasti common shares would trade at any time. Oppenheimer did not express any view as to, and its opinion did not address, any terms or other aspects or implications of the merger (other than the equity exchange ratio to the extent expressly specified therein) or any aspect or implication of any other agreement, arrangement or understanding entered into in connection with the merger or otherwise, including, without limitation, the fairness of the amount or nature of the compensation resulting from the merger to any individual officers, directors or employees of Acasti, or class of such persons, relative to the equity exchange ratio or otherwise. In addition, Oppenheimer expressed no view as to, and its opinion did not address, Acasti’s underlying business decision to proceed with or effect the merger nor did its opinion address the relative merits of the merger as compared to any alternative business strategies that might have existed for Acasti or the effect of any other transaction in which Acasti might have engaged. Oppenheimer’s opinion was necessarily based on the information available to Oppenheimer and general economic, financial and stock market conditions and circumstances as they existed and could be evaluated by Oppenheimer on the date of its opinion. It should be understood that although subsequent developments may affect Oppenheimer’s opinion, Oppenheimer does not have any obligation to update, revise or reaffirm its opinion. There was significant uncertainty as to the potential direct and indirect business, financial, economic and market implications and

 

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consequences of the spread of the coronavirus and associated illnesses and the actions and measures that countries, central banks, international financing and funding organizations, stock markets, businesses and individuals may take to address the spread of the coronavirus and associated illnesses including, without limitation, those actions and measures pertaining to fiscal or monetary policies, legal and regulatory matters and the credit, financial and stock markets (collectively, the “Pandemic Effects”), and the Pandemic Effects could have a material impact on Oppenheimer’s analyses and its opinion.

Oppenheimer is not a legal, tax, regulatory or accounting advisor and Oppenheimer relied on the assessments made by Acasti and its other advisors with respect to such issues. Oppenheimer’s opinion did not address any legal, tax, regulatory or accounting matters. In addition, Oppenheimer’s opinion did not constitute a solvency opinion or a fair value opinion, and Oppenheimer did not evaluate the solvency or fair value of Acasti or Grace under any federal or state laws relating to bankruptcy, insolvency, similar matters or otherwise.

In performing its analyses, Oppenheimer made numerous assumptions with respect to the industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Oppenheimer and Acasti. Any estimates contained in the analyses performed by Oppenheimer are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such business or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.

The following is a summary of the material financial analyses presented by Oppenheimer to the Acasti board of directors in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by Oppenheimer to the Acasti board of directors, but summarizes the material analyses performed and presented in connection with its opinion. The preparation of an opinion regarding fairness, from a financial point of view, is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, an opinion regarding fairness, from a financial point of view, is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Oppenheimer did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. Accordingly, Oppenheimer believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. The tables alone do not constitute a complete description of the financial analyses.

Selected Public Companies Analyses

Oppenheimer performed selected public companies analyses of Grace as described below. To perform these analyses, Oppenheimer used financial information as of May 5, 2021 and market price information as of market close on May 5, 2021. Certain financial data prepared by Oppenheimer, and as referenced in the tables presented below, may not correspond to the data presented in Grace’s historical financial statements as a result of the different periods, assumptions and method used by Oppenheimer to compute the financial data presented. No company used as a comparison in the following selected public companies analyses is identical or directly comparable to Grace. Accordingly, an analysis of these results is not purely mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Using publicly available information, Oppenheimer compared the financial performance, financial condition and market performance of Grace to the following seven selected publicly traded specialty pharmaceutical

 

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companies with development stage small molecule assets, no significant revenues and market capitalizations under $1 billion:

 

•

Avadel Pharmaceutical plc

 

•

TFF Pharmaceuticals, Inc.

 

•

Eyenovia, Inc.

 

•

Processa Pharmaceuticals, Inc.

 

•

Avenue Therapeutics, Inc.

 

•

Ocuphire Pharma, Inc.

 

•

Satsuma Pharmaceuticals, Inc.

Oppenheimer reviewed enterprise values of the selected public companies, calculated as equity values based on closing stock prices on May 5, 2021 plus debt, less cash and cash equivalents. Financial data of the selected companies were based on public filings and other publicly available information. The overall low to high ranges of enterprise values observed for the selected companies were $15.9 million to $354.8 million (with a median of $94.7 million).

Oppenheimer then applied the median selected ranges of the enterprise values derived from the selected companies, after adding Grace’s net cash balance of $700,000 as of March 31, 2021, excluding its Paycheck Protection Program (“PPP”) loan (based on internal estimates provided by Grace management, as directed by Acasti to be used), as adjusted by +/- 10%, to derive an equity value reference range of $85.9 million to $104.9 million.

Selected Transactions Analysis

Oppenheimer performed a selected transactions analysis as described below. To perform this analysis, Oppenheimer used financial data based on the acquired company’s then latest publicly available financial statements prior to the announcement of the acquisition. No company or transaction used as a comparison in the following selected transactions analysis is identical or directly comparable to Grace or the proposed merger. Accordingly, an analysis of these results is not purely mathematical. Rather, it involves complex considerations and judgments concerning differences in the financial and operating characteristics of the companies involved.

Oppenheimer reviewed publicly available information related to the following seven selected merger and acquisition transactions announced since January 1, 2019:

 

Date announced		Acquirer		Target
Feb-21		Leisure Acquisition Corp.		Ensysce Biosciences, Inc.
Jan-21		Amneal Pharmaceuticals, L.L.C.		Kashiv Specialty Pharmaceuticals, LLC
Dec-20		Novartis AG		Cadent Therapeutics, Inc.
Aug-20		ACADIA Pharmaceuticals Inc.		CerSci Therapeutics Inc.
Jun-20		UCB SA		Engage Therapeutics, Inc.
May-20		PTC Therapeutics, Inc.		Censa Pharmaceuticals Inc.
Aug-19		Jazz Pharmaceuticals plc		Cavion LLC

Oppenheimer reviewed adjusted total enterprise values, calculated as the purchase prices paid at closing for the target companies’ equity in the selected transactions plus deferred payments, discounted by 25.3% to adjust

 

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