Monster Digital, Innovate Biopharmaceuticals Agree to Reverse Merger

Monster Digital, Inc. (Nasdaq: MSDI) (“Monster Digital”), announced that it has entered into a non-binding letter of intent (“LOI”) which contemplates a proposed reverse merger (“Merger”) with Innovate Biopharmaceuticals, Inc. (“Innovate”).

The LOI contemplates execution of a merger agreement (the “Merger Agreement”) whereby the security holders of Innovate would receive Monster Digital securities in the Merger, in exchange for securities held in Innovate. Following the closing (the “Closing”) of the anticipated Merger, Innovate would become a wholly owned subsidiary of Monster Digital, and Monster Digital, as the surviving company, would be renamed “Innovate Biopharmaceuticals, Inc.” The common stock of the combined company would continue to trade on the Nasdaq Capital Market under a new symbol to reflect the name change.

For purposes of determining the exchange rate used to calculate the number of Monster Digital common shares that would be issued to Innovate’s stockholders, the LOI provides that Innovate would have a deemed valuation of $60 million fully diluted by all of its outstanding shares of common stock and outstanding options and warrants, and Monster Digital would have a deemed valuation of $6 million fully diluted by all outstanding shares of its common stock, but excluding currently outstanding (i) warrants issued in connection with its initial public offering and (ii) warrants and options having a per share exercise price of $5.00 and above, such valuation to be reduced by any liabilities of Monster Digital assumed by Innovate at the Closing. Monster Digital’s deemed valuation would be adjusted based on a net cash calculation prior to closing, which could be a negative number to the extent its liabilities exceed its cash and cash equivalents on hand at such time.

Based on these relative valuations (without adjustment), we anticipate that the security holders of Innovate and Monster Digital would hold approximately 90.90% and 9.10%, respectively, of the combined company, subject to proportional dilution for anticipated financing in connection with the closing of the Merger as referenced in the following paragraph.

Completion of the Merger is subject to the negotiation of a definitive Merger Agreement and related documentation, approval of the Merger by Monster Digital’s Board of Directors and stockholders, approval of the continued listing by Nasdaq of Monster Digital common stock on the Nasdaq Capital Market on a post-Merger basis (which is anticipated to require raising additional financing in connection with the closing of the Merger), and satisfaction of other conditions that are to be negotiated as part of the Merger Agreement. Accordingly, there can be no assurance that a Merger Agreement will be entered into or that the proposed Merger will be consummated. Further, readers are cautioned that those portions of the LOI that describe the proposed Merger, including the consideration to be issued therein, are non-binding.

Assuming Monster Digital and Innovate enter into the Merger Agreement, the parties will look to seek shareholder approval from Monster Digital’s stockholders in the third quarter of 2017, subject to SEC staff review of the proxy statement to be filed by Monster Digital for the proposed transaction. Commenting on the potential Merger, Innovate CEO Christopher P. Prior, Ph.D., stated: “After significantly expanding our pipeline with the addition of the only late-stage drug for celiac disease, I believe the next logical step in our corporate development is having our stock quoted in a public market.

We believe that the greater access to capital and overall visibility afforded by operating as a publicly-traded organization should play a role in our ability to advance our clinical pipeline, as well as continue to in-license and develop drugs for autoimmune/inflammation diseases.”

Monster Digital CEO David H. Clarke added, “Our Board of Directors and management believe that a merger with Innovate is the best option for our company. Upon a definitive merger agreement being signed and prior to the Closing, we anticipate that the Monster Digital operating business will be sold or spun off into a separate company.”