Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
Dear
Merrimack Pharmaceuticals, Inc. Stockholder:
Merrimack recently took transformative steps to sharpen our strategic focus and provide compelling near-term
value and long-term upside potential for all Merrimack stockholders.
We announced on January 8, 2017 that Merrimack has entered into a definitive
agreement with Ipsen S.A. (
Ipsen
) for an asset sale transaction (the
Asset Sale
) valued at up to $1.025 billion, plus up to $33 million in net milestone payments under our licensing agreement with
Shire plc that we have retained the right to receive even if paid after closing. Under the terms of the agreement, Merrimack will:
As detailed in the enclosed proxy materials, your Board of Directors believes that the pending sale of ONIVYDE and
MM-436,
and the changes made to refocus Merrimacks pipeline, are in the best interests of Merrimack stockholders. We are inviting you to attend a Special Meeting of Stockholders to be held on March 30, 2017 at
10:00 a.m., Eastern time, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 500 Boylston Street, Boston, MA 02116, to vote on the proposed transaction. For the reasons included below and discussed in the enclosed proxy statement, we
encourage stockholders to vote
FOR
the Asset Sale.
As a result of the Asset Sale, the restructuring initiatives announced in October 2016 and in
connection with the Asset Sale, and the refocused pipeline, Merrimack will have significantly reduced operating expenses and a capital structure that is appropriately aligned with Merrimacks new focus. Merrimacks strengthened balance
sheet is expected to support ongoing research and development efforts into the second half of 2019.
Under the terms of the agreement, which has been unanimously approved by the Merrimack Board of Directors, Merrimack will receive from Ipsen $575 million
in cash at closing and up to $450 million in additional regulatory approval-based milestone payments. Additionally, we will retain our rights to receive up to $33 million in net milestone payments under our licensing agreement with Shire
plc, even if paid following the closing of the Asset Sale.
We continue
to make progress on the steps necessary to complete the Asset Sale in the first quarter of 2017. Following approval of the Asset Sale by Merrimack stockholders at the Special Meeting to be held on March 30, 2017 at 10:00 a.m., Eastern
time, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 500 Boylston Street, Boston, MA 02116, we expect to complete the Asset Sale and soon thereafter deliver the initial cash dividend, currently estimated at $1.54 per share, to our
stockholders.
We are excited about the prospects of the refocused Merrimack that will continue following the Asset Sale. Our goal is to support a robust
public valuation for your investment and continue creating value through the targeted focus on three of our most promising anti-cancer agents through clinical
proof-of-concept.
To assist in this effort, we recently announced a new
Chief Executive Officer, Dr. Richard Peters, a highly respected industry veteran and thought-leader, with the vision and experience necessary to oversee Merrimacks successful execution as a refocused clinical-stage and R&D company. He
has more than 25 years of biopharmaceutical experience and most recently served as Senior Vice President and Head of Global Rare Diseases at Sanofi Genzyme. Dr. Peters will play a key role in helping Merrimack to achieve our objectives on
behalf of cancer patients around the worldand on behalf of all Merrimack stockholders.
If the Asset Sale is not completed, we will need to consider
and evaluate other strategic alternatives or sources of financing, as our anticipated revenue from ONIVYDE is not sufficient to support our ongoing operations and service our debt obligations. In that event, if we cannot secure additional sources of
liquidity, we may have to consider filing for bankruptcy.
Your Board of Directors undertook a comprehensive review of Merrimacks pipeline over the course of several months to identify the highest potential
opportunities to position Merrimack for long-term success.
We believe we have reached the best outcome on behalf of stockholders and patients, and we recommend that stockholders vote today FOR the proposals set forth in this proxy statement,
including FOR the Asset Sale.
Your vote is extremely important, no matter how many shares you own. Please take a moment to vote
FOR
the
proposals set forth in this Proxy Statement todayby telephone toll-free at (800)
690-6903,
by Internet at www.proxyvote.com or by signing, dating and returning the enclosed proxy card in the postage-paid
envelope provided.
If you have any questions about executing or delivering your proxy card or require assistance, please contact our proxy solicitor:
On behalf of your Board of Directors, we thank you for your continued support. Your Board remains as confident as
ever about the future of Merrimack and the significant value this transaction will deliver to our valued stockholders.
The accompanying proxy statement is dated February 14, 2017 and, together with the enclosed form of proxy card, is first being
mailed on or about February 14, 2017.
Other Matters
At this time, we know of
no other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting, your shares of common stock will be voted in accordance with the discretion of the appointed proxy holders.
22
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on March
30, 2017
The proxy statement is available at
www.proxyvote.com
.
Householding of Special Meeting Materials
Unless we have received contrary instructions, we may send a single copy of this proxy statement to any household at which two or more
stockholders reside if we believe the stockholders are members of the same family. Each stockholder in the household will continue to receive a separate proxy card. This process, known as householding, reduces the volume of duplicate
information received at your household and helps to reduce our expenses.
If you would like to receive your own set of our disclosure
documents this year or in future years, follow the instructions described below. Similarly, if you share an address with another stockholder and together both of you would like to receive only a single set of our disclosure documents, follow these
instructions.
If you are a stockholder of record, you may contact us by writing to Merrimack Pharmaceuticals, Inc., Attention: Investor
Relations, One Kendall Square, Suite B7201, Cambridge, Massachusetts 02139 or calling our Investor Relations Department at (617)
441-1000.
Eligible stockholders of record receiving multiple copies of this
proxy statement can request householding by contacting us in the same manner. If a bank, broker or other nominee holds your shares, please contact your bank, broker or other nominee directly.
Questions and Additional Information
If
you have any questions concerning the Asset Sale, the Asset Sale Agreement, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock,
please contact our Proxy Solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New
York, New York 10022
Stockholders May Call Toll-Free: (877)
456-3510
Bank and Brokers May Call Collect: (212)
750-5833
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PROPOSAL 1: APPROVAL OF THE ASSET SALE
We are asking you to approve the Asset Sale pursuant to the terms of the Asset Sale Agreement. Our Board of Directors determined to submit
this matter to a stockholder vote to comply with the terms of the Asset Sale Agreement and not because relevant state law requires the vote. Our Board of Directors agreed to this condition in the Asset Sale Agreement because, among other reasons,
the Board of Directors wants to ensure that the transaction is supported by a majority of stockholders.
For a summary of and detailed
information regarding this proposal, see the information about the Asset Sale and the Asset Sale Agreement throughout this proxy statement, including the information set forth in the sections of this proxy statement captioned The Asset
Sale beginning on page 25 of this proxy statement and The Asset Sale Agreement beginning on page 64 of this proxy statement. A copy of the Asset Sale Agreement is attached to this proxy statement as Annex A. You are urged to read
the Asset Sale Agreement carefully in its entirety.
Under the terms of the Asset Sale Agreement, the affirmative vote of the holders of a
majority of the outstanding shares of Merrimack common stock entitled to vote at the Special Meeting is a condition to the closing of the Asset Sale. If you are entitled to vote at the Special Meeting and abstain from voting, fail to cast your vote,
in person or by proxy, or fail to give voting instructions to your brokerage firm, bank, trust or other nominee, it will have the same effect as a vote against the proposal to approve the Asset Sale.
The Board of Directors unanimously recommends that you vote FOR the Asset Sale.
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THE ASSET SALE
This discussion of the Asset Sale is qualified in its entirety by reference to the Asset Sale Agreement, which is attached to this proxy
statement as Annex A and incorporated into this proxy statement by reference. You should read the entire Asset Sale Agreement carefully as it is the legal document that governs the Asset Sale.
Parties Involved in the Asset Sale
Merrimack Pharmaceuticals, Inc.
Principal Executive Office:
One
Kendall Square, Suite B7201
Cambridge, Massachusetts 02139
PH: (617)
441-1000
Merrimack is a biopharmaceutical company discovering, developing and commercializing innovative medicines paired with companion diagnostics
for the treatment of cancer. Merrimack seeks to gain a deeper understanding of underlying cancer biology through its systems biology-based approach and develop new insights, therapeutics and diagnostics to improve outcomes for cancer patients.
Merrimack has one marketed therapeutic oncology product, multiple oncology therapeutics in clinical development and additional candidates in late stage preclinical development.
Merrimacks common stock is listed on NASDAQ under the symbol MACK.
Ipsen S.A.
Principal Executive Office:
65
quai George Gorge
92100 Boulogne Billancourt
France
PH: +33 (0)1 58 33 50
00
Ipsen is a global specialty driven pharmaceutical company with a significant presence in primary care, founded in 1929. Its areas of
expertise include oncology, neurosciences, endocrinology (adult and child) and gastroenterology. Ipsen sells more than 20 drugs in over 115 countries, with a direct commercial presence in over 30 countries worldwide. Ipsen and its affiliates have
more than 4,600 employees all over the world.
Ipsen has a sponsored level 1 ADR program listed on the United States over the counter
market under the trading symbol IPSEY.
Effect on Merrimack if the Asset Sale is Completed and the Nature of Our Business Following the
Transaction
Pursuant to the Asset Sale Agreement, if the Asset Sale is approved by the requisite stockholder vote and the other
conditions to closing under the terms of the Asset Sale Agreement are satisfied or waived, we will sell the assets related to or used in the Commercial Business to Ipsen for $575 million in cash, subject to a working capital adjustment, the right to
obtain up to $450 million in contingent payments and the assumption by Ipsen of certain of our liabilities. Additionally, we would retain our rights to receive up to $33 million in Net Milestone Payments under our License and Collaboration Agreement
with Shire, even if paid after the Closing. We would retain all other debts and liabilities of Merrimack, including expenses related to our remaining pipeline business and headquarters personnel, our remaining senior executives, certain corporate
vendors and professional advisors. In connection with the consummation of the Asset Sale, we expect to redeem our outstanding senior secured notes for $195 million, inclusive of the costs associated with redeeming such notes, and make certain
severance payments totaling approximately $1.5 million to certain departing officers. Subject to the approval of our Board of Directors following the Closing, we expect to dividend at least $200 million of the proceeds from the Asset Sale to our
stockholders. This dividend amount assumes that we are not using any of the proceeds of the Asset Sale to repay our outstanding Convertible Notes. In the event that we do allocate proceeds from the Asset Sale to repay any of the outstanding
Convertible Notes, the expected dividend and/or funding of the post-Closing Company may be adjusted.
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If the Asset Sale is approved by Merrimack stockholders and is thereafter consummated, we intend
to invest $125 million of the transaction proceeds to provide the initial funding for the post-closing Company to develop our refocused oncology pipeline. As we have previously disclosed, we are focusing our clinical development efforts on
three product candidates:
MM-121,
MM-141
and
MM-310.
As a result of the Asset Sale, the redemption of our senior secured notes at
the closing of the Asset Sale, this streamlined pipeline and our previously announced restructurings, we will have significantly reduced operating expenses and a capital structure that is appropriately aligned with our smaller size and new focus.
Accordingly, we expect that this $125 million in funding should be sufficient to fund the Company into the second half of 2019, by which time we expect to have additional data regarding the viability of
MM-121,
MM-141
and
MM-310.
Set forth below is a description of the expected next steps and timelines with respect to each of
MM-121,
MM-141
and
MM-310,
assuming consummation of the Asset Sale. We intend to focus on developing these product candidates
through clinical
proof-of-concept
(
PoC
), at which point we would seek partners to complete their development, registration and commercialization.
Under the terms of the Asset Sale and the related agreements, we have retained rights to both of our technology platforms (biologics and antibody directed nanotherapeutics), which will enable continued development of our oncology pipeline.
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MM-121
(seribantumab)
is a first in class fully human monoclonal antibody that binds to the HER3 receptor and targets HRG+ cancers. Merrimack is currently conducting the
SHERLOC study, evaluating
MM-121
in HRG+
non-small
cell lung cancer patients in combination with docetaxel or pemetrexed. The primary endpoint of the ongoing SHERLOC
study is overall survival and it had been planned to enroll 280 patients. Given the new strategic direction of Merrimack to develop its pipeline candidates through PoC, Merrimack will modify the ongoing SHERLOC study to a smaller Phase 2 study with
progression free survival as the primary endpoint, targeting
top-line
results by
year-end
2018. Likewise, following completion of the transaction, Merrimack intends to
initiate an additional Phase 2 trial to demonstrate
MM-121s
effectiveness in advanced HER2 negative, ER+/PR+ and HRG+ breast cancer.
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MM-141
(istiratumab)
is a bispecific tetravalent antibody and a potent inhibitor of the PI3K/AKT/mTOR pathway by targeting
IGF1-R
and HER3. Currently, Merrimack is conducting the CARRIE study, a Phase 2 trial evaluating
MM-141
in metastatic pancreatic cancer patients with high levels of free IGF1 in combination with
nab-paclitaxel
and gemcitabine in the first-line setting. The ongoing CARRIE study had planned to enroll 140 patients and to evaluate the activity of
MM-141
in both the free
IGF high and the free IGF1 high and HRG+ patient population. Given that the prevalence of both biomarkers is greater than 50%, the Company is confident that it can modify the ongoing CARRIE study to more rapidly obtain clinically meaningful data.
This modified CARRIE study will target to enroll 80 patients, and Merrimack estimates
top-line
data to be reported in the first half of 2018.
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MM-310
is expected to begin a first in human Phase 1 study to evaluate its safety and efficacy in the first quarter of 2017.
MM-310
is an antibody directed nanotherapeutic (ADN) that contains a prodrug of docetaxel and targets the EphA2 receptor, which is highly-expressed in most solid tumor types.
MM-310
was designed to improve the
therapeutic window of docetaxel in major indications such as prostate, ovarian, bladder, gastric and lung cancers.
MM-310
utilizes the same proprietary nano-liposomal technology as ONIVYDE, facilitating the
antibody-targeted delivery of the chemotherapeutic agent docetaxel.
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Pursuant to the Asset Sale Agreement, for a period of
five years, we will be precluded from acquiring rights to any approved or marketed product that has as an indication the treatment of metastatic adenocarcinoma of the pancreas or treatment of small cell lung cancer. However, products that we are
currently developing or commercializing prior to the Closing are excluded from such prohibitions.
The Asset Sale will not alter the
rights, privileges or nature of the issued and outstanding shares of our common stock. A stockholder who owns shares of our common stock immediately prior to the closing of the Asset Sale will continue to hold the same number of shares immediately
following the Closing.
26
Following the Asset Sale, we will remain a public company with ongoing SEC filing obligations.
Effect on Merrimack if the Asset Sale is Not Completed
If the Asset Sale is not approved by stockholders or the Asset Sale is not consummated for any other reason, we will seek to continue our focus
on operating the Commercial Business as well as our pipeline development efforts, but our liquidity will be severely constrained. If the Asset Sale does not close, we may not have sufficient cash to meet our ongoing obligations, including any fees
payable to Ipsen pursuant to the terms of the Asset Sale Agreement as described below. Unless we can procure new financing, our Board of Directors may consider other strategic alternatives, including filing for bankruptcy. If the Asset Sale is not
approved by stockholders or if the Asset Sale is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Board of Directors will be offered or that Merrimacks business, prospects or results of
operations will not be adversely impacted.
Furthermore, if the Asset Sale is not completed, and depending on the circumstances that
caused the Asset Sale not to be completed, the price of our common stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of
this proxy statement.
If the Asset Sale Agreement is terminated under specified circumstances, we will be required to pay Ipsen a
termination fee equal to $25 million. In addition, if either Merrimack or Ipsen terminates the Asset Sale Agreement because it was not approved by Merrimacks stockholders, Merrimack will be required to reimburse Ipsen for up to
$3 million of its expenses. For more information, see the section of this proxy statement captioned The Asset Sale Agreement beginning on page 64 of this proxy statement.
Asset Sale Consideration
Pursuant to the
Asset Sale Agreement, Ipsen will pay Merrimack $575 million in cash (subject to a working capital adjustment as provided in the Asset Sale Agreement) and will assume certain related liabilities. Following the closing of the Asset Sale,
Merrimack may be entitled to additional payments based on achievement by or on behalf of Ipsen of certain milestone events if the FDA approves ONIVYDE for certain indications as follows:
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$225 million upon the regulatory approval by the FDA of ONIVYDE for the first-line treatment of metastatic adenocarcinoma of the pancreas (i) in combination with fluorouracil and leucovorin, (with or without
oxaliplatin), (ii) in combination with gemcitabine and abraxane or (iii) following submission and filing of regulatory approval by Ipsen for purposes of commercialization by Ipsen;
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$150 million upon the regulatory approval by the FDA of ONIVYDE for the treatment of small cell lung cancer after failure of first-line chemotherapy; and
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$75 million upon the regulatory approval by the FDA of ONIVYDE for an additional indication unrelated to those described above.
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Additionally, we would retain our rights to receive up to $33 million in Net Milestone Payments under our License and Collaboration Agreement with Shire,
even if paid after the Closing. For more information, see the section of this proxy statement captioned The Asset Sale Agreement beginning on page 64 of this proxy statement.
Use of Proceeds
The proceeds from the
Asset Sale will be received by the Company, not our stockholders. We intend to use the proceeds from the Asset Sale to pay off certain of our debts and liabilities, including the $175 million of senior secured notes currently outstanding and the
approximately $20 million in costs associated with redeeming such notes, severance costs for employees and the transaction costs associated with the Asset Sale. Subject to the approval of our Board of Directors following the Closing, we expect to
distribute at least $200 million of the proceeds to our stockholders in the form of a cash dividend. We also expect to invest $125 million of the proceeds to provide the initial funding for the post-closing Company to develop our streamlined
oncology
27
pipeline. These expected uses of the proceeds of the Asset Sale assume that we will not use any of the proceeds to repay any of our outstanding Convertible Notes. In the event that we do allocate
proceeds from the Asset Sale to repay any of the outstanding Convertible Notes, the expected dividend and/or funding of the post-Closing Company may be adjusted.
Background of the Asset Sale
As part of
its ongoing evaluation of Merrimacks business, our Board of Directors, together with senior management, regularly reviews and assesses Merrimacks strategic direction, financial performance and business plans with a view towards
strengthening Merrimacks business and identifying opportunities to increase stockholder value. As part of this evaluation, our Board of Directors has from time to time considered a variety of strategic alternatives for Merrimack, including:
licensing agreements with strategic partners, splitting the Company into a commercial company and a pipeline company in a
spin-off
transaction; selling the commercial assets of the Company; selling the entire
Company; and continuing on a standalone basis, which would likely have necessitated Merrimack raising significant equity financing for Merrimack to execute on its development plans.
On June 13, 2016, Robert Mulroy, then President and Chief Executive Officer of the Company, and other executives of the Company met with
executives from Ipsen at Ipsens headquarters in Paris, France to discuss a potential licensing and collaboration with respect to multiple Merrimack clinical products (an
Ipsen Collaboration
).
On June 15, 2016, the Board of Directors met in person in Cambridge, Massachusetts along with members of management. Mr. Mulroy
presented to the Board of Directors details of a potential Ipsen Collaboration.
On June 22, 2016, representatives from Merrimack and
representatives from Ipsen met telephonically to discuss Merrimacks preclinical programs.
On July 8, 2016, David Meek replaced
Marc de Garidel as Chief Executive Officer of Ipsen.
On July 28, 2016, representatives from Merrimack and representatives from Ipsen
met at Merrimacks offices in Cambridge, Massachusetts to discuss clinical, manufacturing and regulatory matters regarding
MM-121
and
MM-302.
On August 2, 2016, the Board of Directors held a telephonic meeting also attended by members of management. In addition to regular
business, the Board of Directors discussed various strategic alternatives for the Company, including the potential to continue as a standalone company and the potential to split the Company into a commercial company holding the Commercial Business
and a pipeline company by spinning off the pipeline company and selling the commercial company (a
Spin/Sale Transaction
). The Board of Directors viewed the sale of the Commercial Business as a desirable alternative because it
believed that there was an attractive environment for the sale of marketed oncology products such as the Commercial Business and a sale would allow Merrimack to potentially realize the long-term value of its pipeline business without
Merrimacks stockholders being diluted by an equity financing. Mr. Mulroy provided an overview of the Spin/Sale Transaction and Dr. Yasir
Al-Wakeel,
the Chief Financial Officer and Head of
Corporate Development, reviewed the risks, benefits and work streams that would be involved in a disposition of the Commercial Business utilizing a Spin/Sale Transaction structure. In connection with its desire to continue to evaluate various
strategic alternatives, including a disposition of the Commercial Business utilizing a Spin/Sale Transaction structure, the Board of Directors authorized the formation of a transaction committee of the Board of Directors, composed of directors Gary
Crocker, John Dineen, Mr. Mulroy, Ulrik Nielsen, James Quigley and Russell Ray (the
Transaction Committee
), to review, evaluate and negotiate any strategic alternatives, subject to approval by the full Board of Directors.
On August 9, 2016, the Transaction Committee held a telephonic meeting attended by members of management.
Dr. Al-Wakeel
gave a presentation on the Companys cash position and runway and included
28
various cost-saving measures that could extend the Companys runway. The Transaction Committee then discussed a potential Spin/Sale Transaction, particularly the timing and the necessary
external advisors. After a discussion, the Transaction Committee decided to continue to analyze a potential disposition of the Commercial Business utilizing a Spin/Sale Transaction structure and engage external financial advisors to assist the Board
of Directors in evaluating a potential disposition of the Commercial Business. The Transaction Committee authorized the Companys management to begin discussions with BofA Merrill Lynch and Credit Suisse to potentially serve as financial
advisors with respect to the Spin/Sale Transaction.
On August 16, 2016, representatives from Merrimack and representatives from
Ipsen met telephonically to discuss manufacturing matters with respect to
MM-121
and
MM-302.
On August 18, 2016, the Transaction Committee held a telephonic meeting attended by members of management and representatives from
Skadden, Arps, Slate, Meagher & Flom LLP (
Skadden
). Representatives from Skadden discussed with the Board of Directors the due diligence process that Skadden had conducted as to relationships of BofA Merrill Lynch and
Credit Suisse relative to Merrimack. Following review of these findings, the Board of Directors approved the retention of BofA Merrill Lynch and Credit Suisse as financial advisors to the Board of Directors in connection with a potential Spin/Sale
Transaction, following which Merrimack countersigned and delivered an engagement letter to BofA Merrill Lynch dated September 6, 2016 and an engagement letter to Credit Suisse dated September 12, 2016.
On August 23, 2016, the Transaction Committee held a telephonic meeting also attended by members of management. Mr. Mulroy gave an
update on the status of discussions with Ipsen with respect to the Ipsen Collaboration.
Dr. Al-Wakeel
provided an update on the Companys recent internal activities related to the Spin/Sale
Transaction.
During the last two weeks of August 2016, Mr. Mulroy met primarily telephonically with Mr. Meek on multiple
occasions to discuss a potential Ipsen Collaboration. Representatives from Ipsen indicated to Mr. Mulroy that Ipsen was no longer interested in pursuing a licensing and collaboration with respect to multiple Merrimack clinical products and was
instead only interested in pursuing a licensing and collaboration opportunity with respect to
MM-121.
On August 31, 2016, the Transaction Committee held a telephonic meeting attended by members of management and representatives from BofA
Merrill Lynch, Credit Suisse and Skadden. Representatives from BofA Merrill Lynch and Credit Suisse provided an overview of recent life sciences mergers and acquisitions activity and the key considerations and timelines for a disposition of the
Commercial Business utilizing a Spin/Sale Transaction structure. BofA Merrill Lynch and Credit Suisse also discussed various other potential transactions that management was considering. The Board of Directors discussed the various alternatives.
After the representatives from BofA Merrill Lynch, Credit Suisse and Skadden left the meeting, Mr. Mulroy presented to the Transaction Committee an update on a potential Ipsen Collaboration.
On September 6, 2016, the Board of Directors held a telephonic meeting attended by members of management.
Dr. Al-Wakeel
opened the meeting by presenting an overview of the three potential strategic alternatives that the Company was then pursuing: an Ipsen Collaboration, a disposition of the Commercial
Business utilizing a Spin/Sale Transaction structure, and a restructuring and financing (the
Strategic Alternatives
). The Board of Directors discussed these Strategic Alternatives and decided to continue to pursue all three
Strategic Alternatives at that time.
Dr. Al-Wakeel
and Mr. Mulroy then discussed the performance of ONIVYDE since its October 2015 launch and the various revenues and costs associated with
manufacturing, developing and commercializing ONIVYDE.
On September 11, 2016, the Board of Directors held a telephonic meeting
attended by members of management. Mr. Mulroy provided the Board of Directors with an update on discussions with Ipsen regarding a potential Ipsen Collaboration. Representatives from management then reviewed various potential scenarios for
ONIVYDE.
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In early September 2016, following contact between Mr. Mulroy and certain of the directors
with various stockholders for a period of time, including Nick Taylor from Senrigan Capital Group Limited (
Senrigan
), the Board of Directors determined that the Company could benefit from inviting Mr. Taylor to participate in
certain discussions with the Board of Directors as they began to pursue important strategic alternatives and next steps.
On
September 9, 2016, Merrimack executed a confidentiality agreement with Mr. Taylor and Senrigan.
On September 13, 2016,
Mr. Mulroy and Edward Stewart, Merrimacks Head of Commercial, met with representatives from Ipsen at Ipsens headquarters in Paris, France to discuss the Ipsen Collaboration.
Also on September 13, 2016, the Board of Directors met in person in Cambridge, Massachusetts along with Jeffrey Munsie, Merrimacks
General Counsel, and Mr. Taylor. Mr. Crocker presented the Board of Directors with an update on discussions with Ipsen regarding a potential Ipsen Collaboration on behalf of Mr. Mulroy. Then the Board of Directors discussed the
Strategic Alternatives, particularly the timing and strategic benefit of each of the alternatives to the Company as well as the Companys financing needs under each of the Strategic Alternatives.
On September 14, 2016, the Board of Directors met in person in Cambridge, Massachusetts together with members of management,
representatives from BofA Merrill Lynch and Credit Suisse and Mr. Taylor. Mr. Crocker provided a summary of the Strategic Alternatives. Representatives from BofA Merrill Lynch and Credit Suisse again provided an overview of recent life
sciences mergers and acquisitions activity and perspectives on each of the Strategic Alternatives. The Board of Directors discussed the Strategic Alternatives. The representatives from BofA Merrill Lynch and Credit Suisse then reviewed with the
Board of Directors an indicative process and timeline for pursuing a potential Spin/Sale Transaction as well as potential counterparties to such transaction.
Dr. Al-Wakeel
then provided an overview of the proposed positioning of the commercial company to
potential acquirers in the Spin/Sale Transaction.
Dr. Al-Wakeel
and other members of management also reviewed the various funding and operational requirements for the Company under the Strategic
Alternatives. The Board of Directors continued to discuss the Strategic Alternatives. During the discussion, the Board of Directors expressed concern as to whether the proceeds of an Ipsen Collaboration alone would be sufficient to adequately extend
the Companys cash runway, particularly given the remaining diligence Ipsen needed to perform and the timing to close that transaction. Because of those concerns, the Board of Directors decided to simultaneously pursue both an Ipsen
Collaboration and a potential disposition of the Commercial Business utilizing a Spin/Sale Transaction structure. The Board of Directors then instructed management to continue preparations for a potential disposition of the Commercial Business, with
the goal of beginning outreach to potential counterparties as soon as possible. The Board of Directors also directed management to finalize plans for a reduction in workforce of approximately 20% (the
Reduction in Force
), which
the Board of Directors determined was necessary in order to reduce costs under each of the Strategic Alternatives.
On September 22,
2016, the Board of Directors held a telephonic meeting attended by members of management, representatives from BofA Merrill Lynch and Credit Suisse and Mr. Taylor. Mr. Mulroy provided an update on the Ipsen Collaboration discussions. The
Board of Directors discussed the strategy for reaching out to potential counterparties and instructed the Financial Advisors to begin outreach to potential counterparties on September 26, 2016. William McClements, Merrimacks Head of
Corporate Operations, provided a further update on the Companys plans to implement the Reduction in Force.
During the period from
September 26, 2016 through November 22, 2016, BofA Merrill Lynch and Credit Suisse contacted or were contacted by 35 potential counterparties, including Ipsen, Party A and Party B. Of these parties, 15 ultimately executed confidentiality
agreements and were provided with due diligence information and offered access to the first round of the data room, including Ipsen, Party A and Party B.
30
When Ipsen was apprised of the Companys interest in pursuing a potential Spin/Sale
Transaction, Ipsen indicated that it intended to pursue a potential Spin/Sale Transaction rather than an Ipsen Collaboration.
On
September 29, 2016, the Board of Directors held a telephonic meeting attended by members of management, representatives from BofA Merrill Lynch and Credit Suisse and Mr. Taylor. Representatives from BofA Merrill Lynch and Credit Suisse
provided the Board of Directors an update on their initial outreach to potential acquirers of the Commercial Business. Mr. Crocker also provided an update with respect to an Ipsen Collaboration. Mr. McClements again provided details
regarding the upcoming Reduction in Force, which was being planned for October 3, 2016. The Board of Directors authorized management to implement the Reduction in Force and to accept the resignation of Mr. Mulroy as an employee and officer
of the Company and as a member of the Board of Directors effective October 3, 2016.
On October 3, 2016, the Company publicly
announced the Reduction in Force, the resignation of Mr. Mulroy as President, Chief Executive Officer and a director, and the appointment of Mr. Crocker as Interim President and Chief Executive Officer.
On October 6, 2016, the Board of Directors held a telephonic meeting attended by members of management, representatives from BofA Merrill
Lynch and Credit Suisse and Mr. Taylor. Representatives from BofA Merrill Lynch and Credit Suisse provided a further update on the initial outreach to potential acquirers of the Commercial Business.
On October 11, 2016, at the direction of the Board of Directors, BofA Merrill Lynch and Credit Suisse sent a first round process letter
to Ipsen, Party A, Party B and multiple other parties requesting preliminary proposals to acquire the Commercial Business from the Company no later than 5:00 p.m., Eastern time, November 4, 2016. In connection with the delivery of the process
letter, at the direction of the Board of Directors, BofA Merrill Lynch and Credit Suisse notified potential counterparties that Merrimacks preference was for a sale of the Commercial Business utilizing a Spin/Sale Transaction structure.
On October 13, 2016, the Board of Directors held a telephonic meeting attended by members of management and representatives from BofA
Merrill Lynch and Credit Suisse. The representatives from BofA Merrill Lynch and Credit Suisse provided an update on outreach to potential acquirers of the Commercial Business, and the Board of Directors discussed the next steps in the process and
the potential counterparties.
Following the appointment of Mr. Crocker as Interim President and Chief Executive Officer, the Company
began discussions with Clarion Healthcare LLC (
Clarion
) with respect to evaluating the Companys clinical stage assets and providing an analysis of which product candidates to prioritize. On October 19, 2016, the Company
entered into an engagement agreement with Clarion.
On October 20, 2016, the Board of Directors held a telephonic meeting attended by
members of management and representatives from BofA Merrill Lynch and Credit Suisse. The representatives from BofA Merrill Lynch and Credit Suisse provided an update on outreach to potential acquirers of the Commercial Business, and the Board of
Directors discussed the next steps in the process and the potential counterparties. After the representatives from BofA Merrill Lynch and Credit Suisse and the members of management left the meeting, the Board of Directors discussed its pipeline
strategy review process.
On October 25, 2016, Party B held a diligence call with the Company.
On October 27, 2016, the Board of Directors held a telephonic meeting attended by members of management and representatives from BofA
Merrill Lynch and Credit Suisse. The representatives from BofA Merrill Lynch and Credit Suisse provided an update on the diligence being performed by potential acquirers of the Commercial Business. As of October 27, 2016, 11 potential
counterparties remained engaged in the process. After the representatives from BofA Merrill Lynch and Credit Suisse and certain members of management left the meeting, the Board of Directors continued to discuss its pipeline strategy review process.
31
On November 2 and November 3, 2016, Party D held a diligence call and an intellectual
property diligence call, respectively, with the Company.
On November 4, 2016, the Company received a preliminary written
non-binding
proposal from Ipsen to acquire the assets and assume the liabilities of the Commercial Business for an upfront payment of $325 million in cash plus a potential contingent payment of
$225 million payable upon obtaining FDA approval of ONIVYDE for the first-line treatment of pancreatic cancer (the
Ipsen November
4 Proposal
).
Also on November 4, 2016, the Company received a preliminary written
non-binding
proposal from
Party A to acquire the assets and assume the liabilities of the Commercial Business for an upfront payment of $450 million in cash plus potential contingent payments of up to $450 million (the
Party A November
4
Proposal
). The contingent payments would be payable if ONIVYDE achieved certain regulatory approvals: (i) $250 million would be payable upon achievement of FDA approval of ONIVYDE for the first-line treatment of HER2-negative gastric
cancer; (ii) $100 million would be payable upon obtaining FDA approval of ONIVYDE for the first-line treatment of KRAS wild-type colorectal cancer; and (iii) $100 million would be payable upon obtaining FDA approval of ONIVYDE for the
treatment of relapsed small cell lung cancer.
Also on November 4, 2016, the Company received a preliminary written
non-binding
proposal from Party B to acquire only ONIVYDE for an upfront payment of $350 million in cash without any contingent milestone payments (the
Party B November
4
Proposal
and together with the Ipsen November 4 Proposal and the Party A November 4 Proposal, the
November
4 Proposals
).
On November 7, 2016, the Board of Directors held a telephonic meeting attended by members of management and representatives from BofA
Merrill Lynch, Credit Suisse and Skadden. Representatives from BofA Merrill Lynch and Credit Suisse gave an overview of the process to date, including the three written indications of interest received from Ipsen, Party A and Party B as well as two
verbal indications of interest. BofA Merrill Lynch and Credit Suisse discussed with the Board of Directors an illustrative aggregate probability-adjusted net present value (
NPV
) for each of the November 4 Proposals based on
assumptions provided by Merrimack management regarding the probability of success and assumed date of achievement for the relevant contingent milestones as follows: (i) for the Ipsen November 4 Proposal, an illustrative NPV of
$356 million; (ii) for the Party A November 4 Proposal, an illustrative NPV of $546 million; and (iii) for the Party B November 4 Proposal, an illustrative NPV of $350 million. BofA Merrill Lynch and Credit Suisse
also summarized verbal offers received from Party C and Party D. Party C indicated that its offer would be in the range of $400 million upfront and a potential milestone payment of up to $100 million. Party D advised that it was capital
constrained and indicated that its offer would be in the range of $150 million upfront with potential contingent consideration. BofA Merrill Lynch and Credit Suisse then discussed with the Board of Directors strategy in the second round to
maximize the likelihood of increased bids from the interested parties and to complete a transaction as expeditiously as possible. The Board of Directors authorized BofA Merrill Lynch and Credit Suisse to advise each of Ipsen, Party A and Party B
that it needed to increase its offer, and to request that Party C deliver its offer with greater specificity in written form. In light of Party Ds indication that it was capital constrained and its offer would be substantially below the other
proposals, the Board of Directors determined not to invite Party D to continue in the process unless they substantially increased their offer.
Thereafter, BofA Merrill Lynch and Credit Suisse communicated the Board of Directors determination to Ipsen, Parties A, B, C and D.
On November 9, 2016, Merrimack reported results for the third quarter of 2016. Also on November 9, based on unnamed sources, Reuters
reported that Merrimack had engaged BofA Merrill Lynch and Credit Suisse to seek strategic alternatives. Thereafter, two additional parties, Party E and Party F, expressed an interest in considering a potential transaction with Merrimack.
On November 11, 2016, Merrimack management conducted a management presentation attended by Party A at Skaddens offices in Boston,
Massachusetts.
32
On November 15, 2016, Merrimack management conducted a management presentation attended by
Ipsen at Skaddens offices in Boston, Massachusetts. Also on November 15, 2016, Ipsen conducted a manufacturing site visit at the Companys headquarters in Cambridge, Massachusetts.
Also on November 15, 2016, the Board of Directors held a telephonic meeting attended by members of management and representatives from
BofA Merrill Lynch, Credit Suisse, Skadden and Mr. Taylor. Representatives from BofA Merrill Lynch and Credit Suisse gave an overview of the process to date, including further updates on discussions with potential counterparties, including
Ipsen, Party A and Party B. Representatives from BofA Merrill Lynch and Credit Suisse indicated that the potential counterparties had each raised the prospect of structuring the transaction differently than had been proposed and had expressed a
preference for an asset sale structure (an
Asset Sale Transaction
) over the Spin/Sale Transaction structure. Representatives from BofA Merrill Lynch discussed the management presentations that had occurred to date with Party A and
Ipsen. BofA Merrill Lynch also indicated that it was unclear whether Party C would move forward to submit a formal written proposal after its verbal indication of interest. BofA Merrill Lynch and Credit Suisse noted that Party D had not been in
contact since BofA Merrill Lynch and Credit Suisse had told them they needed to substantially increase their offer in order to advance in the process. Following the BofA Merrill Lynch and Credit Suisse discussion,
Dr. Al-Wakeel
and Mr. Crocker presented to the Board of Directors a possible strategic alternative to a sale transaction whereby the Company would not proceed with a sale of the Commercial Business
but would instead limit its operations and raise additional capital (the
Restructuring
). Representatives from BofA Merrill Lynch and Credit Suisse also presented to the Board of Directors the amounts of potential dividends that
could be paid to the Companys stockholders out of the proceeds of a sale of the Commercial Business at illustrative sale prices.
Mr. Munsie then presented to the Board of Directors the differences between the two transaction structures currently under consideration
by the Board of Directors: the Spin/Sale Transaction and the Asset Sale Transaction. A representative from Skadden also discussed the tax and timing considerations of the two transaction structures. Following discussion, the Board of Directors
indicated to BofA Merrill Lynch and Credit Suisse that it was open to pursuing an Asset Sale Transaction with the potential counterparties.
Thereafter, BofA Merrill Lynch and Credit Suisse communicated to the potential counterparties the Board of Directors willingness to
pursue an Asset Sale Transaction.
On November 17, 2016, Party A held an intellectual property diligence call with the Company.
On November 18, 2016, Merrimack management conducted a management presentation attended by Party B at Skaddens offices in Boston,
Massachusetts. Also on November 18, 2016, Party B conducted a manufacturing site visit at the Companys headquarters in Cambridge, Massachusetts.
Also on November 18, 2016, Party E executed a confidentiality agreement with the Company and was granted access to the data room. Party E
did not ultimately submit a proposal for a transaction with the Company.
On November 19, 2016, Party C informed BofA Merrill Lynch
and Credit Suisse that it would not continue in the process.
On November 22, 2016, at the direction of the Board of Directors, BofA
Merrill Lynch and Credit Suisse sent a second round process letter to Ipsen, Party A and Party B requesting revised proposals to acquire the Commercial Business from the Company no later than 5:00 p.m., Eastern time, December 6, 2016. The
process letter offered each of the potential counterparties the option to choose whether they wanted to pursue a transaction utilizing a Spin/Sale Transaction structure or an Asset Sale Transaction structure.
Also on November 22, 2016, the Board of Directors held a telephonic meeting attended by members of management and representatives from
BofA Merrill Lynch, Credit Suisse and Skadden. BofA Merrill Lynch and
33
Credit Suisse updated the Board of Directors on the process. BofA Merrill Lynch and Credit Suisse then discussed the engagement of Party E and a new Party F. After the update from BofA Merrill
Lynch and Credit Suisse,
Dr. Al-Wakeel
led a discussion with the Board of Directors regarding effecting a sale of the Commercial Business utilizing a Spin/Sale Transaction structure as compared to an
Asset Sale Transaction structure and the effect of each on the Companys outstanding indebtedness and other contractual obligations. The Board of Directors directed BofA Merrill Lynch and Credit Suisse to emphasize to Ipsen, Party A and Party B
the need to materially improve their proposals.
On November 23, 2016, Party F executed a confidentiality agreement with the Company
and was granted access to the data room.
On December 1, 2016, the Board of Directors held a telephonic meeting attended by members
of management and representatives from BofA Merrill Lynch and Credit Suisse. Representatives from BofA Merrill Lynch and Credit Suisse provided an update on the process and the diligence being conducted by potential counterparties. The Financial
Advisors left the meeting and the Board of Directors had a discussion about the benefits of the Restructuring, as opposed to pursuing a sale of the Commercial Business.
On December 5, 2016, BofA Merrill Lynch and Credit Suisse distributed to Ipsen, Party A and Party B a draft asset sale agreement prepared
by Skadden.
On December 6, 2016, the Company received a written,
non-binding
revised
proposal from Ipsen to acquire the Commercial Business from the Company for an upfront payment of $550 million in cash plus potential contingent payments of up to $450 million (the
Ipsen December
6
Proposal
). The contingent payments would be payable if ONIVYDE achieved certain regulatory approvals: (i) $225 million would be payable upon achievement of FDA approval of ONIVYDE for the first-line treatment of pancreatic cancer;
(ii) $150 million would be payable upon obtaining FDA approval of ONIVYDE for the treatment of small cell lung cancer; and (iii) $75 million would be payable upon obtaining FDA approval of ONIVYDE for the treatment of a third additional
indication other than pancreatic cancer and small cell lung cancer.
Also on December 6, 2016, Party F verbally indicated it would be
willing to acquire the Companys rights to sell and market ONIVYDE in the United States for the treatment of post-gemcitabine pancreatic cancer, for an upfront payment of $200 million in cash. If ONIVYDE was approved by the FDA for the
first-line treatment of pancreatic cancer for the United States, Party F would have a right of first negotiation to license the first-line pancreatic cancer indication, but the Company would be permitted to reacquire from Party F the right to sell
and market ONIVYDE in the United States for post-gemcitabine pancreatic cancer at a price determined based on the remaining term of the applicable patent. If ONIVYDE was not approved by the FDA for the first-line treatment of pancreatic cancer,
Party F would pay the Company an additional $150 million. Also, the Company would be required to supply ONIVYDE to Party F at a price equal to cost plus 5%. Finally, Party Fs indication of interest was subject to due diligence.
On December 9, 2016, Party A informed BofA Merrill Lynch and Credit Suisse that it would not submit a revised transaction proposal.
On December 12, 2016, Party B informed BofA Merrill Lynch and Credit Suisse that it would not submit a revised transaction proposal.
On December 13, 2016, at the direction of the Board of Directors, BofA Merrill Lynch and Credit Suisse sent a final bid process letter to
Ipsen requesting Ipsens final bid and a marked draft of the asset sale agreement by December 19, 2016.
On December 15,
2016, the Board of Directors held a meeting in Cambridge, Massachusetts attended by members of management and representatives from BofA Merrill Lynch, Credit Suisse and Skadden. The Board
34
of Directors engaged in an extensive discussion regarding the sale of the Commercial Business and whether an Asset Sale Transaction was in the best interests of the stockholders of the Company as
compared to the Restructuring.
Dr. Al-Wakeel
and Mr. Munsie then led a discussion with the Board of Directors regarding the relative merits of an Asset Sale Transaction and the Restructuring,
particularly the clinical activities that the Company would be able to pursue following each transaction and the capital needs of the Company following each transaction. The representatives from Credit Suisse, BofA Merrill Lynch and Skadden then
joined the meeting and the Financial Advisors provided an update on the process and reviewed the terms of the Ipsen December 6 Proposal with the Board of Directors. The Financial Advisors then discussed with the Board of Directors a preliminary
financial analysis, including a comparison of an implied NPV of $629 million calculated for the Ipsen December 6 Proposal based on assumptions provided by Merrimack management regarding the probability of success and assumed date of
achievement for the relevant contingent milestones and preliminary valuation reference ranges for the Commercial Business. The Financial Advisors also discussed with the Board of Directors the terms of the verbal indication of interest provided by
Party F.
The Board of Directors then discussed its desire to submit the transaction to a stockholder vote to ensure that the Board of Directors and the Companys stockholders were aligned about the best transaction to pursue.
Representatives from Clarion then joined the meeting and answered questions from the Board of Directors regarding their pipeline strategy review. The Board of Directors requested that Clarion perform some additional analyses on the pipeline.
Also at the December 15, 2016 meeting, the Board of Directors discussed the benefits and detriments of a proposed Asset Sale Transaction
with Ipsen compared to the Restructuring. The Board of Directors also discussed potential amounts of the proceeds from the Asset Sale Transaction with Ipsen that would be required to operate the remaining pipeline business and that could be used to
pay a dividend to stockholders. With respect to the Restructuring, the Board of Directors discussed the risks related to raising money in the capital markets as well as the near term commercial opportunity for ONIVYDE and the clinical timelines of
the pipeline products. Following such discussion, the Board of Directors made a preliminary determination that the economic terms of the Ipsen December 6 Proposal were sufficient for the Company to proceed with a potential Asset Sale
Transaction with Ipsen instead of the Restructuring. In addition, the Board of Directors determined not to proceed with discussions with Party F because its verbal indication of interest was not for the entire Commercial Business, was subject to
diligence and contemplated what the Board of Directors believed to be an unattractive upfront payment. The Board of Directors instructed Mr. Crocker to negotiate further with Ipsen to attempt to increase their upfront and contingent payments.
On December 19, 2016, Ipsen presented to Merrimack a written,
non-binding
proposal as well
as a markup of the draft asset sale agreement. The final proposal offered an upfront payment of $550 million in cash plus potential contingent payments of up to $450 million (the
Ipsen December
19
Proposal
), but did not provide for any payment to Merrimack in respect of the milestones payable by Shire to the Company. The contingent payments would be payable if ONIVYDE achieved certain regulatory approvals: (i) $225 million
would be payable upon achievement of FDA approval of ONIVYDE for the first-line treatment of metastatic adenocarcinoma of the pancreas, in combination with fluorouracil, leucovorin and oxaliplatin or in combination with gemcitabine and abraxane;
(ii) $150 million would be payable upon obtaining FDA approval of ONIVYDE for the treatment of small cell lung cancer after failure of first-line chemotherapy; and (iii) $75 million would be payable upon obtaining FDA approval of ONIVYDE
for the treatment of a third additional indication other than pancreatic cancer and small cell lung cancer.
On December 21, 2016,
Merrimack announced that it was stopping its Phase 2 clinical trial of
MM-302
following the Data and Safety Monitoring Boards opinion that continuing would be unlikely to demonstrate benefit over the
comparator treatments and a subsequent futility assessment that confirmed such opinion.
On December 22, 2016, Party F provided the
Company with a written,
non-binding
proposal generally reflecting its verbal indication of interest submitted December 6.
35
Also on December 22, 2016, representatives from Skadden met telephonically with
representatives from Ipsens outside counsel, Dechert LLP (
Dechert
), to discuss certain elements of Ipsens markup of the draft asset sale agreement.
Also on December 22, 2016, the Board of Directors held a telephonic meeting attended by representatives from Clarion. The representatives
from Clarion presented their further analysis of the pipeline strategy review, particularly which of the Companys pipeline programs should be continued, modified or suspended.
On December 23, 2016, David Meek contacted Mr. Crocker to discuss the Ipsen December 19 Proposal. Mr. Crocker indicated
that the Ipsen December 19 Proposal presented new concerns for Merrimack in that it rejected Merrimacks request to retain certain near-term milestone payments under Merrimacks License and Collaboration Agreement with Shire and
indicated an intent to hire fewer employees than anticipated. Mr. Meek said he would revisit these issues with Ipsens board of directors. Later that day, Mr. Meek indicated that Ipsen would be willing to allow Merrimack to retain
certain near-term milestone payments under the License and Collaboration Agreement with Shire and would be willing to increase the upfront payment to $566 million. Mr. Crocker indicated that $575 million was the upfront payment that
he felt the Board of Directors would accept.
Also on December 23, 2016, representatives from Skadden met telephonically again with
representatives from Dechert to discuss other elements of Ipsens markup of the draft asset sale agreement.
On December 24,
2016, Mr. Meek contacted Mr. Crocker and indicated that Ipsen would be willing to offer an upfront payment of $575 million. Shortly thereafter, after discussions with BofA Merrill Lynch and Credit Suisse, Ipsen presented to Merrimack
a revised final written proposal to acquire the Commercial Business from the Company for an upfront payment of $575 million in cash plus potential contingent payments of up to $450 million and additional payments of up to $33 million
payable in connection with the receipt of the milestone payments under Merrimacks License and Collaboration Agreement with Shire, which would be assigned to Ipsen (the
Ipsen Final Proposal
). The contingent payments would be
payable if ONIVYDE achieved certain regulatory approvals: (i) $225 million would be payable upon achievement of FDA approval of ONIVYDE for the first-line treatment of metastatic adenocarcinoma of the pancreas, in combination with fluorouracil,
leucovorin and oxaliplatin or in combination with gemcitabine and abraxane; (ii) $150 million would be payable upon obtaining FDA approval of ONIVYDE for the treatment of small cell lung cancer after failure of first-line chemotherapy; and
(iii) $75 million would be payable upon obtaining FDA approval of ONIVYDE for the treatment of a third additional indication other than pancreatic cancer and small cell lung cancer.
Also on December 24, 2016, the Board of Directors held a telephonic meeting attended by representatives from BofA Merrill Lynch and
Credit Suisse. Representatives from BofA Merrill Lynch and Credit Suisse provided an update on negotiations with Ipsen since the December 15, 2016 Board of Directors meeting. The Board of Directors discussed the economic terms of the Ipsen
Final Proposal and the written proposal received from Party F on December 22, 2016. Following such discussion, the Board of Directors determined that the economic terms of the Ipsen Final Proposal were within the scope of what the Board of
Directors determined at the December 15, 2016 Board of Directors meeting to be sufficient for the Company to continue to proceed with the Asset Sale Transaction with Ipsen. The Board of Directors reiterated its previous decision not to proceed
with discussions with Party F.
Also on December 24, 2016, Mr. Crocker contacted Mr. Meek indicating that generally he and
the Board of Directors supported the Ipsen Final Proposal, although Mr. Crocker noted that certain aspects of the contingent payment triggers remained a concern that would need to be discussed.
On December 26, 2016, Skadden provided Dechert with a first draft of an intellectual property license agreement, pursuant to which
Merrimack would obtain a license from Ipsen with respect to certain intellectual property needed by Merrimack to run the ongoing pipeline business after the Closing.
36
Also on December 26, 2016, Mr. Crocker contacted Mr. Meek to discuss some
outstanding issues relating to employees to be hired by Ipsen. Mr. Meek and Mr. Crocker exchanged communications on the issue and Mr. Meek agreed to put together a meeting among the correct group needed to address it.
On December 27, 2016, Skadden provided Dechert a revised draft of the asset sale agreement.
On December 28, 2016, Skadden provided Dechert a first draft of a transition services agreement, pursuant to which Merrimack and Ipsen
would provide certain services to each other for a certain period following the Closing.
On December 29, 2016, the Board of
Directors held a telephonic meeting attended by members of management and representatives from BofA Merrill Lynch, Credit Suisse and Skadden. Representatives from BofA Merrill Lynch and Credit Suisse gave an update on the Companys recent stock
performance and gave an update on the discussions with Ipsen. BofA Merrill Lynch and Credit Suisse discussed with the Board of Directors the illustrative aggregate probability-adjusted NPV of $685 million they calculated for the Ipsen Final
Proposal taking into account the Companys receipt of approximately $33 million in net milestone payments to be received by the Company in respect of the milestone payments from Shire. BofA Merrill Lynch and Credit Suisse also discussed
with the Board of Directors their preliminary financial analysis of the Commercial Business. The Board of Directors then discussed the activities the Company planned to undertake after the consummation of an Asset Sale Transaction and the
appropriate funding for the Company from the proceeds of the Asset Sale Transaction. The Board of Directors also discussed its contingency plans if an Asset Sale Transaction could not be consummated.
Also on December 29, 2016, Skadden received a markup of the draft intellectual property license agreement from Dechert. Between
December 29, 2016 and January 5, 2016, Skadden and Dechert exchanged drafts of and comments on the intellectual property license agreement.
Also on December 29, 2016 representatives from Merrimack and representatives from Ipsen met at Merrimacks offices in Cambridge,
Massachusetts to discuss human resources matters.
On December 30, 2016, Skadden received a revised markup of the draft asset sale
agreement from Dechert.
Also on December 30, 2016, representatives from Merrimack and representatives from Ipsen met telephonically
to follow up on the December 29, 2016 human resources discussion.
On January 2, 2017, representatives from Skadden met
telephonically with representatives from Dechert to discuss certain elements of Ipsens December 30, 2016 markup of the draft asset sale agreement. Skadden then provided Dechert a revised draft of the asset sale agreement.
Also on January 2, 2017, Mr. Meek contacted Mr. Crocker to discuss potential timing for signing and announcement of a potential
transaction. Mr. Meek and Mr. Crocker exchanged messages regarding certain open issues in the draft asset sale agreement and transaction timing.
Also on January 2, 2017, the Board of Directors held a telephonic meeting attended by members of management. Mr. Crocker and
Mr. Munsie led a discussion regarding negotiations with Ipsen and the open issues remaining in the draft asset sale agreement.
On
January 3, 2017, the Board of Directors held a telephonic meeting attended by members of management and representatives from BofA Merrill Lynch, Credit Suisse and Skadden. At the meeting, members of management described to the Board of
Directors updates that had been made in managements financial projections as compared to the original management financial projections that the Board of Directors had reviewed earlier in the process and compared the assumptions underlying the
original and updated management
37
projections to the assumptions underlying the projections that had been provided to bidders. These projections and the key assumptions on which they were based are described below in the section
captioned Certain Financial Projections. A representative from Skadden and Mr. Munsie then discussed the remaining open issues in the draft asset sale agreement being negotiated with Ipsen. The Board of Directors then
discussed the size of the cash dividend that the Board of Directors expected to pay to the Companys stockholders after the closing of the Asset Sale Transaction.
Also on January 3, 2017, Skadden received a markup of the draft transition services agreement from Dechert. Between January 3, 2016
and January 6, 2016, Skadden and Dechert exchanged drafts of and comments on the transition services agreement.
On January 4,
2017, Mr. Crocker contacted Mr. Meek on certain critical open issues in the draft transition services agreement, which Mr. Meek indicated he would follow up on. Mr. Crocker and Mr. Meek exchanged messages and had a telephone
conversation regarding this and other open issues as well as the timing of a potential transaction announcement.
Also on January 4,
2017, Skadden received a revised markup of the draft asset sale agreement from Dechert.
On January 5, 2017, prior to the Board of
Directors meeting, Skadden provided Dechert a revised draft of the asset sale agreement. Mr. Meek then contacted Mr. Crocker to indicate that Ipsen had agreed to language resolving the open first-line pancreatic cancer milestone issue.
Also on January 5, 2016, representatives from the Company and Skadden and representatives from Ipsen and Dechert had a call to discuss the remaining open items.
Later on January 5, 2017, the Board of Directors held a telephonic meeting attended by members of management and representatives from
BofA Merrill Lynch, Credit Suisse and Skadden. Mr. Crocker provided an update on the final negotiations with Ipsen. Mr. Munsie and representatives from Skadden provided a detailed summary of the latest draft of the asset sale agreement
provided to Dechert and the final open issues, which included: certain equipment assets, intellectual property representations, certain employee matters, certain tax matters, expenses payable to Ipsen in the event stockholder approval was not
obtained, the escrow amount, the net working capital definition and the first-line pancreatic cancer milestone. The representatives from BofA Merrill Lynch and Credit Suisse then summarized the process that had taken place since August 2016 and
their financial analysis of the Commercial Business in connection with the Asset Sale Transaction.
Dr. Al-Wakeel
then led a discussion with the Board of Directors regarding the size of the cash
dividend that the Company may be able to pay its stockholders after the closing of the Asset Sale Transaction, as well as the financial sensitivities and assumptions related to the calculation of such dividend. The Board of Directors discussed the
Companys anticipated cash balance at Closing and the Companys budget and cash runway after the Closing. The Board of Directors also discussed the various risks associated with pursuing and not pursuing the Asset Sale Transaction, as more
fully described below under the heading Recommendation of the Board of Directors and Reasons for the Asset Sale.
In the
late evening of January 5, 2017, Skadden received a revised draft of the asset sale agreement from Dechert, which had resolved all the open issues except whether the first-line pancreatic cancer milestone had to be achieved in combination with
other products. Throughout the day on January 5, 2017, representatives from Skadden discussed this remaining issue with the Board of Directors and also spoke with Mr. Crocker telephonically. The parties ultimately resolved the issue on
January 6, 2017.
Throughout the day on January 6, 2017, representatives from Skadden, Merrimacks legal department and
Dechert continued to exchange drafts to finalize and resolve issues raised in the draft asset sale agreement, the exhibits thereto and the disclosure letter.
38
On January 6, 2017, the Board of Directors held a telephonic meeting attended by members of
management and representatives from BofA Merrill Lynch, Credit Suisse and Skadden. Mr. Munsie opened the meeting by indicating that the draft asset sale agreement had been fully negotiated and finalized. The Board of Directors reviewed the
final terms of the asset sale agreement, discussing with representatives from Skadden the key differences to the draft of the asset sale agreement discussed at the January 5, 2017 Board of Directors meeting. Also at this meeting, each of BofA
Merrill Lynch and Credit Suisse reviewed with the Board of Directors its financial analysis of the Consideration, as summarized below under Opinions of the Financial Advisors and delivered their separate oral opinions to the Board
of Directors, each of which was confirmed by delivery of a written opinion, dated January 6, 2017, to the effect that, based upon and subject to the factors and assumptions set forth in their respective written opinions, the Consideration (as
defined in their respective opinions) was fair from a financial point of view to the Company. After further discussion, the Board of Directors unanimously (i) determined that the Asset Sale Agreement by and between the Company and Ipsen is fair
to, advisable and in the best interests of the Company and its stockholders; (ii) declared that it was advisable for the Company to enter into the Asset Sale Agreement; (iii) approved the execution, delivery and performance by the Company
of the Asset Sale Agreement; (iv) recommended that the Companys stockholders approve the Asset Sale; and (v) declared that the Interim Chief Executive Officer, the Chief Financial Officer and the General Counsel are each authorized
to execute and deliver the Asset Sale Agreement that evening and to publicly announce the transaction on or before January 9, 2017.
Recommendation of the Board of Directors and Reasons for the Asset Sale
Recommendation of the Board of Directors
The Board of Directors has unanimously determined that the Asset Sale Agreement, the Asset Sale and the other transactions contemplated
by the Asset Sale Agreement are advisable to, and in the best interests of, Merrimack and its stockholders.
The Board of Directors
unanimously recommends that you vote (1)FOR the Asset Sale and (2)FOR the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the Asset
Sale at the time of the Special Meeting.
Reasons for the Asset Sale
In recommending that Merrimacks stockholders approve the Asset Sale Agreement, the Board of Directors considered the terms of the Asset
Sale Agreement, as well as other available strategic alternatives. As part of its evaluation, the Board of Directors considered the risks, timing and uncertainties of each strategic alternative available to the Company, as well as financial
information prepared by management. In evaluating the Asset Sale Agreement and the transactions contemplated thereby, Merrimacks Board of Directors consulted with outside legal counsel, the Financial Advisors and Merrimacks senior
management, and considered a number of factors. These factors included, but are not limited to, the following factors which the Board of Directors viewed as supporting its determination (which factors are not necessarily presented in order of
relative importance):
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The fact that the transaction allows Merrimack and its stockholders to monetize ONIVYDE with respect to the approved indication, and allows Merrimack and its stockholders to benefit from potential contingent payments of
up to $450 million if additional indications are achieved by Ipsen, without being subject to the risks associated with investing in pursuing those additional indications.
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The fact that the
all-cash
Asset Sale consideration will provide liquidity to Merrimack and allow Merrimack to substantially reduce its outstanding indebtedness.
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The fact that the
all-cash
Asset Sale consideration will allow Merrimack to make a significant cash dividend to its stockholders.
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The ability to use a portion of the proceeds from the Asset Sale to provide funding for the development of Merrimacks targeted pipeline of clinical stage drugs, which the Board of Directors believes have potential
significant value.
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39
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The fact that the $575 million upfront payment exceeded the market capitalization of Merrimack by approximately 17%, based on the closing stock price on January 5, 2017, the trading day immediately preceding
the date on which the Asset Sale Agreement and the transactions contemplated thereby were approved by the Board of Directors, and the possibility for the Company to earn up to $450 million in additional milestone payments after the Closing,
which could allow the Company to make additional distributions to stockholders in the future.
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The perceived risks and benefits of a variety of strategic alternatives for Merrimack, including (i) a sale of the entire Company; (ii) a spin-sale transaction involving the
spin-off
of Merrimacks pipeline assets into a separate public company and a merger transaction with the proposed acquirer; and (iii) obtaining additional capital to allow the Company to continue to
own and market ONIVYDE, pursue additional indications and continue development of its pipeline of assets, combined with a restructuring to reduce Merrimacks cash requirements.
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The fact that the Company had not received any indications of interest from companies offering to acquire the entire Company.
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Merrimacks difficulty achieving
hoped-for
sales results for ONIVYDE, which was viewed by the Board of Directors as reflecting risks inherent to Merrimacks business and
the challenges to its realizing long-term forecasts.
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The financial forecasts for ONIVYDE prepared by Merrimacks senior management team, and the belief by the Board of Directors that an acquirer with an established, more efficient sales force could achieve greater
revenues for ONIVYDE than Merrimack.
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The significant expenses incurred by Merrimack and its history of operating losses and continued forecasted operating losses.
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The fact that the data safety and monitoring boards recommendation to discontinue the clinical trial of
MM-302
materially decreased the prospects that Merrimack would be
able to commercialize a second product in the near term to help absorb the manufacturing and other overhead costs the Company was bearing in connection with commercializing ONIVYDE.
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The fact that the Asset Sale would allow Merrimacks stockholders to continue to own equity in the Company and participate in future earnings and potential growth.
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The expectation that Merrimacks current tax attributes, including its net operating loss carry forwards, will be available to offset substantially all of the gain realized by Merrimack for U.S. federal income tax
purposes as a result of the Asset Sale.
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The fact that Merrimack actively sought proposals from several other parties that it believed were logical potential buyers, as more fully described above under the heading Background of the Asset
Sale:
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Merrimacks financial advisors contacted 35 potential buyers, Merrimack executed confidentiality agreements with 15 potential buyers and Merrimack conducted management presentations attended by 3 potential buyers;
and
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Of these parties, only Ipsen submitted a written proposal by the final bid deadline, and Party F provided a written proposal to acquire rights that involved upfront consideration at a lower level than Ipsens and a
back-end
opportunity for the Company to repurchase the transferred assets for a certain amount or have Party F make an additional payment to permanently acquire the assets.
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The fact that, through extensive negotiations, Merrimack was able to increase Ipsens final round bid, including contingent consideration and Merrimacks retention of specified milestone payments that would
likely become payable under its agreement with Shire, which Merrimack, after consultation with its Financial Advisors, believed was the maximum price at which Ipsen would transact.
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The risk that prolonging the sale process further could have resulted in the loss of a favorable opportunity to successfully consummate a transaction on favorable terms.
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The alternatives available to Merrimack if it did not monetize ONIVYDE.
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The opinion of BofA Merrill Lynch, dated January 6, 2017, to the Board of Directors as to the fairness, from a financial point of view and as of the date of the opinion, of the Consideration to be received by the
Company, as more fully described below in the section of this proxy statement captioned Opinions of the Financial Advisors beginning on page 43 of this proxy statement.
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The opinion of Credit Suisse, dated January 6, 2017, to the Board of Directors as to the fairness, from a financial point of view and as of the date of the opinion, of the Consideration to be received by the
Company, as more fully described below in the section of this proxy statement captioned Opinions of the Financial Advisors beginning on page 43 of this proxy statement.
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The terms and conditions of the Asset Sale Agreement and related transaction documents, including:
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The fact that Ipsens obligation to complete the Asset Sale is not conditioned upon receipt of financing and that Ipsen provided a representation that it has sufficient cash and available lines of credit or other
sources of immediately available cash to enable it to pay the purchase price due at Closing;
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Ipsens agreement to make offers of employment to at least 95 Merrimack employees, which offers will include salaries, wages, cash incentives and severance benefits no less favorable than their
pre-closing
equivalents, and substantially comparable benefit programs, and Ipsens agreement to be responsible for certain retention bonuses accrued prior to the Closing with respect to such employees;
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Merrimacks ability to retain certain milestone payments due under its License and Collaboration Agreement with Shire, despite the fact that such payments would likely be made following the Closing;
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Ipsens agreement to assume certain obligations and liabilities;
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Merrimacks ability, in certain circumstances, to furnish information to and conduct negotiations with a third party regarding a Competing Proposal that the Board of Directors determines in good faith, after
consulting with its financial advisors and outside counsel, constitutes or could reasonably be expected to lead to a Superior Proposal;
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The Board of Directors ability to change its recommendation in response to a Superior Proposal or terminate the Asset Sale Agreement in favor of a Superior Proposal, subject to Ipsens ability to match such
Superior Proposal and subject to paying Ipsen a termination fee of $25 million;
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The Board of Directors ability to change its recommendation in response to an intervening event not related to an alternative proposal not known or reasonably foreseeable by the Board of Directors prior to
January 7, 2017, subject to Ipsens ability to propose adjustments to the terms and conditions of the Asset Sale Agreement that may convince the Board of Directors not to change its recommendation, and subject to Ipsens right to
terminate the Asset Sale Agreement following such change in recommendation and to collect a termination fee of $25 million;
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The fact that the termination fee payable by the Company is less than 4% of the Companys estimated net present value of the total Asset Sale consideration when taking into account Merrimacks estimate of the
probability of achieving the contingent payment milestones and the net present value of such payments, which amount the Board of Directors believed was reasonable in light of, among other matters, the benefits of the Asset Sale to Merrimack and its
stockholders, the typical size of such termination fees in similar transactions and the likelihood that a fee of such size would not be a meaningful deterrent to competing acquisition proposals;
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The fact that the Asset Sale is subject to the approval of the holders of a majority of the outstanding shares of Merrimacks common stock;
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The fact that an ancillary agreement to the Asset Sale Agreement provides for the provision of certain manufacturing, warehousing, quality control and stability services to Merrimack following the closing of the Asset
Sale; and
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The fact that the Asset Sale Agreement has customary terms and was the product of extensive arms-length negotiations by Merrimack and Merrimacks professional advisors.
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The fact that resolutions approving the Asset Sale Agreement were unanimously approved by the Board of Directors, which is comprised of a majority of independent directors who are neither affiliated with Ipsen nor
employees of Merrimack or any of its subsidiaries, and which retained and received advice from Merrimacks outside legal counsel and the Financial Advisors in evaluating, negotiating and recommending the terms of the Asset Sale Agreement.
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In the course of reaching the determinations and decisions and making the recommendation described above, the Board of
Directors, in consultation with Merrimacks senior management, outside legal counsel and the Financial Advisors, considered the risks and potentially negative factors relating to the Asset Sale Agreement, the Asset Sale and the other
transactions contemplated by the Asset Sale Agreement, including the following material factors (which factors are not necessarily presented in order of relative importance):
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The fact that the Asset Sale contemplated a sale of the Companys only commercialized, revenue-generating product.
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The fact that $450 million of the total consideration in the Asset Sale is contingent consideration based on Ipsens ability to achieve specified regulatory approvals for the use of ONIVYDE for certain other
indications, which regulatory approvals may be delayed or not occur at all.
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The possibility that the consummation of the Asset Sale may be delayed or not occur at all, and the adverse impact such event would have on Merrimack and its business.
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The approximately $20 million cost associated with redeeming the Companys $175 million of outstanding senior secured notes.
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The restrictions on the conduct of Merrimacks business during the period between execution of the Asset Sale Agreement and the consummation of the Asset Sale, which may delay or prevent Merrimack from undertaking
business opportunities that may arise during such time which, absent the Asset Sale Agreement, Merrimack might otherwise have pursued.
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The possible disruption to Merrimacks business that may result from announcement of the Asset Sale and the resulting distraction of managements attention from
day-to-day
operations of the business.
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The potential negative effect of the pendency of the Asset Sale Agreement on Merrimacks business, including uncertainty about the effect of the proposed Asset Sale on Merrimacks employees, business partners
and other parties, which may impair Merrimacks ability to retain and motivate key personnel, and could cause business partners, suppliers and others to seek to change existing business relationships with Merrimack.
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The fact that under the terms of the Asset Sale Agreement, Merrimack is unable to solicit other acquisition proposals during the pendency of the Asset Sale Agreement.
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The fact that if the Asset Sale Agreement is terminated because Merrimacks stockholders do not approve the transaction, Merrimack will be required to reimburse up to $3 million of Ipsens expenses.
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The fact that as a condition to closing, the Asset Sale Agreement requires Merrimack to issue certain specified purchase orders to third party suppliers for supplies to be delivered on a delayed basis and such purchase
orders must be accepted by the suppliers, a condition that Merrimack cannot solely control.
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The fact that Merrimack is utilizing a significant portion of the cash proceeds from the transaction to fund its development pipeline, which involves execution risk and the possibility that stockholders do not
ultimately obtain the full value of such proceeds.
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The fact that the Asset Sale Agreement obligates Merrimack to indemnify Ipsen against certain damages.
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The fact that the Asset Sale Agreement imposes certain restrictions on Merrimack with respect to acquiring rights to products with an indication in the treatment of metastatic adenocarcinoma of the pancreas or treatment
of small cell lung cancer for a period of five years (other than products being developed or commercialized by Merrimack prior to the Closing).
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The fact that the receipt of cash by Merrimack will be a taxable transaction for U.S. federal income tax purposes, and the issuance of the special dividend will also be taxable to stockholders.
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The fact that completion of the Asset Sale will require antitrust clearance in the United States.
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The fact that some of Merrimacks directors and executive officers may be deemed to have interests in the Asset Sale that are different from, or in addition to, the interests of Merrimacks stockholders
generally, as more fully described below under the caption Interests of Certain Persons Related to Merrimack in the Asset Sale.
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The Board of Directors believed that, overall, the potential benefits of the Asset Sale to Merrimack and to its stockholders outweighed the
risks and uncertainties of the Asset Sale.
The foregoing discussion of factors considered by the Board of Directors contains the material
factors considered by the Board of Directors, but is not in any way intended to be exhaustive. In light of the variety of factors considered in connection with its evaluation of the Asset Sale, the Board of Directors did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Each member of the Board of Directors applied his or her own business judgment to the process and may
have given different weight to different factors. The Board of Directors did not undertake to make any specific determination as to whether any factor or any particular aspect of a factor supported or did not support its ultimate determination. The
Board of Directors based its recommendation on the totality of the information presented.
Opinions of the Financial Advisors
Opinion of BofA Merrill Lynch
The
Company retained BofA Merrill Lynch to act as a financial advisor to the Company in connection with the transactions contemplated under the Asset Sale Agreement. BofA Merrill Lynch is an internationally recognized investment banking firm which is
regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and
other purposes. The Company selected BofA Merrill Lynch to act as the Companys financial advisor in connection with the transactions contemplated under the Asset Sale Agreement on the basis of BofA Merrill Lynchs experience in
transactions similar to the Asset Sale, its reputation in the investment community and its familiarity with the Company and its business.
On January 6, 2017, at a meeting of the Board of Directors held to evaluate the transactions contemplated under the Asset Sale Agreement,
BofA Merrill Lynch delivered to the Board of Directors an oral opinion, confirmed by delivery of a written opinion dated January 6, 2017, to the effect that, as of the date of the opinion and based on and subject to various assumptions and
limitations described in the opinion, the Consideration to be received in the proposed Asset Sale by the Company was fair, from a financial point of view, to the Company.
For purposes of the opinion of BofA Merrill Lynch and the opinion of Credit Suisse described below, the Consideration was defined
as (a) the $575,000,000 in cash payable at closing under the Asset Sale Agreement (the
Upfront Consideration
), subject to a working capital adjustment (as to which adjustment neither BofA Merrill Lynch nor Credit Suisse
expressed any opinion) and (b) the right of the Company to receive additional
43
cash payments as follows: (i) the amounts of the Specified Milestone Payment and the other Shire Milestone Payments (both as defined in the Asset Sale Agreement) paid under the License and
Collaboration Agreement with Shire (net of the portion of any such payment payable to a third party), less, if the Specified Milestone Payment is paid, the $9,000,000 Ipsen is entitled to receive under the Asset Sale Agreement (the
Net
Milestone Payments
); (ii) $225,000,000 if the FDA approves ONIVYDE for the first-line treatment of metastatic adenocarcinoma of the pancreas (x) in combination with fluorouracil and leucovorin, (y) in combination with
gemcitabine and abraxane or (z) following submission and filing of FDA approval by Ipsen for purposes of commercialization by Ipsen (the
FL Approval
); (iii) $150,000,000 if the FDA approves ONIVYDE for the treatment of small
cell lung cancer after failure of first-line chemotherapy (the
SCL Approval
); and (iv) $75,000,000 if the FDA approves ONIVYDE for the treatment of an additional indication unrelated to the FL Approval and the SCL Approval. The
rights to receive the payments referred to in (ii) through (iv) are referred to as the
Earn-Out
Payment Rights
.
The full text of BofA Merrill Lynchs written opinion, dated January 6, 2017, to the Board of Directors, which describes, among
other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. The following summary
of BofA Merrill Lynchs opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion for the benefit and use of the Board of Directors (in its capacity as such) in connection with
and for purposes of its evaluation of the Consideration from a financial point of view, to the Company. BofA Merrill Lynchs opinion did not address any other aspect of the proposed Asset Sale, and no opinion or view was expressed as to the
relative merits of the proposed Asset Sale in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or
effect the proposed Asset Sale. BofA Merrill Lynch also expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the proposed Asset Sale or any related matter.
In connection with its opinion, BofA Merrill Lynch, among other things:
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(1)
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reviewed certain publicly available business and financial information relating to the Commercial Business;
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(2)
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reviewed certain internal financial and operating information with respect to the operations and prospects of the Commercial Business furnished to or discussed with BofA Merrill Lynch by the management of the Company,
including certain financial forecasts for the Commercial Business under two separate scenarios (one reflecting the Management Case (as defined below in the section captioned Certain Financial Projections) and one reflecting the
Management Case with Additional Indications (as defined below in the section captioned Certain Financial Projections), including assessments as to the probability of success of ONIVYDE for certain indications and of
MM-436
reflected therein, prepared by the management of the Company (such forecasts, the
Business Forecasts
);
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(3)
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discussed with members of the Companys senior management their assessment as to the probability of, the expected timing of, and the expected amounts of, the Net Milestone Payments and as to the probability of, and
the expected timing of, the occurrence of each of the milestone events giving rise to the payments contemplated by the
Earn-Out
Payment Rights;
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(4)
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discussed the past and current business, operations, financial condition and prospects of the Commercial Business with the members of senior management of the Company;
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(5)
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compared certain financial information of the Commercial Business with similar information of companies BofA Merrill Lynch deemed relevant;
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(6)
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compared certain financial terms of the proposed Asset Sale to financial terms, to the extent publicly available, of other transactions BofA Merrill Lynch deemed relevant;
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44
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(7)
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considered the results of BofA Merrill Lynchs efforts on behalf of the Company to solicit, at the direction of the Company, indications of interest and definitive proposals from third parties with respect to a
possible acquisition of all or a portion of the Commercial Business or any alternative transaction;
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(8)
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reviewed the Asset Sale Agreement; and
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(9)
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performed such other analyses and studies and considered such other information and factors as BofA Merrill Lynch deemed appropriate.
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In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the
financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with BofA Merrill Lynch and relied upon the assurances of the management of the Company that they were not aware of any facts or
circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Business Forecasts, BofA Merrill Lynch was advised by the Company, and assumed, that they were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Commercial Business under the two separate scenarios reflected therein. BofA Merrill Lynch also
relied, at the direction of the Company, upon the assessments of senior management of the Company as to the probability of, the expected timing of, and the expected amounts of, the Net Milestone Payments and as to the probability of, and the
expected timing of, the occurrence of each of the milestone events giving rise to the payments contemplated by the
Earn-Out
Payment Rights. With the Companys consent, BofA Merrill Lynchs analysis
did not take into account the impact of the Companys tax attributes, including tax credits and net operating losses, or the Company being able to forgo a contemplated issuance of equity securities as a result of the Asset Sale. BofA Merrill
Lynch did not make, nor was BofA Merrill Lynch provided with, any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company or the Commercial Business, nor did BofA Merrill Lynch make any physical
inspection of the properties or assets of the Company or the Commercial Business. BofA Merrill Lynch did not evaluate the solvency or fair value of the Company, the Commercial Business or Ipsen under any state, federal or other laws relating to
bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of the Company, that the proposed Asset Sale would be consummated in accordance with its terms, without waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the proposed Asset Sale, no delay, limitation, restriction or condition, including any
divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on the Company, the Commercial Business or the contemplated benefits of the proposed Asset Sale.
BofA Merrill Lynch expressed no view or opinion as to any terms or other aspects of the Asset Sale (other than the Consideration to the extent
expressly specified in its written opinion), including, without limitation, the form or structure of the proposed Asset Sale or any costs attributable to refinancing any of the Companys existing indebtedness. BofA Merrill Lynchs opinion
was limited to the fairness, from a financial point of view, to the Company of the Consideration to be received by the Company in the proposed Asset Sale and no opinion or view was expressed with respect to any consideration received in connection
with the Asset Sale by the holders of any other class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed by BofA Merrill Lynch with respect to the fairness (financial or otherwise) of the
amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the Asset Sale, or class of such persons, relative to the Consideration. Furthermore, no opinion or view was expressed by BofA
Merrill Lynch as to the relative merits of the proposed Asset Sale in comparison to other strategies or transactions that might be available to the Company or with respect to the Commercial Business or in which the Company might engage or as to the
underlying business decision of the Company to proceed with or effect the proposed Asset Sale. BofA Merrill Lynch did not express any opinion as to the prices at which the common stock of the Company will trade at any time, including following
announcement or consummation of the proposed Asset Sale. In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the proposed Asset Sale or any related matter.
45
BofA Merrill Lynchs opinion was necessarily based on financial, economic, monetary, market
and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does
not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynchs opinion was approved by a fairness opinion review committee of BofA Merrill Lynch.
The Company has agreed to pay BofA Merrill Lynch for its services in connection with the Asset Sale an aggregate fee of approximately $6.4
million, $1 million of which was payable upon the rendering of BofA Merrill Lynchs opinion and approximately $5.4 million of which is payable and contingent upon the consummation of the Asset Sale. The Company also has agreed to reimburse
BofA Merrill Lynch for its expenses incurred in connection with BofA Merrill Lynchs engagement and to indemnify BofA Merrill Lynch, any controlling person of BofA Merrill Lynch and each of their respective directors, officers, employees,
agents and affiliates against specified liabilities.
BofA Merrill Lynch and its affiliates comprise a full service securities firm and
commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management,
financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of its businesses, BofA Merrill Lynch and its affiliates may invest on a principal
basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank
loans or other obligations) of the Company, Ipsen and certain of their respective affiliates.
Opinion of Credit Suisse
The Company retained Credit Suisse to act as a financial advisor to the Company in connection with the proposed Asset Sale. Credit Suisse is an
internationally recognized investment banking firm which is regularly engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. The Company selected Credit Suisse to act as the
Companys financial advisor in connection with the proposed Asset Sale on the basis of Credit Suisses experience in transactions similar to the proposed Asset Sale, its reputation in the investment community and its familiarity with the
Company and its business.
On January 6, 2017, at a meeting of the Board of Directors held to evaluate the transactions contemplated
under the Asset Sale Agreement, Credit Suisse delivered to the Board of Directors an oral opinion, confirmed by delivery of a written opinion dated January 6, 2017, to the effect that, as of the date of the opinion and based on and subject to
various assumptions and limitations described in the opinion, the Consideration to be received in the proposed Asset Sale by the Company was fair, from a financial point of view, to the Company.
The full text of Credit Suisses written opinion, dated January 6, 2017, to the Board of Directors, which describes, among other
things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex C to this proxy statement and is incorporated by reference herein in its entirety. The following summary of
Credit Suisses opinion is qualified in its entirety by reference to the full text of the opinion. Credit Suisse delivered its opinion for the benefit and use of the Board of Directors (in its capacity as such) in connection with and for
purposes of its evaluation of the consideration from a financial point of view, to the Company. Credit Suisses opinion did not address any other aspect of the Asset Sale, and no opinion or view was expressed as to the relative merits of the
proposed Asset Sale in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the proposed Asset
Sale. Credit Suisse also expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the proposed Asset Sale or any related matter.
46
In arriving at its opinion, Credit Suisse:
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reviewed the Asset Sale Agreement;
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reviewed certain publicly available business and financial information relating to the Commercial Business;
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reviewed certain other information relating to the Commercial Business, including the Business Forecasts and estimates as to the probability of, and the expected timing and amounts of, the Net Milestone Payments and as
to the probability of, and the expected timing of, the occurrence of each of the milestone events giving rise to the payments contemplated by the
Earn-Out
Payment Rights (the
Earnout
Estimates
), provided to or discussed with Credit Suisse by the Company;
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met with the Companys management to discuss the Commercial Business and prospects of the Commercial Business;
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considered certain financial and stock market data of the Company, and compared that data with similar data for other publicly held companies in businesses Credit Suisse deemed similar to that of the Commercial
Business;
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considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have recently been effected; and
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considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which Credit Suisse deemed relevant.
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In connection with its review, Credit Suisse did not independently verify any of the foregoing information and assumed and relied on such
information being complete and accurate in all material respects. With respect to the Business Forecasts, the management of the Company advised Credit Suisse, and Credit Suisse assumed, that such forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the Companys management as to the future financial performance of the Commercial Business under the two separate scenarios reflected therein. With respect to the Earnout
Estimates, the management of the Company advised Credit Suisse, and Credit Suisse assumed, that such estimates were reasonably prepared on bases reflecting the best currently available estimates and judgments of the Companys management as to
the probability of, and the expected timing and amounts of, the Net Milestone Payments and as to the probability of, and the expected timing of, the occurrence of each of the milestone events giving rise to the payments contemplated by the
Earn-Out
Payment Rights. With the Companys consent, Credit Suisses analysis did not take into account the impact of the Companys tax net operating losses or the Company being able to forgo a
contemplated issuance of equity securities as a result of the proposed Asset Sale. Credit Suisse expressed no view or opinion with respect to the Business Forecasts or the assumptions upon which they were based and, at the direction of management of
the Company, Credit Suisse further assumed that such forecasts were a reasonable basis on which to evaluate the Commercial Business and the Asset Sale. Credit Suisse also assumed, with the Companys consent, that, in the course of obtaining any
regulatory or third party consents, approvals or agreements in connection with the Asset Sale, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the Commercial Business, and that the
proposed Asset Sale would be consummated in accordance with the terms of the Asset Sale Agreement without waiver, modification or amendment of any material term, condition or agreement thereof. In addition, Credit Suisse was not requested to make,
and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company or the Commercial Business, nor was Credit Suisse furnished with any such evaluations or appraisals.
Credit Suisses opinion addresses only the fairness, from a financial point of view, to the Company of the Consideration to be received
in the proposed Asset Sale and does not address any other aspect or implication of the Asset Sale or any other agreement, arrangement or understanding entered into in connection with the Asset Sale or otherwise including, without limitation, the
fairness of the amount or nature of, or any other aspect
47
relating to, any compensation to any officers, directors or employees of any party to the proposed Asset Sale, or class of such persons, relative to the Consideration or otherwise. In addition,
Credit Suisse did not consider and its opinion did not address any tax consequences attributable to the Asset Sale or any costs attributable to refinancing any of the Companys existing indebtedness. Furthermore, Credit Suisse did not express
any opinion, counsel or interpretation regarding matters that required legal, regulatory, accounting, insurance, tax, executive compensation, environmental or other similar professional advice, including, without limitation, any regulatory or other
matters that could affect the Commercial Business. Credit Suisse assumed that the Company had or would obtain any such advice or opinions from appropriate professional sources. The issuance of Credit Suisses opinion was approved by its
authorized internal committee.
Credit Suisses opinion was necessarily based upon information made available to Credit Suisse as of
the date of its opinion and financial, economic, market and other conditions as they existed and could be evaluated on the date of its opinion. Credit Suisse did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its
opinion, or otherwise comment on or consider events occurring or coming to Credit Suisses attention after the date of its opinion. In addition, the Business Forecasts incorporate certain assumptions of management of the Company regarding the
probabilities of success for certain of the Companys products for various indications, which assumptions are subject to significant uncertainty and that, if different than assumed by management of the Company, could have a material impact on
Credit Suisses analyses and its opinion. Credit Suisses opinion did not address the merits of the Asset Sale as compared to alternative transactions or strategies that may be available to the Company nor did it address the Companys
underlying decision to proceed with the proposed Asset Sale. Credit Suisse did not express any opinion as to the prices at which the common stock of the Company would trade at any time, including following announcement or consummation of the
proposed Asset Sale.
Credit Suisses opinion was for the information of the Board of Directors in connection with its consideration
of the proposed Asset Sale and did not constitute advice or a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the proposed Asset Sale.
The Company has agreed to pay Credit Suisse for its services in connection with the Asset Sale an aggregate fee of approximately $3.2 million,
$1 million of which was payable upon the rendering of Credit Suisses opinion and approximately $2.2 million of which is payable and contingent upon the consummation of the Asset Sale. The Company also has agreed to reimburse Credit Suisse
for its expenses incurred in connection with Credit Suisses engagement and to indemnify Credit Suisse, any controlling person of Credit Suisse and each of their respective directors, officers, employees, agents and affiliates against specified
liabilities.
Credit Suisse and its affiliates comprise a full service securities firm engaged in securities trading and brokerage
activities as well as providing investment banking and other financial services. In the ordinary course of business, Credit Suisse and its affiliates may acquire, hold or sell, for Credit Suisse and its affiliates accounts and the accounts of
customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of the Company, Ipsen and any other company that may be involved in the Asset Sale, as well as provide investment banking and other
financial services to such companies.
Summary of Financial Analyses
The following is a summary of the material financial analyses presented by the Financial Advisors to the Board of Directors in connection with
their respective opinions.
The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by the Financial Advisors, the tables must be read together with the
text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by the Financial Advisors. Considering the data set forth in the tables below without considering 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 financial analyses performed by the Financial Advisors.
48
Consideration Net Present Value.
The Financial Advisors calculated the net present value
of the Consideration (the
Consideration Net Present Value
), by adding (i) the Upfront Consideration, (ii) the net present value of the Net Milestone Payments calculated by discounting such payments from the dates such
payments were estimated by management of the Company to be paid to December 31, 2016 and (iii) the net present value of the
Earn-Out
Payments calculated by discounting such payments from the dates
such payments are estimated by management of the Company to be paid to December 31, 2016, adjusted to reflect Companys managements estimate of the probability of the milestone events giving rise to such payments occurring. BofA
Merrill Lynch calculated the net present values of the Net Milestone Payments and
Earn-Out
Payments and a discount rate of 13.0%, reflecting BofA Merrill Lynchs estimate of the Commercial Businesss
weighted average cost of capital, resulting in a Consideration Net Present Value of $685 million. Credit Suisse calculated the net present value of the Net Milestone Payments and
Earn-Out
Payments using a
mid-year
convention and a discount rate of 12.5%, reflecting Credit Suisses estimate of the Commercial Businesss weighted average cost of capital, also resulting in a Consideration Net Present
Value of $685 million.
Selected Publicly Traded Companies Analysis.
The Financial Advisors reviewed, based on publicly
available financial and stock market information, the enterprise values of the following selected publicly traded biotechnology companies, as a multiple of Wall Street analyst consensus estimates of 2019 and 2020 revenues for the applicable company:
|
|
|
Acorda Therapeutics, Inc.
|
|
|
|
ARIAD Pharmaceuticals, Inc.
|
|
|
|
Corcept Therapeutics Incorporated
|
|
|
|
Intercept Pharmaceuticals, Inc.
|
|
|
|
Ironwood Pharmaceuticals, Inc.
|
|
|
|
Merrimack Pharmaceuticals Inc. (the Company)
|
|
|
|
Pacira Pharmaceuticals, Inc.
|
|
|
|
Puma Biotechnology, Inc.
|
|
|
|
Spectrum Pharmaceuticals, Inc.
|
49
The Financial Advisors calculated the enterprise values for each of the selected companies,
including the Company, by multiplying the closing share price of each applicable company as of January 4, 2017 by the number of fully-diluted outstanding shares of the applicable company (determined on a treasury stock method basis based on
information in its public filings), and adding to (or subtracting from, as applicable) the result the amount of the applicable companys net debt (or net cash) (defined as debt, preferred stock and minority interest less cash, cash equivalents
and marketable securities), and including the balance sheet value of any earnout payments, based on information in its public filings, as a multiple of Wall Street analyst consensus estimates of 2019 and 2020 revenues for the applicable company
obtained from FactSet (a data source containing historical and estimated financial data). In addition, in the case of the Company, the Financial Advisors also calculated these multiples using the probability of success adjusted estimates of the
Commercial Business 2019 and 2020 revenue reflected in the Business Forecasts under the scenario reflecting the Management Case and under the scenario reflecting the Management Case with Additional Indications. The results of these
calculations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Enterprise Value/
Revenue Multiples
|
|
|
|
2019E
|
|
|
2020E
|
|
Selected Companies, including the Company (Mean)
|
|
|
4.02x
|
|
|
|
3.01x
|
|
Selected Companies, including the Company (Median)
|
|
|
2.79x
|
|
|
|
2.48x
|
|
Selected Companies, including the Company
(25
th
Percentile)
|
|
|
2.41x
|
|
|
|
1.66x
|
|
Selected Companies, including the Company
(75
th
Percentile)
|
|
|
5.70x
|
|
|
|
4.46x
|
|
The Company (using Management Case)
|
|
|
5.67x
|
|
|
|
5.89x
|
|
The Company (using Management Case with Additional Indications)
|
|
|
5.35x
|
|
|
|
5.53x
|
|
Based on their review of the enterprise value/revenue multiples for the selected companies and on their
professional judgment and experience, the Financial Advisors applied an enterprise value/revenue multiple reference range of 2.50x5.50x to Company managements probability of success adjusted estimates of 2019 revenue for the Commercial
Business as reflected in the Business Forecasts under the two Company management case scenarios, and an enterprise value/revenue multiple reference range of 1.50x4.50x to Company managements probability of success adjusted estimates of
2020 revenue for the Commercial Business as reflected in the Business Forecasts under the two Company management case scenarios. Based on these reference ranges of enterprise value/revenue multiples, the Financial Advisors calculated the following
ranges of implied enterprise values for the Commercial Business and compared these implied enterprise value reference ranges to the Consideration Net Present Value of $685 million:
|
|
|
|
|
Business Forecasts Case
|
|
Implied Enterprise Value
Ranges (in millions and
rounded to the nearest
$5 million)
|
|
Management Case (2019E Revenue)
|
|
$
|
320 $705
|
|
Management Case with Additional Indications (2019E Revenue)
|
|
$
|
340 $745
|
|
Management Case (2020E Revenue)
|
|
$
|
185 $555
|
|
Management Case with Additional Indications (2020E Revenue)
|
|
$
|
195 $590
|
|
None of the selected companies used in this analysis is identical or directly comparable to the Commercial
Business. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other
factors that could affect the public trading or other values of the companies to which the Commercial Business was compared.
50
Selected Precedent Transactions Analysis.
The Financial Advisors reviewed, to the extent
publicly available, financial information relating to the following selected transactions involving early-commercial biotechnology target companies with transaction values ranging from $750 million to $5 billion:
|
|
|
|
|
Announcement Date
|
|
Acquiror
|
|
Target
|
09/12/2016
|
|
Horizon Pharma, Inc.
|
|
Raptor Pharmaceutical Corp.
|
07/20/2016
|
|
Galenica AG
|
|
Relypsa, Inc.
|
05/31/2016
|
|
Jazz Pharmaceuticals plc
|
|
Celator Pharmaceuticals, Inc.
|
06/17/2015
|
|
Allergan plc
|
|
Kythera Biopharmaceuticals, Inc.
|
05/13/2015
|
|
Baxalta Incorporated
|
|
Sigma-Tau
Finanziaria S.p.A. (Oncaspar Portfolio)
|
03/30/2015
|
|
Horizon Pharma, Inc.
|
|
Hyperion Therapeutics, Inc.
|
12/19/2013
|
|
Bayer AG
|
|
Algeta ASA
|
12/19/2013
|
|
Jazz Pharmaceuticals plc
|
|
Gentium S.p.A.
|
11/11/2013
|
|
Shire plc
|
|
ViroPharma Incorporated
|
04/26/2012
|
|
Jazz Pharmaceuticals plc
|
|
EUSA Pharma Inc.
|
06/30/2010
|
|
Celgene Corporation
|
|
Abraxis BioScience Inc.
|
05/16/2010
|
|
Astellas Pharma Inc.
|
|
OSI Pharmaceuticals, Inc.
|
The Financial Advisors calculated the transaction value of each of the selected transactions and the Asset
Sale based on the consideration payable, including the net present value of the expected earnout payments as publicly disclosed by the target company in connection with the applicable transaction, for the applicable target company as multiples of
the target companys net revenue for the 12 month period ending three years after the announcement of the applicable transaction, or T + 3, and for the 12 month period ending five years following the announcement of the applicable
transaction, or T + 5, as disclosed by the applicable target company in connection with the applicable transaction.
The
results of these calculations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Transaction
Value/Revenue
Multiples
|
|
|
|
T + 3
|
|
|
T + 5
|
|
Selected Transactions (Mean)
|
|
|
4.88x
|
|
|
|
3.53x
|
|
Selected Transactions (Median)
|
|
|
4.97x
|
|
|
|
3.55x
|
|
Selected Transactions (25
th
Percentile)
|
|
|
3.83x
|
|
|
|
2.13x
|
|
Selected Transactions (75
th
Percentile)
|
|
|
6.21x
|
|
|
|
4.34x
|
|
51
Based on their review of the transaction value/revenue multiples for the selected transactions
and on their professional judgment and experience, the Financial Advisors applied a transaction value/revenue multiple reference range of 3.50x6.50x to Company managements probability of success adjusted estimates of 2019 (T+3) revenue
for the Commercial Business as reflected in the Business Forecasts under the scenario reflecting the Management Case and under the scenario reflecting the Management Case with Additional Indications and a transaction value/revenue multiple reference
range of 2.00x-4.50x to Company managements probability of success adjusted estimates of 2021 (T+5) revenue for the Commercial Business as reflected in the Business Forecasts under those two management case scenarios. Based on these reference
ranges of transaction value/revenue multiples, the Financial Advisors calculated the following ranges of implied enterprise values for the Commercial Business, and compared these implied enterprise value reference ranges to the Consideration Net
Present Value of $685 million:
|
|
|
|
|
Business Forecasts Case
|
|
Implied Enterprise Value
Ranges (in millions and
rounded to the nearest
$5 million)
|
|
Management Case (2019E Revenue)
|
|
$
|
450 $830
|
|
Management Case with Additional Indications (2019E Revenue)
|
|
$
|
475 $880
|
|
Management Case (2021E Revenue)
|
|
$
|
255 $580
|
|
Management Case with Additional Indications (2021E Revenue)
|
|
$
|
270 $610
|
|
No selected transaction used in this analysis or the applicable target company is identical or directly
comparable to the Commercial Business or the Asset Sale. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial
and operating characteristics, market conditions and other factors that could affect the acquisition or other values of the companies or transactions to which the Commercial Business and the Asset Sale were compared.
Discounted Cash Flow Analysis.
The Financial Advisors performed a discounted cash flow analysis to calculate a range of implied present
values for the enterprise value of the Commercial Business utilizing the probability of success adjusted estimates of the standalone, unlevered,
after-tax
free cash flows the Commercial Business was expected
to generate over the period from 2017 through 2029 as reflected in the Business Forecasts under the scenario reflecting the Management Case and the scenario reflecting the Management Case with Additional Indications. Unlevered,
after-tax
free cash flows were calculated as earnings before interest and taxes (
EBIT
), less taxes, plus depreciation and amortization, plus/less changes in net working capital, less capital
expenditures, all as reflected in the Business Forecasts under the two management case scenarios.
For purposes of its analysis, BofA
Merrill Lynch calculated a range of terminal values for the Commercial Business as of December 31, 2029 using an assumed perpetuity growth rate range of negative 30%negative 10% after 2029 based on guidance provided by Company management.
BofA Merrill Lynch discounted to present value as of December 31, 2016 the probability of success adjusted estimates of free cash flows for the Commercial Business for the period from 2017 through 2029 referenced above and the range of terminal
values it calculated for the Commercial Business as of December 31, 2029. BofA Merrill Lynch used a
mid-year
convention and discount rates ranging from 11.5% to 14.5%, reflecting BofA Merrill Lynchs
estimate of the Commercial Businesss weighted average cost of capital, to derive a range of implied enterprise values for the Commercial Business.
For purposes of its analysis, Credit Suisse utilized a
20-year
discounted cash flow analysis which
discounted to present value as of December 31, 2016 the probability of success adjusted estimates of free cash flows for the Commercial Business for the period from 2017 through 2036. The free cash flows from the Commercial Business for the
period 2017 to 2029 were as reflected in the Business Forecasts and for the period 2030 through 2036 the free cash flows for the Commercial Business reflect a negative 20% growth rate based on guidance provided by Company management. Credit Suisse
used a
mid-year
convention and discount rates ranging from 11.0% to 14.0%, reflecting Credit Suisses estimate of the Commercial Businesss weighted average cost of capital, to derive a range of
implied enterprise values for the Commercial Business.
52
Each of the Financial Advisors compared the ranges of implied enterprise values it derived for
the Commercial Business under its analysis as set forth below to the Consideration Net Present Value of $685 million:
|
|
|
|
|
|
|
|
|
Business Forecasts Case
|
|
Implied Enterprise
Value (BofA
Merrill Lynch)
(in millions)
|
|
|
Implied Enterprise
Value
(Credit Suisse)
(in millions)
|
|
Management Case
|
|
$
|
463 $737
|
|
|
$
|
503 $660
|
|
Management Case with Additional Indications
|
|
$
|
526 $869
|
|
|
$
|
579 $768
|
|
Miscellaneous
As noted above, the discussion set forth above is a summary of the material financial analyses presented by the Financial Advisors to the Board
of Directors in connection with the opinions prepared by BofA Merrill Lynch and Credit Suisse and is not a comprehensive description of all analyses undertaken by either BofA Merrill Lynch or Credit Suisse, respectively in connection with their
opinions. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular
circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. Each of BofA Merrill Lynch and Credit Suisse believes that the analyses summarized above must be considered as a whole. Each of
BofA Merrill Lynch and Credit Suisse further believes that selecting portions of their analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative
description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Merrill Lynchs and Credit Suisses respective analyses and opinions. Except as noted above, the fact that any specific analysis has
been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.
In performing their analyses, the Financial Advisors considered industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company and the Commercial Business. The estimates of the future performance of the Commercial Business in or underlying BofA Merrill Lynchs and Credit Suisses analyses are not
necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynchs and Credit Suisses analyses. These analyses were prepared
solely as part of each of BofA Merrill Lynchs analysis and Credit Suisses analysis of the fairness, from a financial point of view, of the Consideration and were provided to the Board of Directors in connection with the delivery of each
of BofA Merrill Lynchs and Credit Suisses opinions. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any
time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynchs or
Credit Suisses view of the actual values of the Commercial Business.
The type and amount of consideration payable in the Asset Sale
was determined through negotiations between the Company and Ipsen, rather than by any financial advisor, and was approved by the Board of Directors. The decision to enter into the Asset Sale Agreement was solely that of the Board of Directors. As
described above, each of BofA Merrill Lynchs opinion and analyses and Credit Suisses opinion and analyses were only one of many factors considered by the Board of Directors in its evaluation of the Asset Sale and should not be viewed as
determinative of the views of the Board of Directors or management with respect to the Asset Sale or the Consideration.
Certain Financial Projections
While Merrimack has from time to time provided limited quarterly and full-year financial guidance in its regular earnings press
releases and other investor materials, which may have covered, among other items, research and development and selling, general and administrative expenses and anticipated milestone payments,
53
Merrimacks management has not, as a matter of course, otherwise publicly disclosed internal projections as to future performance, earnings or other results due to the unpredictability of
the underlying assumptions and estimates. Merrimack is including selected projections in this proxy statement to provide our stockholders with access to certain
non-public
unaudited projected financial
information that was made available to our Board of Directors and to Ipsen in connection with the Asset Sale.
In connection with the sale
process undertaken by Merrimack, Merrimacks management team prepared projections for ONIVYDE for the fiscal years 2016 through 2036 (the
Bidder Case
) for use by potential acquirers in evaluating the potential economic
benefits that an acquirer could realize through its ownership of ONIVYDE. In general, the Bidder Case presented the most optimistic case for the number of indications, loss of exclusivity, probability of success and competitive entry, with a view
that potential buyers would apply their own assumptions with respect to these factors for purposes of evaluating ONIVYDE. As such, the Bidder Case was based on, among others, the following assumptions:
|
|
|
The acquirer would achieve up to five indications for ONIVYDE, including post-gemcitabine pancreatic cancer, first-line pancreatic cancer, relapsed small cell lung cancer, first-line HER2-negative gastric cancer and
first-line KRAS wild-type colorectal cancer.
|
|
|
|
Loss of exclusivity for ONIVYDE would not occur until 2036.
|
|
|
|
Probability of success (
POS
) for all indications for ONIVYDE and for
MM-436
was assumed to be 100%.
|
|
|
|
Sales of ONIVYDE would not be subject to a competitive threat.
|
The following table summarizes
the projections included in the Bidder Case (which are for ONIVYDE only):
Bidder Case (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
|
2030E
|
|
|
2031E
|
|
|
2032E
|
|
|
2033E
|
|
|
2034E
|
|
|
2035E
|
|
|
2036E
|
|
Total Revenue
|
|
$
|
171
|
|
|
$
|
175
|
|
|
$
|
197
|
|
|
$
|
190
|
|
|
$
|
198
|
|
|
$
|
456
|
|
|
$
|
1,218
|
|
|
$
|
1,865
|
|
|
$
|
2,116
|
|
|
$
|
2,822
|
|
|
$
|
3,563
|
|
|
$
|
3,891
|
|
|
$
|
4,081
|
|
|
$
|
4,259
|
|
|
$
|
4,444
|
|
|
$
|
4,636
|
|
|
$
|
4,838
|
|
|
$
|
5,049
|
|
|
$
|
5,270
|
|
|
$
|
5,495
|
|
Cost of Goods Sold (100% POS)
|
|
|
(13
|
)
|
|
|
(16
|
)
|
|
|
(12
|
)
|
|
|
(13
|
)
|
|
|
(15
|
)
|
|
|
(17
|
)
|
|
|
(43
|
)
|
|
|
(62
|
)
|
|
|
(76
|
)
|
|
|
(97
|
)
|
|
|
(110
|
)
|
|
|
(116
|
)
|
|
|
(122
|
)
|
|
|
(128
|
)
|
|
|
(134
|
)
|
|
|
(141
|
)
|
|
|
(148
|
)
|
|
|
(155
|
)
|
|
|
(162
|
)
|
|
|
(170
|
)
|
Sales & Marketing Expense (100% POS)
|
|
|
(45
|
)
|
|
|
(46
|
)
|
|
|
(46
|
)
|
|
|
(47
|
)
|
|
|
(52
|
)
|
|
|
(68
|
)
|
|
|
(83
|
)
|
|
|
(89
|
)
|
|
|
(101
|
)
|
|
|
(105
|
)
|
|
|
(105
|
)
|
|
|
(105
|
)
|
|
|
(105
|
)
|
|
|
(105
|
)
|
|
|
(105
|
)
|
|
|
(89
|
)
|
|
|
(76
|
)
|
|
|
(64
|
)
|
|
|
(55
|
)
|
|
|
(47
|
)
|
Research & Development Expense (100% POS)
|
|
|
(37
|
)
|
|
|
(75
|
)
|
|
|
(62
|
)
|
|
|
(72
|
)
|
|
|
(71
|
)
|
|
|
(42
|
)
|
|
|
(19
|
)
|
|
|
(14
|
)
|
|
|
(11
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & Administrative Expense (100%
POS)
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
(19
|
)
|
|
|
(19
|
)
|
|
|
(20
|
)
|
|
|
(20
|
)
|
|
|
(21
|
)
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
(23
|
)
|
|
|
(24
|
)
|
|
|
(24
|
)
|
|
|
(25
|
)
|
|
|
(26
|
)
|
|
|
(26
|
)
|
|
|
(27
|
)
|
|
|
(28
|
)
|
|
|
(29
|
)
|
|
|
(30
|
)
|
|
|
(31
|
)
|
Stock-Based Compensation (100% POS)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
In December 2016, to assist the Board of Directors in its review of potential strategic alternatives,
management provided the Board of Directors with projections for the financial performance of the Commercial Business as owned by Merrimack for the fiscal years 2016 through 2028 (the
Original Management Case
).
The Original Management Case reflected the following key assumptions, among others:
|
|
|
Three indications would be achieved for ONIVYDEpost-gemcitabine pancreatic cancer, first-line pancreatic cancer and relapsed small cell lung cancer. Gastric and colorectal indications were excluded due to
Merrimacks anticipated resource limitations.
|
|
|
|
The loss of exclusivity for ONIVYDE would occur in 2028.
|
|
|
|
POS varied as described in more detail below.
|
54
|
|
|
Merrimack would experience introduction of a competitor or a change in the competitive landscape for ONIVYDE before indication launch and it would take two years from launch to achieve full duration of therapy.
|
The Original Management Case included revenue projections for all indications for ONIVYDE and for
MM-436
that were then adjusted to reflect POS assumptions based on managements analysis of a number of factors, including in some cases industry guidelines, as follows: POS was assumed to be 100% for
post-gemcitabine pancreatic cancer based on approval having already been achieved. For first-line pancreatic cancer, POS was assumed to be 25% overall, based on a 42% POS for successful completion of a Phase 2 clinical trial, 60% POS for successful
completion of a Phase 3 clinical trial and 100% POS following submission of a new drug approval application (
NDA
). For relapsed small cell lung cancer, POS was assumed to be 47% overall, based on a 47% POS for successful
completion of a Phase 3 clinical trial and 100% POS following submission of an NDA. An 80% POS was assumed for
MM-436.
The following table summarizes the projections included in the Original Management Case:
Original Management Case (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
Total Revenue (100% POS)
|
|
$
|
126
|
|
|
$
|
102
|
|
|
$
|
132
|
|
|
$
|
116
|
|
|
$
|
121
|
|
|
$
|
243
|
|
|
$
|
685
|
|
|
$
|
963
|
|
|
$
|
1,124
|
|
|
$
|
1,068
|
|
|
$
|
1,171
|
|
|
$
|
1,186
|
|
Total Revenue (Adjusted POS)
|
|
|
126
|
|
|
|
100
|
|
|
|
118
|
|
|
|
112
|
|
|
|
117
|
|
|
|
151
|
|
|
|
276
|
|
|
|
391
|
|
|
|
421
|
|
|
|
427
|
|
|
|
465
|
|
|
|
467
|
|
Gross Profit (Adjusted POS)
|
|
|
114
|
|
|
|
87
|
|
|
|
108
|
|
|
|
102
|
|
|
|
106
|
|
|
|
142
|
|
|
|
260
|
|
|
|
366
|
|
|
|
395
|
|
|
|
400
|
|
|
|
437
|
|
|
|
439
|
|
Earnings Before Interest and Taxes (EBIT) (Adjusted POS)
|
|
|
25
|
|
|
|
(10
|
)
|
|
|
19
|
|
|
|
7
|
|
|
|
6
|
|
|
|
54
|
|
|
|
171
|
|
|
|
272
|
|
|
|
298
|
|
|
|
300
|
|
|
|
347
|
|
|
|
358
|
|
Unlevered Free Cash Flow (Adjusted POS)
|
|
|
7
|
|
|
|
(2
|
)
|
|
|
11
|
|
|
|
8
|
|
|
|
3
|
|
|
|
29
|
|
|
|
89
|
|
|
|
151
|
|
|
|
179
|
|
|
|
183
|
|
|
|
206
|
|
|
|
218
|
|
In January 2017, management updated its projections to reflect managements then best estimates for the
financial performance of the Commercial Business as owned by Merrimack under two separate scenarios, a
Management Case
and a
Management Case with Additional Indications
. Both of these cases, which reflected more
optimistic assumptions than had been reflected in the Original Management Case, differed from the Original Management Case in, among others, the following manners:
|
|
|
Both the Management Case and the Management Case with Additional Indications assumed the loss of exclusivity for ONIVYDE would occur in 2029 instead of 2028 due to anticipated patent term extension.
|
|
|
|
The Management Case retained the assumption from the Original Management Case that three indications for ONIVYDE would be achievedpost-gemcitabine pancreatic cancer, first-line pancreatic cancer and relapsed small
cell lung cancer. The Management Case with Additional Indications assumed that two additional indications for ONIVYDE would also be achievedfirst-line HER2-negative gastric cancer and first-line KRAS wild-type colorectal cancer. Neither the
Management Case nor the Management Case with Additional Indications took into account additional financing that would be required to achieve the indications included.
|
|
|
|
Both the Management Case and the Management Case with Additional Indications assumed post-gemcitabine spontaneous usage of 15% of net sales annually upon success of the first-line pancreatic cancer Phase 2 clinical
trial.
|
In both the Management Case and the Management Case with Additional Indications, the POS assumptions for
post-gemcitabine pancreatic cancer, first-line pancreatic cancer and relapsed small cell lung cancer indications for ONIVYDE and for
MM-436
remained the same as those reflected in the Original Management
55
Case. In the Management Case with Additional Indications, POS was assumed to be 19% overall for first-line HER2-negative gastric cancer for ONIVYDE, reflecting (i) that clinical trials would
be continued following the success of the Phase 2 clinical trial for first-line pancreatic cancer (and therefore utilizing the same 42% POS as for first-line pancreatic cancer Phase 2 successful completion), (ii) a 47% POS for successful completion
of a Phase 3 clinical trial and (iii) a 100% POS following submission of an NDA. In addition, in the Management Case with Additional Indications, POS was assumed to be 10% overall for first-line KRAS wild-type colorectal cancer for ONIVYDE,
reflecting (i) that clinical trials would be continued following the success of the Phase 2 clinical trial for first-line pancreatic cancer (and therefore utilizing the same 42% POS as for first-line pancreatic cancer Phase 2 successful
completion), (ii) a 42% POS for successful completion of a Phase 2 clinical trial, (iii) a 60% POS for successful completion of a Phase 3 clinical trial and (iv) a 100% POS following submission of an NDA.
The following table summarizes the projections included in the Management Case:
Management Case (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
Total Revenue (100% POS)
|
|
$
|
124
|
|
|
$
|
119
|
|
|
$
|
151
|
|
|
$
|
135
|
|
|
$
|
141
|
|
|
$
|
264
|
|
|
$
|
707
|
|
|
$
|
986
|
|
|
$
|
1,149
|
|
|
$
|
1,094
|
|
|
$
|
1,199
|
|
|
$
|
1,271
|
|
|
$
|
1,266
|
|
Total Revenue (Adjusted POS)
|
|
|
124
|
|
|
|
110
|
|
|
|
128
|
|
|
|
123
|
|
|
|
129
|
|
|
|
163
|
|
|
|
289
|
|
|
|
404
|
|
|
|
435
|
|
|
|
441
|
|
|
|
480
|
|
|
|
504
|
|
|
|
500
|
|
Gross Profit (Adjusted POS)
|
|
|
112
|
|
|
|
96
|
|
|
|
117
|
|
|
|
112
|
|
|
|
116
|
|
|
|
153
|
|
|
|
272
|
|
|
|
378
|
|
|
|
408
|
|
|
|
413
|
|
|
|
451
|
|
|
|
474
|
|
|
|
470
|
|
Earnings Before Interest and Taxes (EBIT) (Adjusted POS)
|
|
|
24
|
|
|
|
(2
|
)
|
|
|
28
|
|
|
|
17
|
|
|
|
16
|
|
|
|
65
|
|
|
|
182
|
|
|
|
285
|
|
|
|
311
|
|
|
|
314
|
|
|
|
349
|
|
|
|
381
|
|
|
|
386
|
|
Unlevered Free Cash Flow (Adjusted POS)
|
|
|
7
|
|
|
|
1
|
|
|
|
17
|
|
|
|
14
|
|
|
|
9
|
|
|
|
36
|
|
|
|
96
|
|
|
|
159
|
|
|
|
186
|
|
|
|
191
|
|
|
|
209
|
|
|
|
230
|
|
|
|
234
|
|
The following table summarizes the projections included in the Management Case with Additional Indications:
Management Case with Additional Indications (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
|
2025E
|
|
|
2026E
|
|
|
2027E
|
|
|
2028E
|
|
|
2029E
|
|
Total Revenue (100% POS)
|
|
$
|
126
|
|
|
$
|
120
|
|
|
$
|
168
|
|
|
$
|
154
|
|
|
$
|
158
|
|
|
$
|
284
|
|
|
$
|
726
|
|
|
$
|
1,034
|
|
|
$
|
1,345
|
|
|
$
|
1,413
|
|
|
$
|
1,653
|
|
|
$
|
2,306
|
|
|
$
|
2,299
|
|
Total Revenue (Adjusted POS)
|
|
|
126
|
|
|
|
110
|
|
|
|
135
|
|
|
|
131
|
|
|
|
136
|
|
|
|
169
|
|
|
|
293
|
|
|
|
413
|
|
|
|
473
|
|
|
|
505
|
|
|
|
565
|
|
|
|
646
|
|
|
|
639
|
|
Gross Profit (Adjusted POS)
|
|
|
114
|
|
|
|
97
|
|
|
|
125
|
|
|
|
120
|
|
|
|
123
|
|
|
|
159
|
|
|
|
277
|
|
|
|
387
|
|
|
|
444
|
|
|
|
474
|
|
|
|
532
|
|
|
|
608
|
|
|
|
601
|
|
Earnings Before Interest and Taxes (EBIT) (Adjusted POS)
|
|
|
22
|
|
|
|
(3
|
)
|
|
|
29
|
|
|
|
9
|
|
|
|
9
|
|
|
|
59
|
|
|
|
177
|
|
|
|
285
|
|
|
|
341
|
|
|
|
369
|
|
|
|
422
|
|
|
|
509
|
|
|
|
512
|
|
Unlevered Free Cash Flow (Adjusted POS)
|
|
|
6
|
|
|
|
0
|
|
|
|
17
|
|
|
|
11
|
|
|
|
5
|
|
|
|
32
|
|
|
|
93
|
|
|
|
158
|
|
|
|
201
|
|
|
|
221
|
|
|
|
252
|
|
|
|
300
|
|
|
|
311
|
|
The Original Management Case, the Management Case and the Management Case with Additional Indications are
collectively referred to as the
Management Financial Projections
, and the Management Financial Projections and the Bidder Case are collectively referred to as the
Financial Projections
. The Management Financial
Projections were provided to and considered by Merrimacks Board of Directors during its review of potential strategic alternatives and in connection with its evaluation of the proposed transaction with
56
Ipsen. The Management Financial Projections were not provided to Ipsen or any potential acquirer. The Management Case and the Management Case with Additional Indications were provided to BofA
Merrill Lynch and Credit Suisse for their use in connection with the rendering of their respective fairness opinions to the Board of Directors and in performing their related financial analyses as described above under Opinions of the
Financial Advisors.
Although presented with numeric specificity, the Financial Projections reflect numerous estimates and
assumptions with respect to the Commercial Business. All of these assumptions are difficult to predict and many are beyond Merrimacks control. Additionally BofA Merrill Lynch and Credit Suisse did not assume any dilution related to additional
financing that would be required to fund the Management Financial Projections.
Merrimack uses a variety of financial measures that are
not in accordance with U.S. generally accepted accounting principles (
GAAP
) as supplemental measures to evaluate its operational performance. While Merrimack believes that these
non-GAAP
financial measures provide useful supplemental information, there are limitations associated with the use of these
non-GAAP
financial measures. These
non-GAAP
financial
measures are not reported by all of Merrimacks competitors and may not be directly comparable to similarly titled measures of such competitors due to potential differences in the exact method of calculation. Please read carefully
Important Information About the Financial Projections below.
FUTURE STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at our 2017 Annual Meeting of Stockholders pursuant to Rule
14a-8
promulgated under the Exchange Act must have been received by us at our principal executive offices, One Kendall Square, Suite B7201, Cambridge, Massachusetts 02139, no later than December 26, 2016
in order to be included in the proxy statement and proxy card relating to that meeting.
If a stockholder wishes to present a proposal at
our 2017 Annual Meeting of Stockholders, but does not wish to have the proposal considered for inclusion in our proxy statement and proxy card, pursuant to the advance notice provision in our bylaws, such stockholder must give written notice to our
Corporate Secretary at our principal executive offices at the address noted above. Our Corporate Secretary must receive such notice no earlier than February 14, 2017 and no later than March 16, 2017, provided that if the date of the 2017
Annual Meeting of Stockholders is advanced by more than 20 days, or delayed by more than 60 days, from the first anniversary of the Annual Meeting, such notice must instead be received by our Corporate Secretary no earlier than the 120th day prior
to the 2017 Annual Meeting of Stockholders and not later than the close of business on the later of (i) the 90th day prior to the 2017 Annual Meeting of Stockholders and (ii) the tenth day following the day on which notice of the date of
the 2017 Annual Meeting of Stockholders was mailed or public disclosure of the date of the 2017 Annual Meeting of Stockholders was made, whichever occurs first.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy these reports,
statements or other information that we file at the SECs public reference room at the following location: Station Place, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of those documents at prescribed rates
by writing to the Public Reference Section of the SEC at that address. Please call the SEC at
(800) SEC-0330
for further information on the public reference room. These SEC filings are also available to
the public from commercial document retrieval services and at
www.sec.gov
.
You may obtain any of the documents we file with the
SEC, without charge, by requesting them in writing or by telephone from us at the following address:
Merrimack Pharmaceuticals, Inc.
One Kendall Square, Suite B7201
Cambridge, MA 02139
(617)
441-1000
If you would like to request documents from us, please do so as soon as possible, to receive
them before the Special Meeting. Please note that all of our documents that we file with the SEC are also promptly available through the Investor Relations section of our website,
http://investors.merrimack.com
. The information included on
our website is not incorporated by reference into this proxy statement.
If you have any questions concerning the Asset Sale, the Asset
Sale Agreement, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock, please contact our Proxy Solicitor:
Innisfree M&A Incorporated
501
Madison Avenue, 20th Floor
New York, New York 10022
Stockholders May Call Toll-Free: (877)
456-3510
Bank and Brokers May Call Collect: (212)
750-5833
84
MISCELLANEOUS
Merrimack has supplied all information relating to Merrimack, and Ipsen has supplied, and Merrimack has not independently verified, all of the
information relating to Ipsen contained in this proxy statement.
You should rely only on the information contained in this proxy
statement and the annexes to this proxy statement. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated February 14, 2017. You should not assume
that the information contained in this proxy statement is accurate as of any date other than that date (or as of an earlier date if so indicated in this proxy statement), and the mailing of this proxy statement to stockholders does not create any
implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.
85
ANNEX A
Execution Version
ASSET
PURCHASE AND SALE AGREEMENT
between
MERRIMACK PHARMACEUTICALS, INC.,
a Delaware Corporation;
and
IPSEN S.A.,
a
Société Anonyme;
Dated as of January 7, 2017
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Article I
|
|
|
ASSET PURCHASE
|
|
|
|
|
1.1
|
|
Sale of Assets; Assumption of Liabilities
|
|
|
A-1
|
|
1.2
|
|
Consideration
|
|
|
A-4
|
|
1.3
|
|
The Closing
|
|
|
A-5
|
|
1.4
|
|
Post-Closing Adjustment
|
|
|
A-6
|
|
1.5
|
|
Consents to Assignment
|
|
|
A-8
|
|
1.6
|
|
Further Assurances
|
|
|
A-8
|
|
|
Article II
|
|
|
REPRESENTATIONS AND WARRANTIES OF SELLER
|
|
|
|
|
2.1
|
|
Organization, Qualification and Corporate Power
|
|
|
A-9
|
|
2.2
|
|
Title to Assets
|
|
|
A-9
|
|
2.3
|
|
Authority
|
|
|
A-9
|
|
2.4
|
|
Non-contravention;
Consents
|
|
|
A-10
|
|
2.5
|
|
Financial Information
|
|
|
A-10
|
|
2.6
|
|
Absence of Certain Changes
|
|
|
A-10
|
|
2.7
|
|
Tax Matters
|
|
|
A-10
|
|
2.8
|
|
Real Property
|
|
|
A-11
|
|
2.9
|
|
Intellectual Property
|
|
|
A-12
|
|
2.10
|
|
Contracts
|
|
|
A-13
|
|
2.11
|
|
Suppliers
|
|
|
A-14
|
|
2.12
|
|
Litigation
|
|
|
A-15
|
|
2.13
|
|
Regulatory Matters
|
|
|
A-15
|
|
2.14
|
|
Transferred Inventory
|
|
|
A-16
|
|
2.15
|
|
Labor and Employment Matters
|
|
|
A-16
|
|
2.16
|
|
Employee Benefits
|
|
|
A-17
|
|
2.17
|
|
Compliance with Laws
|
|
|
A-18
|
|
2.18
|
|
Brokers Fees
|
|
|
A-18
|
|
2.19
|
|
Environmental Matters
|
|
|
A-18
|
|
2.20
|
|
Sufficiency of Assets
|
|
|
A-19
|
|
2.21
|
|
Solvency
|
|
|
A-19
|
|
2.22
|
|
Information Supplied
|
|
|
A-19
|
|
2.23
|
|
No Other Representations or Warranties
|
|
|
A-19
|
|
|
|
|
|
|
Article III
|
|
|
|
|
|
REPRESENTATIONS AND WARRANTIES OF BUYER
|
|
|
|
|
3.1
|
|
Organization
|
|
|
A-20
|
|
3.2
|
|
Authorization of Transaction
|
|
|
A-20
|
|
3.3
|
|
Noncontravention; Consents
|
|
|
A-20
|
|
3.4
|
|
Brokers Fees
|
|
|
A-20
|
|
3.5
|
|
Litigation
|
|
|
A-20
|
|
3.6
|
|
Sufficiency of Funds
|
|
|
A-21
|
|
3.7
|
|
Information Supplied
|
|
|
A-21
|
|
3.8
|
|
No Other Representations or Warranties
|
|
|
A-21
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Article IV
|
|
|
|
|
|
|
PRE-CLOSING
COVENANTS
|
|
|
|
|
|
|
|
4.1
|
|
Operation of Business
|
|
|
A-21
|
|
4.2
|
|
Access
|
|
|
A-22
|
|
4.3
|
|
Governmental Approvals and Consents
|
|
|
A-23
|
|
4.4
|
|
Notices of Certain Events
|
|
|
A-25
|
|
4.5
|
|
Release of Encumbrances
|
|
|
A-25
|
|
4.6
|
|
Supply Agreements
|
|
|
A-25
|
|
4.7
|
|
No Solicitation by Seller; Seller Board Recommendation
|
|
|
A-26
|
|
4.8
|
|
Preparation of the Proxy Statement; Seller Stockholders Meeting
|
|
|
A-27
|
|
|
|
|
|
|
Article V
|
|
|
|
|
|
|
|
|
|
CONDITIONS PRECEDENT TO CLOSING
|
|
|
|
|
|
|
|
5.1
|
|
Conditions to the Obligations of Each Party
|
|
|
A-28
|
|
5.2
|
|
Conditions to Obligations of Buyer
|
|
|
A-29
|
|
5.3
|
|
Conditions to Obligations of Seller
|
|
|
A-30
|
|
|
|
|
|
|
Article VI
|
|
|
|
|
|
|
|
|
|
INDEMNIFICATION
|
|
|
|
|
|
|
|
6.1
|
|
Indemnification by Seller
|
|
|
A-30
|
|
6.2
|
|
Indemnification by Buyer
|
|
|
A-31
|
|
6.3
|
|
Claims for Indemnification
|
|
|
A-31
|
|
6.4
|
|
Survival
|
|
|
A-32
|
|
6.5
|
|
Limitations
|
|
|
A-32
|
|
6.6
|
|
Right of Setoff
|
|
|
A-33
|
|
6.7
|
|
Overdue Payments
|
|
|
A-33
|
|
6.8
|
|
Adjustment to Purchase Price
|
|
|
A-34
|
|
|
Article VII
|
|
|
TERMINATION
|
|
|
|
|
7.1
|
|
Termination of Agreement
|
|
|
A-34
|
|
7.2
|
|
Effect of Termination
|
|
|
A-35
|
|
|
Article VIII
|
|
|
TAX MATTERS
|
|
|
|
|
8.1
|
|
Certain Tax Matters
|
|
|
A-36
|
|
8.2
|
|
Withholding Taxes
|
|
|
A-37
|
|
8.3
|
|
Tax Refunds
|
|
|
A-37
|
|
8.4
|
|
Tax Contests
|
|
|
A-37
|
|
8.5
|
|
Tax Allocation
|
|
|
A-38
|
|
|
Article IX
|
|
|
FURTHER AGREEMENTS
|
|
|
|
|
9.1
|
|
Post-Closing Information
|
|
|
A-38
|
|
9.2
|
|
Disclosure Generally
|
|
|
A-38
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
9.3
|
|
Certain Employee Benefits Matters
|
|
|
A-39
|
|
9.4
|
|
Shire Milestone Payment
|
|
|
A-41
|
|
9.5
|
|
Use of Names
|
|
|
A-42
|
|
9.6
|
|
Seller Trademarks
|
|
|
A-43
|
|
9.7
|
|
Confidentiality
|
|
|
A-43
|
|
9.8
|
|
Bulk Sales Waiver
|
|
|
A-43
|
|
9.9
|
|
Restrictive Covenants
|
|
|
A-44
|
|
9.10
|
|
FDA Letters
|
|
|
A-44
|
|
9.11
|
|
Available Cash
|
|
|
A-45
|
|
|
Article X
|
|
|
MISCELLANEOUS
|
|
|
|
|
10.1
|
|
Certain Definitions
|
|
|
A-45
|
|
10.2
|
|
Terms Defined Elsewhere
|
|
|
A-52
|
|
10.3
|
|
Press Releases and Announcements
|
|
|
A-54
|
|
10.4
|
|
No Third Party Beneficiaries
|
|
|
A-55
|
|
10.5
|
|
Entire Agreement
|
|
|
A-55
|
|
10.6
|
|
Succession and Assignment
|
|
|
A-55
|
|
10.7
|
|
Counterparts
|
|
|
A-55
|
|
10.8
|
|
Notices
|
|
|
A-55
|
|
10.9
|
|
Governing Law; Jurisdiction
|
|
|
A-56
|
|
10.10
|
|
Amendments and Waivers
|
|
|
A-57
|
|
10.11
|
|
Severability
|
|
|
A-57
|
|
10.12
|
|
Expenses
|
|
|
A-57
|
|
10.13
|
|
Specific Performance
|
|
|
A-57
|
|
10.14
|
|
Construction
|
|
|
A-58
|
|
10.15
|
|
Waiver of Jury Trial
|
|
|
A-58
|
|
|
|
|
|
|
Exhibits
|
|
|
|
|
|
|
|
Exhibit A
|
|
|
|
Form of Assumption Agreement
|
Exhibit B
|
|
|
|
Form of Bill of Sale
|
Exhibit C
|
|
|
|
Form of IP License Agreement
|
Exhibit D
|
|
|
|
Form of Patent Assignment Agreement
|
Exhibit E
|
|
|
|
Form of Domain Name Assignment Agreement
|
Exhibit F
|
|
|
|
Form of Trademark Assignment Agreement
|
Exhibit G
|
|
|
|
Form of Transition Services Agreement
|
Exhibit H
|
|
|
|
Form of Sublease
|
Exhibit I
|
|
|
|
Form of Seller FDA Letters
|
Exhibit J
|
|
|
|
Form of Buyer FDA Letters
|
Exhibit K
|
|
|
|
Form of Escrow Agreement
|
A-iii
|
|
|
|
|
Disclosure Letter
|
|
|
|
Section 1.1(a)(ii)
|
|
|
|
Transferred Registrations
|
Section 1.1(a)(iii)
|
|
|
|
Assigned Contracts
|
Section 1.1(a)(iv)
|
|
|
|
Transferred Permits
|
Section 1.1(a)(v)
|
|
|
|
Registered Intellectual Property
|
Section 1.1(a)(xii)
|
|
|
|
Credits and Prepaid Expenses
|
Section 1.1(a)(xiii)
|
|
|
|
Transferred Equipment
|
Section 1.1(b)
|
|
|
|
Excluded Assets
|
Section 1.1(c)
|
|
|
|
Assumed Liabilities
|
Section 1.1(d)
|
|
|
|
Excluded Liabilities
|
Section 1.2(e)
|
|
|
|
GAAP Consistently Applied
|
Section 2.2
|
|
|
|
Title to Assets
|
Section 2.4
|
|
|
|
Non-Contravention;
Consents
|
Section 2.8(b)
|
|
|
|
Leased Real Property
|
Section 2.8(c)
|
|
|
|
Leased Real Property Condition
|
Section 2.9
|
|
|
|
Registered Business IP
|
Section 2.10
|
|
|
|
Material Contracts
|
Section 2.11
|
|
|
|
Material Suppliers
|
Section 2.12
|
|
|
|
Litigation
|
Section 2.14
|
|
|
|
Transferred Inventory
|
Section 2.15(c)
|
|
|
|
Business Employee Information
|
Section 2.16
|
|
|
|
Business Benefit Plans
|
Section 2.17(b)
|
|
|
|
Required Permits
|
Section 2.20
|
|
|
|
Sufficiency of Assets
|
Section 4.1(b)
|
|
|
|
Interim Operating Covenants
|
Section 4.2
|
|
|
|
Requested Audits
|
Section 4.6
|
|
|
|
Supply Agreements
|
Section 5.2(f)
|
|
|
|
Accepted Binding Purchase Orders
|
Section 5.2(i)
|
|
|
|
Third Party Consents
|
Section 6.1(e)
|
|
|
|
Seller Indemnification Matters
|
Section 9.2
|
|
|
|
Knowledge of Seller
|
Section 9.3(a)
|
|
|
|
Hire and Transition Hire Employees
|
Section 9.3(c)
|
|
|
|
Non-Contingent
Retention Bonuses
|
Section 9.5
|
|
|
|
Restricted Names
|
Section 9.6
|
|
|
|
Seller Trademarks
|
A-iv
ASSET PURCHASE AND SALE AGREEMENT
This
ASSET PURCHASE AND SALE AGREEMENT
(this
Agreement
) is entered into as of January 7, 2017 between Merrimack
Pharmaceuticals, Inc., a Delaware corporation (
Seller
), and Ipsen S.A., a société anonyme duly organized and existing under the laws of France (
Buyer
). Seller and Buyer are sometimes referred
to herein individually as a
Party
and together as the
Parties
.
INTRODUCTION
Seller is engaged in business operations and activities involving or relating to developing, manufacturing and commercializing the Transferred
Products (the
Commercial Business
).
Seller desires to sell, convey, assign, transfer and deliver to Buyer, and Buyer
desires to purchase, acquire and accept from Seller, certain assets and rights, and assume, pay, perform and discharge from Seller certain liabilities related to the Commercial Business, upon the terms and subject to the conditions set forth herein.
In consideration of the respective representations, warranties, covenants and agreements herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
ASSET
PURCHASE
1.1
Sale of Assets; Assumption of Liabilities
.
(a)
Transfer of Assets
. On the terms and subject to the conditions of this Agreement, at the Closing, Seller shall sell,
convey, assign, transfer and deliver to Buyer and its assignees under
Section
10.6
hereof (collectively, the
Buyer Group
), and Buyer shall, or shall cause the applicable member of the Buyer Group to,
purchase, acquire and accept assignment from Seller or another member of the Seller Group, all of the Seller Groups right, title and interest in and to the following assets that are owned, leased, licensed or otherwise held by the Seller Group
(collectively, the
Acquired Assets
), free and clear of all Encumbrances (other than Permitted Encumbrances):
(i) all rights to perform research with respect to, Develop (including clinical development), manufacture, sell, distribute,
license, promote and use (or cause to be performed, Developed, manufactured, sold, distributed, licensed, promoted and used) the Transferred Products, including all rights and claims to all clinical study data, reports and analyses to the extent
related to the Transferred Products;
(ii) the Transferred Registrations;
(iii) (A) all Contracts exclusively related to the Commercial Business and any rights or claims arising thereunder,
including the Contracts listed on
Section 1.1(a)(iii)(A)
of the Seller Disclosure Letter and (B) the portion of all Shared Contracts, to the extent related to the Commercial Business, listed on
Section 1.1(a)(iii)(B)
of the Seller
Disclosure Letter ((A) and (B), collectively, the
Assigned Contracts
);
(iv) other than the Transferred
Registrations, all qualifications, licenses, permits, registrations, clearances, applications, submissions, variances, exemptions, filings, approvals and authorizations which relate primarily to the Commercial Business (collectively,
Permits
) that are transferable and that have been issued by any Governmental Entity, including those identified on
Section 1.1(a)(iv)
of the Seller Disclosure Letter (the
Transferred Permits
), to the
extent transferable;
A-1
(v) all Intellectual Property that is primarily related to the Commercial
Business or the Transferred Products, including the registered Intellectual Property identified on
Section 1.1(a)(v)
of the Seller Disclosure Letter, and including: (A) any such rights which an employee, inventor, author, third party is
obligated by contract, statute or otherwise to assign to Seller; (B) all rights of action arising from the foregoing, including all claims for damages by reason of present, past and future infringement, misappropriation, violation misuse or
breach of contract in respect of the foregoing; (C) present, past and future rights to sue and collect damages or seek injunctive relief for any such infringement, misappropriation, violation, misuse or breach; (D) all income, royalties
and any other payments now and hereafter due and/or payable to Seller in respect of the foregoing; and (E) all Transferred IP Documentation (collectively, the
Transferred IP
);
(vi) all documentation or other tangible embodiments that comprise, embody, disclose or describe the Transferred IP, including
engineering drawings, technical documentation, databases, spreadsheets, business records, inventors notebooks, invention disclosures, digital files, software code and patent, trademark and copyright prosecution files, including any such files
in the custody of outside legal counsel (collectively, the
Transferred IP Documentation
);
(vii) all
brochures and other promotional and printed materials, trade show materials (including displays), videos, web pages, advertising and/or marketing materials (all in physical form, .pdf, quark, or other electronic file and camera-ready artwork),
including, but not limited to, all materials used by field medical affairs personnel and field reimbursement managers and/or payer teams in Sellers or any of its affiliates, suppliers or other third party service providers
possession and, in each case, to the extent (A) controlled by Seller as of the Closing Date, (B) used in connection with the promotion, advertisement, marketing or sale of the Transferred Products and (C) transferable in compliance
with applicable Laws;
(viii) (A) copies of all customer and supplier lists, marketing studies, consultant reports, books
and records (financial, laboratory and otherwise), files, invoices, billing records, distribution lists, manuals (in all cases, in any form or medium), patient support and market research programs and related databases, and all complaint files and
adverse event files, in each case, to the extent (1) related to the Transferred Products or the Commercial Business and transferable in compliance with applicable Laws and (2) in Sellers or any of its affiliates possession or
under its control as of the Closing Date; and (B) copies of any personnel files or other items related to any New Buyer Employee to the extent transferable in compliance with applicable Laws;
(ix) copies of any personnel files or other items related to any New Buyer Employee to the extent transferable in compliance
with applicable Laws;
(x) all Transferred Product Records, to the extent not covered by any of the foregoing;
(xi) any and all Closing Product Inventory, active pharmaceutical ingredients and any other raw materials,
work-in-progress
materials, package inserts, packaging and labeling materials, supplies and other inventories used in the manufacturing or production of any Transferred
Product (collectively, the
Transferred Inventory
);
(xii) except as set forth in
Section
1.1(a)(xii)
of the Seller Disclosure Letter, all credits, prepaid expenses (including prepaid PDUFA and GDUFA fees), deferred charges, advance payments, security deposits and prepaid items to the extent primarily related to the Commercial
Business;
(xiii) (A) all other tangible equipment, furniture, furnishings, fixtures, vehicles, tools, desktops,
laptops, tablets and smartphones (and all associated documentation, technical information, installation, qualification and maintenance instructions), in each case, to the extent primarily utilized by a New Buyer Employee; (B) all other
infrastructure, wires, utility systems, access controls, parts, computer hardware (including servers, integrated computer systems, central processing units and memory units) and other tangible property exclusively related to the Commercial Business;
(C) the equipment listed on
Section 1.1(a)(xiii)
of the Seller Disclosure Letter; and (D) to the extent transferable, all warranties and guarantees, if any, express or implied, in connection with
clauses (A)
,
(B)
and
(C)
.
A-2
(xiv) all accounts, accounts receivable and other receivables (whether or not
billed) to the extent arising out of sales of the Transferred Products or relating primarily to the Commercial Business, including for the avoidance of doubt, any accounts receivable for milestone payments under the License and Collaboration
Agreement (collectively, the
Transferred
Accounts Receivable
);
provided
that the Transferred Accounts Receivable shall not include the Shire Milestone Payments, whether paid prior to, at, or following the Closing;
(xv) all the goodwill of the Commercial Business; and
(xvi) the right to receive the Reimbursement Amount pursuant to
Section
9.4
.
Notwithstanding anything to the contrary in this Agreement, the Acquired Assets shall not include any assets of Seller other than those identified in this
Section 1.1(a)
.
(b)
Excluded Assets
. It is expressly understood and agreed that, notwithstanding anything to
the contrary set forth herein,
Excluded Assets
means all assets, properties and rights of Seller other than the Acquired Assets, including, but not limited to, those set forth on
Section
1.1(b)
of the Seller
Disclosure Letter.
In the event of any inconsistency or conflict that may arise in the application or interpretation of this definition or the definition
of Acquired Assets, for purposes of determining what is and is not an Excluded Asset or an Acquired Asset, the explicit inclusion of an item on
Section 1.1(b)
of the Seller Disclosure Letter shall take priority over any textual
provision of this definition that would otherwise operate to exclude such asset from the definition of Excluded Assets or include such asset in the definition of Acquired Assets, as applicable.
(c)
Assumed Liabilities
. On the Closing Date, Buyer shall deliver to Seller one or more assumption agreements in the
form attached hereto as
Exhibit
A
(the
Assumption Agreements
), pursuant to which Buyer, on and as of the Closing Date, shall assume and agree to pay, perform and discharge when due only the following
Liabilities relating to the Commercial Business and the Acquired Assets (the
Assumed Liabilities
), and Buyer does not hereby assume or become obligated to pay or perform any other Liabilities of the Seller Group that arise out of
or in respect of the Commercial Business or any of its operations on or prior to the Closing, except for the following:
(i) all Liabilities identified on
Section 1.1(c)
of the Seller Disclosure Letter;
(ii) all Liabilities under the Assigned Contracts (but, for the avoidance of doubt, only the assumed portions of the Shared
Contracts) (other than any Liability arising out of or relating to a breach of any Assigned Contract by any party thereto that occurred prior to the Closing);
(iii) all Liabilities (A) related to Buyers employment of New Buyer Employees arising following the Closing or
(B) for payment of (i) the 2017 Bonuses and (ii) the
Non-Contingent
Bonuses, for each of
clauses (
i
)
and
(ii)
, to the extent payable under
Section
9.3
;
(iv) all open purchase orders and trade and other accounts payable to the extent
related to the operation of the Commercial Business or the Transferred Products; and
(v) all Liabilities relating to,
arising out of or resulting from product liability claims for the Transferred Products, arising out of or relating to any claim, complaint, action, suit, proceeding, hearing or investigation commenced after the Closing, except to the extent that
Seller is required to indemnify any Buyer Indemnified Party pursuant to the terms of this Agreement with respect to any such claim, action, suit, proceeding or investigation.
(d)
Excluded Liabilities
. It is expressly understood and agreed that, notwithstanding anything to the contrary in this
Agreement, Buyer shall not assume any Liabilities of the Seller Group (whether or not related to the Commercial Business or the Acquired Assets) other than the Assumed Liabilities (such Liabilities of the Seller Group other than the Assumed
Liabilities, including, but not limited to, (i) those Liabilities set forth on
Section 1.1(d)
of the Seller Disclosure Letter, (ii) any Indebtedness of the Seller
A-3
Group and (iii) any expenses incurred by, or for the benefit of, the Seller Group or their affiliates in connection with the preparation, execution or consummation or performance of the
transactions contemplated by this Agreement and the Related Agreements, including all legal, accounting, tax, investment banking and other professional fees and expenses, the
Excluded Liabilities
) and the Excluded Liabilities
shall remain the sole obligation and responsibility of the Seller Group.
In the event of any inconsistency or conflict that may arise in the application
or interpretation of this definition or the definition of Assumed Liabilities, for purposes of determining what is and is not an Excluded Liability or an Assumed Liability, the explicit inclusion of an item on
Section 1.1(d)
of
the Seller Disclosure Letter shall take priority over any textual provision of this definition that would otherwise operate to exclude such Liability from the definition of Excluded Liabilities or include such Liability in the definition
of Assumed Liabilities, as applicable.
1.2
Consideration
.
(a)
Upfront Consideration
. As partial consideration for the Acquired Assets, and subject to the terms and conditions of
this Agreement, Buyer shall assume the Assumed Liabilities and shall pay to Seller, by wire transfer of immediately available funds, (i) the Base Purchase Price,
less
(ii) the amount, if any, by which the Estimated Net Working
Capital is less than the Target Net Working Capital,
plus
(iii) the amount, if any, by which the Estimated Net Working Capital is greater than the Target Net Working Capital (the
Upfront Payment
), subject to adjustment
pursuant to
Section
1.4
and
Article VI
.
(b)
Contingent Consideration
. As
additional consideration for the Acquired Assets, Buyer shall pay to Seller, pursuant to this
Section 1.2(b)
, the contingent payment (each a
Contingent Payment
) set forth below based on the achievement by or on behalf of
Buyer or its affiliates, licensees, sublicensees or transferees of the corresponding Milestone Event set forth in the table below. For the avoidance of doubt, notwithstanding anything to the contrary in this Agreement, a Contingent Payment shall be
due and payable only once (and only one Contingent Payment shall be payable with respect to any Milestone Event) and shall be paid by Buyer to Seller promptly, but in no event later than forty-five (45) calendar days following the occurrence of
the applicable Milestone Event by wire transfer of immediately available funds to the account designated in writing by Seller to Buyer. For the avoidance of doubt, the Milestone Events need not be achieved in any order and a Contingent Payment with
respect to any Milestone Event may be paid before another Contingent Payment with respect to any other Milestone Event.
|
|
|
|
|
Milestone Event
|
|
Contingent Payment
|
|
FL Approval
|
|
U.S.$
|
225,000,000
|
|
SCL Approval
|
|
U.S.$
|
150,000,000
|
|
AI Approval
|
|
U.S.$
|
75,000,000
|
|
(c)
Diligence
. From and after the Closing, Buyer shall use Commercially Reasonable
Efforts to Develop ONIVYDE to achieve the Milestone Events.
(d)
Overdue Payments
. Any Contingent Payment not paid
when due shall bear interest from the due date until the date of payment thereof at a per annum rate equal to 2.00% plus the three (3)-month U.S. Dollar LIBOR rate in effect on the date such payment is required to be made, from time to time,
effective from the date that payment was due, compounded monthly, provided that interest shall not accrue at a rate that exceeds the maximum rate permitted by applicable Law.
(e)
Pre-Closing
Statement
. No later than three (3) Business Days prior to
the Closing Date, Seller shall have delivered to Buyer a good faith estimate of the Net Working Capital as of the close of business on the Closing Date (such estimate, the
Estimated Net Working Capital
) prepared in accordance with
GAAP Consistently Applied.
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1.3
The Closing
.
(a)
Time and Location
. The closing of the transactions contemplated by this Agreement (the
Closing
)
shall take place at 9:00 a.m., Eastern Time, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 500 Boylston Street, Boston, Massachusetts 02116 as soon as possible but in no event later than the third (3rd) Business Day following
the satisfaction or waiver of the last of the conditions set forth in
Article V
to be satisfied or (to the extent permitted) waived (other than any such conditions that by their nature are to be satisfied at the Closing, but subject to the
satisfaction or (to the extent permitted) waiver of such conditions at Closing), unless another date or place is agreed to in writing by Seller and Buyer;
provided
that, subject to
Section 7.1(d)(ii)
, if any of the conditions set forth
in
Article V
are no longer satisfied or (to the extent permitted) waived on such third (3rd) Business Day, then the Closing shall take place on the first (1st) Business Day on which all such conditions shall have been satisfied or (to the
extent permitted) waived. The date on which the Closing actually occurs will be the
Closing Date
.
(b)
Actions at the Closing
. At the Closing:
(i) Seller shall deliver (or cause to be delivered) to Buyer the various
certificates, instruments and documents required to be delivered under
Section
5.2
not otherwise listed in this
Section 1.3(b)
;
(ii) Buyer shall deliver (or cause to be delivered) to Seller the various certificates, instruments and documents required to
be delivered under
Section
5.3
not otherwise listed in this
Section 1.3(b)
;
(iii) Seller
and Buyer shall deliver (or cause to be delivered) to the other one or more executed Bills of Sale in substantially the form attached hereto as
Exhibit
B
(collectively, the
Bill of Sale
);
(iv) Seller and Buyer shall deliver (or cause to be delivered) to the other an executed Intellectual Property License Agreement
in substantially the form attached hereto as
Exhibit C
(the
IP License Agreement
);
(v) Seller
and Buyer shall deliver (or cause to be delivered) to the other an executed Patent Assignment Agreement, in substantially the form attached hereto as
Exhibit D
(the
Patent Assignment Agreement
);
(vi) Seller and Buyer shall deliver (or cause to be delivered) to the other an executed Domain Name Assignment Agreement, in
substantially the form attached hereto as
Exhibit E
(the
Domain Name Assignment Agreement
);
(vii) Seller and Buyer shall deliver (or cause to be delivered) to the other an executed Trademark Assignment Agreement, in
substantially the form attached hereto as
Exhibit F
(the
Trademark Assignment Agreement
and, together with the Patent Assignment Agreement and the Domain Name Assignment Agreement, the
IP Assignment
Agreements
);
(viii) Seller and Buyer shall deliver (or cause to be delivered) to the other one or more executed
Assumption Agreements and such other instruments as Seller may reasonably request in order to effect the assignment to, and assumption by, Buyer of certain of the Acquired Assets and the Assumed Liabilities;
(ix) Seller shall deliver (or cause to be delivered) or otherwise make available (or cause to be made available) to Buyer the
Transferred Product Records;
(x) Seller and Buyer shall deliver (or cause to be delivered) to the other an executed
Transition Services Agreement in substantially the form attached hereto as
Exhibit G
(the
Transition Services Agreement
);
(xi) Seller and Buyer shall deliver (or cause to be delivered) to the other an executed Sublease in substantially the form
attached hereto as
Exhibit H
(the
Sublease
);
(xii) Seller shall deliver (or cause to be
delivered) such other certificates, documents, instruments and writings as shall be reasonably requested by Buyer to effectively vest in Buyer title in and to the
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Acquired Assets, free and clear of all Encumbrances (other than Permitted Encumbrances), in accordance with the provisions of this Agreement; and
(xiii) Buyer shall pay (or cause to be paid) to Seller the Upfront Payment
less
the Escrow Amount, in accordance with
Section
1.2(a)
; and
(xiv) Buyer shall pay (or cause to be paid) the Escrow Amount into an escrow
account to be held pursuant to the terms of the Escrow Agreement.
1.4
Post-Closing Adjustment
.
(a)
Determination of Post-Closing Adjustment
. Within ninety (90) days after the Closing Date, Buyer shall prepare
and deliver, or cause to be prepared and delivered, to Seller a closing statement (the
Closing Statement
), setting forth the calculation of the actual Net Working Capital as of the Closing Date (the
Closing Net Working
Capital
) prepared in accordance with GAAP Consistently Applied, together with all reasonable supporting calculations for each component thereof.
(b)
Disputed Final Adjustment
.
(i) Within thirty (30) days following receipt by Seller of the Closing Statement, Seller shall deliver written notice (an
Objection Notice
) to Buyer of any dispute it has with respect to the preparation or content of the Closing Statement. An Objection Notice must describe in reasonable detail the items contained in the Closing Statement that Seller
disputes and the basis for any such disputes. Any items not disputed in the Objection Notice will be deemed to have been accepted by Seller and shall be deemed final, conclusive and binding on the Parties hereto. If Seller does not deliver an
Objection Notice with respect to the Closing Statement within such thirty
(30)-day
period, such statement will be final, conclusive and binding on the Parties hereto. If Seller delivers a timely Objection
Notice, Buyer and Seller shall negotiate in good faith to resolve such dispute. If Buyer and Seller, notwithstanding such good faith effort, fail to resolve such dispute within thirty (30) days after Seller delivers an Objection Notice, then
Buyer and Seller jointly shall engage the Expert to resolve such dispute in accordance with this Agreement and the standards set forth in this
Section 1.4(b)
. As promptly as practicable thereafter (and, in any event, within thirty
(30) days after the Experts engagement), Seller shall submit any unresolved elements set forth in the Objection Notice to the Expert in writing (with a copy to Buyer), supported by any documents and arguments upon which it relies. As
promptly as practicable thereafter (and, in any event, within fifteen (15) days following Sellers submission of such unresolved elements), Buyer shall submit its response to the Expert (with a copy to Seller) supported by any documents
and arguments upon which it relies. Notwithstanding any provisions hereof to the contrary, the Expert shall be deemed to be acting as an expert and not as an arbiter and the proceeding before the Expert shall be an expert determination under the Law
governing expert determination and appraisal proceedings. The Expert may, at its discretion, conduct a conference concerning the disagreement with Seller and Buyer. In connection with such process, other than any such conference, there shall be no
hearings, oral examinations, testimony, depositions, discovery or other similar proceedings conducted by any party or by the Expert. Neither Seller nor Buyer shall have any
ex parte
communications with the Expert without the prior consent of
Buyer or Seller, as the case may be. The Expert shall review such submissions and base its determination solely on the submissions made by Seller and Buyer and not by any independent review. Buyer and Seller shall request that the Expert render its
determination as soon as reasonably possible following its receipt of Buyers response. The scope of the disputes to be resolved by the Expert is limited to the unresolved items in the Objection Notice. In resolving any disputed item, the
Expert may not assign a value to any item greater than the greatest value claimed for such item by either Buyer or Seller or less than the smallest value claimed for such item by either Buyer or Seller. All determinations made by the Expert will be
final, conclusive and binding on the Parties and will be enforceable by any court of competent jurisdiction.
(ii) In the
event Seller and Buyer submit any unresolved objections to the Expert for resolution as provided in
Section 1.4(b)(i)
above, the fees, costs and expenses of the Expert (A) shall be paid by
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Buyer in the proportion that the aggregate dollar amount of such disputed items so submitted that are successfully disputed by Seller (as finally determined by the Expert) bears to the aggregate
dollar amount of such items so submitted and (B) shall be paid by Seller in the proportion that the aggregate dollar amount of such disputed items so submitted that are unsuccessfully disputed by Seller (as finally determined by the Expert)
bears to the aggregate dollar amount of such items so submitted.
(iii) For purposes of complying with the terms set forth
in this
Section
1.4
, Buyer and Seller shall cooperate with and make available to the other party and its representatives all information, records, data and working papers as may be reasonably requested in connection with
the preparation and analysis of the Closing Statement and the resolution of any disputes under the Closing Statement;
provided
, that in order to review such information, records, data and working papers, Seller and its representatives shall
execute any releases or waivers customarily required by Buyers independent accountants in connection with such review.
(iv)
Final Net Working Capital
shall mean (A) if an Objection Notice is not delivered within the time
period required by this
Section 1.4(b)
, the amount of the Closing Net Working Capital set forth on the Closing Statement as prepared by Buyer in accordance with
Section 1.4(a)
, (B) the amount agreed as the Final Net Working Capital at
any time in writing by Buyer and Seller or (C) the Final Net Working Capital as set forth in the written determination of the Expert made in accordance with the provisions of this
Section 1.4(b)
.
(c)
Payment Following Adjustment
.
(i) If the Estimated Net Working Capital is greater than the Final Net Working Capital, then the final Upfront Payment will be
adjusted downward by the amount of such excess (the absolute value of such amount, the
Downward Adjustment Amount
) and Buyer and Seller shall promptly (but in no event later than five (5) Business Days from the date on which
the Final Net Working Capital is finally determined pursuant to
Section 1.4(b)
), deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to deliver from the escrow account to Buyer an amount equal to the Downward
Adjustment Amount by bank wire transfer of immediately available funds to an account designated in writing by Buyer;
provided
,
however
, that if the Downward Adjustment Amount exceeds the Escrow Amount, then the amount released to Buyer
from the escrow account shall be equal to the Escrow Amount and Seller shall promptly (but in no event later than five (5) Business Days from the date on which the Final Net Working Capital is finally determined pursuant to
Section
1.4(b)
), pay, or cause to be paid, to Buyer an amount equal to the absolute value of the difference between the Downward Adjustment Amount and the Escrow Amount by bank wire transfer of immediately available funds to an account designated in
writing by Buyer. If the Escrow Amount exceeds the Downward Adjustment Amount, then Buyer and Seller shall promptly deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to deliver to Seller an amount equal to the
absolute value of the difference between the Escrow Amount and the Downward Adjustment Amount, by bank wire transfer of immediately available funds to an account designated in writing by Seller.
(ii) If the Final Net Working Capital is greater than the Estimated Net Working Capital, then the final Upfront Payment will be
adjusted upward by the amount of such excess (the absolute value of such amount, the
Upward Adjustment Amount
), and Buyer shall promptly (but in no event later than five (5) Business Days from the date on which the Final Net
Working Capital is finally determined pursuant to
Section 1.4(b)
) pay, or cause to be paid, to Seller by bank wire transfer of immediately available funds to an account designated in writing by Seller, an amount equal to the Upward Adjustment
Amount. Additionally, if the Final Net Working Capital is greater than the Estimated Net Working Capital, Buyer and Seller shall promptly (but in no event later than five (5) Business Days from the date on which the Final Net Working Capital is
finally determined pursuant to
Section 1.4(b)
) deliver joint written instructions to the Escrow Agent instructing the Escrow Agent to deliver from the escrow account an amount equal to the Escrow Amount by bank wire transfer of immediately
available funds to an account designated in writing by Seller.
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1.5
Consents to Assignment
. Notwithstanding anything to the contrary contained in this
Agreement, if the sale, assignment, transfer, conveyance or delivery or attempted sale, assignment, transfer, conveyance or delivery to Buyer of any asset that would be an Acquired Asset is (a) prohibited by any applicable Law or (b) would
require any authorizations, approvals, consents or waivers from a Third Party or Governmental Entity and such authorizations, approvals, consents or waivers shall not have been obtained prior to the Closing, then in either case the Closing shall
proceed without the sale, assignment, transfer, conveyance or delivery of such asset and this Agreement shall not constitute an agreement for the sale, assignment, transfer, conveyance or delivery of such asset;
provided
that nothing in this
Section
1.5
shall be deemed to waive the rights of Buyer not to consummate the transactions contemplated by this Agreement if the conditions to its obligations set forth in
Article V
have not been satisfied. In the
event that the Closing proceeds without the sale, assignment, transfer, conveyance or delivery of any such asset, then following the Closing, Seller shall use commercially reasonable efforts to obtain promptly such authorizations, approvals,
consents or waivers. Pending such authorization, approval, consent or waiver, (i) Seller will comply with the terms of, and will not amend, transfer, let lapse or terminate, the applicable asset without Buyers written consent and
(ii) the Parties shall cooperate with each other in any mutually agreeable, reasonable and lawful arrangements designed to provide to Buyer the benefits of use of such asset, including, at Buyers request and expense, reasonably assisting
Buyer in obtaining the issuance or reissuance of any of Sellers Environmental Permits that are not transferable and/or obtaining authorization for Buyer to operate pursuant to Sellers Environmental Permits in lieu of or pending the
transfer, issuance or reissuance of such Environmental Permits, and to Seller the benefits, including any indemnities, that, in each case, it would have obtained had the asset been conveyed to Buyer at the Closing. To the extent that Buyer is
provided the benefits pursuant to this
Section
1.5
of any Contract, Buyer shall (x) perform for the benefit of the other parties thereto the obligations of Seller or any affiliate of Seller thereunder and
(y) satisfy any related Liabilities with respect to such Contract that, but for the lack of an authorization, approval, consent or waiver to assign such obligations or Liabilities to Buyer, would be Assumed Liabilities. Once authorization,
approval, consent or waiver for the sale, assignment, transfer, conveyance or delivery of any such asset not sold, assigned, transferred, conveyed or delivered at the Closing is obtained, Seller shall assign, transfer, convey and deliver such asset
to Buyer at no additional cost to Buyer.
1.6
Further Assurances
. Subject to the terms and conditions hereof, each of the Parties
agrees to use commercially reasonable efforts to execute and deliver, or cause to be executed and delivered, all documents and to take, or cause to be taken, all actions that may be reasonably necessary or appropriate to effectuate the provisions of
this Agreement, provided that all such actions are in accordance with applicable Law. From time to time, whether at or after the Closing, (i) Seller shall execute and deliver such further documents or instruments of conveyance, transfer and
assignment and take all such other action as Buyer may reasonably require to more effectively convey, transfer and assign to Buyer any and all ownership, right, title and interest in and to the Acquired Assets, including executing documents or
instruments necessary to permit Buyer to record the transfer, conveyance and/or assignment of any and all Transferred IP with any Governmental Entity and (ii) Buyer, and any other member of the Buyer Group, will execute and deliver such further
instruments and take all such other action as Seller may reasonably require for such member of the Buyer Group to assume the Assumed Liabilities.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that, except as set forth in the disclosure schedule provided by Seller to Buyer (the
Seller
Disclosure Letter
) and except as specifically disclosed in all forms, reports and other documents required to be filed by Seller and filed with the SEC from July 1, 2015 to the date of this Agreement, if any (collectively, the
Seller SEC Documents
);
provided
, that, for purposes of each of the representations and warranties in this
Article II
, the term Seller shall include, to the extent such representations and warranties are
applicable, each other member of the Seller Group:
2.1
Organization, Qualification and Corporate Power
. Seller is a corporation
duly organized, validly existing and in good standing under the Laws of the State of Delaware. Seller is duly qualified and licensed to conduct business under the Laws of each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities, in each case as they relate to the Commercial Business, makes such qualification necessary, except for any such failures to be qualified, licensed or in good standing that do not have or would not
reasonably be expected to have a Business Material Adverse Effect. Seller has all requisite corporate power and authority to carry on the Commercial Business as it is currently conducted and to own and use the properties now owned and used by it.
2.2
Title to Assets
. Except as set forth on
Section
2.2
of the Seller Disclosure Letter, Seller has
good, valid and marketable title to, a valid license to, or a valid leasehold interest in (as applicable), the Acquired Assets, free and clear of any Encumbrances (other than Permitted Encumbrances). Upon the sale, conveyance, transfer, assignment
and delivery of the Acquired Assets in accordance with this Agreement, Buyer will acquire good, valid and marketable title to, a valid license to, or a valid leasehold interest in, the Acquired Assets, free and clear of any Encumbrances (other than
Permitted Encumbrances).
2.3
Authority
. Seller has all requisite corporate power and authority to execute and deliver (or cause to
be executed and delivered) this Agreement, the Bill of Sale, the IP License Agreement, the IP Assignment Agreements, the Transition Services Agreement, the Sublease, the Seller FDA Letters, the Buyer FDA Letters, the Escrow Agreement, and any other
agreements, certificates or documents to which Seller is (or will be as of the Closing) a party (collectively, the
Related Agreements
) and to perform its obligations hereunder and under each of the Related Agreements to which it
is (or will be as of the Closing) a party. The execution and delivery by Seller of this Agreement and each of the Related Agreements to which it is (or will be as of the Closing) a party and the performance by Seller of this Agreement and its
obligations hereunder and thereunder, and the consummation by Seller of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Seller and, other than the Seller
Stockholder Approval, no other corporate or other proceedings or actions on the part of Seller, its board of directors (the
Seller Board
) or stockholders are necessary therefor. There are no appraisal or dissenters rights
under applicable Law that are applicable to the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby by Seller. This Agreement has been, and each Related Agreement to which it is (or will
be at Closing) a party will be, duly and validly executed and delivered by Seller and (assuming this Agreement and each of the Related Agreements to which Buyer is (or will be at Closing) a party, constitutes the valid and binding obligation of
Buyer) constitutes (or will constitute) a valid and binding obligation of Seller, enforceable against Seller in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar Laws relating to or affecting the rights of creditors generally and by general principles of equity.
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2.4
Non-contravention;
Consents
. Neither the
execution, delivery or performance of this Agreement by Seller or any of the Related Agreements to which Seller is (or will be at Closing) a party, nor the consummation by Seller of the transactions contemplated hereby or by the Related Agreements,
will (with or without the giving of notice or the lapse of time, or both):
(a) conflict with or violate any provision of
the charter or bylaws or other organizational documents of Seller;
(b) require on the part of Seller any filing with,
notice to, exemption from, or any permit, authorization, consent or approval of, any court, arbitrational tribunal, administrative agency or commission or other governmental or Regulatory Authority or agency (a
Governmental
Entity
) with respect to the Commercial Business or the Acquired Assets, except for (i) compliance by Seller with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
HSR Act
),
(ii) the Seller FDA Letters and (iii) the filing of the Proxy Statement with the SEC in preliminary and definitive forms;
(c) subject to obtaining the Third Party consents set forth on
Section 5.2(i)
of the Seller Disclosure Letter, conflict
with, violate or result in a material breach of, constitute a material default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, require any notice, right of first offer or refusal,
consent or waiver under, or result in the loss of any material right or privilege under, any Assigned Contract, Transferred IP Agreement, or Lease; or
(d) conflict with or violate any Order, or Law applicable to the Commercial Business or any of the Acquired Assets.
2.5
Financial Information
.
(a) Each of the consolidated financial statements contained in the Seller SEC Documents (i) complied at the time it was
filed with the SEC, in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) was prepared in accordance with GAAP applied on a consistent basis with
Sellers past practices throughout the periods indicated (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) and (iii) fairly presents, in all
material respects, the consolidated financial position, results of operations and cash flows of Seller as of the dates thereof and the respective periods indicated therein (subject, in the case of unaudited interim statements, to normal
year-end
audit adjustments).
(b) Except as and to the extent set forth in the balance
sheet of the Commercial Business of the Seller and its Subsidiaries as of September 30, 2016 (the
Commercial Business
Balance Sheet Date
), Seller has no material Liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be disclosed on a balance sheet that would be an Assumed Liability, except for Liabilities and obligations (i) incurred since the Commercial Business Balance Sheet Date in the ordinary
course of the Commercial Business or (ii) reasonably incurred in connection with, or contemplated by, any Related Agreement or in connection with the transactions contemplated hereby.
2.6
Absence of Certain Changes
. Since the Commercial Business Balance Sheet Date through the date of this Agreement, (a) except as
contemplated or permitted by this Agreement, Seller has conducted the Commercial Business in the ordinary course of the Commercial Business and (b) there has not been any Effect that has, or would reasonably be expected to have, individually or
in the aggregate, a Business Material Adverse Effect. Without limiting the generality of the foregoing, since the Commercial Business Balance Sheet Date, the Seller has not taken any action that, had it been taken after the date of this Agreement,
would be prohibited by the terms of
Section 4.1(b)
.
2.7
Tax Matters
. Seller (with respect to the Commercial Business and
the Acquired Assets) has filed or had filed on its behalf all material Tax Returns (as defined below) that it was required to file (separately or as part of a consolidated, combined or unitary group) with respect to the Commercial Business and the
Acquired Assets and all such Tax Returns were correct and complete in all material respects. Seller has paid (or had paid on its
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behalf) all material Taxes that are due with respect to the Commercial Business and the Acquired Assets, whether or not shown to be due on any such Tax Returns. All material Taxes with respect to
the Commercial Business and the Acquired Assets that Seller is or was required by Law and pursuant to this Agreement to withhold or collect and that were or are due have been duly withheld or collected and have been timely paid or will be timely
paid by Seller to the proper Governmental Entity. There are no Encumbrances (other than Permitted Encumbrances) with respect to the Acquired Assets for Taxes, nor is any Governmental Entity in the process of imposing any such Encumbrance upon any
Acquired Asset. No audit or other examination of any Tax Return with respect to the Commercial Business or the Acquired Assets is presently in progress, nor has Seller been notified of any request for such an audit or other examination, and to the
knowledge of Seller, no such action or proceeding is being contemplated. No adjustment relating to any Tax Return filed with respect to the Commercial Business or the Acquired Assets has been proposed in writing by any Tax authority which remains
unresolved. No claim has been made by any Governmental Entity in any jurisdiction where Seller does not file Tax Returns that, with respect to the Commercial Business or the Acquired Assets, Seller is, or may be, subject to Tax by that jurisdiction.
No Acquired Asset is
(i) tax-exempt
use property within the meaning of Section 168(h) of the Code or (ii) an equity interest in any Person. No transaction contemplated by this Agreement is subject to
withholding under any provision of law. No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes with respect to the Commercial Business or the Acquired Assets. With respect to the Commercial
Business, Buyer will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any Post-Closing Tax Period as a result of any (i) installment sale or open transaction disposition made prior to
the Closing or (ii) prepaid amount received prior to the Closing.
2.8
Real Property
.
(a) The Acquired Assets do not include any owned real property.
(b)
Section 2.8(b)
of the Seller Disclosure Letter contains a true, correct and complete list of the leases with respect
to real property to which any of Seller or any of its affiliates is a party that will be subleased to Buyer (each, a
Lease
and such real property that is the subject of a Lease, the
Leased Real Property
). True,
correct and complete copies of such Leases (including all amendments, extensions, renewals, guaranties and modifications with respect thereto) have been made available to Buyer. Except as disclosed on
Section 2.8(b)
of the Seller Disclosure
Letter: (i) the Leases are valid, binding and enforceable against Seller in accordance with their respective terms, and there does not exist under any such Lease any material default by Seller or, to Sellers knowledge, by any other
Person, or any event that, with notice or lapse of time or both, would constitute a default by Seller or, to Sellers knowledge, by any other Person; (ii) Seller has not assigned, subleased, mortgaged, deeded in trust or otherwise
transferred any Lease or Leased Real Property or any interest therein other than any sublease, mortgage or deed of trust which expired or otherwise terminated prior to the date of this Agreement; (iii) no profit sharing, recapture or other
obligation, restriction or cancellation of any option under, or termination of any Lease will arise as a result of the transactions contemplated by this Agreement; and (iv) Seller has obtained from each mortgagee of each landlord of each Leased
Real Property whose mortgage ranks in priority to the corresponding Lease an agreement in writing not to disturb Sellers possession thereof while Seller is not in default under such Lease and each such agreement is in full force and effect.
(c) Except as disclosed on
Section 2.8(c)
of the Seller Disclosure Letter: (i) Seller has not received written
notice of any pending or to Sellers knowledge, threatened expropriation, condemnation or eminent domain proceedings or their local equivalent affecting or relating to the Leased Real Property; (ii) Seller has not received written notice
from any Governmental Entity or other Person that the use and occupancy of such Leased Real Property, as currently used and occupied, and the conduct of the business thereon, as currently conducted, violates or is in material breach of any
applicable Law; (iii) to the knowledge of Seller, each parcel of Leased Real Property is adequately served by utilities and other building services as necessary for its current use by Seller; and (iv) to the knowledge of Seller, the
buildings and other structures on the Leased Real Property are in materially sufficient repair and fit for the purposes for which they are used.
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2.9
Intellectual Property
.
(a)
Section 2.9(a)
of the Seller Disclosure Letter sets forth a complete and correct list of all registrations and
applications for registration owned by Seller that is contained within the Transferred IP (
Registered Business IP
) and, specifying as to each such item, as applicable, the owner(s) of record (and, in the case of domain names, the
registrant), jurisdiction of application and/or registration, the application and/or registration number and the date of application and/or registration.
(b)
Section 2.9(b)
of the Seller Disclosure Letter sets forth a complete and correct list of all agreements under which:
(i) Seller uses or has been granted any license rights under any material Intellectual Property related to the Commercial Business or Transferred Products (other than
off-the-shelf
software licensed under shrink wrap agreements for which Seller pays less than $100,000 in licensing or other fees per software title per annum); (ii)
Seller has granted to any other Person any license rights under any material Intellectual Property related to the Commercial Business or Transferred Products (other than
non-exclusive
licenses granted
expressly or implicitly in the ordinary course of the Commercial Business in connection with the sale, lease or transfer of finished products or services to customers or under confidentiality or
non-disclosure
agreements entered into in the ordinary course of business (the
NDAs
), material transfer (or other similar research) agreements entered into in the ordinary course of the Commercial Business that do not transfer ownership of, or
exclusively license, any Intellectual Property (the
MTAs
) and clinical trial agreements consistent in all material respects with the forms provided to Buyer by Seller entered into in the ordinary course of the Commercial Business
that do not transfer ownership of, or exclusively license, any Intellectual Property (the
CTAs
)); and (iii) any material Intellectual Property related to the Commercial Business or Transferred Products that is or has been
developed by or for Seller, is assigned to Seller by any other Person, or assigned by Seller to any other Person (other than invention assignment agreements with employees and consultants assigning Intellectual Property to Seller) (the agreements
listed in subsections (i) through (iii) above, the
Transferred IP Agreements
), identifying for each such agreement the parties to the agreement and the date of the agreement. For purposes of greater certainty, the term
license rights in the definition of Transferred IP Agreements includes any license, sublicense, covenant,
non-assert,
consent, release or waiver.
(c) To the knowledge of Seller, neither the use and practice of the Transferred IP as currently used and practiced in the
Commercial Business nor the operation of the Commercial Business as presently conducted infringes or misappropriates or otherwise violates, nor to the knowledge of Seller has the use and practice of the Transferred IP as used and practiced in the
Commercial Business since January 1, 2014 nor has the operation of the Commercial Business since January 1, 2014 infringed or misappropriated or otherwise violated, any rights in Intellectual Property of any Third Party (
Third
Party IP
). With the exception of
Section 2.9(d)
and
2.9(e)
, this
Section 2.9(c)
constitutes the only representation and warranty of Seller with respect to any actual or alleged infringement, misappropriation or other
violation of any Third Party IP.
(d) Seller owns, or is licensed or otherwise possesses the rights, title and interest,
free and clear of any and all adverse claims, any requirement of any past (if outstanding), present or future royalty payments, or Encumbrances (other than Permitted Encumbrances) to the Transferred IP and to use all material Third Party IP that is
necessary for the operation of the Commercial Business as currently conducted. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in the loss, forfeiture,
termination, license, or impairment of, or give rise to any obligation to transfer or to create, change or abolish, or limit, terminate, or consent to the continued use by Buyer of any rights in any Transferred IP or such material Third Party IP.
(e) There are no pending or, to the knowledge of Seller, threatened, and since January 1, 2014 there have not been
any pending or, to the knowledge of Seller, threatened, claims or demands against or written communications to Seller alleging that any aspect of the use or practice of the Transferred IP or the operation of the Commercial Business as currently
conducted infringes or misappropriates the rights of others in or to any Third Party IP, or challenging the validity, enforceability, use or ownership of any Transferred IP.
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(f) Other than the Assigned Contracts and the Transferred IP Agreements, Seller
has not granted to any Third Party any license, ownership interest or right or option to or for the use of any of the Transferred IP.
(g) There are no settlements, governmental consents or governmental contracts, judgments or governmental orders entered into by
Seller or imposed upon Seller that restrict Sellers rights to own or use any Transferred IP or permit any Third Parties to use any Transferred IP. No Transferred IP was developed, in whole or in part (i) pursuant to or in connection with
the development of any professional, technical or industry standard, (ii) under contract with or using the resources of any Governmental Entity, academic institution or other entity that would subject any Transferred IP to the rights of any
Governmental Entity, academic institution or other entity, or (iii) under any grants or other funding arrangements with Third Parties.
(h) To the knowledge of Seller, there is no, nor has there been any, infringement, misappropriation, or other violations by any
Third Party of any Transferred IP, and no such claims are pending or threatened by Seller against any Person with respect to the Transferred IP.
(i) Seller has taken commercially reasonable steps to protect and maintain the Transferred IP, including to continue the
confidentiality of its trade secrets and confidential information used in the Commercial Business, including the use of written agreements, and, to Sellers knowledge, there has been no misappropriation of any of such trade secrets or
confidential information. To the knowledge of Seller, no employee, officer, director, consultant or advisor of Seller is in violation of any material term of any employment contract or any other Contract, or any restrictive covenant, relating to the
right to use confidential information of others.
(j) Except as indicated in
Section 2.9(j)
of the Seller Disclosure
Letter, all Registered Business IP has been duly maintained and has not been cancelled, allowed to expire, surrendered, or abandoned, and payment of all applicable maintenance fees for such Registered Business IP has been made and is current. Each
item of Registered Business IP required to be identified in
Section 2.9(a)
of the Seller Disclosure Letter: (i) is registered and/or recorded in the name of Seller, is in full force, has been duly applied for and registered in accordance
with applicable Laws; (ii) has no filings, payments or similar actions that must be taken within 120 days of the Closing Date for the purposes of obtaining, maintaining, perfecting or renewing such registration of Registered Business IP;
(iii) has no unsatisfied past or outstanding maintenance or renewal obligation; and (iv) has not been and is not involved in any opposition, cancellation, interference, reissue, reexamination or other similar proceeding.
(k) Except as set forth on
Section 2.9(k)
of the Seller Disclosure Letter, each Person who has or had access to any
trade secrets or confidential information contained in the Transferred IP has signed a written agreement requiring such Person to keep such information confidential. Each Person who has developed or is or was involved in the development of any
Transferred IP owned or purported to be owned by Seller has signed an agreement confirming that Seller owns such owned Transferred IP, which Seller does not already own by operation of Law or otherwise.
(l) Except as set forth on
Section 2.9(l)
of the Seller Disclosure Letter, Seller has secured valid written present
assignments from all consultants and employees who contributed to the creation or development of any Transferred IP owned or purported to be owned by Seller and of the rights to such contributions, which Seller does not already own by operation of
Law or otherwise.
(m) To the knowledge of Seller, all registrations contained within the Transferred IP are valid,
subsisting and enforceable.
2.10
Contracts
.
(a)
Section 2.10(a)
of the Seller Disclosure Letter sets forth a complete and correct list of each Contract (other than
any Lease) to which Seller is a party that relates to the Commercial Business or the Transferred Products and that is (each, a
Material Contract
):
(i) a Contract with a remaining value or payments to any Person in excess of $500,000;
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(ii) a Contract relating to any partnership, commercial collaboration or joint
venture or other agreement involving a sharing of profits, losses, costs or Liabilities by Seller or any of its affiliates with any other Person;
(iii) a Contract with any Governmental Entity, other than any MTAs or CTAs;
(iv) a Contract relating to the acquisition or disposition of any assets outside the ordinary course of the Commercial
Business, including any securities purchase agreements, asset purchase agreements, merger agreements, business combination agreements and any
earn-out
or agreement for the deferred payment of purchase price
entered into in connection therewith;
(v) a Transferred IP Agreement;
(vi) a Contract relating to the manufacture, packaging, storage, distribution or commercialization of the Transferred Products;
(vii) a Contract relating to customer discounts, chargebacks, rebates distributions, service fees or administrative fees;
(viii) a Contract relating to the research or development of the Transferred Products, excluding any NDAs, MTAs and CTAs;
(ix) a Contract between the Seller and any of the entities set forth on
Section 2.10(a)(ix)
of the Seller
Disclosure Letter relating to the testing, auditing or controlling of the Transferred Products, including any pharmacovigilance agreements and quality agreements with any party;
(x) a Contract that: (A) contains a covenant by Seller not to compete or otherwise limits the freedom of Seller from
engaging in the Commercial Business; (B) grants any rights of exclusivity to any Person; (C) grants any right of first refusal, first offer, first negotiation or similar preferential right; (D) grants any most favored
customer, most favored supplier or similar rights to any Person; or (E) contains a requirements obligation requiring Seller to purchase a designated portion of any type of material;
(xi) a Contract with a Material Supplier or Material Customer, other than purchase orders or work orders, in the ordinary
course of the Commercial Business; or
(xii) a Contract that is otherwise material to the Commercial Business.
(b) Each of the Material Contracts is in full force and effect and constitutes a legal, valid and binding agreement of Seller,
and to the knowledge of Seller, each other party thereto, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or similar Laws of general application affecting or relating to
the enforcement of creditors rights generally, and subject to general principles of equity. Neither Seller, nor, to Sellers knowledge, any other party thereto is (with or without notice or lapse of time, or both) in breach or default in
the performance, observance or fulfillment of any material obligation or material covenant contained in any Material Contract, nor does there exist any condition which upon the passage of time or the giving of notice or both, would reasonably be
expected to cause such material violation of or material default under or permit the termination or modification of, or acceleration of any obligation under, any Material Contract. Seller has not given or received written or, to Sellers
knowledge, oral notice to or from any Person relating to any such actual or alleged, breach or default. Seller has not received any written or, to Sellers knowledge, oral notice from a Third Party stating that such Third Party intends to
terminate any Material Contract and Seller has not waived any right under the Material Contracts. True and complete copies of all Material Contracts have been made available to Buyer, except to the extent such Material Contracts have been redacted
to (i) enable compliance with Laws relating to antitrust or the safeguarding of data privacy; (ii) comply with confidentiality obligations owed to Third Parties; or (iii) exclude information not related to the Commercial Business.
2.11
Suppliers and Customers
.
Section
2.11
of the Seller Disclosure Letter sets forth a list of the top
ten suppliers or vendors of the Commercial Business for the year ended December 31, 2016, based on the total dollar
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value of purchases from each supplier or vendor (the
Material Suppliers
). No Material Supplier or customer set forth on
Section
2.11
of the Seller
Disclosure Letter (the
Material Customers
) has canceled, reduced, terminated or, to the knowledge of Seller, threatened to cancel, reduce, terminate or otherwise materially and adversely modify its relationship with Seller since
January 1, 2016, including by reducing the quantities ordered, the services provided, the price paid or otherwise adversely modifying the conditions to the Contract with Seller. To Sellers knowledge, the Material Suppliers will be able to
deliver goods or services to Buyer in sufficient quantities to continue the Commercial Business as presently conducted. Seller has not experienced and there does not currently exist, any material quality control or similar problems with the supplies
currently being supplied with respect to the Commercial Business by any of the Material Suppliers that remain unresolved.
2.12
Litigation
. There is, and since January 1, 2014 there has been, no claim, complaint, action, suit, proceeding, hearing or investigation initiated or, to Sellers knowledge, threatened, before any Governmental Entity or arbitral body
relating to the Acquired Assets, Assumed Liabilities, the Commercial Business, this Agreement or the transactions contemplated hereby (but excluding any claim, complaint, action, suit, proceeding, hearing or investigation relating to any Excluded
Assets and any sealed qui tam cases). There are no outstanding Orders of any Governmental Entity or arbitral body affecting the Acquired Assets, Assumed Liabilities, the Commercial Business, this Agreement or the transactions contemplated hereby. No
product liability claims have been received in writing by Seller and, to Sellers knowledge, no such claims have been threatened, in each case, with respect to the Transferred Products.
2.13
Regulatory Matters
.
(a) With respect to the Transferred Products and the Commercial Business, Seller is in compliance and has, since
January 1, 2014, been in compliance, in each case, in all material respects with all applicable healthcare and pharmaceutical related Laws including, but not limited to (i) the Federal Food, Drug and Cosmetic Act and its state
counterparts; and (ii) Laws which are cause for debarment or exclusion from any federal, state or local healthcare program, in each case as applicable (
Healthcare Laws
). Seller has not received any written, or, to
Sellers knowledge, other notice from the FDA or any other Governmental Entity alleging noncompliance with any provisions of applicable Healthcare Laws. Seller is not subject to any enforcement, regulatory or administrative proceedings relating
to or arising under applicable Healthcare Laws, and, to Sellers knowledge, no such enforcement, regulatory or administrative proceeding has been threatened.
(b) Seller has filed with the applicable regulatory authorities (including the United States Food and Drug Administration and
any successor agency thereto (the
FDA
) or any other Governmental Entity with jurisdiction over the Development, testing, approval, safety, efficacy, manufacturing, distribution, marketing, license, payment, reimbursement or sale
of pharmaceutical products (a
Regulatory
Authority
)) all required material filings, declarations, listings, registrations, reports, applications or submissions, including but not limited to adverse event reports, required
in connection with the Transferred Products. All such filings, declarations, listings, registrations, reports, applications or submissions were in material compliance with applicable Laws when filed, remain in full force and effect, and no material
deficiencies have been asserted by any applicable Regulatory Authority with respect to any such filings, declarations, listing, registrations, reports, applications or submissions.
(c) To the knowledge of Seller, except as set forth in documents either delivered or made available to Buyer, all preclinical
and clinical investigations or trials sponsored by or conducted on behalf of Seller in connection with the Transferred Products have been and are being conducted in material compliance with applicable Laws, rules, regulations and binding guidances,
including Good Clinical Practices requirements and federal and state Laws, rules, regulations and binding guidances restricting the use and disclosure of individually identifiable health information. Seller has not received any written notice or
other correspondence from the FDA or any other Regulatory Authority commencing, or threatening to initiate, any action to place a clinical hold order on, or to terminate, delay, suspend, or materially modify any proposed or ongoing clinical or
pre-clinical
studies or tests sponsored by or conducted on behalf of Seller
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relating to the Transferred Products, or otherwise alleging noncompliance with any applicable Laws with respect thereto.
(d) Each of the Transferred Products is being, and at all times has been, Developed, tested, marketed, sold, and labeled, as
applicable, in compliance in all material respects with all applicable Laws. There has not been any product recall, market withdrawal, replacement, dear doctor letter, investigator notice, safety notice, warning letter, untitled letter,
inspectional observation or other written notice of action relating to an alleged lack of safety, efficacy, or regulatory compliance of the Transferred Products (
Safety Notice
) conducted by or on behalf of Seller or, to
Sellers knowledge, any Safety Notice conducted by or on behalf of any Third Party. To the knowledge of Seller, no event has occurred or circumstance exists that (with or without notice or lapse of time) is reasonably likely to give rise to any
material actual, alleged, possible or potential action to enjoin Development, manufacturing, marketing or distribution of any Transferred Product. Seller has made available to Buyer copies of material complaints and notices of alleged defect or
adverse reaction with respect to the Transferred Products that have been received in writing by Seller since January 1, 2014.
(e) To the knowledge of Seller, in connection with the Transferred Products, Seller has not: (i) made an untrue statement
of a material fact or fraudulent statement to the FDA or any other Regulatory Authority; (ii) failed to disclose a material fact required to be disclosed to the FDA or any other Regulatory Authority; or (iii) committed any other act, made
any statement or failed to make any statement, that establishes a reasonable basis for the FDA to invoke its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy. As of the date of this Agreement, Seller is not
subject to any pending or, to Sellers knowledge, threatened investigation by the FDA pursuant to its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy. None of Seller or, to the knowledge of Seller, its
officers, employees, agents or clinical investigators has been suspended or debarred or convicted of any crime or engaged in any conduct that would reasonably be expected to result in (A) debarment under 21 U.S.C. Section 335a or any similar
Law or (B) exclusion under 42 U.S.C. Section
1320a-7
or any similar Law.
2.14
Transferred
Inventory
. The Closing Product Inventory (i) is saleable and merchantable, subject to customary reserves for inventory write-downs, in the ordinary course of the Commercial Business, (ii) was produced or manufactured in compliance in
all material respects with applicable Law, (iii) has been stored and handled in accordance with the Transferred Product label and applicable Law and (iv) is not adulterated or misbranded within the meaning of any applicable Law. The
Transferred Inventory has been manufactured, handled, maintained, packaged and stored, as applicable, at all times in compliance in all material respects with applicable Law.
Section
2.14
of the Seller Disclosure Letter
sets forth the applicable shelf life for (A) the Closing Product Inventory and (B) any active pharmaceutical ingredients and other critical raw materials included in Transferred Inventory that have a shelf life.
2.15
Labor and Employment Matters
.
(a) Seller is not a party to any collective bargaining agreement or similar labor union agreement with any labor union, labor
organization or works council, and, as of the date of this Agreement, no such agreement is presently being negotiated. As of the date of this Agreement: (i) no employees of Seller are represented by a labor organization in connection with their
work for Seller; (ii) there are no activities or proceedings of any labor union to organize any employees of Seller pending or, to Sellers knowledge, threatened, including but not limited to any organizing campaigns, demands for
recognition, or election petitions; and (iii) there are no labor strikes, slowdowns, work stoppages or lockouts pending or, to Sellers knowledge, threatened with respect to the employees of Seller.
(b) Seller is, and since January 1, 2014 has been, in compliance in all material respects with all federal, state, and
non-U.S.
Laws respecting labor, employment and employment practices, including but not limited to all U.S. Laws respecting terms and conditions of employment, immigration, workers compensation, long-term
disability, occupational safety, plant closings, compensation and benefits, classification of employees, and wages and hours (
Employment Practices
) and as of the date of this Agreement, (A) there
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are no audits or investigations pending or scheduled by any Governmental Entity pertaining to the Employment Practices of Seller and (B) no claims, complaints, suits, proceedings, hearings
or investigations relating to Employment Practices of Seller are pending or threatened before any Governmental Entity.
(c)
Seller has provided to Buyer a schedule 2.15(c) containing a complete and accurate list of the following information for each Business Employee, including each Business Employee on leave of absence or layoff status: name; job title; work location;
date of commencement of employment; exempt or
non-exempt
status and current compensation paid or payable.
2.16
Employee Benefits
.
(a)
Section 2.16(a)
of the Seller Disclosure Letter contains a complete and accurate list of all material Business
Benefit Plans. For purposes of this Agreement,
Business Benefit Plans
shall mean all Employee Benefit Plans (as defined below) that are maintained or contributed to or required to be contributed to by Seller or any ERISA Affiliate
and under which any Business Employee has a present or future right to benefits (except for (i) employment agreements and offer letters establishing
at-will
employment without obligating Seller to make
any payment or provide any benefit upon termination of employment or change in control other than through a separate Business Benefit Plan, and (ii) individual equity award agreements that are substantially identical to the standard form of
award agreement under the applicable Seller equity plan). For purposes of this Agreement,
Employee Benefit Plan
means (x) any employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended (
ERISA
)) other than a multiemployer plan (as defined in Section 4001(a)(3) of ERISA), (y) any employee welfare benefit plan (as defined in
Section 3(1) of ERISA), and (z) any other written plan, agreement, arrangement or policy involving direct or indirect compensation or employee benefits, including insurance coverage, severance benefits, disability benefits, pension
benefits, retirement benefits, employment agreements, deferred compensation, bonuses, stock options, stock purchase, phantom stock, stock appreciation, change in control, retention, paid time off, fringe benefit or other forms of incentive
compensation or post-retirement compensation.
(b) Seller has made available to Buyer with respect to each Business Benefit
Plan listed on
Section 2.16(a)
of the Seller Disclosure Letter (in each case to the extent applicable): (i) a copy of the material Business Benefit Plan document, including all currently effective amendments thereto; (ii) the most recent
summary plan description and all currently effective summaries of material modifications with respect to the Business Benefit Plan; (iii) the most recently filed annual report on Form 5500; (iv) the most recently received IRS determination or
opinion letter; (v) the most recent summary annual report, nondiscrimination testing report, actuarial report, financial statement and trustee report; and (vi) all records, notices and filings concerning IRS or Department of Labor or other
Governmental Entity audits or investigations or prohibited transactions within the meaning of Section 4043 of ERISA.
(c) Each Business Benefit Plan is operated in material compliance with its terms and the requirements of all applicable Laws,
including ERISA and the Code. Each Business Benefit Plan intended to be qualified under Section 401(a) of the Code is so qualified and can rely on a favorable determination, opinion or advisory letter from the IRS regarding such qualification, and
each trust created thereunder has been determined by the IRS to be exempt from Tax under the provisions of Section 501(a) of the Code, and nothing has occurred since the date of any such determination that could reasonably be expected to adversely
affect the qualification of such Business Benefit Plan.
(d) No material liability under Title IV or Section 302 of
ERISA or Section 412 of the Code has been incurred by the Seller or any ERISA Affiliate that has not been satisfied in full. There are no material disputes or claims (other than routine claims for individual benefits) pending or threatened
against Seller and/or any Business Benefit Plan. Neither Seller nor any ERISA Affiliate maintains, contributes to, is required to contribute to, or has any actual or contingent liability with respect to, (i) any employee pension benefit
plan (within the meaning of Section 3(2) of ERISA) that is subject to Title IV or Section 302 of ERISA or Section 412 of the Code, (ii) any multiemployer plan (within the meaning of Section 3(37) or
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4001(a)(3) of ERISA), (iii) any multiple employer plan (within the meaning of Section 413 of the Code) or (iv) any multiple employer welfare arrangement (within
the meaning of Section 3(40) of ERISA).
(e) The consummation of the transactions contemplated hereby will not, either
alone or in connection with another event, except as set forth on
Section 2.16(e)
of the Seller Disclosure Letter (i) accelerate the time of payment or vesting or increase the amount due under any of the Business Benefit Plans or
(ii) entitle any Business Employee to severance or similar compensation or satisfy any prerequisite to any severance or similar compensation to any such individual.
(f) Each Business Benefit Plan that constitutes a
non-qualified
deferred
compensation plan within the meaning of Section 409A of the Code, complies in both form and operation with the requirements of Section 409A of the Code so that no amount paid pursuant to any such Business Benefit Plan is subject to tax under
Section 409A of the Code.
2.17
Compliance with Laws
.
(a) Seller is, and since January 1, 2014 has been, with respect to the Commercial Business, Acquired Assets and Assumed
Liabilities, in compliance in all material respects with all applicable Laws of any federal, state or foreign government, or any Governmental Entity. Seller is not a party to, nor is subject to,
non-compliance
proceedings or the provisions of any material Order of any Governmental Entity. No notice, citation, summons or order has been issued to Seller or any of its Subsidiaries, no complaint has been filed and served, no penalty has been assessed and
notice thereof given, and, to the knowledge of Seller, no investigation or review is pending or threatened against Seller by any Governmental Entity with respect to any alleged, actual, possible or potential violation, or failure to comply with by
Seller of any Law applicable to the Commercial Business.
(b) Set forth on
Section 2.17(b)
of the Seller Disclosure
Letter are all Permits held by Seller that are required for the conduct of the Commercial Business as presently conducted consistent with past practice, each of which is valid and in full force and effect, and none of such Permits will lapse,
terminate, expire or otherwise be impaired as a result of the execution or delivery of this Agreement or the Related Agreements by Seller or the consummation of the transactions contemplated hereby and thereby. Except for the Transferred Permits,
there are no Permits, whether written or oral, necessary or required for the conduct of the Commercial Business. No notice, citation, summons or order has been issued, no complaint has been filed and served, no penalty has been assessed and notice
thereof given, and no investigation or review is pending or, to the knowledge of Seller, threatened against Seller, by any Governmental Entity with respect to any alleged, actual, possible or potential violation, failure to comply with, or failure
to have, any Permit required in connection with the conduct of the Commercial Business by Seller. To the knowledge of Seller, no event has occurred or circumstance exists that (with or without notice or lapse of time) is reasonably likely to give
rise to the loss of or refusal to renew the Transferred Permits.
2.18
Brokers Fees
. No agent, broker, finder or investment
banker other than Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse Securities (USA) LLC is entitled to any brokerage, finders or other similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by, or on behalf of, Seller. Seller is solely responsible for the fees and expenses of any such agent, broker, finder or investment banker.
2.19
Environmental Matters
. (i) Seller is, and since January 1, 2014 has been, in compliance in all material respects with
applicable Laws governing pollution, the protection of the environment or, with respect to exposure to Hazardous Substances, human health (
Environmental Laws
), which compliance includes possession of and compliance in all material
respects with all licenses, permits, authorizations, variances, exemptions or approvals required by all Environmental Laws applicable thereto (
Environmental Permits
), all such Environmental Permits are in full force and effect and
are listed on
Section 2.17(b)
of the Seller Disclosure Letter; (ii) Seller has not received any written notice that remains outstanding from a Governmental Entity or other Person that alleges that Seller is in material violation of or
has material Liability pursuant to any applicable Environmental Law or
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any Environmental Permit with respect to the Commercial Business or the Acquired Assets; (iii) Seller is not subject to any material unresolved complaint, suit, action, legal proceeding,
hearing, investigation or claim, request for information, demand or Order, of any Governmental Entity relating to any Release of or exposure to a regulated hazardous or toxic material, substance or waste, pollutant or contaminant, including
petroleum and petroleum products (
Hazardous Substances
), or material violation of or material Liability under any Environmental Law or Environmental Permit; (iv) neither Seller, nor, to Sellers knowledge, any Person for
whom Seller is legally responsible has Released Hazardous Substances in violation of Environmental Laws or as would reasonably be expected to result in material liability for Seller or the Commercial Business on, at, or under the real property
currently or formerly operated or leased by Seller in connection with the Commercial Business; and (v) Seller has furnished to Buyer all
non-privileged
material environmental audits, reports and
assessments in its possession regarding the operation of the Commercial Business or properties operated or leased in connection with the Commercial Business and the Acquired Assets. Notwithstanding any other representation or warranty in this
Article II
, the representations and warranties in this
Section
2.19
and with respect to environmental matters,
Section 2.4(b)
,
Section 2.5(b)
and
Section 2.17(b)
, constitute the sole and
exclusive representations and warranties of Seller with respect to environmental matters.
2.20
Sufficiency of Assets
. The Acquired
Assets and the real property that is the subject of the Sublease constitute all of the rights, property and assets that are owned, licensed or controlled by Seller or any of its affiliates as of the Closing Date and are necessary for the conduct of
the Commercial Business, and are sufficient for the continued conduct of the Commercial Business after the Closing Date in substantially the same manner as conducted prior to the Closing Date. None of the Excluded Assets (other than certain
employees of Seller or any of its affiliates) are material to the Commercial Business.
2.21
Solvency
. Assuming satisfaction of the
conditions to this Agreement and after giving effect to the transactions contemplated hereby, the assumption or retention (as applicable) of the Excluded Liabilities by Seller and its affiliates, payment of all amounts required to be paid in
connection with the consummation of the transactions contemplated hereby, and payment of all related fees and expenses, Seller and its affiliates (on a consolidated basis) are not insolvent as of the Closing Date and neither the consummation of the
transactions contemplated hereby nor Sellers operation of the Commercial Business in the ordinary course of the Commercial Business shall render Seller insolvent. As used herein, insolvent means the sum of Sellers debts and
other probable Liabilities exceeds the present fair saleable value of Sellers assets. Seller has no current plans to file and prosecute a petition for relief under Chapter 11 or 7 of the United States Bankruptcy Code.
2.22
Information Supplied
. The information supplied by Seller for inclusion in the Proxy Statement will not, as of the date the Proxy
Statement is first mailed to the stockholders of Seller, and at the time of the Seller Special Meeting, contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing sentence, Seller makes no representation or warranty with respect to any information supplied by Buyer or any of its
Representatives for inclusion in the Proxy Statement. The Proxy Statement, when filed, will comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act.
2.23
No Other Representations or Warranties
. Except for the representations and warranties expressly set forth in this
Article
II
as of the date of this Agreement (as qualified by the Seller Disclosure Letter) and in the Related Agreements, neither Seller, any of its affiliates nor any other Person on behalf of Seller makes any express or implied representation or
warranty (and there is and has been no reliance by Buyer or any of its affiliates or representatives on any such representation or warranty) with respect to Seller, the Commercial Business or with respect to any other information provided, or made
available, to Buyer or its respective affiliates or representatives in connection with the transactions contemplated hereby, including the accuracy or completeness thereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof that:
3.1
Organization
. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its
incorporation.
3.2
Authorization of Transaction
. Buyer has all requisite corporate power and authority to execute and deliver (or
cause to be executed and delivered) this Agreement and each of the Related Agreements to which Buyer is (or will be as of the Closing) a party and to perform its obligations hereunder and under each of the Related Agreements to which it is (or will
be as of the Closing) a party. The execution and delivery by Buyer of this Agreement and each of the Related Agreements to which it is (or will be as of the Closing) a party and the performance by Buyer of this Agreement and its obligations
hereunder and thereunder, and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Buyer and no other corporate or other proceedings or
actions on the part of Buyer, its board of directors or stockholders are necessary therefor. This Agreement has been, and each Related Agreement to which it is (or will be at Closing) a party will be, duly and validly executed and delivered by Buyer
and (assuming this Agreement and each of the Related Agreements to which Seller is (or will be at Closing) a party, constitutes the valid and binding obligation of Seller) constitutes (or will constitute) a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar Laws relating to or affecting the rights of
creditors generally and by general principles of equity.
3.3
Noncontravention; Consents
. Neither the execution, delivery or
performance of this Agreement by Buyer or any of the Related Agreements to which Buyer is (or will be at Closing) a party, nor the consummation by Buyer of the transactions contemplated hereby or by the Related Agreements, will (with or without the
giving of notice or the lapse of time, or both):
(a) conflict with or violate any provision of the charter or bylaws or
other organizational documents of Buyer;
(b) require on the part of Buyer any filing with, notice to, exemption from, or
any permit, authorization, consent or approval of, any Governmental Entity with respect to the Commercial Business or the Acquired Assets, except for (i) compliance by Buyer with the applicable requirements of the HSR Act and (ii) the
Buyer FDA Letters;
(c) conflict with, violate or result in a breach of, constitute a default under, result in the
acceleration of, create in any party any right to accelerate, terminate, modify or cancel, require any notice, right of first offer or refusal, consent or waiver under, or result in the loss of any right or privilege under, any Contract to which
Buyer is a party or by which Buyer is bound or to which any of its assets are subject, or result in the creation or imposition of any Encumbrance of any nature whatsoever upon any of Buyers assets, except which do not, and would not reasonably
be expected to, materially and adversely affect Buyers ability to consummate the transactions contemplated hereby; or
(d) conflict with or violate any Order, or Law applicable to Buyer or any of its properties or assets.
3.4
Brokers Fees
. No agent, broker, finder or investment banker other than MTS Health Partners, L.P. is entitled to any
brokerage, finders or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by, or on behalf of, Buyer. Buyer is solely responsible for the fees and expenses of any such
agent, broker, finder or investment banker.
3.5
Litigation
. There is no claim, complaint, action, suit, proceeding, hearing or
investigation initiated, or, to Buyers knowledge, threatened, before any Governmental Entity or arbitral body against Buyer (but excluding
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any claim, complaint, action, suit, proceeding, hearing or investigation relating to sealed qui tam cases) which would adversely affect Buyers performance under this Agreement or any
Related Agreement or the consummation of the transactions contemplated by this Agreement or any Related Agreement. There are no outstanding Orders of any Governmental Entity or arbitral body against Buyer which would adversely affect Buyers
performance under this Agreement or any Related Agreement or the consummation of the transactions contemplated by this Agreement or any Related Agreement.
3.6
Sufficiency of Funds
. As of the date hereof, Buyer has, and at all times until the satisfaction of all of its obligations under
this Agreement will have, sufficient cash, available lines of credit or other sources of immediately available funds on hand to enable it perform all of its obligations under this Agreement.
3.7
Information Supplied
. The information supplied by Buyer for inclusion in the Proxy Statement will not, as of the date the Proxy
Statement is first mailed to the stockholders of Seller, and at the time of the Seller Special Meeting, contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing sentence, Buyer makes no representation or warranty with respect to any information supplied by Seller or any of its
Representatives for inclusion in the Proxy Statement. The information supplied by Buyer for inclusion in the Proxy Statement will comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act.
3.8
No Other Representations or Warranties
. Except for the representations and warranties expressly set forth in this
Article
III
and in the Related Agreements, neither Buyer, any of its affiliates, nor any other Person on behalf of Buyer makes any express or implied representation or warranty (and there is and has been no reliance by Seller or any of its affiliates or
representatives on any such representation or warranty) with respect to Buyer, any Subsidiary of Buyer or their respective businesses or with respect to any other information provided, or made available, to Seller or its respective affiliates or
representatives in connection with the transactions contemplated hereby, including the accuracy or completeness thereof.
ARTICLE IV
PRE-CLOSING
COVENANTS
4.1
Operation of Business
.
(a) Except as contemplated by this Agreement, during the period from the date of this Agreement until the Closing Date or the
date, if any, on which this Agreement is earlier terminated pursuant to
Section
7.1
(the
Pre-Closing
Period
), Seller shall use commercially reasonable efforts to
preserve the Commercial Business and the Acquired Assets, conduct the operations of the Commercial Business in the ordinary course, and preserve Sellers relationships with customers, suppliers, distributors, licensors, licensees, employees and
others having business dealings with Seller to the extent such relationships relate to the Commercial Business.
(b) Except
(1) as set forth in
Section 4.1(b)
of the Seller Disclosure Letter or as otherwise contemplated by this Agreement, (2) as required by Law or the judgment, order, decree, stipulation or injunction by any Governmental Entity of
competent jurisdiction, or (3) with written consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed), Seller shall not, as it relates to the Commercial Business:
(i) sell, lease, license, abandon or otherwise dispose of or permit any Encumbrance (other than Permitted Encumbrances) on any
Acquired Asset, except inventory in the ordinary course of the Commercial Business;
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(ii) acquire any properties or assets that constitute Acquired Assets, either
tangible or intangible, other than in the ordinary course of the Commercial Business or with respect to binding orders entered into prior to the date of this Agreement;
(iii) (A) settle or commence any claim, complaint, action, suit, proceeding, hearing or investigation (including any Tax
Claim); or (B) waive any material claims or rights of material value, in either case in a manner that would constitute an Assumed Liability or otherwise be adverse in any material respect to the Commercial Business or Acquired Assets at and
after the Closing;
(iv) fail to collect the Transferred Accounts Receivable for the Commercial Business in the ordinary
course of the Commercial Business;
(v) (A) make any material Tax election or change in method of Tax accounting not
required by Law, file (other than in the ordinary course of the Commercial Business),
re-file,
or amend any Tax Return, enter into any Contract with a Governmental Entity with respect to Taxes, consent to an
extension or waiver of the statute of limitations applicable to any Tax claim or assessment, or take any other similar action or (B) settle or compromise any Tax Liability for which Buyer is responsible;
(vi) fail to pay in the ordinary course of the Commercial Business all material payables and other material Liabilities, in
each case, that would constitute Assumed Liabilities, when due;
(vii) enter into, extend, materially modify, terminate or
renew any Assigned Contract (or any Contract that would be an Assigned Contract if entered into prior to the date hereof) or Lease (or any real property lease that would be a Lease if entered into prior to the date hereof) relating to the Commercial
Business;
(viii) other than in the ordinary course of the Commercial Business consistent with past practice, or as
required by applicable Law, or pursuant to the terms of any Contract or other Business Benefit Plan as in effect on the date hereof that has been provided to Buyer, increase or enhance the compensation or benefits of the Business Employees
(including severance pay or bonus opportunities or payments) or make any award or grant under any Business Benefit Plan to any Business Employee;
(ix) make any change in the key management structure of the Commercial Business as set forth on
Section 4.1(b)(ix)
of
the Seller Disclosure Letter, including without limitation the hiring of additional officers or the termination of existing officers for the Commercial Business, except for (A) terminations for cause and replacements for such terminated
employees following consultation with Buyer regarding such replacements and (B) hires, terminations and replacements in the ordinary course of the Commercial Business following reasonable consultation with Buyer,
provided
that nothing in
this
Section 4.1(b)(ix)
shall prevent Seller from terminating any officer that is not a Business Employee;
(x)
adopt, enter into or amend in any material respect any Business Benefit Plan, except for any such amendment as may be required to comply with applicable Laws;
(xi) fail to maintain material insurance policies currently maintained by the Commercial Business or covering the Acquired
Assets or the Assumed Liabilities unless comparable replacement policies with at least similar coverage areas and amounts are procured;
(xii) fail to comply with all Laws applicable to the Acquired Assets and the Commercial Business in all material respects;
(xiii) terminate or fail to maintain or renew any material Transferred Permits;
(xiv) dispose of or permit to lapse any material Transferred IP; or
(xv) enter into any agreement, or otherwise become obligated, to do any action prohibited under
clauses (i)
(xiv)
of this
Section 4.1(b)
.
4.2
Access
. During the
Pre-Closing
Period,
Seller shall keep Buyer informed of all material developments relevant to the Commercial Business and its ability to consummate the transactions contemplated hereby. During
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the
Pre-Closing
Period, subject to (a) compliance with applicable Laws and (b) any established legal privilege, Seller shall permit (or cause to
be permitted) the representatives of Buyer, at Buyers expense, to have reasonable access (at reasonable times, on reasonable prior written notice and in a manner so as not to unreasonably disrupt the normal business operations of the
Commercial Business or other businesses of Seller or its affiliates) to the premises, properties, financial and accounting records, employees, Contracts, and other records and documents, of or pertaining to the Commercial Business, the Transferred
Products, the Acquired Assets and the Assumed Liabilities (including in order to conduct a Phase 1 Environmental Site Assessment following the ASTM Environmental Assessment Standard and a limited compliance review at the One Kendall Property), and
such other relevant information and materials as may be reasonably requested. Seller shall use commercially reasonable efforts to cause the contract manufacturing organizations and suppliers set forth on
Section
4.2
of the
Seller Disclosure Letter to permit Buyer to conduct Current Good Manufacturing Practice visits and Environmental Health and Safety audits in a reasonable time frame prior to the Closing (it being understood, however, that such Third Parties are not
required to facilitate such visits and audits, there can be no guarantee that they will permit such visits and audits, and in no event will the Closing be delayed solely because such Third Parties do not permit such visits and audits to occur prior
to the Closing). Buyer acknowledges that it remains bound by the Nondisclosure Agreement, dated October 10, 2016, entered into between Ipsen Pharma SAS and Seller (the
Confidentiality Agreement
). Prior to the Closing, Buyer
and its representatives shall not contact or communicate with the employees, customers and suppliers of Seller or any of their respective affiliates in connection with the transactions contemplated by this Agreement without the prior written consent
of Seller.
4.3
Governmental Approvals and Consents
.
(a) Subject to the terms and conditions of this Agreement, each Party will use its commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under this Agreement and applicable Laws to satisfy the conditions to Closing set forth herein and consummate the transactions contemplated
hereby as soon as practicable after the date of this Agreement and in any event no later than the Outside Date, including (x) preparing and filing, in consultation with the other Party and as promptly as practicable and advisable after the date
of this Agreement, all documentation (A) to effect all necessary applications, notices, petitions and other filings and (B) to obtain all waiting period expirations or terminations, registrations, permits and authorizations necessary or
advisable to be obtained from any Governmental Entity in order to consummate the transactions contemplated hereby and (y) taking all steps as may be necessary to obtain all waiting period expirations or terminations, registrations, permits and
authorizations, including defending or contesting any suit, action, legal proceeding or claim brought by a Third Party, including any Governmental Entities, that would otherwise prevent or materially impede, interfere with, hinder or delay the
consummation of the transactions contemplated hereby. In furtherance and not in limitation of the foregoing, each Party agrees (i) to make all necessary applications, notices, petitions and filings required (and thereafter make any other
required submissions and respond as promptly as practicable to any requests for additional information or documentary material) with respect to this Agreement or the transactions contemplated hereby with the Antitrust Division of the Department of
Justice (the
DOJ
) and the Federal Trade Commission (the
FTC
) on a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby as promptly as practicable, and in any
event within ten (10) Business Days after the execution of this Agreement (unless another date is mutually agreed between the Parties), and any other Governmental Entity under any other applicable Antitrust Law and (ii) to promptly determine
whether any other filings are required to be made with, and whether any other consents, approvals, permits or authorizations are required to be obtained from, any Governmental Entity under any other applicable Law in connection with the transactions
contemplated hereby, and if so, to prepare and file any such filings and to seek any such other consents, approvals, permits or authorizations (the filings described in the foregoing
clauses (i)
and
(ii)
collectively,
Regulatory Filings
). All filing fees required in connection with the Regulatory Filings shall be borne equally by Seller and Buyer.
(b) In connection with, and without limiting, the efforts or the obligations of the Parties under
Section 4.3(a)
, each
of Buyer and Seller shall, to the extent permitted by applicable Law and not prohibited by the
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applicable Governmental Entity, (i) cooperate and coordinate in all respects with the other in the making of Regulatory Filings (including, to the extent permitted by applicable Law,
providing copies, or portions thereof, of all such documents to the
non-filing
Parties prior to filing and considering all reasonable additions, deletions or changes suggested by the
non-filing
Parties in connection therewith) and in connection with resolving any investigation, request or other inquiry of any Governmental Entity under any applicable Law with respect to any such filing,
(ii) supply the other Party and its counsel, as applicable, with any information and reasonable assistance that may be required or reasonably requested in connection with the making of such filings, including, within the time allowed by the
relevant Governmental Entity and under applicable Law, any additional or supplemental information that may be required or reasonably requested by the FTC, the DOJ and the relevant Governmental Entities in any applicable jurisdiction in which any
such filing is made under any other applicable Law and (iii) use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things
necessary, proper or advisable to obtain the expiration or termination of the applicable waiting periods (and any extension thereof) under the HSR Act or any other Antitrust Law (the
Antitrust Approvals
), in each case as soon as
practicable, and to avoid any impediment to the consummation of the transactions contemplated hereby under any applicable Law, including using commercially reasonable efforts to take all such action as reasonably may be necessary to resolve such
objections, if any, as the FTC, the DOJ or any other Governmental Entity or Person may assert with respect to the transactions contemplated hereby. Notwithstanding anything to the contrary in this
Section 4.3(b)
, none of Buyer, on the one
hand, or Seller, on the other hand, shall be required to agree to any term or take or refrain from taking any action in connection with obtaining the Antitrust Approvals that is not conditioned upon the consummation of the transactions contemplated
hereby.
(c) Each of Buyer, on the one hand, and Seller, on the other hand, shall, to the extent practicable and unless
prohibited by applicable Law or by the applicable Governmental Entity, promptly inform the other of any material communication from any Governmental Entity regarding any of the transactions contemplated hereby in connection with any Regulatory
Filings or investigations with, by or before any Governmental Entity relating to this Agreement or the transactions contemplated hereby, including any claims, complaints, actions, suits, proceedings, hearings or investigations initiated by a private
party. If any Party or affiliate thereof shall receive a request for additional information or documentary material from any Governmental Entity with respect to a Regulatory Filing, then such Party shall use its commercially reasonable efforts to
make, or cause to be made, as soon as reasonably practicable, an appropriate response in compliance with such request. In connection with and without limiting the foregoing, to the extent reasonably practicable and unless prohibited by applicable
Law or by the applicable Governmental Entity, the Parties will (i) give each other reasonable advance notice of all meetings with any Governmental Entity relating to the transactions contemplated hereby, (ii) give each other an opportunity
to participate in each of such meetings, (iii) keep the other Party reasonably apprised with respect to any material communications with any Governmental Entity regarding the transactions contemplated hereby, (iv) cooperate in the filing
of any analyses, presentations, memoranda, briefs, arguments, opinions or other written communications explaining or defending the transactions contemplated hereby, articulating any regulatory or competitive argument or responding to requests or
objections made by any Governmental Entity, (v) provide each other with a reasonable advance opportunity to review and comment upon, and consider in good faith the views of the other with respect to, all material written communications
(including applications, analyses, presentations, memoranda, briefs, arguments and opinions) with a Governmental Entity regarding the transactions contemplated hereby and (vi) provide each other (or counsel of each Party, as appropriate) with
copies of all material written communications to or from any Governmental Entity relating to the transactions contemplated hereby. Any such disclosures, rights to participate or provisions of information by one Party to the other may be made on a
counsel-only basis to the extent required under applicable Law.
(d) Buyer will not extend any waiting period under the HSR
Act (by pull and refile, or otherwise) or any other Antitrust Laws or enter into any agreement with the FTC, the DOJ or any other Governmental Entity not to consummate the transactions contemplated hereby, except with the prior written consent of
Seller. Neither Buyer nor Seller shall, nor shall they permit their respective Subsidiaries to, acquire or agree
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to acquire any business, Person or division thereof, or otherwise acquire or agree to acquire any assets, if the entering into of a definitive agreement relating to, or the consummation of, such
acquisition could reasonably be expected to increase the risk of not obtaining the applicable consent, clearance, approval, authorization or waiver under the HSR Act or any Antitrust Law with respect to the transactions contemplated hereby.
(e) Each of Buyer and Seller shall use its commercially reasonable efforts to obtain all of its respective consents, waivers,
authorizations and approvals of all Third Parties (other than Governmental Entities, which are the subject of
clauses (a)
-
(d)
above) necessary, proper or advisable for the consummation of the transactions contemplated hereby and to
provide any notices to Third Parties required to be provided by it prior to the Closing.
(f) Notwithstanding anything to
the contrary contained in this Agreement, Buyer shall not be obligated to defend any action or proceeding instituted (or threatened to be instituted) challenging the transactions contemplated by this Agreement under the HSR Act or other Antitrust
Laws, or if any decree, judgment, injunction or other order is entered, enforced or attempted to be entered or enforced by a court or other Governmental Entity, which decree, judgment, injunction or other order would make the transactions
contemplated by this Agreement illegal or would otherwise prohibit, prevent, restrict, impair or delay consummation of the transactions contemplated hereby, Buyer is not required to take any action to contest or resist any such action or proceeding
or to have vacated, lifted, reversed, or overturned any such decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions
contemplated by this Agreement or to have such decree, judgment, injunction or other order repealed, rescinded, or made inapplicable so as to permit consummation of the transactions contemplated by this Agreement. Subject to the terms and conditions
of this Agreement, each party will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate the transactions contemplated by this
Agreement as promptly as practicable and in any event on or prior to the Outside Date.
4.4
Notices of Certain Events
. During the
Pre-Closing
Period, Seller and Buyer shall promptly notify the other Party of any of the following after gaining knowledge thereof:
(a) the breach or failure to be true and correct of any representation or warranty made by it contained in this Agreement,
which breach or failure to be true and correct would prevent the satisfaction by it of a condition in
Section 5.2(a)
or
5.3(a)
, as applicable, prior to the Outside Date;
(b) the occurrence of any Effect that has, or would reasonably be expected to cause or constitute, a Business Material Adverse
Effect or Buyer Material Adverse Effect, as applicable; and
(c) any material failure by such Party to comply with, in any
material respect, any covenant or agreement to be complied with by it hereunder, which failure to comply with such covenant or agreement would prevent the satisfaction by it of a condition in
Section 5.2(b)
or
5.3(b)
, as applicable,
prior to the Outside Date.
4.5
Release of Encumbrances
. At or prior to the Closing, Seller shall (i) satisfy and discharge
Sellers 11.5% Senior Secured Notes due 2022 (the
Secured Notes
), pursuant to the indenture governing the Secured Notes, such satisfaction and discharge to be effective no later than simultaneous with the Closing, or
(ii) provide Buyer with evidence reasonably satisfactory to Buyer, of the release or termination of the Encumbrances securing the Secured Notes, such release or termination to be effective no later than simultaneous with the Closing.
4.6
Supply Agreements
. In furtherance of
Section 4.1(b)(vii)
, Seller has provided to Buyer a draft of each of the supply
agreements with the counterparties who are set forth on
Section
4.6
of the Seller Disclosure Letter (collectively, the
Supply Agreements
) and will (i) provide Buyer reasonable advance notice of all
meetings with each supplier and/or its respective advisors relating to the applicable Supply Agreement, (ii) provide Buyer
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an opportunity to participate in each of such meetings, (iii) keep Buyer reasonably apprised with respect to any material communications with any such supplier regarding such Supply
Agreement, (iv) provide Buyer with a reasonable advance opportunity to review and comment upon draft Supply Agreements and (v) not enter into any agreement with such counterparties without Buyers prior written consent.
4.7
No Solicitation by Seller; Seller Board Recommendation
.
(a) During the
Pre-Closing
Period, and except as otherwise specifically provided for in
this Agreement, Seller shall not, and shall cause its Subsidiaries and controlled affiliates not to, and Seller shall instruct its and its controlled affiliates Representatives not to, directly or indirectly (i) solicit, initiate or
engage in any discussions or negotiations with respect to any inquiry, proposal, discussion, offer or request that constitutes or would reasonably be expected to lead to a Competing Proposal (an
Inquiry
) (other than informing any
Person of the existence of the provisions contained in this
Section
4.7
) (
provided
,
however
, that Seller and its Representatives may make inquiries of a Person (and its Representatives) making a Competing
Proposal to ascertain facts regarding, and clarify the terms of, such Competing Proposal for the purpose of the Seller Board informing itself about such Competing Proposal and the Person making it), (ii) terminate, amend, modify or waive any
provision of any confidentiality, standstill or similar agreement to which it or any of its subsidiaries is a party with respect to any actual or potential Inquiry, (iii) approve or publicly recommend, or propose publicly to approve or
recommend, any Competing Proposal, (iv) withdraw, change or qualify in a manner adverse to Buyer, the Seller Board Recommendation or fail to include the Seller Board Recommendation in the Proxy Statement when disseminated to the stockholders of
Seller, (v) enter into any agreement or commitment providing for any Competing Proposal or (vi) resolve or agree to do any of the foregoing (any act described in
clauses (iii)
,
(iv)
or
(v)
above, a
Seller Change of Recommendation
). Any violation of the restrictions contained in this
Section 4.7(a)
by any of Sellers Representatives shall be deemed to be a breach of this
Section 4.7(a)
by Seller.
(b) Notwithstanding the limitations set forth in
Section
4.7(a)
, if, prior to the Seller Stockholder
Approval being obtained, Seller receives a
bona fide
Competing Proposal that was not solicited in material breach of
Section 4.7(a)
, and the Seller Board determines in good faith after consultation with Sellers outside legal
counsel and financial advisors that such Competing Proposal constitutes, or could reasonably be likely to lead to, a Superior Proposal and that the failure to take such action would be inconsistent with the directors exercise of their
fiduciary duties under applicable Law, then Seller and its Representatives may (i) furnish information (including nonpublic information) to the Person making such Competing Proposal, its Representatives and its potential sources of financing,
if, prior to so furnishing such information, Seller receives (or has previously received) from such Person an executed Acceptable Confidentiality Agreement and (ii) engage in discussions or negotiations with such Person, its Representatives and
its potential sources of financing with respect to such Competing Proposal and any changes thereto, including by making counterproposals thereto. Seller will promptly provide or make available to Buyer any material nonpublic information concerning
Seller provided to any other Person pursuant to
Section 4.7(b
)(
i
)
that was not previously provided to Buyer.
(c) The Seller shall notify Buyer promptly after, to the knowledge of Seller, the receipt of any Competing Proposal from and
after the date of this Agreement and provide Buyer with a copy of the Competing Proposal (or if the Competing Proposal is not in writing, a description of the material terms of the Competing Proposal). The Seller shall keep Buyer reasonably informed
of the status of discussions relating to any such Competing Proposal. The Seller will also promptly advise Buyer if the Seller determines to begin providing information to or engage in discussions or negotiations concerning a Competing Proposal
pursuant to
Section 4.7(b)
.
(d) Notwithstanding anything in this
Section
4.7
or
Section
4.8
to the contrary, at any time prior to the receipt of the Seller Stockholder Approval, the Seller Board may, in response to its receipt of a
bona fide
Competing Proposal, make a Seller Change of
Recommendation or terminate this Agreement to enter into a definitive written agreement providing for such Competing Proposal pursuant to
Section 7.2(b)
if (i) the Seller Board has determined in good faith after consultation with
Sellers outside legal counsel and financial
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advisors that (x) such Competing Proposal constitutes a Superior Proposal and (y) failure to make such Seller Change of Recommendation or to so terminate this Agreement would be
inconsistent with the directors fiduciary duties under applicable Law, (ii) Seller has provided Buyer with a written notice of such determination and that the Seller Board intends to effect a Seller Change of Recommendation pursuant to
this
Section 4.7(d)
or that Seller intends to terminate this Agreement pursuant to
Section 7.2(b)
and (iii) during the four (4) Business Day period commencing on the date of Buyers receipt of such notice Seller has
negotiated with Buyer in good faith (to the extent Buyer desired to negotiate) to make a possible amendment to this Agreement so as to enable Seller to proceed with the Seller Board Recommendation and not effect a Seller Change of Recommendation,
and after taking account of Buyers proposals, if any, the Seller Board again makes the determination set forth in
Section 4.7(d)(
i
)
. Each time the financial or other material terms of such Competing Proposal are materially
amended, the Seller will deliver to Buyer a new notice, and the period of negotiation provided in the foregoing sentence shall in no event end prior to 11:59 p.m. (Eastern Time) on the date that is two (2) Business Days immediately following
Buyers receipt of such new notice and specified agreements.
(e) Notwithstanding anything in this
Section
4.7
or
Section
4.8
to the contrary, at any time prior to the receipt of the Seller Stockholder Approval, the Seller Board may make a Seller Change of Recommendation in response to a Seller
Intervening Event if (i) the Seller Board has determined in good faith after consultation with Sellers outside legal counsel and financial advisors that the failure to make a Seller Change of Recommendation would be inconsistent with the
directors fiduciary duties under applicable Law, (ii) Seller has provided Buyer with a written notice of such determination and that the Seller Board intends to effect a Seller Change of Recommendation and (iii) during the four
(4) Business Day period commencing on the date of Buyers receipt of such notice Seller has negotiated with Buyer in good faith (to the extent Buyer desired to negotiate) to make a possible amendment to this Agreement so as to enable
Seller to proceed with the Seller Board Recommendation and not effect a Seller Change of Recommendation, and after taking account of Buyers proposals, if any, the Seller Board again makes the determination set forth in
Section
4.7(e)(
i
)
.
(f) Nothing contained in this Agreement shall prohibit Seller or the Seller Board from
(i) complying with Rules
14d-9
and
14e-2(a)
under the Exchange Act with respect to a Competing Proposal, (ii) issuing a stop, look and listen
communication pursuant to Rule
14d-9(f)
under the Exchange Act or (iii) making any disclosure to its stockholders as reasonably required by applicable Law;
provided
,
however
, that this
Section 4.7(f)
shall not permit the Seller Board to make a Seller Change of Recommendation except to the extent permitted by
Section 4.7(d)
or
Section 4.7(e)
. For the avoidance of doubt, a factually accurate public statement
that describes Sellers receipt of a Competing Proposal and the operation of this Agreement with respect thereto shall not be deemed a Seller Change of Recommendation.
4.8
Preparation of the Proxy Statement; Seller Stockholders Meeting
.
(a) As promptly as reasonably practicable following the date of this Agreement, Seller shall prepare and cause to be filed with
the SEC the Proxy Statement in preliminary form. Each of Seller and Buyer shall furnish all information concerning itself, its affiliates and the holders of its shares to the other and provide such other assistance as may be reasonably requested by
such other Party in connection with the preparation, filing and distribution of the Proxy Statement. Seller shall promptly notify Buyer upon the receipt of any comments from the SEC or any request from the SEC for amendments or supplements to the
Proxy Statement, and shall, as promptly as reasonably practicable after receipt thereof, provide Buyer with copies of all
non-routine
correspondence related to the Proxy Statement between it and its
Representatives, on one hand, and the SEC, on the other hand, and all written comments with respect to the Proxy Statement received from the SEC and advise Buyer of any oral comments with respect to the Proxy Statement received from the SEC. Seller
shall respond as promptly as reasonably practicable to any comments from the SEC with respect to the Proxy Statement. Notwithstanding the foregoing, prior to filing the Proxy Statement (or any amendment or supplement thereto) or responding to any
comments of the SEC with respect thereto, Seller shall provide Buyer a reasonable opportunity to review and comment on such document or response
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in advance and give due consideration to such comments, except to the extent such disclosures relate to a Competing Proposal.
(b) If, at any time prior to the Closing, any information relating to Seller or Buyer, or any of their respective affiliates,
should be discovered by Seller or Buyer that, in the reasonable judgment of Seller or Buyer, should be set forth in an amendment of, or a supplement to, the Proxy Statement, so that the Proxy Statement would not include any misstatement of a
material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Party that discovers such information shall promptly notify the other Party, and
Seller and Buyer shall cooperate in the prompt filing with the SEC of any necessary amendment of, or supplement to, the Proxy Statement and, to the extent required by Law, in disseminating the information contained in such amendment or supplement to
stockholders of Seller. Nothing in this
Section 4.8(b)
shall limit the obligations of any Party under
Section 4.8(a)
. For purposes of this
Section
4.8
, any information concerning or related to Seller or its
affiliates will be deemed to have been provided by Seller, and any information concerning or related to Buyer or its affiliates will be deemed to have been provided by Buyer.
(c) The Seller shall, in accordance with applicable Law and Sellers charter and bylaws, establish a record date for, duly
call, give notice of, convene and hold the Seller Special Meeting as promptly as reasonably practicable after the date hereof, for the purpose of obtaining the Seller Stockholder Approval. Subject to compliance with applicable Law, Seller shall no
later than as promptly as reasonably practicable after the SEC has advised that it will not provide further comments on the Proxy Statement (or when the
ten-day
period referred to in Rule
14a-6
under the Exchange Act has expired without receipt of SEC comments or notice from the SEC that it will provide comments), mail the Proxy Statement to the stockholders of Seller and use its reasonable best
efforts to solicit and obtain the Seller Stockholder Approval, except to the extent that the Seller Board shall have made a Seller Change of Recommendation as permitted by
Section
4.7
. Notwithstanding the foregoing
provisions of this
Section 4.8(c)
, Seller shall be permitted to recess, adjourn, postpone or delay the Seller Special Meeting without the prior consent of Buyer if and to the extent that: (i) there are holders of an insufficient number
of Common Stock present or represented by a proxy at the Seller Special Meeting to constitute a quorum at the Seller Special Meeting, provided that any such recesses, adjournments, postponements or delays shall not cause the Seller Special Meeting
to be recessed, adjourned, postponed or delayed by more than twenty (20) Business Days after the initial date established for the Seller Special Meeting; (ii) Seller has not received proxies representing a sufficient number of Common Stock
to obtain the Seller Stockholder Approval, provided that any such adjournments, postponements or delays shall not cause the Seller Special Meeting to be adjourned, postponed or delayed by more than more than twenty (20) Business Days after the
initial date established for the Seller Special Meeting; (iii) such adjournment, postponement, delay or cancellation is required by applicable Law or a request from the SEC or its staff; or (iv) in the good faith judgment of the Seller
Board (after consultation with its outside legal advisors), the failure to adjourn, postpone or delay the Seller Special Meeting would be reasonably likely to not allow sufficient time under applicable Laws for the distribution and review of any
required or appropriate supplement or amendment to the Proxy Statement by Sellers stockholders prior to the Seller Special Meeting as then-scheduled.
ARTICLE V
CONDITIONS
PRECEDENT TO CLOSING
5.1
Conditions to the Obligations of Each Party
. The respective obligations of Buyer and Seller to
consummate the transactions contemplated hereby are subject to the satisfaction or waiver by Buyer or Seller, as appropriate, at or before the Closing Date, of each of the following conditions:
(a) the Seller Stockholder Approval shall have been obtained;
(b) no judgment, order, decree, stipulation or injunction by any Governmental Entity of competent jurisdiction shall be in
effect which prevents, makes illegal, or limits the consummation of any of the
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transactions contemplated by this Agreement, and no action, suit or proceeding shall be pending by or before any Governmental Entity of competent jurisdiction seeking an Order that would
reasonably be expected to prevent the consummation of, or limit, any of the transactions contemplated by this Agreement;
(c) no Law shall have been enacted, promulgated or deemed applicable to the transactions contemplated hereby that prevents the
consummation of such transactions or has the effect of making such consummation thereof illegal; and
(d) all waiting
periods under the HSR Act, if applicable with respect to the transactions contemplated by this Agreement or other applicable waiting period (or any extension thereof), filings or approvals under the applicable Antitrust Laws to consummate the
transactions contemplated hereby shall have expired, been terminated, been made or been obtained.
5.2
Conditions to Obligations of
Buyer
. In addition to the satisfaction or waiver, as applicable, of the conditions under
Section
5.1
, the obligation of Buyer to consummate the transactions to be consummated at the Closing is subject to the
satisfaction (or waiver in writing by Buyer) of the following conditions:
(a) (i) each of the Fundamental
Representations of Seller set forth in
Article II
shall be true and correct on and as of the date of this Agreement and on and as of the Closing Date (except with respect to representations and warranties that address matters only as of a
particular date, in which case, as of such other date); and (ii) each of the representations and warranties of Seller set forth in
Article II
(other than the Fundamental Representations) shall be true and correct (disregarding all
qualifications and exceptions as to materiality or Business Material Adverse Effect contained therein) on and as of the date of this Agreement and on and as of the Closing Date, except in the cases of the
clauses (
i
)
and
(ii)
(x) for those representations and warranties that address matters only as of a particular date (which shall be true and correct as of such date, subject to clause (y) below), and (y) for failures of the representations and
warranties to be true and correct as to matters that would not reasonably be expected to have a Business Material Adverse Effect;
(b) Seller shall have performed or complied in all material respects with the agreements and covenants required to be performed
or complied with by it under this Agreement and the Related Agreements as of or prior to the Closing;
(c) Seller shall
have delivered to Buyer a certificate, validly executed by a duly authorized officer of Seller, dated as of the Closing Date, certifying that each of the conditions specified in
clauses
(a)
and
(b)
of this
Section
5.2
is satisfied;
(d) Seller shall have delivered to Buyer each of the Related
Agreements to which Seller is a party, validly executed by a duly authorized representative of Seller;
(e) Seller shall
have delivered a certificate of
non-foreign
status satisfying the requirements of Treasury Regulation
Section
1.1445-2(b)
in a form reasonably acceptable to
Buyer;
(f) Seller shall have delivered to Buyer evidence of accepted binding purchase orders (i) with each of the
counterparties set forth on
Section 5.2(f)(i)
of the Seller Disclosure Letter and (ii) reflecting the terms set forth on
Section 5.2(f)(ii)
of the Seller Disclosure Letter;
(g) Seller shall have delivered to Buyer all other items listed in
Section 1.3(b)
not otherwise delivered under this
Section
5.2
;
(h) Seller shall have delivered to Buyer letters from Seller to the FDA
transferring to Buyer the rights to the Transferred Registrations issued by the FDA in substantially the form attached hereto as
Exhibit I
(the
Seller FDA Letters
);
(i) All Third Party consents set forth on
Section 5.2(
i
)
of the Seller Disclosure Letter shall have been
obtained, in form and substance reasonably satisfactory to Buyer; and
(j) Since the date of this Agreement, there shall
not have occurred a Business Material Adverse Effect.
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5.3
Conditions to Obligations of Seller
. The obligation of Seller to consummate (or cause
to be consummated) the transactions to be consummated at the Closing are subject to the satisfaction (or waiver in writing by Seller) of the following conditions:
(a) (i) each of the Fundamental Representations of Buyer set forth in
Article III
shall be true and correct on and
as of the date of this Agreement and on and as of the Closing Date (except with respect to representations and warranties that address matters only as of a particular date, in which case, as of such other date); and (ii) each of the
representations and warranties of Buyer set forth in
Article III
(other than the Fundamental Representations) shall be true and correct (disregarding all qualifications and exceptions as to materiality or Buyer Material Adverse Effect
contained therein) on and as of the date of this Agreement and on and as of the Closing Date, except in the cases of
clauses (
i
)
and
(ii)
(x) for those representations and warranties that address matters only as
of a particular date (which shall be true and correct as of such date, subject to clause (y) below), and (y) for failures of the representations and warranties to be true and correct as to matters that would not reasonably be expected to
have a Buyer Material Adverse Effect;
(b) Buyer shall have performed or complied with in all material respects its
agreements and covenants required to be performed or complied with by it under this Agreement and the Related Agreements as of or prior to the Closing;
(c) Buyer shall have delivered to Seller a certificate, validly executed by a duly authorized officer of Buyer, dated as of the
Closing Date, certifying that each of the conditions specified in
clauses
(a)
and
(b)
of this
Section
5.3
is satisfied;
(d) Buyer shall have delivered to Seller letters from Buyer to the FDA assuming responsibility for the Transferred
Registrations issued by the FDA in substantially the form attached hereto as
Exhibit J
(the
Buyer FDA Letters
); and
(e) Buyer shall have delivered to Seller all other items listed in
Section 1.3(b)
not otherwise delivered under this
Section
5.3
.
ARTICLE VI
INDEMNIFICATION
6.1
Indemnification by Seller
. Subject to the terms and conditions of this
Article VI
, from and after the Closing, Seller shall indemnify Buyer and its Subsidiaries and their respective officers, directors, affiliates, stockholders,
members, partners and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the
Buyer Indemnified Parties
) in respect of, and hold the Buyer Indemnified Parties harmless against, any and all
claims, judgments, causes of action, losses, debts, obligations, Taxes and other liabilities, monetary damages, fines, penalties, costs, interest and expenses, including costs of investigation, defense and settlement, and reasonable attorneys
and other fees and expenses (collectively,
Damages
) incurred as a result or arising out of:
(a) any
(i) breach of any representation or warranty of Seller contained in
Article II
of this Agreement or the certificate of Seller delivered at the Closing pursuant to
Section
5.2(c)
or (ii) failure to perform
any covenant or agreement of Seller contained in this Agreement or the Related Agreements;
(b) Sellers and its
affiliates failure, fully or timely, to pay, satisfy or perform the Excluded Liabilities;
(c) any Tax for which
Seller is responsible pursuant to
Section
8.1
;
(d) any Tax imposed on or relating to
(i) Acquired Assets or the Commercial Business with respect to any
Pre-Closing
Tax Period or (ii) all or portion of any Shire Milestone Payment; or
(e) the matters set forth on
Section 6.1(e)
of the Seller Disclosure Letter.
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6.2
Indemnification by Buyer
. Subject to the terms and conditions of this
Article
VI
, from and after the Closing, Buyer shall indemnify Seller and its Subsidiaries and their respective officers, directors, affiliates, stockholders, members, partners and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the
Seller Indemnified Parties
) in respect of, and hold the Seller Indemnified Parties harmless against, any and all Damages incurred as a result or arising out of:
(a) any (i) breach of any representation or warranty of Buyer contained in
Article III
of this Agreement or the
certificate of Buyer delivered at the Closing pursuant to
Section
5.3(c)
or (ii) failure to perform any covenant or agreement of Buyer contained in this Agreement or the Related Agreements;
(b) Buyers and its affiliates failure, fully or timely, to pay, satisfy or perform the Assumed Liabilities; or
(c) any Tax for which Buyer is responsible pursuant to
Section
8.1
.
6.3
Claims for Indemnification
.
(a)
Third Party Claims
. All claims for indemnification made under this Agreement resulting from, related to or arising
out of a Third Party claim, action, suit or proceeding (a
Third Party Claim
) against an Indemnified Party shall be made in accordance with the following procedures. A Person entitled to indemnification under this
Article VI
(an
Indemnified Party
) shall give prompt written notification to the Person from whom indemnification is sought (the
Indemnifying Party
) of the commencement of any Third Party Claim for which indemnification may
be sought or, if earlier, upon the written assertion of any such Third Party Claim;
provided
,
however
, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party of any
Liability hereunder, except to the extent that the Indemnifying Party has been materially prejudiced thereby, and then only to such extent. Within twenty (20) days after delivery of such notification, the Indemnifying Party may, upon written
notice thereof to the Indemnified Party, assume control of the defense of such Third Party Claim so long as (i) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (ii) the maximum
amount the Indemnified Party would be entitled to recover under this
Article VI
in respect of such Third Party Claim is anticipated to be more than 50% of the total Damages likely to be assessed against the Indemnified Party pursuant to such
Third Party Claim and (iii) prior to the Indemnifying Party assuming control of such defense, it shall provide reasonable assurance to the Indemnified Party of its financial ability to assume the cost of such Third Party Claim and that, as
between the Indemnifying Party and the Indemnified Party, any Damages related to such Third Party Claim shall be the responsibility of the Indemnifying Party (subject to any applicable limitations provided in
Section
6.5
).
If the Indemnifying Party does not assume control of such defense in accordance with the terms hereof, the Indemnified Party shall control such defense. The Party not controlling such defense may participate therein at its own expense and may retain
separate
co-counsel
at its own expense;
provided
that if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the
Indemnifying Party and the Indemnified Party have conflicting interests with respect to such Third Party Claim, the reasonable fees and expenses of counsel to the Indemnified Party solely in connection therewith shall be considered Damages for
purposes of this Agreement;
provided
,
however
, that in no event shall the Indemnifying Party be responsible for the fees and expenses of more than one counsel for all Indemnified Parties. The Party controlling such defense shall keep
the other Party advised of the status of such Third Party Claim and the defense thereof and shall consider recommendations made by the other Party with respect thereto. The Indemnified Party shall not agree to any settlement of such Third Party
Claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed so long as the Indemnifying Party is actively and diligently defending in good faith any such Third Party
Claim. The Indemnifying Party shall not agree to any settlement of such Third Party Claim that (i) does not include a complete and unconditional release of the Indemnified Party from all Liability with respect thereto, (ii) has a finding
or admission of any violation of Law or any violation of the rights of any Person, or (iii) imposes any Liability on the Indemnified Party, or any matters with respect to Taxes, without the prior written consent of the Indemnified Party, which
consent shall not be unreasonably
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withheld, conditioned or delayed. Each of the Indemnifying Party and the Indemnified Party shall direct their respective counsel to reasonably cooperate with the other.
(b)
Procedure for Other Claims
. An Indemnified Party wishing to assert a claim for indemnification under this
Article
VI
which is not subject to
Section
6.3(a)
shall deliver to the Indemnifying Party a written notice (a
Claim Notice
) which contains (i) a description and, if then known, the amount (the
Claimed Amount
) of any Damages incurred by the Indemnified Party or the method of computation of the amount of such claim of any Damages, (ii) a statement that the Indemnified Party is entitled to indemnification under this
Article VI
and a reasonable explanation of the basis therefor, and (iii) a demand for payment in the amount of such Damages (including wire instructions if payment is requested to be made by wire transfer). Within thirty (30) days
after delivery of a Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party a written response in which the Indemnifying Party shall (A) agree that the Indemnified Party is entitled to receive all of the Claimed Amount (in
which case such response shall be accompanied by a payment by the Indemnifying Party to the Indemnified Party of the Claimed Amount, by check or by wire transfer), (B) agree that the Indemnified Party is entitled to receive part, but not all,
of the Claimed Amount (the
Agreed Amount
) (in which case such response shall be accompanied by a payment by the Indemnifying Party to the Indemnified Party of the Agreed Amount, by check or by wire transfer), or (C) contest
that the Indemnified Party is entitled to receive any of the Claimed Amount including the reasons therefor. If the Indemnifying Party in such response contests the payment of all or part of the Claimed Amount, the Indemnifying Party and the
Indemnified Party shall use commercially reasonable efforts to resolve such dispute. If such dispute is not resolved within sixty (60) days following the delivery by the Indemnifying Party of such response, the Indemnifying Party and the
Indemnified Party shall each have the right to submit such dispute to a court of competent jurisdiction in accordance with the provisions of
Section
10.9
.
6.4
Survival
.
(a) Other than claims alleging common law fraud or willful or intentional misrepresentation or breach of this Agreement, the
representations and warranties of Seller and Buyer set forth in this Agreement and the certificates delivered at Closing pursuant to
Sections
5.2(c)
and
5.3(c)
shall survive the Closing for a period of sixteen
(16) months, other than for the representations and warranties of Seller contained in
Sections
2.1
(Organization, Qualification and Corporate Power),
2.2
(Title to Assets),
2.3
(Authority) and
2.18
(Brokers Fees), and of Buyer contained in
Sections
3.1
(Organization),
3.2
(Authorization of Transaction) and
3.4
(Brokers Fees), (collectively, the
Fundamental Representations
),
which shall survive the Closing for forty (40) months.
(b) The covenants or other agreements contained in this
Agreement shall survive the Closing until the expiration of the term of the undertaking set forth in such agreement and covenant.
(c) No Party shall have any Liability of any nature with respect to any representation, warranty, agreement or covenant after
the termination thereof;
provided
,
however
, any claim that is properly asserted in writing pursuant to
Section
6.3
prior to the expiration of the applicable survival period as provided in
Section
6.4(a)
shall survive solely for the purpose of such claim until such claim is finally resolved and satisfied.
6.5
Limitations
.
(a) Subject to
Section
10.13
, from and after the Closing, the rights of the Indemnified Parties under
this
Article VI
shall be the sole and exclusive remedies of the Indemnified Parties with respect to claims resulting from any breach of warranty or failure to perform any covenant or agreement contained in this Agreement or otherwise relating
to the transactions that are the subject of this Agreement. Without limiting the generality of the foregoing two sentences, in no event shall Buyer, its successors or permitted assigns be entitled to claim or seek rescission of the transactions
consummated under this Agreement. Notwithstanding the foregoing or anything in this Agreement to the contrary, nothing contained in this Agreement shall
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relieve or limit the liability of any Party or any officer or director of such Party from any liability arising out of or resulting from common law fraud or intentional or willful
misrepresentation in connection with the transactions contemplated by this Agreement or in connection with the delivery of any of the documents referred to herein.
(b) Notwithstanding anything to the contrary contained in this Agreement, each of the following limitations shall apply:
(i) the aggregate liability of Seller for all Damages under
Section
6.1(a)(
i
)
(other
than on account of the breach of any Fundamental Representation, with respect to which Sellers aggregate liability shall not exceed an amount equal to the Base Purchase Price (as adjusted pursuant to
Section
1.4
)) and
Section 6.1(e)
shall not exceed an amount equal to $95,000,000 (the
Applicable Cap Amount
); and
(ii) a Buyer Indemnified Party shall have no right to indemnification under
Section
6.1(a)(
i
)
(other than on account of the breach of any Fundamental Representation as to which the limitation shall not apply) or
Section 6.1(e)
unless and until the amount of Damages suffered by
such Buyer Indemnified Party with respect to an individual claim under such sections exceeds $50,000 and the aggregate amount of Damages suffered by such Buyer Indemnified Party under such sections exceeds $250,000 (the
Aggregate
Threshold
), whereupon the Buyer Indemnified Parties shall be indemnified for all Damages (including Damages up to the Aggregate Threshold), subject to the Applicable Cap Amount.
(c) In no event shall any Indemnifying Party be responsible and liable for any Damages or other amounts under this
Article
VI
that are special or punitive Damages, except to the extent that any of the foregoing are awarded to a Third Party against any Indemnified Party in circumstances in which such Indemnified Party is entitled to indemnification hereunder.
(d) Notwithstanding anything to the contrary in this Agreement, any limitation or qualification as to materiality, Business
Material Adverse Effect or Buyer Material Adverse Effect shall be disregarded for purposes of determining the amount of any Indemnifying Partys indemnification obligation and whether there has been any breach of any representation, warranty,
covenant or agreement in this Agreement.
(e) The amount of any Damages for which indemnification is provided under this
Article VI
shall be computed net of any Third Party insurance proceeds actually received by the Indemnified Party (net of any retroactive premium adjustments and any other costs of collection), each Party agreeing (i) to use commercially
reasonable efforts to recover all available insurance proceeds and (ii) to the extent any indemnity payment under this Agreement has been paid by the Indemnifying Party to or on behalf of the Indemnified Party prior to the receipt, directly or
indirectly by the Indemnified Party of any net insurance proceeds under Third Party insurance policies on account of such Damages which duplicate, in whole or in part, the payment by the Indemnifying Party to or on behalf of the Indemnified Party,
the Indemnified Party shall remit to the Indemnifying Party an amount equal to the amount of the net insurance proceeds actually received by the Indemnified Party on account of such Damages which duplicate, in whole or in part, the payment made by
the Indemnifying Party to or on behalf of the Indemnified Party.
6.6
Right of Setoff
. Upon notice to Seller specifying in
reasonable detail the basis therefor, Buyer may set off any amount to which it may be entitled under this
Article VI
against amounts otherwise payable pursuant to
Section
1.2
.
6.7
Overdue Payments
. Any indemnification obligation under this
Article VI
not paid when due shall bear interest from the due
date until the date of payment thereof at a per annum rate equal to 2.00% plus the three (3)-month US Dollar LIBOR rate in effect on the date such payment is required to be made, from time to time, effective from the date that payment was due,
compounded monthly, provided that interest shall not accrue at a rate that exceeds the maximum rate permitted by applicable Law, and provided further that interest shall not accrue to the extent the Indemnifying Party is in good faith contesting the
right to indemnification hereunder.
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6.8
Adjustment to Purchase Price
. Any payment by Buyer or Seller, as the case may be,
pursuant to this
Article VI
shall be treated as an adjustment to the purchase price for the Acquired Assets for Tax purposes unless otherwise required by applicable Law.
ARTICLE VII
TERMINATION
7.1
Termination of Agreement
. The Parties may terminate this Agreement prior to the Closing as provided below:
(a) by
mutual written agreement of Seller and Buyer;
(b) by Buyer if:
(i) any of the representations or warranties of Seller contained in this Agreement are inaccurate or untrue to the extent that
any such inaccuracy or untruth would cause the failure of the condition set forth in
Section 5.2(a)
to be satisfied;
(ii) Seller has failed to discharge and fulfill any of its covenants or agreements contained in this Agreement to the extent
that any such failure would cause the failure of the condition set forth in
Section 5.2(b)
to be satisfied,
and in each case of
clauses (i)
and
(ii)
, such inaccuracy or failure has not been cured within thirty (30) days after written notice of such failure, inaccuracy or untruth has been given to Seller; or
(iii) prior to receipt of the Seller Stockholder Approval, the Seller Board or any committee thereof shall have effected a
Seller Change of Recommendation under
Section 4.7(d)
or
Section 4.7(e)
hereto;
provided
,
however
, that Buyer shall not have
the right to terminate this Agreement pursuant to this
Section 7.1(b)
if Buyer is in material breach of this Agreement;
(c) by Seller if:
(i) any of the representations or warranties of Buyer contained in this Agreement are inaccurate or untrue to the extent that
any such inaccuracy or untruth would cause the failure of the condition set forth in
Section 5.3(a)
to be satisfied;
(ii) Buyer has failed to discharge and fulfill any of its covenants or agreements contained in this Agreement to the extent
that any such failure would cause the failure of the condition set forth in
Section 5.3(b)
to be satisfied,
and in each case of
clauses (i)
and
(ii)
, such inaccuracy or failure has not been cured within thirty (30) days after written notice of such failure, inaccuracy or untruth has been given to Buyer; or
(iii) necessary in order to accept a Superior Proposal in accordance with
Section 4.7(e)
;
provided
that as a
condition to the termination of this Agreement by Seller pursuant to this
Section 7.1(c
)(
iii)
, Seller pays Buyer, or causes Buyer to be paid, the Seller Termination Fee payable under
Section 7.2(b)(
i
)
(it
being understood that Seller may enter into such definitive written agreement simultaneously with such termination of this Agreement);
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provided
,
however
, that Seller shall not have the right to terminate this Agreement pursuant to
this
Section 7.1(c)
if Seller is in material breach of this Agreement;
(d) by Buyer or Seller by written notice to
the other if;
(i) any Governmental Entity shall have obtained a court order or taken any other action restraining,
enjoining, or otherwise prohibiting the transactions contemplated by this Agreement and such court order or action is or shall have become final and no longer subject to appeal;
(ii) the Closing shall not have occurred on or before 5:00 p.m., Eastern Time on June 30, 2017 (the
Outside
Date
);
provided
,
however
, that no Party may terminate this Agreement pursuant to this
Section 7.1(d)(ii)
if such Partys material breach of any representation, warranty, covenant or other obligation under this
Agreement shall have been the reason that the Closing shall not have occurred on or prior to the Outside Date; or
(iii)
the Seller Stockholder Approval is not obtained at the Seller Special Meeting or at any adjournment or postponement thereof, in each case at which a vote on such approval was taken.
7.2
Effect of Termination
.
(a) To terminate this Agreement as provided in
Section
7.1
(except in the case of termination
pursuant to
Section 7.1(a)
), the terminating party shall have given written notice to the other Party specifying the subsection of
Section
7.1
pursuant to which such termination is made, and this Agreement shall
forthwith become null and void and there will be no liability of any Party (or any stockholder or representative of such Party) to each other Party hereto, except with respect to the Confidentiality Agreement, this
Section
7.2
,
Section
9.7
and
Article X
;
provided
that no such termination shall relieve any Party from liability for any damages resulting from fraud or a willful breach of its
representations, warranties or covenants set forth in this Agreement prior to such termination and any aggrieved Party will be entitled to all rights and remedies under applicable Law or in equity.
(b)
Seller Termination Fee
.
(i) If Seller terminates this Agreement pursuant to
Section 7.1(c)(iii)
, then Seller shall pay or cause to be paid to
Buyer prior to or substantially concurrently with, and as a condition to such termination, an amount in cash equal to $25,000,000 (the
Seller Termination Fee
).
(ii) If Buyer terminates this Agreement pursuant to
Section 7.1(b
)(
iii)
, then Seller shall pay or cause to
be paid to Buyer the Seller Termination Fee within three (3) Business Days after such termination.
(iii) If
(A) Buyer or Seller terminates this Agreement pursuant to
Section 7.1(b)(ii)
(as a result of Sellers breach of
Section
4.7
),
Section 7.1(d)(ii)
(solely in the event that the Seller Stockholder
Approval has not been obtained) or
Section 7.1(d)(iii)
, (B) a Competing Proposal has been publicly disclosed after the date of this Agreement and prior to the date of such termination and has not been withdrawn prior to the date of such
termination, and (C) Seller enters into a definitive agreement with respect to such Competing Proposal within 12 months after such termination, and such Competing Proposal is subsequently consummated (regardless of whether such consummation
happens prior to or following such
12-month
period), then within three (3) Business Days after the date that such Competing Proposal is consummated, Seller will pay or cause to be paid to Buyer the Seller
Termination Fee. For purposes of this
Section 7.2(b
)(
iii)
, the term Competing Proposal will have the meaning assigned to such term in
Section
10.1
, except that references to 20%
will be deemed to be references to 50%.
(iv) If Buyer or Seller terminates this Agreement pursuant to
Section 7.1(d)(iii)
, then Seller shall reimburse Buyer, or cause Buyer to be reimbursed, for Buyers documented
out-of-pocket
expenses incurred in connection
with this Agreement and the transactions contemplated hereby,
provided
,
however
, Sellers aggregate liability under this
Section 7.2(b)(iv)
shall not exceed an amount equal to $3,000,000.
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(v) In the event any amount is payable by Seller pursuant to the preceding
clauses(
i
)
-
(iv)
, such amount shall be paid by wire transfer of immediately available funds to an account designated by Buyer. In no event shall Seller be obligated to pay the Seller Termination Fee on more than one
occasion.
Seller acknowledges that (A) the agreements contained in this
Section
7.2
are an
integral part of the transactions contemplated by this Agreement and that without this
Section
7.2
Buyer would not have entered into this Agreement and (B) the Seller Termination Fee is not a penalty, but rather is
liquidated damages in a reasonable amount that will compensate Buyer in the circumstances in which the Seller Termination Fee is payable for the efforts and resources expended and opportunities foregone while negotiating this Agreement and in
reliance on this Agreement and on the expectation of the consummation of the transactions contemplated hereby. If Seller fails to promptly pay any amount due pursuant to this
Section
7.2
, Seller shall pay to Buyer all
reasonable fees, costs and expenses of enforcement (including reasonable attorneys fees as well as reasonable expenses incurred in connection with any action initiated by Buyer), together with interest on the amount of the Seller Termination
Fee at the prime lending rate as published in
The
Wall Street Journal
, Eastern Edition, in effect on the date such payment is required to be made. Subject to Buyers rights set forth in
Section
10.13
,
Buyers right to receive payment from Seller of the Seller Termination Fee shall be the sole and exclusive remedy of the Buyer Related Parties against Seller, any Seller Subsidiary or any of their respective former, current or future officers,
directors, partners, stockholders, managers, members or affiliates (collectively,
Seller Related Parties
) for any loss suffered as a result of the failure of the transactions contemplated hereby to be consummated or for a breach
or failure to perform hereunder or otherwise, and upon payment of such amount (if entitled under this
Section
7.2
), none of the Seller Related Parties shall have any further liability or obligation relating to or arising
out of this Agreement or the transaction contemplated hereby (except that Seller shall also be obligated with respect to
Section
7.2
, to the extent applicable, and except that Seller shall remain obligated for, and Buyers
and its affiliates may be entitled to remedies with respect to, the provisions and agreements surviving such termination pursuant to
Section 7.2(a)
).
ARTICLE VIII
TAX
MATTERS
8.1
Certain Tax Matters
.
(a) Seller and Buyer shall be equally responsible for the payment of any transfer, sales, use, stamp, conveyance, value added,
recording, registration, documentary, filing and other
non-income
Taxes and administrative fees (including notary fees) arising in connection with the consummation of the transactions contemplated by this
Agreement (
Transfer Taxes
). Buyer shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Seller shall cooperate with respect thereto as necessary). Buyer and Seller shall
use commercially reasonable efforts to cooperate with each other to minimize any Transfer Taxes.
(b) For purposes of this
Agreement:
(i) Whenever it is necessary to determine the liability for real property, personal property and similar ad
valorem Taxes for or with respect to the Acquired Assets for a taxable period that begins before the Closing Date and ends after the Closing Date (a
Straddle Period
), the Taxes for the portion of the Straddle Period ending on and
including, and for the portion of the Straddle Period beginning after, the Closing Date shall be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a fraction the numerator of which is the number of calendar days during
the Straddle Period before and including the Closing Date, or the number of calendar days during the Straddle Period beginning the day after the Closing Date, as applicable, and the denominator of which is the number of calendar days in the entire
Straddle Period; and
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(ii) Whenever it is necessary to determine the liability for all Taxes not
referenced in
Section 8.1(b)(i)
(such as income, employee, payroll Taxes and any Taxes imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible)) it shall be determined as if
the Straddle Period ended at the end of the day on the Closing Date (except that (x) solely for purposes of determining the marginal Tax rate applicable to income or receipts during such period in a jurisdiction in which such Tax rate depends
upon the amount or level of income or receipts, annualized income or receipts may be taken into account if appropriate for an equitable sharing of such Taxes and (y) exemptions, allowances and deductions that are otherwise calculated on an
annual basis shall be apportioned on a daily basis).
(c) Seller shall include in its taxable income all amounts received
on or before the Closing Date with respect to any deferred revenue liability (for U.S. tax purposes) that is assumed by Buyer pursuant to this Agreement, and the parties agree to treat any such deferred revenue liability in a manner that will
provide Buyer the opportunity to increase its tax basis in the Acquired Assets for U.S. tax purposes as it fulfills the underlying obligation associated with any such deferred revenue liability.
8.2
Withholding Taxes
. Buyer shall be entitled to deduct and withhold from the Upfront Payment and any other payments pursuant to this
Agreement (including the Contingent Payments, if any) all Taxes that Buyer may be required to deduct and withhold under any applicable provision of Tax law. All such withheld amounts shall be treated as delivered to Seller and Buyer shall remit or
cause to be remitted to the applicable Governmental Entity the amounts withheld as required under any applicable provision of Tax law. Buyer shall notify Seller at least four (4) Business Days prior to Closing of any amount Buyer intends to
withhold under this
Section
8.2
. Buyer and Seller agree to use commercially reasonable efforts to avoid or mitigate the imposition of any withholding Taxes.
8.3
Tax Refunds
.
(a) Any Tax refund (including any interest in respect thereof) received by Seller, and any amounts credited against Tax that
are actually utilized, to which Seller becomes entitled (including by way of any amended Tax Returns or any carryback filing), that relate to any Post-Closing Tax Period, shall be for the account of Buyer and Seller shall pay over to Buyer any such
refund or the amount of any such credit, net of any costs or expenses incurred by Seller in procuring such refund, within thirty (30) days after receipt of such credit or entitlement thereto.
(b) Any Tax refund (including any interest in respect thereof) received by Buyer, and any amounts credited against Tax which
are actually utilized to which Buyer becomes entitled (including by way of any amended Tax Returns or any carryback filing), that relate to any
Pre-Closing
Tax Period, shall be for the account of Seller and
Buyer shall pay over to Seller any such refund or the amount of any such credit, net of any costs or expenses incurred by Buyer in procuring such refund, within thirty (30) days after receipt of such credit or entitlement thereto.
(c) Each of Seller and Buyer shall cooperate, and cause each of their Affiliates to cooperate, in obtaining any Tax refund that
the other party reasonably believes should be available, including through filing appropriate forms with the applicable Governmental Entity.
8.4
Tax Contests
. After the Closing Date, Buyer shall notify Seller within ten (10) days of its written receipt of any notice of
Tax deficiency, proposed Tax adjustment, Tax assessment, Tax audit, Tax examination or other administrative or court proceeding, suit, dispute or other claim primarily with respect to Taxes (a
Tax Claim
) that, if determined
adversely to the taxpayer or after the lapse of time would be grounds for a claim for indemnity pursuant to
Section
6.1
hereof;
provided
,
however
, that a failure by Buyer to provide notice of a Tax Claim
within such ten (10) day period shall not entitle Seller to reduce the amount of the liability required to be paid pursuant to
Section
6.1
unless such failure results in a material detriment to Seller, in which case
the amount Seller is required to pay with respect to such liability shall only be reduced by the amount of such detriment. Thereafter, Buyer shall deliver to Seller, as promptly as possible, copies of all relevant notices and documents
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(including court papers) received by Buyer. In the case of any Tax Claim, Buyer and Seller may each participate, at its own expense, in the audit or proceeding;
provided
that the audit or
proceeding shall be controlled by Buyer;
provided
,
further
, that at Sellers election (upon written notice to Buyer) and its own expense, Seller may take control of the audit or proceeding, provided Seller agrees to indemnify
Buyer for any resulting Taxes;
provided
,
further
,
however
, that (i) neither Party shall settle such audit or proceeding without the consent of the other Party, which consent shall not be unreasonably withheld, conditioned
or delayed and (ii) each Party shall keep the other Party timely informed with respect to the commencement, status and nature of any such Tax Claim.
8.5
Tax Allocation
. Buyer shall prepare an allocation of the Upfront Payment, the Contingent Payment, and any amount that would be
treated as consideration for U.S. federal income tax purposes among the Acquired Assets and the restrictions set forth in
Section
9.9
in accordance with Section 1060 of the Code and the U.S. Treasury regulations
thereunder (and any similar provision of state, local or foreign Law, as appropriate) (the
Draft Allocation
). Buyer shall deliver the Draft Allocation to Seller within ninety (90) days after the Closing Date. Seller shall
review the Draft Allocation and provide any objections to Buyer within fifteen (15) days after the receipt thereof. In the event Seller does not object to Buyers Draft Allocation, such Draft Allocation shall be final (the
Final
Allocation
). If Seller raises objections to the Draft Allocation or any subsequent adjustments, the Parties will negotiate in good faith to resolve such objection(s). Any subsequent adjustments to the consideration for the Acquired Assets
shall be reflected in the Final Allocation as revised by Buyer and subject to Sellers reasonable comments in a manner consistent with this
Section
8.5
, the imputed interest provisions of the Code, Section 1060 of
the Code, and the U.S. Treasury regulations thereunder (and any similar provisions of state, local or foreign Law, as appropriate). Seller, Buyer and their respective consolidated Affiliates shall report and file Tax Returns (including IRS Form
8594) in accordance with the Final Allocation. Neither Buyer nor Seller shall take any position (whether in audits, Tax Returns, or otherwise) that is inconsistent with such Final Allocation unless required to do so by applicable Law.
ARTICLE IX
FURTHER
AGREEMENTS
9.1
Post-Closing Information
.
(a) For a period of seven (7) years following the Closing, upon written request delivered to Buyer and subject to
compliance with applicable Laws and any established legal privilege, Buyer shall, and Buyer shall cause the affiliates of Buyer with respect to the Commercial Business to, provide to Seller and its representatives (at Sellers sole cost and
expense) information in its possession, following receipt of a reasonable, written request therefor, to the extent necessary to prepare or defend any judicial or administrative proceeding related to the Commercial Business (other than any proceeding
between Buyer and Seller), or to enable Seller and its representatives to satisfy Sellers and its affiliates financial reporting and Tax preparation obligations. Buyer shall be entitled to receive from Seller, upon the presentation of
invoices therefor, payments for such amounts, relating to supplies, disbursements and other
out-of-pocket
expenses, as may reasonably be incurred in providing such
information.
(b) After the Closing, Buyer shall respond to reasonable, written requests for information and assistance by
Seller in connection with Seller completing the audit of its accounts and preparation of its required federal, state and local Tax Returns.
9.2
Disclosure Generally
. Any exception or disclosure set forth in any section or subsection of the Seller Disclosure Letter shall be
deemed for the purposes of this Agreement to be disclosed and shall modify any of Sellers other representations, warranties, covenants or other matters to the extent the applicability of such exception or disclosure to qualify one or more
other representations, warranties, covenants or other matters is reasonably apparent on the face of such disclosure. The inclusion of any information in the Seller Disclosure Letter shall not be deemed to be an admission or acknowledgment, in and of
itself, that such information is
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required by the terms hereof to be disclosed, is material to the Commercial Business, has resulted in or would result in a Business Material Adverse Effect, or is outside the ordinary course of
the Commercial Business. For purposes of this Agreement, the terms to the knowledge of Seller, to Sellers knowledge, known by Seller or other words of similar meaning shall mean the actual knowledge of the
persons listed on
Section
9.2
of the Seller Disclosure Letter attached hereto and the knowledge such persons would have had after reasonably investigating the relevant facts or circumstances, and shall not refer to the
knowledge of any other Person or entity.
9.3
Certain Employee Benefits Matters
.
(a)
Offer of Employment; Continuation of Employment
. Prior to the Closing Date, Buyer agrees that it will make offers of
employment to those employees of Seller set forth as Hire Employees and may make offers of employment to those additional employees of Seller set forth as Transition Hire Employees in each case as identified on a schedule
agreed upon by Seller and Buyer prior to the date hereof (each, a
Business Employee
), in each case in good faith, with: (i) salary or hourly wage rate, as the case may be, no less than one hundred and two percent (102%) of
that provided by Seller immediately prior to the date of this Agreement in the event Seller has not implemented an ordinary course raise in compliance with
Section 4.1(b)(viii)
prior to the Closing Date with respect to such Business Employee
(or one hundred percent (100%) of such amount provided by Seller immediately prior to the Closing Date if Seller has implemented an ordinary course raise in compliance with
Section 4.1(b)(viii)
prior to the Closing Date with respect to such
Business Employee); (ii) an annualized target cash incentive opportunity no less favorable than that provided by Seller immediately prior to the Closing Date, including a full-year bonus opportunity for 2017 (notwithstanding the fact that the
Business Employee is not employed by Buyer for the entirety of 2017 as a result of when the Closing occurs), in accordance with Buyers standard bonus policies (the
2017 Bonuses
); (iii) compensation and benefit opportunity
programs based on Buyers eligibility criteria including long-term incentive compensation commensurate with similarly situated employees of Buyer that are based in the United States; (iv) eligibility to participate in health, welfare and
defined contribution retirement benefit plans and programs that are substantially comparable, in the aggregate, and at a cost that is substantially comparable, in the aggregate, to those health, welfare and defined contribution retirement benefits
provided by Seller immediately prior to the Closing Date; (v) a severance plan that will be in effect until the first anniversary of the Closing Date which shall provide for severance payments and benefits in the event such Business
Employees employment is terminated without cause no less favorable than those provided by Seller to such Business Employee immediately prior to Closing Date pursuant to the terms of the applicable Business Benefit Plan;
provided
,
however
, for the avoidance of doubt, that in no event shall Buyer assume Sellers Change in Control Severance Plan or any individual severance agreement or arrangement between Seller and any Business Employee that is not an Assigned
Contract; and (vi) employment no greater than fifty (50) miles from the location at which the Business Employee was employed immediately prior to the Closing Date;
provided
,
however
, that Buyers obligations hereunder
with respect to any Business Employees shall be subject to Buyers standard background check policies (to the extent permitted by applicable Law), which shall be conducted in accordance with the timeline and procedures mutually agreed to by the
Parties. Buyer shall offer employment commencing on the Closing Date to all active Business Employees, including those on vacation, on the terms set forth in this
Section
9.3
. With respect to any Business Employee who is
not actively employed on the Closing Date due to military leave, an approved leave of absence (whether paid or unpaid), disability or layoff, Buyer shall offer employment to such Business Employee as of the date such Business Employee returns to
active employment, provided that such date is within one (1) year of the Closing Date (or, if later, only to the extent that such Business Employee retains
re-employment
rights under applicable Law). Any
Business Employee that accepts employment with Buyer is referred to herein as a
New Buyer Employee
. Except as provided by Seller to Buyer on a separate schedule 9.3(c), Seller retains all Liabilities with respect to compensation
and benefits owed to the Business Employees for
pre-Closing
employment and shall satisfy any obligations in connection with any severance or similar compensation owed to any Business Employee due to the
consummation of the transactions contemplated hereby, either alone or in connection with another
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event. Nothing herein shall establish, modify or amend any Business Benefit Plan, or the terms and conditions of employment applicable to a Business Employee, or change the
at-will
status of any Business Employee.
(b)
Compensation; Employee Benefits
.
Except as otherwise required by applicable Law, the Business Employees shall cease to participate in or accrue further benefits under the Business Benefit Plans immediately prior to the Closing. Beginning on the Closing Date and for a twelve
(12) month period thereafter, Buyer shall maintain (or cause its affiliates to maintain) employee benefit plans, agreements, programs, policies and arrangements for the benefit of each New Buyer Employee (
Buyer Plans
) on
terms that are no less favorable than those set forth in
Section 9.3(a)
. Buyer shall use commercially reasonable efforts to cause:
(i) all Buyer Plans (including severance pay plans, programs and practices) to recognize all credited service of New Buyer
Employees with Seller (and its predecessors, to the extent such service is credited by Seller) for purposes of eligibility and vesting and level of benefits (but not for benefit accrual under a defined benefit pension plan or vesting under equity
incentive plans (other than vesting triggered by an individuals retirement)) to the same extent such service was recognized under similar plans maintained by Seller immediately prior to the Closing Date, except as would result in a duplication
of benefit; and such service also shall apply for purposes of satisfying any waiting periods, evidence of insurability requirements, or the application of any
pre-existing
condition limitations;
(ii) each Buyer Plan to waive
pre-existing
condition limitations to the same extent
waived or no longer applicable under the applicable Business Benefit Plan;
(iii) each New Buyer Employee to be given
credit under the applicable Buyer Plan for amounts paid under a corresponding Business Benefit Plan during the plan year in which the Closing occurs for purposes of applying deductibles,
co-payments
and
out-of-pocket
maximums; and
(iv) without
limiting the generality of the foregoing, Buyer shall maintain in effect for the twelve (12) month period following the Closing a severance plan covering New Buyer Employees, which plan shall provide for severance payments and benefits to each
New Buyer Employee no less favorable than those Seller provided to such New Buyer Employee pursuant to any Business Benefit Plan in effect as of immediately prior to the Closing Date.
(c)
Bonus Amounts
. Buyer shall, or shall cause one of its affiliates to, pay the (i)
non-contingent
retention bonuses set forth on a schedule 9.3(c) that Seller shall provide to Buyer on or prior to the date hereof (
Non-Contingent
Bonuses
) and (ii) 2017 Bonuses, in each case, to the extent earned by an applicable New Buyer Employee.
(d)
Flexible Spending Accounts
. Effective as of the last day of the month in which Closing occurs, New Buyer Employees shall no longer be eligible to contribute to the flexible spending account sponsored by Seller except as otherwise provided by
and in accordance with COBRA (such accounts,
Seller FSA
and such participants in the Seller FSA,
FSA Participants
). Effective as of the Closing Date, Buyer shall establish flexible spending accounts which shall
(i) permit immediate participation as of the first day of the month immediately following Closing for all FSA Participants and (ii) accept for reimbursement any claims related to the calendar year in which the Closing Date occurs and
eligible for reimbursement on the basis of participant elections initially made under the Seller FSA, which have not been previously reimbursed by Seller. The salary reduction election of FSA Participants under the Seller FSA will be continued by
Buyer following Closing. Seller shall provide to Buyer as soon as administratively feasible following the Closing Date, a schedule setting forth the FSA Participants and the amount each FSA Participant has elected to contribute to the Seller FSA for
the current calendar year and the amount reimbursed by the Seller FSA to the FSA Participant (or eligible dependent) (the
FSA Balances
). To the extent the FSA Balances in the aggregate are positive, Seller shall make a payment to
Buyer equal to the aggregate FSA Balances by the tenth (10th) Business Day following the date on which Seller provides such schedule to Buyer. To the extent the FSA Balances in the aggregate are negative, Buyer shall make a payment to Seller equal
to the aggregate
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FSA Balances by the tenth (10th) Business Day following the date on which Seller provides such schedule to Buyer. Notwithstanding the foregoing, no Person who elects COBRA continuation coverage
with respect to such Persons flexible spending account shall be considered a FSA Participant and any such Persons flexible spending account balance shall not be a FSA Balance.
(e)
U.S. WARN Act
. On or prior to the Closing Date, Seller shall provide Buyer with a list of all employees of the
Commercial Business who have experienced an employment loss within the meaning of WARN within the ninety (90) day period ending on the Closing Date. Buyer shall not, for a period of ninety (90) days after the Closing Date, engage in any
conduct which would result in an employment loss or layoff for a sufficient number of employees of Buyer which, if aggregated with any such conduct on the part of Seller prior to the Closing Date, would result in liability under WARN on the part of
Seller.
(f)
COBRA
. Seller shall retain or assume responsibility for, and shall be responsible for administering
compliance with, the continuation coverage requirements for group health plans under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (
COBRA
) and any other similar applicable Law with
respect to New Buyer Employees and their covered dependents who incur a COBRA qualifying event or loss of coverage under any Business Benefit Plan at any time on or before the Closing Date and with respect to any current or former employee of Seller
that is not a New Buyer Employee. Buyer shall assume responsibility for, and shall be responsible for administering compliance with, the continuation coverage requirements under COBRA and any other similar applicable Law with respect to New Buyer
Employees and their covered dependents who incur a COBRA qualifying event or loss of coverage after the Closing Date.
(g)
No Rights Created
. No provision of this Agreement shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any future, present, or former employee of Seller under any Employee
Benefit Plan or otherwise. Except as expressly provided in this Agreement, nothing in this Agreement shall preclude Buyer, at any time after the Closing Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise
altering in any respect any Buyer Plan, any benefit under any Buyer Plan or any trust, insurance policy or funding vehicle related to any Buyer Plan.
9.4
Shire Milestone Payment.
(a) If, prior to the Closing Date, Seller achieves, solely with respect to ONIVYDE (solely as it exists as of the date of
this Agreement), (i) the milestone under
Section 8.2(a)(iv)
of the License and Collaboration Agreement, (ii) solely with respect to the First Indication (as defined in the License and Collaboration Agreement), the milestone under
Section 8.3(a)(iii)
of the License and Collaboration Agreement (the
Specified Milestone Payment
) or (iii) solely with respect to the First Indication (as defined in the License and Collaboration Agreement), the
milestone under
Section 8.3(a)(vii)
of the License and Collaboration Agreement and, in each case (i), (ii) and (iii), any milestone payment (each, a
Shire Milestone Payment
and collectively, the
Shire Milestone
Payments
) becomes payable by Shire to Seller with respect thereto, such payment shall be paid directly to Seller, such Shire Milestone Payment shall under no circumstances be considered part of the Acquired Assets, and Buyer shall not be
entitled to (and shall not be entitled to request) any consideration or right of set off against the Upfront Payment or the Contingent Consideration in exchange for its agreement under this
Section 9.4(a)
.
(b) After the Closing, in the event any Shire Milestone Payment becomes payable and Shire has notified Buyer of such
achievement pursuant to Section 8.3(c) of the License and Collaboration Agreement, Buyer shall: (i) provide notice to Seller promptly, and in any event no later than five (5) Business Days, after receiving such notice from Shire; and
(ii) provide Shire (with a copy provided to Seller) with the corresponding invoice pursuant to Section 8.3(c) of the License and Collaboration Agreement directing Shire to pay either (x) such Shire Milestone Payment directly to Seller, if
such Shire Milestone Payment is not the Specified Milestone Payment or (y) if such Shire Milestone Payment is the Specified Milestone Payment, then (A) such Shire Milestone Payment, less the Reimbursement Amount, directly to Seller and
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(B) the Reimbursement Amount directly to Buyer. If Shire fails to comply with such direction and instead pays all of such Shire Milestone Payment to Buyer, Buyer shall promptly pay to Seller
(and in any event no later than ten (10) Business Days after receiving such payment) the amount of such Shire Milestone Payment, less the Reimbursement Amount if such Shire Milestone Payment is the Specified Milestone Payment. For the avoidance
of doubt, except to the extent of the Reimbursement Amount paid to or retained by Buyer pursuant to this
Section
9.4
(if any), (1) Buyer and its affiliates shall be mere collection agents with respect to any Shire Milestone
Payment, (2) Seller shall retain beneficial ownership of any Shire Milestone Payment, (3) no Shire Milestone Payment shall under any circumstances be considered part of the Acquired Assets, and (4) Buyer shall not be entitled to (and
shall not be entitled to request) any consideration or right of set off against any Contingent Consideration in exchange for its agreement under this
Section
9.4
.
(c) Notwithstanding anything to the contrary herein, (x) Seller shall be solely responsible for, and shall fully and
timely pay without any offset to PharmaEngine, Inc., all payments related to any Shire Milestone Payment or the related milestone under the PharmaEngine Agreement (the
PharmaEngine Payments
), and (y) if Seller receives the
Specified Milestone Payment at any time (whether on, before or after the Closing), Seller shall promptly, but in no case later than two (2) Business Days following receipt of the Specified Milestone Payment (or the Closing Date if received
prior to the Closing), pay Buyer an amount equal to $9,000,000 (the
Reimbursement Amount
) if Buyer has not already received the Reimbursement Amount. For the avoidance of doubt, in no event shall the Reimbursement Amount be paid
to Buyer (A) more than once or (B) other than with respect to the Specified Milestone Payment. Neither Buyer nor Seller shall take any position for Tax purposes that is inconsistent with this
Section
9.4
unless
required to do so by applicable Law.
(d) After the Closing, Buyer shall not amend or waive any provision of the License
and Collaboration Agreement that adversely affects the Shire Milestone Payments, including changing the amount or timing of payment of either of the Shire Milestone Payments without Sellers prior written consent, which Seller may provide or
withhold in its sole and absolute discretion. In the event Buyer and Shire enter into any discussions to amend the License and Collaboration Agreement in any manner that adversely affects the Shire Milestone Payment, Buyer shall promptly notify
Seller of such discussions. Buyer shall promptly furnish or otherwise make available to Seller any relevant correspondence with Shire regarding any amendments or waivers to the License and Collaboration Agreement and give Seller a reasonable
opportunity to review and comment thereon, subject to Seller entering into a confidentiality agreement reasonably acceptable to Shire and Buyer.
9.5
Use of Names
. As promptly as reasonably practicable following the Closing and in no event later than six (6) months after the
Closing Date, Seller shall, and shall cause its affiliates to, use commercially reasonable efforts to cease to use the names set forth on
Section
9.5
of the Seller Disclosure Letter and any name confusingly similar thereto
(collectively, the
Restricted Names
) and any trademarks, trade names, trade dress, service marks and logos that use or incorporate any Restricted Name. Seller agrees that from and after the Closing Seller shall not have any right,
title, interest, license or other right whatsoever in the Restricted Names. Following the expiration of such six (6) month period, Seller shall, and shall cause its affiliates to, remove, strike over or obliterate all Restricted Names and any
trademarks, trade names, trade dress, service marks and logos that use or incorporate any Restricted Name from the Excluded Assets (it being understood that this requirement shall not apply to fair use of any Restricted Name, including, but not
limited to, in documents and materials kept as records that are maintained for internal use only and not publicly disseminated, or to be archived as such records, for historical purposes or as required by applicable Law). Any use of the Restricted
Names by Seller as permitted in this
Section
9.5
is subject to its use of each Restricted Name in the same form and manner as, to the same extent as (without an increase in extent or type of uses of each Restricted Name)
and subject to the same standards of quality that are in effect for each Restricted Name as of the Closing Date. All goodwill arising from any such use shall inure to the benefit of Buyer or an applicable Buyer affiliate owning the Restricted
Name so used. Seller shall not to use any Restricted Name in any manner that may reflect negatively on such name and mark or on Buyer or any of its affiliates.
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9.6
Seller Trademarks
. Buyer agrees that, except as set forth in this
Section
9.6
, following the Closing Date, Buyer shall not have any right, title, interest, license or other right whatsoever in the trademarks set forth on
Section
9.6
of the Seller Disclosure
Letter (the
Seller Trademarks
), and that Seller has not assigned or otherwise transferred such right, title, interest, license or other right to Buyer by implication or otherwise. Upon and following the Closing Date, Buyer
shall use commercially reasonable efforts to cease using any Seller Trademarks in connection with the Acquired Assets as soon as reasonably practicable and in no event later than six (6) months after the Closing Date, except that Seller, on
behalf of itself and its affiliates, hereby grants to Buyer a limited,
non-exclusive,
non-transferable,
non-sublicensable, royalty-free license for a period of no longer
than six (6) months following the Closing Date, to continue to use the Seller Trademarks solely in connection with the Acquired Assets, solely as, to the extent, and in the manner such Seller Trademarks were used by Seller immediately prior to
the Closing Date. Following the expiration of such period, Buyer shall remove, strike over, or otherwise obliterate all Seller Trademarks remaining on any materials, goods or other property (including in electronic form) in its or their
possession that are publicly accessible or disseminated, including from all sales and product literature, vehicles, business cards, schedules, stationery, packaging materials, displays, signs, promotional materials, manuals, forms, websites, email
addresses, computer software and other materials and systems (but excluding, for the avoidance of doubt, (i) any Contracts, books, documents and records included in the Acquired Assets bearing the Seller Trademarks that are maintained for
internal use only and not publicly disseminated, (ii) products and other materials bearing the Seller Trademarks that have been previously sold or disseminated to customers or other persons at any time prior to the end of such six
(6) month period, and (iii) fair use of any Seller Trademarks or as required by applicable Law). Any use of the Seller Trademarks by Buyer as permitted in this
Section
9.6
is subject to its use of each Seller
Trademark in the same form and manner as, to the same extent as (without an increase in extent or type of uses of each Seller Trademark) and subject to the same standards of quality that are in effect for each Seller Trademark as of the Closing
Date. All goodwill arising from any such use shall inure to the benefit of Seller or an applicable Seller affiliate owning the Seller Trademark so used. Buyer shall not to use any Seller Trademark in any manner that may reflect negatively
on such name and mark or on Seller or any of its affiliates.
9.7
Confidentiality.
(a) From and after the date of this Agreement, each Party agrees that it shall not, without the prior written consent of the
other Party, (i) disclose to any Person such other Partys Confidential Material, except to those of its employees or representatives who need to know such information for the purpose of exploiting its rights or fulfilling its obligations
under this Agreement (and then only to the extent that such persons are under an obligation to maintain the confidentiality of the Confidential Material), or (ii) use any of such other Partys Confidential Material for any reason other
than as contemplated by this Agreement. If a Party has been advised by legal counsel that disclosure of Confidential Material of the other Party is required to be made under applicable Law (including the requirements of a national securities
exchange or another similar regulatory body) or pursuant to documents subpoena, civil investigative demand, interrogatories, requests for information, or other similar process, the Party required to disclose the Confidential Material shall, to the
extent practicable, provide the other Party with prompt written notice of such request or demands or other similar process so that such other Party may seek an appropriate protective order or waive the disclosing Partys compliance with the
provisions of this
Section
9.7
. In the absence of a protective order or waiver or other remedy, the Party required to disclose the other Partys Confidential Material may disclose only that portion of the Confidential
Material which its legal counsel advises that it is legally required to disclose, provided that it exercises commercially reasonable efforts to preserve the confidentiality of such other Partys Confidential Material, including by cooperating
with such other Party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Material.
9.8
Bulk Sales Waiver
. The Parties agree to waive compliance with the provisions of any
so-called
bulk transfer law, bulk sales law, or any similar Tax Law (including any tax clearance or certification of tax compliance Law) of any jurisdiction that may be applicable with
respect to the sale of the Acquired Assets as
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contemplated by this Agreement. Any failure to comply with any such Law shall in no way derogate any liability or responsibility of Seller under
Article VI
hereof.
9.9
Restrictive Covenants
.
(a) During the period beginning on the Closing Date and ending on the fifth
(5
th
) anniversary of the Closing Date (the
Non-Compete
Period
), Seller covenants and agrees not to, and shall cause its affiliates not
to, directly or indirectly anywhere in the world, acquire rights (other than through its own internal development) to any approved or marketed product that has as an indication in the treatment of metastatic adenocarcinoma of the pancreas or
treatment of small cell lung cancer. Notwithstanding the foregoing, products that are being developed or commercialized by Seller prior to the Closing Date shall be excluded from the prohibition of this
Section 9.9(a)
.
(b) During the period beginning on the Closing Date and ending on the third
(3
rd
) anniversary of the Closing Date (the
Non-Solicit
Period
), Seller shall not, and shall cause its affiliates to not, directly or
indirectly,
(i) call-on,
solicit, encourage, or induce, or attempt to
call-on,
solicit, encourage, or induce, any New Buyer Employee to leave the employ of, resign
from, or terminate or reduce its relationship with, Buyer, or (ii) hire or offer to hire, either on a full-time basis or part-time or consulting basis, any New Buyer Employee who then currently is a New Buyer Employee,
provided
,
however
, that nothing in this
Section
9.9(b)
shall restrict Seller or its affiliates from offering employment to or hiring any New Buyer Employee who responds to a generalized solicitation for employment.
(c) Seller shall instruct its officers and directors, and shall cause its affiliates to instruct their officers and directors,
not to directly or indirectly through any other Person (whether as an officer, manager, director, employee, partner, consultant, holder of equity or debt investment, lender or in any other manner or capacity), engage in conduct, oral or otherwise,
that disparages or damages or would reasonably be expected to disparage or damage any of Buyer, it affiliates or any of their respective current or former officers, managers, directors, employees, partners, consultants, agents, representatives,
holders of equity or debt investments, lenders, businesses, activities, operations or reputations.
(d) As a material
inducement to Buyers execution of this Agreement (without such inducement Buyer would not have entered into this Agreement), Seller acknowledges and agrees that the provisions of this
Section
9.9
are reasonable and
necessary to protect the legitimate business interests of Buyer and its acquisition of the Acquired Assets. Seller shall not contest that Buyers remedies at law for any breach or threat of breach by Seller or any of its affiliates of the
provisions of this
Section
9.9
will be inadequate, and that Buyer shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of the provisions of this
Section
9.9
and to enforce specifically such terms and provisions, in addition to any other remedy to which Buyer may be entitled at Law or equity, as well as the costs and attorneys fees it incurs in enforcing the provisions contained in this
Section
9.9
. The covenants contained in this
Section
9.9
are covenants independent of any other provision of this Agreement or any other agreement between the Parties hereunder, and the existence
of any claim Seller may have against Buyer under any other provision of this Agreement or otherwise, shall not constitute a defense to the enforcement of the provisions contained in this
Section
9.9
. Seller further agrees
that should it violate any provisions contained in this
Section
9.9
, the
Non-Compete
Period and the
Non-Solicit
Period, as applicable, shall
extend for an additional time period that is equal to the term of such violation so that Buyer is provided with the full benefit of the restrictive period set forth in this
Section
9.9
.
(e) If any of the provisions contained in this
Section
9.9
shall for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, scope, activity or subject, then such provision shall be construed by limiting and reducing it with respect to such jurisdiction, only to the extent necessary so as to be valid and
enforceable to the extent compatible with the applicable Law of such jurisdiction.
9.10
FDA Letters
. Promptly after the Closing
(but in no event later than two (2) Business Days following the Closing), (a) Seller shall file, or cause to be filed, with the FDA the Seller FDA Letters and provide a copy of
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the
as-filed
Seller FDA Letters to Buyer, and (b) Buyer shall file, or cause to be filed, with the FDA the Buyer FDA Letters and provide a copy of the
as-filed
Buyer FDA Letters to Seller.
9.11
Available Cash
. From the Closing through the
date that is eighteen (18) months after the Closing Date, Seller shall maintain an amount of cash resources sufficient to fund the payment obligations that Seller reasonably determines it expects to be required to make under
Article VI.
ARTICLE X
MISCELLANEOUS
10.1
Certain Definitions
. For the purposes of this Agreement, the term:
Acceptable Confidentiality Agreement
means a
confidentiality agreement that contains terms that are no less favorable in the aggregate to the Seller than those contained in the Confidentiality Agreement;
provided
,
however
, that an Acceptable Confidentiality Agreement
(a) shall not be required to contain standstill provisions, (b) shall not be required to contain
non-solicit
provisions, and (c) shall not restrict Seller from complying with
Section
4.7
.
affiliates
has the meaning set forth in
Rule 12b-2
of the Exchange Act.
AI Approval
means Regulatory Approval by
the FDA of ONIVYDE for an additional indication unrelated to FL Approval and SCL Approval.
Antitrust Laws
means any
antitrust, competition or trade regulation Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening competition through merger or acquisition,
including the HSR Act.
Base Purchase Price
means $575,000,000.
Business Day
means any day that is not a Saturday or Sunday or a day on which banking institutions located in New
York, New York are required by Law to remain closed.
Business Material Adverse Effect
means any Effect that is
materially adverse to (i) the ability of Seller to consummate the transactions contemplated by this Agreement on or before the Outside Date or (ii) the business, financial condition or results of operations of the Commercial Business,
taken as a whole;
provided
,
however
, that a Business Material Adverse Effect shall not include, either alone or in combination, any Effect resulting from or arising out of (and the following will not be taken into account
when determining whether a Business Material Adverse Effect has occurred): (A) the announcement, pendency or consummation of this Agreement or the transactions contemplated hereby, including (1) the identity of, or any facts or
circumstances relating to, Buyer or any of its affiliates or (2) any employee attrition or the loss, diminution or disruption of the Commercial Business or relationships with existing or prospective clients, customers or suppliers, in each case
to the extent resulting from the public announcement of this Agreement or the pendency of the transactions contemplated hereby; (B) any action taken by Seller at the written request of Buyer or with Buyers written consent or any action
specifically required by this Agreement to be taken by Seller, or the failure of Seller to take an action that Seller is specifically prohibited from taking by the terms of this Agreement; (C) any event or occurrence generally affecting the
industries in which the Commercial Business operates or in the economy generally or other general business, financial or market conditions; (D) changes affecting the national or international general economic, political, legal or regulatory
conditions; (E) changes in, compliance with, or action taken for the purpose of complying with any change in, Laws or GAAP (or any interpretation of GAAP) applicable to the Commercial Business; (F) any regulatory or clinical Effect with
respect to any product of any competitor of
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Seller; (G) the failure of Seller or the Commercial Business to meet internal or analysts expectations or projections (it being understood that the Effects giving rise or contributing
to such failure may be taken into account in determining whether there has been a Business Material Adverse Effect if not otherwise excluded by items (A) through (J) hereof); (H) fluctuations in the value of any currency; (I) changes
in the market price or trading volume of Sellers stock (it being understood that the Effects giving rise or contributing to such changes may be taken into account in determining whether there has been a Business Material Adverse Effect if not
otherwise excluded by items (A) through (J) hereof); or (J) national or international political conditions or instability, including the engagement by the United States in hostilities, whether or not pursuant to a declaration of emergency
or war, or the occurrence of any military or terrorist attack upon the United States or any other nation, except, in each of clauses (C), (D), (E), or (J) above, to the extent such Effects have a disproportionate impact on the Commercial
Business, taken as a whole, relative to other comparable businesses in the industry or markets in which the Commercial Business participates.
Buyer Material Adverse Effect
means any Effect that is materially adverse to the business, financial condition or results
of operations of Buyer or on the ability of Buyer to consummate the transactions contemplated by this Agreement on or before the Outside Date.
Buyer Related Parties
means Buyer, the Buyer Subsidiaries and any of their respective former, current or future officers,
directors, partners, stockholders, managers, members and affiliates.
Closing Product Inventory
means a Transferred
Product in a finally packaged form for distribution to end users with all legally required warnings, labeling and packaging, and all outer distribution and transport packaging for the foregoing.
Code
means the Internal Revenue Code of 1986.
Commercially Reasonable Efforts
as used in
Section
1.2(c)
means those commercially reasonable efforts and
resources that are substantially similar to the level of effort and resources used by a pharmaceutical company of similar size and resources to Buyer to accomplish a similar objective under similar circumstances with respect to drugs or drug
candidates of similar commercial potential and is at a similar stage of development or product lifecycle, taking into consideration all relevant factors at the time such efforts are expended, which may include, as applicable, issues of safety and
efficacy, projected costs to Develop such Transferred Product, the competitiveness of alternative Third Party products to such Transferred Product, the patent and other proprietary position of such Transferred Product, the freedom to operate or
other patent or intellectual property infringement concerns, the likelihood of Regulatory Approval, and the expected pricing, sales, reimbursement, financial return, commercial potential and profitability of such Transferred Product. Notwithstanding
anything to the contrary, for purposes of determining Commercially Reasonable Efforts hereunder, Buyer shall not be entitled to take into account any amounts due to Seller pursuant to this Agreement, the License and Collaboration Agreement, the
PharmaEngine Agreement or any other Related Agreement.
Common Stock
means the common stock of Seller, par value $0.01
per share.
Competing Proposal
means any Inquiry made by a Person or group, in a single transaction or series of
related transactions, which is structured (i) to permit such Person or group to acquire beneficial ownership of (A) 20% or more of the consolidated assets of Seller with respect to the Commercial Business, or to which more than 20% of
Sellers revenues on a consolidated basis are attributable with respect to the Commercial Business, or (B) 20% or more of the combined voting securities of Seller, (ii) as any tender offer or exchange offer that if consummated would result
in any Person beneficially owning 20% or more of the combined voting securities of Seller, (iii) as a merger, share exchange, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving
Seller or any of its Subsidiaries in which the other party thereto or its stockholders will own 20% or more of the combined voting securities of the parent entity resulting from any such transaction, or (iv) as any combination of the foregoing
types of transactions if the sum of percentage of the
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consolidated assets, consolidated revenues attributable to the Commercial Business and Sellers voting securities involved is more than 20%; in each case other than transactions contemplated
by this Agreement.
Confidential Material
means (i) with respect to Buyer, all data and information, relating to
the Commercial Business and included within the Acquired Assets or any confidential information disclosed by Buyer to Seller in connection with the transactions contemplated by this Agreement and (ii) with respect to Seller, all data and
information and other confidential information disclosed by Seller to Buyer relating to the Excluded Assets and Excluded Liabilities in connection with the transactions contemplated by this Agreement, in each of
clause (i)
and
(ii)
without regard to form or medium, including, without limitation, all technical or nontechnical data and information, trade secrets, personnel data, works of authorship,
know-how,
Intellectual
Property, business concepts, research study, plans, systems, methods and information, financial data, information and plans, and information relating to actual or prospective customers, clients, franchises, suppliers, distributors, resellers,
licensees, licensors, vendors, contractors, consultants, officers, directors or employees, whether prepared by Seller or any other Person. Confidential Material shall not include any data or information that (w) the disclosing Party proves was
either in the public domain prior to the date hereof or subsequently came into the public domain by means other than an unauthorized disclosure or a breach of this Agreement, (x) was lawfully received by the disclosing Party from a Third Party
without any obligation of confidentiality to such Third Party or any other Person, (y) was disclosed by the
non-disclosing
Party to a Third Party without any restrictions on confidentiality, or
(z) was independently created by the disclosing Party without access to Confidential Material from the
non-disclosing
party;
provided
that notwithstanding the foregoing, all data and information
relating to the Commercial Business or included within the Acquired Assets shall be Confidential Material of Buyer.
Contract
means any contract, agreement, license, sublicense, indenture, instrument, commitment and any other legally
binding agreement, whether written or oral.
Develop
,
Developed
or
Development
means all activities reasonably relating to research,
non-clinical,
preclinical and clinical trials, toxicology testing, statistical analysis and reporting, preparation and submission of applications or other
filings to a Regulatory Authority to obtain Regulatory Approval for the applicable Transferred Product, and as used in
Section 1.2(c)
in each case as a condition to or in support of obtaining Regulatory Approval for one or more of the
Milestone Events.
Effect
means any event, occurrence, change, development or effect.
Encumbrance
means any charge, claim, condition, equitable interest, lien, encumbrance, option, pledge, security interest,
hypothecation, mortgage, right of first refusal, or any restriction on use, voting, transfer, receipt of income, right of
set-off,
title retention, or exercise of any other attribute of ownership.
ERISA Affiliate
means any entity that is a member of (i) a controlled group of corporations (as defined in
Section 414(b) of the Code), (ii) a group of trades or businesses under common control (as defined in Section 414(c) of the Code), or (iii) an affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes Seller.
Escrow Agent
means JPMorgan Chase
Bank, N.A.
Escrow Agreement
means that certain escrow agreement, dated as of the Closing Date, by and among Buyer,
Seller and the Escrow Agent in substantially the form attached hereto as
Exhibit K
.
Escrow Amount
means, as of
the Closing Date, the greater of: (i) $3,000,000; and (ii) the amount by which the Estimated Net Working Capital exceeds the Target Net Working Capital;
provided
that in no event shall the Escrow Amount exceed $10,000,000.
Exchange Act
means the Securities Exchange Act of 1934.
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Expert
means the Chicago, Illinois office of Grant Thornton, or if such firm
is unable or unwilling to act in such capacity, the Expert will be such other firm selected by agreement of Buyer and Seller;
provided
, that if Buyer and Seller are unable to agree on an Expert within thirty (30) days after delivery of
an Objection Notice, either Seller or Buyer may request the American Arbitration Association to appoint, within ten (10) Business Days from the date of such request, a nationally recognized registered public accounting firm or certified public
accountant with significant arbitration experience related to purchase price adjustment disputes.
FL Approval
means
Regulatory Approval by the FDA of ONIVYDE: (i) for the treatment of metastatic adenocarcinoma of the pancreas as first-line treatment, in combination with fluorouracil and leucovorin (with or without oxaliplatin), or (ii) for the treatment
of metastatic adenocarcinoma of the pancreas as first-line treatment, in combination with gemcitabine and abraxane, or (iii) for the treatment of metastatic adenocarcinoma of the pancreas as first-line treatment obtained following submission
and filing of Regulatory Approval by Buyer (or, for the avoidance of doubt, its affiliates, licensees, sublicensees or transferees) for purposes of commercialization by Buyer (or, for the avoidance of doubt, its affiliates, licensees, sublicensees
or transferees), excluding, for the avoidance of doubt, any Regulatory Approval received by any Person without a contractual relationship (other than NDAs, MTAs and CTAs) with Buyer. The FL Approval shall specifically exclude labeling based on
findings derived from clinical trials in individuals who progress after adjuvant or neoadjuvant gemcitabine-containing therapy and restricted to post-adjuvant use of ONIVYDE in combination with fluorouracil and leucovorin in patients who are unfit
for acknowledged
standard-of-care
first-line treatment.
GAAP
means generally accepted accounting principles in the United States.
GAAP Consistently Applied
means GAAP applied on a basis consistent with the accounting methodologies, practices, estimation
techniques, assumptions and principles used by Seller as of the date hereof and the principles set forth on
Section 1.2(e)
of the Seller Disclosure Letter.
Good Clinical Practices
means the FDAs standards for the design, conduct, performance, monitoring, auditing,
recording, analysis and reporting of clinical trials as set forth in 21 C.F.R. Parts 50, 54 and 56 and applicable guidance documents, as well as similar applicable standards in foreign jurisdictions.
Indebtedness
means, with respect to any Person, any principal, interest, premiums or other obligations of such Person
(excluding accrued expenses and trade payables), whether or not contingent: (a) in respect of notes payable, accrued interest payable or other obligations for borrowed money, whether secured or unsecured; (b) evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (c) in respect of bankers acceptances; (d) representing capital lease obligations; (e) representing the balance deferred and
unpaid of the purchase price of any property or services due more than one year after such property is acquired or such services are completed; (f) representing any hedging obligations, if and to the extent any of the preceding items (other
than letters of credit and hedging obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP; (g) in respect of accrued bonuses owed to Business Employees with respect to the 2016
calendar year; or (h) all prepayment premiums, penalties, costs and/or expenses related to any items of Indebtedness of the type referred to in clauses (a) through (g) above that would be required to be paid as a result of the transactions
contemplated hereby or to extinguish the Indebtedness as of immediately prior to the Closing. In addition, the term Indebtedness includes all Indebtedness of others secured by a lien on any asset of the specified Person (whether or not
such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person.
Intellectual Property
means all rights of every kind and description throughout the world, whether registered or
unregistered, including all rights pertaining to or deriving from: (a) trademarks, trade dress, service marks, certification marks, logos, brands, slogans, design rights, names, corporate names, trade names, Internet domain names, social media
accounts and addresses and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing; (b) Patents; (c) copyrights and copyrightable subject
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matter; (d) rights in any computer software or firmware (whether in source code, object code or other form), algorithms, data files, databases, compilations and data technology supporting
the foregoing, and all documentation, including user manuals and training materials, related to any of the foregoing; (e) trade secrets (including those trade secrets defined in the Uniform Trade Secrets Act and under corresponding foreign
statutory Law and common law), and all other
non-public
confidential or proprietary information,
know-how,
clinical data,
non-clinical
data,
pre-clinical
data,
in-vitro
data, inventions, processes, formulae, models, and methodologies, excluding
Patents, and rights to limit the use or disclosure thereof by any Person; (f) inventions, invention disclosures, discoveries and improvements, whether or not patentable; and (g) all applications, registrations, and renewals for the
foregoing in any jurisdiction throughout the world.
IRS
means the Internal Revenue Service.
Law
means (i) any statute, code, rule, regulation, ordinance, rule of common law, requirement or other pronouncement
of any Governmental Entity having the effect of law and (ii) any binding guidance document with regard to drug approval requirements.
Liability
means any debt, obligation, duty or liability of any nature (including unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious, derivative, joint, several or secondary liability), regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet
prepared in accordance with GAAP and regardless of whether such debt, obligation, duty or liability is immediately due and payable.
LIBOR
means the London Interbank Offered Rate.
License and Collaboration Agreement
means the License and Collaboration Agreement by and among Baxter International, Inc.,
Baxter Healthcare Corporation, Baxter Healthcare SA (collectively
Shire
) and Seller, dated as of September 23, 2014.
Milestone Event
means each of the FL Approval, SCL Approval and AI Approval.
MM-436
means the generic version of doxorubicin hydrochloride (HCl) liposome
injection that is being Developed in connection with the Commercial Business.
Net Working Capital
means, as of any
date, the amount by which (a) the Acquired Assets that are current assets (including the net realizable value of commercially saleable inventory units held at zero GAAP book value (valued at units multiplied by the 2016 average
standard cost of such recorded unit), but excluding any Closing Product Inventory with a shelf life of less than eleven (11) months from the Closing Date, any account receivables that are greater than seventy-five (75) days outstanding,
cash and cash equivalents) exceed (b) the Assumed Liabilities that are current liabilities, excluding, in each case, deferred revenue and any items constituting Indebtedness, calculated in accordance with the sample calculation of
Net Working Capital set forth in
Section 1.2(e)
of the Seller Disclosure Letter and GAAP Consistently Applied.
One
Kendall Property
means that certain real property located at One Kendall Square, Cambridge, Massachusetts.
ONIVYDE
means the liposomal encapsulation of irinotecan, also known as
MM-398,
that
is marketed and sold in connection with the Commercial Business under New Drug Application 207793.
Orders
means all
orders, rulings, judgments, settlements, arbitration awards or decrees of any Governmental Entity (or any agreement entered into or any administrative, judicial or arbitration award with any Governmental Entity).
ordinary course
means the ordinary course of the Commercial Business consistent with past practice.
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Patents
means patents and patent applications, design patents and
applications, provisionals, utility models and any and all related national or international counterparts thereto, including any divisionals, continuations,
continuations-in-part,
continued prosecution, reissues, reexaminations, substitutions and extensions thereof (including supplementary protection certificates, requests
for, and grants of, continued examination, post-grant confirmations or amendments, counterparts claiming priority from any of the foregoing; and any patents or patent applications that claim priority to or from any of the foregoing) and all rights
to claim priority arising from or related to any of the foregoing.
Permitted Encumbrance
means: (i) Encumbrances
for Taxes, assessments and governmental charts or levies either not yet due and payable or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP;
(ii) Encumbrances for mechanics, carriers, workmens, warehousemans, repairmens, materialmens or other similar liens that are not yet due and payable or that are being contested in good faith by appropriate
proceedings; (iii) Encumbrances for pledges and deposits to secure the performance of bids, trade contracts, leases, surety and appeal bonds, performance bonds and other obligations of a similar nature, in each case in the ordinary course of
the Commercial Business; (iv) defects, imperfections or irregularities in title, easements, covenants and rights of way (unrecorded and of record) and other similar restrictions, and zoning, building and other similar codes or restrictions, in
each case that do not adversely affect in any material respect the current use of the applicable property owned, leased, used or held for use by the Commercial Business or the Acquired Assets; (v) statutory or contractual liens of landlords
under leases pursuant to which Seller is a lessee and not in material default; (vi) liens arising solely by action of Buyer; and (vii) licenses or sublicenses of the Transferred IP that are set forth on
Section 2.9(b)
of the Seller
Disclosure Letter.
Person
shall mean any individual, corporation, limited liability company, partnership, joint
venture, estate, trust, association, unincorporated organization, other form of entity, of whatever nature, or Governmental Entity.
PharmaEngine Agreement
means the Assignment, Sublicense and Collaboration Agreement, dated May 5, 2011, between
PharmaEngine, Inc. and Seller.
Post-Closing Tax Period
means a Tax period that begins after the Closing Date and the
portion of a Straddle Period that begins after the Closing Date.
Pre-Closing
Tax
Period
means a Tax period that ends on or before the Closing Date and the portion of a Straddle Period ending on and including the Closing Date.
Proxy Statement
means a proxy statement to be sent to the stockholders of Seller (together with any amendments or
supplements thereto) with respect to the Seller Special Meeting.
Regulatory Approval
means, with respect to a
pharmaceutical product in a country or jurisdiction, any approval, registration, clearance, license or authorization that is required by the applicable Regulatory Authority to manufacture, market, promote and sell such pharmaceutical product in such
country or jurisdiction.
Release
means the release, spill, leak, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the indoor or outdoor environment.
Representatives
means,
when used with respect to Buyer or Seller, the directors, officers, employees, consultants, financial advisors, accountants, legal counsel, investment bankers, lenders and other agents, advisors and representatives of Buyer or Seller, as applicable,
and their respective Subsidiaries.
SCL Approval
means Regulatory Approval by the FDA of ONIVYDE for the treatment of
small cell lung cancer after failure of first-line chemotherapy.
SEC
means the United States Securities and Exchange
Commission.
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Seller Board Recommendation
means the recommendation of the Seller Board that
the stockholders of Seller vote in favor of approval of the sale of the Acquired Assets pursuant to this Agreement and the transaction contemplated hereby.
Seller Group
means Seller and each Subsidiary of Seller that owns or has right or title to the Acquired Assets.
Seller Intervening Event
means an Effect occurring or arising after the date hereof, which Effect becomes known to the
Seller Board prior to the Closing.
Seller Special Meeting
means the meeting of the holders of Common Stock for the
purpose of seeking the Seller Stockholder Approval, including any postponement or adjournment thereof.
Seller Stockholder
Approval
means the affirmative vote of the holders of a majority of the outstanding Common Stock entitled to vote upon the adoption of this Agreement at the Seller Special Meeting.
Shared Contracts
means any Contract entered into prior to the Closing to which any member of the Seller Group is a party
that related to both the Commercial Business and any other business of Seller other than the Commercial Business.
Shire
shall have the meaning set forth in the definition of License and Collaboration Agreement.
Subsidiaries
means all those corporations, associations or other business entities of which the entity in question
(a) owns or controls a majority of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which a majority of the outstanding equity securities is owned directly or indirectly by its parent
(provided, there shall not be included any such entity the equity securities of which are owned or controlled in a fiduciary capacity), (b) in the case of partnerships, serves as a general partner, (c) in the case of a limited liability
company, serves as a managing member, or (d) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof.
Superior Proposal
means any
bona fide
written Competing Proposal that (a) is on terms that the Seller Board
determines (after consultation with its outside counsel and independent financial advisors) are more beneficial and favorable to Sellers stockholders from the financial point of view, taking into account such factors as the Seller Board
considers in good faith to be appropriate (including the terms and conditions of such offer, identity of the Person or group making such offer, the existence of any financing conditions, the conditionality of any financing commitments and the
likelihood and timing of consummation), than this Agreement (including any changes in the terms of this Agreement proposed by Buyer to Seller in writing in response to such Competing Proposal or otherwise), and (b) which the Seller Board has
determined in its good faith judgment (after consultation with Sellers outside counsel and independent financial advisors) and after taking into account such factors as the Seller Board considers in good faith to be appropriate, is reasonably
likely to be consummated (if accepted), except that the references to 20% in the definition of Competing Proposal shall be deemed to be references to 50%.
Target Net Working Capital
means $12,000,000.
Tax Returns
means all reports, returns, declarations, statements, forms or other information required to be supplied to a
Governmental Entity in connection with Taxes, including amendments thereto.
Taxes
means (a) all taxes, including
income, gross receipts, capital gain, ad valorem, value-added, goods and services, excise, escheat, real property, personal property, sales, use, transfer, withholding, employment and franchise taxes or other similar charges imposed by the United
States of America or any state, local or foreign government, or any agency thereof, or other political subdivision of the United States or any such government,
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and any interest, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof and (b) any liability
for any item described in clause (a) of another natural person, corporation, limited liability company, association, partnership, not for profit entity, other form of business, or Governmental Entity, whether by Contract or express or implied
agreement, pursuant to any applicable Law, as a transferee or successor, or otherwise.
Third Party
means any Person
other than the Parties or any of their respective Subsidiaries and affiliates.
Transferred Product Records
means
collectively all (i) regulatory and other reports (including pharmacovigilance reports), information on adverse events, correspondence, official contact regulatory reports and minutes with any Governmental Entity, pricing studies and all price
reporting files of any Governmental Entity existing since the launch of the Transferred Products, any documents (including, without limitation, laboratory, clinical and
pre-clinical
animal study data) relating
to the Transferred Registrations or to the subject matter of the Transferred Registrations, in each case to the extent relating exclusively to any Transferred Product or the Commercial Business, (ii) development data (of any kind) from
discovery through to submission (raw data, stability, validation, quality by design work) for drug substance through to final drug product, all analytical methods development and validation, (iii) manufacturing data (of any kind),
manufacturing facility and quality control lab commissioning and validation protocols and reports, (iv) facility and equipment detailed drawings, all equipment maintenance and calibration data, and (v) records relating to the filing,
prosecution, issuance, maintenance, enforcement or defense of the Transferred IP, in the case of
clauses (i)
-
(v)
that are owned or controlled by or otherwise in the possession of Seller as of the Closing Date and except to the extent
included in and primarily related to any Excluded Assets or Excluded Liabilities.
Transferred Products
means ONIVYDE
and
MM-436.
Transferred Registrations
means all product and marketing
registrations and applications, pending or issued, for the Transferred Products (which shall include all FDA and other U.S. and
non-U.S.
regulatory approvals and licenses related to, and all related
applications and other information submitted for the purposes of or prepared in connection with obtaining the approval for, a product candidate), including the registrations and/or applications listed or described on
Section 1.1(a)(ii)
of the
Seller Disclosure Letter.
WARN
means the Worker Adjustment and Retraining Notification Act of 1988.
10.2
Terms Defined Elsewhere
. The following terms are defined elsewhere in this Agreement, as indicated below:
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2017 Bonuses
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9.3(a)
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Acquired Assets
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1.1(a)
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Aggregate Threshold
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6.5(b)(ii)
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Agreed Amount
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6.3(b)
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Agreement
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Preamble
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Antitrust Approvals
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4.3(b)
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Applicable Cap Amount
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6.5(b)(i)
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Assigned Contracts
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1.1(a)(iii)
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Assumed Liabilities
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1.1(c)
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Assumption Agreements
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1.1(c)
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Bill of Sale
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1.3(b)(iii)
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Business Benefit Plans
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2.16(a)
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Business Employee
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9.3(a)
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Buyer
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Preamble
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Buyer FDA Letters
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5.3(d)
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Buyer Group
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1.1(a)
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Buyer Indemnified Parties
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6.1
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Buyer Plans
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9.3(a)
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Claim Notice
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6.3(b)
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Claimed Amount
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6.3(b)
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Closing
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1.3(a)
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Closing Date
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1.3(a)
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Closing Net Working Capital
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1.4(a)
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Closing Statement
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1.4(a)
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COBRA
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9.3(f)
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Commercial Business
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Introduction
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Commercial Business Balance Sheet Date
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2.5(b)
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Confidentiality Agreement
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4.2
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Contingent Payment
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1.2(b)
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CTAs
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2.9(b)
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Damages
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6.1
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DOJ
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4.3(a)
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Domain Name Assignment Agreement
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1.3(b)(vi)
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Downward Adjustment Amount
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1.4(c)(i)
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Draft Allocation
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8.5
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Electronic Delivery
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10.7
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Employee Benefit Plan
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2.16(a)
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Employment Practices
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2.15(b)
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Environmental Laws
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2.19
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Environmental Permits
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2.19
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ERISA
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2.16(a)
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Estimated Net Working Capital
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1.2(e)
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Excluded Assets
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1.1(b)
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Excluded Liabilities
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1.1(d)
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FDA
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2.13(b)
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Final Allocation
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8.5
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Final Net Working Capital
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1.4(b)(iv)
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FSA Balances
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9.3(a)
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FSA Participants
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9.3(a)
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FTC
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4.3(a)
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Fundamental Representations
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6.4(a)
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Governmental Entity
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2.4(b)
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Hazardous Substances
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2.19
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Healthcare Laws
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2.13(a)
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HSR Act
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2.4(b)
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Indemnified Party
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6.3(a)
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Indemnifying Party
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6.3(a)
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Inquiry
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4.7(a)
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IP Assignment Agreements
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1.3(b)(vii)
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IP License Agreement
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1.3(b)(iv)
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Lease
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2.8(b)
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Leased Real Property
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2.8(b)
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Material Contract
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2.10(a)
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Material Customers
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2.11
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Material Suppliers
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2.11
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New Buyer Employee
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9.3(a)
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Non-Compete
Period
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9.9(a)
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Non-Contingent
Bonuses
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9.3(c)
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Non-Solicit
Period
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9.9(b)
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Objection Notice
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1.4(b)(i)
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Outside Date
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7.1(d)(ii)
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Parties
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Preamble
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Party
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Preamble
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Patent Assignment Agreement
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1.3(b)(v)
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Permits
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1.1(a)(iv)
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Pre-Closing
Period
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4.1(a)
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Registered Business IP
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2.9(a)
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Regulatory Authority
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2.13(b)
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Regulatory Filings
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4.3(a)
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Reimbursement Amount
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9.4(c)
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Related Agreements
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2.3
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Restricted Names
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9.5
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Safety Notice
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2.13(d)
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Secured Notes
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4.5
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Seller
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Preamble
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Seller Board
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2.3
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Seller Change of Recommendation
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4.7(a)
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Seller Disclosure Letter
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Article II
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Seller FDA Letters
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5.2(g)
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Seller FSA
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9.3(a)
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Seller Indemnified Parties
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6.2
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Seller Related Parties
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7.2(b)(v)
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Seller SEC Documents
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Article II
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Seller Termination Fee
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7.2(b)(i)
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Seller Trademarks
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9.6
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Shire Milestone Payment
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9.4(a)
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Specified Milestone Payment
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9.4(a)
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Straddle Period
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8.1(b)(i)
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Sublease
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1.3(b)(xi)
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Supply Agreements
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4.6
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Tax Claim
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8.4
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Third Party Claim
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6.3(a)
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Third Party IP
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2.9(b)
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Trademark Assignment Agreement
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1.3(b)(vii)
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Transfer Taxes
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8.1(a)
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Transferred Accounts Receivable
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1.1(a)(xiv)
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Transferred Inventory
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1.1(a)(xi)
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Transferred IP
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1.1(a)(iv)
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Transferred IP Agreements
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2.9(b)
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Transferred IP Documentation
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1.1(a)(vi)
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Transferred Permits
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1.1(a)(iv)
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Transition Services Agreement
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1.3(b)(x)
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Upfront Payment
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1.2(a)
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Upward Adjustment Amount
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1.4(c)(ii)
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10.3
Press Releases and Announcements
. Each Party shall consult with the other Party and give the other
Party a reasonable opportunity to comment on such Partys press release announcing the execution and delivery of this Agreement. No Party shall issue (and each Party shall cause its affiliates not to issue) any press release or public
disclosure relating to the subject matter of this Agreement, or its terms, without the prior written approval of the other Party;
provided
,
however
, that nothing in this
Section
10.3
shall prevent any Party
from (a) making
A-54
any public disclosure it believes in good faith is required by Law, regulation or stock exchange rule (in which case the disclosing Party shall use its commercially reasonable efforts to advise
the other Party prior to making disclosure and the other Party shall have the right to review such press release or announcement prior to its publication) or (b) enforcing its rights hereunder.
10.4
No Third Party Beneficiaries
. Except as provided by applicable Law, this Agreement shall not confer any rights or remedies upon
any Person (including with respect to any employee or former employee of Seller, Buyer or any of its affiliates, any New Buyer Employees and any Business Employees, any right to employment or contractual employment for any specified period) other
than each Party and its respective successors and permitted assigns and, to the extent specified herein, its respective affiliates;
provided
,
however
, that the provisions of
Article VI
are intended for the benefit of the
entities and individuals specified therein and their respective legal representatives, successors and assigns. No provision of this Agreement shall be deemed to be the adoption of, or an amendment to, any employee benefit plan, as that term is
defined in Section 3(3) of ERISA, or otherwise to limit the right of Buyer or Seller to amend, modify or terminate any such employee benefit plan.
10.5
Entire Agreement
. This Agreement (including the documents referred to herein), the Related Agreements and the Confidentiality
Agreement constitute the entire agreement between the Parties with respect to the subject matters hereof and thereof and supersede all other prior agreements (except that the Confidentiality Agreement shall be deemed amended hereby so that until the
termination of this Agreement in accordance with
Section
7.1
, Buyer shall be permitted to take the actions contemplated by this Agreement) and understandings, both written and oral, between the Parties or any of them with
respect to the subject matter hereof and thereof.
10.6
Succession and Assignment
. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by each of the Parties named herein and its respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder (whether by operation
of Law or otherwise) without the prior written consent of the other Party;
provided
, that Buyer may assign the right to acquire certain of the Acquired Assets to one or more of its affiliates prior to the Closing (provided that in connection
with any such assignment, Buyer shall remain primarily liable for such assigned obligations);
provided
,
however
, following the Closing, Buyer may assign and delegate, in whole or in part, its rights and obligations hereunder to either
(i) a wholly-owned Subsidiary of Buyer or (ii) an affiliate under common control with Buyer; and
provided
,
further
,
however
, that no such assignment shall relieve Buyer of any obligation or liability under this
Agreement.
10.7
Counterparts
. This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original but both of which together shall constitute one and the same instrument. This Agreement may be executed and delivered by
e-mail
of a .pdf, .tif, .jpeg or similar attachment (
Electronic
Delivery
), and any such counterparty delivered using Electronic Delivery shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the
original signed version thereof delivered in person.
10.8
Notices
. All notices and other communications under this Agreement
shall, except to the extent expressly provided to be oral, be in writing and shall be deemed duly delivered, given and received as follows: (a) if sent by registered or certified mail in the United States return receipt requested, upon receipt;
(b) if sent designated for overnight delivery by nationally recognized overnight air courier (such as DHL or Federal Express), upon receipt of proof of delivery; (c) if sent by
e-mail
of a .pdf,
.tif, .gif, .jpeg or similar electronic attachment on a Business Day before 5:00 p.m. in the time zone of the receiving Party, when transmitted and the sender has received
non-automated
confirmation of receipt
by the recipient; (d) if sent by
e-mail
of a .pdf, .tif, .gif, .jpeg or similar electronic attachment on a day other than a Business Day or after 5:00 p.m. in the time zone of the receiving Party, and the
sender has received
non-automated
confirmation of receipt by the recipient, no earlier than the following Business Day; and (e) if otherwise actually personally delivered, when received,
A-55
provided that such notices, requests, demands and other communications are delivered to the address set forth below, or to such other address as any Party shall provide by like notice to the
other Parties:
if to Buyer, to:
Ipsen S.A.
65 quai Georges Gorse
92100 Boulogne Billancourt
France
Email:
francois.garnier@ipsen.com
Attn: François Garnier, EVP General Counsel
with a copy (which shall not constitute notice) to:
Dechert LLP
1900 K Street, NW
Washington, DC 20006
Email:
tony.chan@dechert.com
Attn: Tony Chan
If to Seller, to:
Merrimack
Pharmaceuticals, Inc.
One Kendall Square, Suite B7201
Cambridge, MA 02139
Email:
jmunsie@merrimack.com
Attn: Jeffrey A. Munsie, General Counsel
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
500 Boylston Street
Boston, MA
02116
Email: graham.robinson@skadden.com
Attn: Graham Robinson
10.9
Governing Law; Jurisdiction
. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, without giving effect to conflicts of laws principles that would result in the application of the Law of
any other state. Each of the Parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Court of Chancery of the State of Delaware, or, if such court finds it lacks subject matter
jurisdiction, the federal court of the United States of America sitting in Delaware, and any appellate court from any thereof, in any suit, action, legal proceeding or claim arising out of or relating to this Agreement or the agreements delivered in
connection herewith or the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the Parties hereby irrevocably and unconditionally (i) agrees not to commence any such suit,
action, legal proceeding or claim except in the Court of Chancery of the State of Delaware, or, if such court finds it lacks subject matter jurisdiction, the federal court of the United States of America sitting in Delaware, and any appellate court
from any thereof, (ii) agrees that any claim in respect of any such suit, action, legal proceeding or claim may be heard and determined in the Court of Chancery of the State of Delaware, or, if such court finds it lacks subject matter
jurisdiction, the federal court of the United States of America sitting in Delaware, and any appellate court from any thereof, (iii) waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter
have to the laying of venue of any such suit, action, legal proceeding or claim in such courts and (iv) waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such suit, action, legal
proceeding or claim in such courts. Each of the Parties hereto (A) agrees that a final judgment in any such suit, action, legal proceeding or claim shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by Law and
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(B) waives any objection to the recognition and enforcement by a court in other jurisdictions of any such final judgment. Each Party to this Agreement irrevocably consents to service of
process inside or outside the territorial jurisdiction of the courts referred to in this
Section
10.9
in the manner provided for notices in
Section
10.8
. Nothing in this Agreement will affect the
right of any Party to this Agreement to serve process in any other manner permitted by Law.
10.10
Amendments and Waivers
. The
Parties may mutually amend or waive any provision of this Agreement at any time. No amendment or waiver of any provision of this Agreement shall be valid unless the same shall be in writing and signed by each of the Parties. No waiver by either
Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such occurrence. No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof.
10.11
Severability
. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the body making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of
the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.
10.12
Expenses
. Except as otherwise specifically provided to the contrary in this Agreement or any of the Related Agreements, each of
the Parties shall bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, whether or not the Closing takes place, except that Seller and Buyer shall
each bear 50% of (a) any expenses incurred in connection with any documentary, sales, use, real property transfer, real property gains, registration, value-added, transfer, stamp, recording and other similar Taxes; and (b) any fees of the
Escrow Agent for the provision of services under the Escrow Agreement.
10.13
Specific Performance
. Each Party acknowledges and
agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached or are threatened to be breached, and that money
damages or other legal remedies would not be an adequate remedy for any such damages. It is accordingly agreed that prior to the valid termination of this Agreement in accordance with
Section
7.1
, (i) the Parties shall
be entitled to seek (in a court of competent jurisdiction as set forth in
Section
10.9
) an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this
Agreement (including Buyers obligation to effect the Closing), without bond or other security being required, this being in addition to any remedy to which they are entitled under this Agreement, and (ii) the right of specific enforcement
is an integral part of the transactions contemplated by this Agreement and without that right, neither Seller nor Buyer would have entered into this Agreement. Without limiting the generality of the foregoing, it is explicitly agreed that Seller
shall be entitled to an injunction, specific performance or other equitable remedy to specifically enforce Buyers obligation to effect the Closing on the terms and conditions set forth herein in the event that all conditions in
Sections
5.1
and
5.2
have been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the Closing, each of which is then capable of being satisfied at a Closing on such date) at the time when the
Closing would have occurred but for the failure of Buyer to comply with its obligations to effect the Closing pursuant to the terms of this Agreement. Each of Seller and Buyer acknowledges and agrees that following a valid termination of this
Agreement in accordance with
Section
7.1
, each Party shall be entitled to
A-57
seek monetary damages for a willful or intentional breach of this Agreement. In no event shall any Party be responsible and liable for any monetary damages or other amounts under this
Section
10.13
that are special, exemplary or punitive damages.
10.14
Construction
. Except where
expressly stated otherwise in this Agreement, the following rules of interpretation apply to this Agreement: (a) either and or are not exclusive and include, includes and including are
not limiting; (b) hereof, hereto, hereby, herein and hereunder and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement; (c) the word will shall be construed to have the same meaning as the word shall; (d) extent in the phrase to the extent means the degree to which a subject or
other thing extends, and such phrase does not mean simply if; (e) definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (f) references to any Law, Contract, instrument
or other document shall mean such Law, Contract, instrument or other document as amended, supplemented or otherwise modified from time to time, including by succession of comparable successor Laws; (g) references to a person or entity are also
to its permitted successors and assigns; (h) references to an Article, Section, Exhibit, Annex or Schedule refer to an Article or Section of, or an Exhibit, Annex or Schedule to, this
Agreement; (i) references to $ or otherwise to dollar amounts refer to the lawful currency of the United States; (j) unless the context so requires, references to any Laws or specific provisions of Laws shall include any rules,
regulations and delegated legislation issued thereunder; (k) references to any pronoun shall include the corresponding masculine, feminine and neuter forms; and (l) the table of contents and headings set forth in this Agreement are for
convenience of reference purposes only and shall not affect or be deemed to affect in any way the meaning or interpretation of this Agreement or any term or provision hereof. Whenever this Agreement refers to a number of days, such number shall
refer to calendar days unless Business Days are specified, and if any action is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action may be deferred until the next Business Day. The
language used in this Agreement shall be deemed to be the language chosen by the Parties hereto to express their mutual intent, and no rule of strict construction shall be applied against either Party. The Parties agree that they have been
represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any Law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be
construed against the Party drafting such agreement or document.
10.15
Waiver of Jury Trial
. EACH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH AND THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
EITHER OF SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS
SECTION 10.15
.
[
Remainder of page intentionally left blank
]
A-58
The Parties hereto have executed this Agreement as of the date first above written.
|
|
|
MERRIMACK PHARMACEUTICALS, INC.
|
|
|
By:
|
|
/s/ Gary L. Crocker
|
Name:
|
|
Gary L. Crocker
|
Title:
|
|
Interim CEO
|
|
IPSEN S.A.
|
|
|
By:
|
|
/s/ David Meek
|
Name:
|
|
David Meek
|
Title:
|
|
Chief Executive Officer
|
[Signature Page to Asset Purchase and Sale Agreement]
ANNEX B
January 6, 2017
The Board of Directors
Merrimack Pharmaceuticals, Inc.
One Kendall Square, Suite B7201
Cambridge, MA 02139
Members of the Board of Directors:
We understand that Merrimack Pharmaceuticals, Inc. (Merrimack) proposes to enter into an Asset Purchase and Sale Agreement, dated as of
January 7, 2017 (the Agreement), between Merrimack and Ipsen S.A. (Ipsen), pursuant to which, among other things, Merrimack will sell to Ipsen certain assets, and Ipsen will assume certain liabilities, related to
Merrimacks business of developing, manufacturing and commercializing the oncology product Onivyde
®
and the generic Doxil
®
product
MM-436
(the Business and, such sale and assumption, the Transaction), for aggregate consideration of (a) $575,000,000 in cash (the
Up-front
Consideration), subject to a working capital adjustment (as to which adjustment we express no opinion), and (b) the right to receive additional cash payments as follows: (i) the
amounts of the Specified Milestone Payment and the other Shire Milestone Payments (both as defined in the Agreement) paid under that certain License and Collaboration Agreement, by and among Baxter International, Inc., certain of its affiliates and
the Company, dated as of September 23, 2014 (net of the portion of any such payment payable to a third party), less, if the Specified Milestone Payment is paid, the $9,000,000 Ipsen is entitled to receive under the Agreement (the Net
Milestone Payments); (ii) $225,000,000 if the U.S. Food and Drug Administration (FDA) approves Onivyde
®
for the treatment of metastatic adenocarcinoma of the pancreas as
first-line treatment (x) in combination with fluorouracil and leucovorin, (y) in combination with gemcitabine and abraxane, or (z) following submission and filing of FDA approval by Ipsen for purposes of commercialization by Ipsen
(the FL Approval); (iii) $150,000,000 if the FDA approves Onivyde
®
for the treatment of small cell lung cancer after failure of first-line chemotherapy (the SCL
Approval); and (iv) $75,000,000 if the FDA approves Onivyde
®
for an additional indication unrelated to the FL Approval and the SCL Approval (the rights to receive the payments referred
to in (ii) through (iv) upon the occurrence of the Milestone Events giving rise to such payments under the Agreement, the
Earn-Out
Payment Rights, together with the
Up-front
Consideration and the Net Milestone Payments, the Consideration). The terms and conditions of the Transaction are more fully set forth in the Agreement.
You have requested our opinion as to the fairness, from a financial point of view, to Merrimack
of the Consideration to be received by Merrimack in the
Transaction.
In connection with this opinion, we have, among other things:
|
(1)
|
reviewed certain publicly available business and financial information relating to the Business;
|
|
(2)
|
reviewed certain internal financial and operating information with respect to the operations and prospects of the Business furnished to or discussed with us by the management of Merrimack, including certain financial
forecasts for the Business under two separate scenarios, including assessments as to the probability of success of, Onivyde
®
for certain indications and of
MM-436
reflected therein, prepared by the management of Merrimack (such forecasts, Business Forecasts);
|
|
(3)
|
discussed with members of Merrimacks senior management their assessments as to the probability of, the expected timing of, and the excepted amounts of, the Net Milestone Payments and as to the probability of, and
the expected timing of, the occurrence of each of the Milestone Events giving rise to the payments contemplated by the
Earn-out
Payment Rights;
|
|
(4)
|
discussed the past and current business, operations, financial condition and prospects of the Business with members of senior management of Merrimack;
|
|
(5)
|
compared certain financial information of the Business with similar information of companies we deemed relevant;
|
B-1
The Board of Directors
Merrimack Pharmaceuticals, Inc.
Page
2
|
(6)
|
compared certain financial terms of the Transaction to financial terms, to the extent publicly available, of other transactions we deemed relevant;
|
|
(7)
|
considered the results of our efforts on behalf of Merrimack to solicit, at the direction of Merrimack, indications of interest and definitive proposals
from third parties with respect to a possible acquisition
of all or a portion of the Business or any alternative transaction;
|
|
(8)
|
reviewed the Agreement; and
|
|
(9)
|
performed such other analyses and studies and considered such other information and factors as we deemed appropriate.
|
In arriving at our opinion, we have assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other
information and data publicly available or provided to or otherwise reviewed by or discussed with us and have relied upon the assurances of the management of Merrimack that they are not aware of any facts or circumstances that would make such
information or data inaccurate or misleading in any material respect. With respect to the Business Forecasts, we have been advised by Merrimack, and have assumed, that they have been reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the management of Merrimack as to the future financial performance of the Business under the two separate scenarios reflected therein. We have also relied, at the direction of Merrimack, upon the
assessments of senior management of Merrimack as to the probability of, the expected timing of, and the excepted amounts of, the Net Milestone Payments and as to the probability of, and the expected timing of, the occurrence of each of the Milestone
Events giving rise to the payments contemplated by the
Earn-out
Payment Rights. With your consent, our analysis did not take into account the impact of Merrimacks tax net operating losses or Merrimack
being able to forgo a contemplated issuance of equity securities as a result of the Transaction. We have not made or been provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Merrimack or
the Business, nor have we made any physical inspection of the properties or assets of Merrimack or the Business. We have not evaluated the solvency or fair value of Merrimack, the Business or Ipsen under any state, federal or other laws relating to
bankruptcy, insolvency or similar matters. We have assumed, at the direction of Merrimack, that the Transaction will be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement
and that, in the course of obtaining the necessary
governmental, regulatory and other approvals, consents, releases and waivers for the Transaction, no delay, limitation, restriction or condition, including any divestiture requirements or
amendments or modifications, will be imposed that would have an adverse effect on Merrimack, the Business or the contemplated benefits of the Transaction.
We express no view or opinion as to any terms or other aspects of the Transaction (other than the Consideration to the extent expressly specified herein),
including, without limitation, the form or structure of the Transaction or any costs attributable to refinancing any of the Companys existing indebtedness. Our opinion is limited to the fairness, from a financial point of view, to Merrimack of
the Consideration to be received by Merrimack in the Transaction and no opinion or view is expressed with respect to any consideration received in connection with the Transaction by the holders of any class of securities, creditors or other
constituencies of any party. In addition, no opinion or view is expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party
to the Transaction, or class of such persons, relative to the Consideration. Furthermore, no opinion or view is expressed as to the relative merits of the Transaction in comparison to other strategies or transactions that might be available to
Merrimack or with respect to the Business or in which Merrimack might engage or as to the underlying business decision of Merrimack to proceed with or effect the Transaction. We are not expressing any opinion as to the prices at which the common
stock of Merrimack will trade at any time, including following
B-2
The Board of Directors
Merrimack Pharmaceuticals, Inc.
Page
3
announcement or consummation of the Transaction. In addition, we express no opinion or recommendation as to how any stockholder should vote or act in connection with the Transaction or any
related matter.
We have acted as financial advisor to Merrimack in connection with the Transaction and will receive a fee for our services, a portion of
which is payable in connection with/upon the rendering of this opinion and a significant portion of which is contingent upon consummation of the Transaction. In addition, Merrimack has agreed to reimburse our expenses and indemnify us against
certain liabilities arising out of our engagement.
We and our affiliates comprise a full service securities firm and commercial bank engaged in
securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial
advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of our businesses, we and our affiliates may invest on a principal basis or on behalf of customers or
manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of
Merrimack, Ipsen and certain of their respective affiliates.
It is understood that this letter is for the benefit and use of the Board of
Directors of Merrimack (in its capacity as such) in connection with and for purposes of its evaluation of the Transaction.
Our opinion is necessarily
based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to us as of, the date hereof. It should be understood that subsequent developments may affect this opinion, and
we do not have any obligation to update, revise, or reaffirm this opinion. The issuance of this opinion was approved by a fairness opinion review committee of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Based upon and subject to the foregoing, including the various assumptions and limitations set forth
herein, we are of the opinion on the date hereof that the Consideration to be received in the Transaction by Merrimack is fair, from a financial point of view, to Merrimack.
Very truly yours,
|
/s/ Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
|
B-3
ANNEX C
January 6, 2017
The Board of Directors
Merrimack Pharmaceuticals, Inc.
One Kendall Square, Suite B7201
Cambridge, MA 02139
Members of the Board:
You have asked us to advise you with respect to the fairness to Merrimack Pharmaceuticals, Inc. (the Company), from a financial point of view, of
the Consideration (as defined below) to be received by the Company pursuant to the terms of the Asset Purchase and Sale Agreement, to be dated as of January 7, 2017 (the Asset Purchase Agreement), by and between the Company and
Ipsen S.A. (the Acquiror). The Asset Purchase Agreement provides that, among other things, the Company will sell to the Acquiror certain assets, and the Acquiror will assume certain liabilities, related to the Companys business of
developing, manufacturing and commercializing the oncology product Onivyde
®
and the generic Doxil
®
product
MM-436
(the Business and, such sale and assumption, the Transaction), for aggregate consideration of (a) $575,000,000 in cash (the
Up-front
Consideration), subject to a working capital adjustment (as to which adjustment we express no opinion), and (b) the right to receive additional cash payments as follows: (i) the amounts of the Specified Milestone Payment and the
other Shire Milestone Payments (both as defined in the Asset Purchase Agreement) paid under that certain License and Collaboration Agreement, by and among Baxter International, Inc., certain of its affiliates and the Company, dated as of
September 23, 2014 (net of the portion of any such payment payable to a third party), less, if the Specified Milestone Payment is paid, the $9,000,000 the Acquiror is entitled to receive under the Asset Purchase Agreement (the Net
Milestone Payments); (ii) $225,000,000 if the U.S. Food and Drug Administration (FDA) approves Onivyde
®
for the treatment of metastatic adenocarcinoma of the pancreas as
first-line treatment (x) in combination with fluorouracil and leucovorin, (y) in combination with gemcitabine and abraxane, or (z) following submission and filing of FDA approval by the Acquiror for purposes of commercialization by
the Acquiror (the FL Approval); (iii) $150,000,000 if the FDA approves Onivyde
®
for the treatment of small cell lung cancer after failure of first-line chemotherapy (the SCL
Approval); and (iv) $75,000,000 if the FDA approves Onivyde
®
for an additional indication unrelated to the FL Approval and the SCL Approval (the rights to receive the payments referred
to in (ii) through (iv) upon the occurrence of the Milestone Events giving rise to such payments under the Asset Purchase Agreement, the
Earn-Out
Payment Rights, together with the
Up-front
Consideration and the Net Milestone Payments, the Consideration).
In arriving at our opinion, we
have reviewed the Asset Purchase Agreement and certain publicly available business and financial information relating to the Business. We have also reviewed certain other information relating to the Business, including financial forecasts for the
Business under two separate scenarios, including assessments as to the probability of success of, Onivyde
®
for certain indications and of
MM-436
reflected therein, prepared by management of the Company (Business Forecasts), and estimates as to the probability of, and the expected timing and amounts of, the Net Milestone Payments and as to the probability of, and the expected
timing of, the occurrence of each of the Milestone Events giving rise to the payments contemplated by the
Earn-out
Payment Rights (the Earnout Estimates), provided to or discussed with us by the
Company and have met with the Companys management to discuss the Business and prospects of the Business. We have also considered certain financial and stock market data of the Company, and we have compared that data with similar data for other
publicly held companies in businesses we deemed similar to that of the Business and we have considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have recently been
effected. We also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not independently verified any of the foregoing information and have assumed and relied on such information being
complete and accurate in all material respects. With respect to the Business Forecasts, the management of the Company has advised us, and we have assumed, that such forecasts
C-1
Page
2
have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the Companys management as to the future financial performance of the Business
under the two separate scenarios reflected therein. With respect to the Earnout Estimates, the management of the Company has advised us, and we have assumed, that such estimates have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Companys management as to the probability of, and the expected timing and amounts of, the Net Milestone Payments and as to the probability of, and the expected timing of, the occurrence of each of the
Milestone Events giving rise to the payments contemplated by the
Earn-out
Payment Rights. With your consent, our analysis did not take into account the impact of the Companys tax net operating losses or
the Company being able to forgo a contemplated issuance of equity securities as a result of the Transaction. We express no view or opinion with respect to the Business Forecasts or the assumptions upon which they are based and, at the direction of
management of the Company, we have further assumed that such forecasts are a reasonable basis on which to evaluate the Company and the Transaction. We also have assumed, with your consent, that, in the course of obtaining any regulatory or third
party consents, approvals or agreements in connection with the Transaction, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company or the Business, and that the Transaction will be consummated
in accordance with the terms of the Asset Purchase Agreement without waiver, modification or amendment of any material term, condition or agreement thereof. In addition, we have not been requested to make, and have not made, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company or the Business, nor have we been furnished with any such evaluations or appraisals.
Our opinion addresses only the fairness, from a financial point of view, to the Company of the Consideration to be received in the Transaction and does not
address any other aspect or implication of the Transaction or any other agreement, arrangement or understanding entered into in connection with the Transaction or otherwise including, without limitation, the fairness of the amount or nature of, or
any other aspect relating to, any compensation to any officers, directors or employees of any party to the Transaction, or class of such persons, relative to the Consideration or otherwise. In addition, we have not considered and our opinion does
not address any tax consequences attributable to the Transaction or any costs attributable to refinancing any of the Companys existing indebtedness. Furthermore, no opinion, counsel or interpretation is intended regarding matters that require
legal, regulatory, accounting, insurance, tax, executive compensation, environmental or other similar professional advice, including, without limitation, any regulatory or other matters that could affect the Business. We have assumed that the
Company has or will obtain any such advice or opinions from appropriate professional sources. The issuance of this opinion was approved by our authorized internal committee.
Our opinion is necessarily based upon information made available to us as of the date hereof and financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof. We have not undertaken, and are under no obligation, to update, revise, reaffirm or withdraw this opinion, or otherwise comment on or consider events occurring or coming to our attention after the date
hereof. In addition, as you are aware, the Business Forecasts incorporate certain assumptions of management of the Company regarding the probabilities of success for certain of the Companys products for various indications, which assumptions
are subject to significant uncertainty and that, if different than assumed by management of the Company, could have a material impact on our analyses and this opinion. Our opinion does not address the merits of the Transaction as compared to
alternative transactions or strategies that may be available to the Company nor does it address the Companys underlying decision to proceed with the Transaction. We are not expressing any opinion as to the prices at which the common stock of
the Company will trade at any time, including following announcement or consummation of the Transaction.
We have acted as financial advisor to the
Company in connection with the Transaction and will receive a fee for our services, a significant portion of which is contingent upon the consummation of the Transaction. We also became entitled to receive a fee upon the rendering of our opinion. In
addition, the Company has agreed to indemnify us and certain related parties for certain liabilities and other items arising out of or related to our
C-2
Page
3
engagement. We and our affiliates may have in the past provided and in the future may provide investment banking and other financial services to the Company, the Acquiror and their respective
affiliates, for which we and our affiliates have received, and would expect to receive, compensation. We are a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other
financial services. In the ordinary course of business, we and our affiliates may acquire, hold or sell, for our and our affiliates own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including
bank loans and other obligations) of the Company, the Acquiror and any other company that may be involved in the Transaction, as well as provide investment banking and other financial services to such companies.
It is understood that this letter is for the information of the Board of Directors of the Company in connection with its consideration of the Transaction and
does not constitute advice or a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the proposed Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Consideration to be received by the Company in the Transaction is
fair, from a financial point of view, to the Company.
Very truly yours,
|
|
|
CREDIT SUISSE SECURITIES (USA) LLC
|
|
|
By:
|
|
/s/ Jason Truman
|
|
|
Jason Truman
Managing Director
|
C-3
Annex D
Merrimack Pharmaceuticals, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated financial statements are based upon the historical consolidated statements of
Merrimack Pharmaceuticals, Inc. (Merrimack), adjusted to give effect to the sale of Merrimacks business operations and activities involving or relating to developing, manufacturing and commercializing ONIVYDE and
MM-436
(the Commercial Business) in accordance with the Asset Purchase and Sale Agreement dated January 7, 2017 (the Asset Sale Agreement) between Merrimack and Ipsen S.A.
(Ipsen). These unaudited pro forma condensed consolidated financial statements are derived from, and should be read in conjunction with, Merrimacks Annual Report on Form
10-K
for the year
ended December 31, 2015 filed with the United States Securities and Exchange Commission (the SEC) on February 26, 2016 and Quarterly Report on Form
10-Q
for the three months ended
September 30, 2016 filed with the SEC on November 9, 2016.
The unaudited pro forma condensed consolidated balance sheet gives
effect to the proposed asset sale as if it had occurred on September 30, 2016. The cash proceeds and impact of the resulting gain are only included in the September 30, 2016 unaudited pro forma condensed consolidated balance sheet. The
unaudited pro forma condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2016 and the years ended December 31, 2015 and 2014 give effect to the proposed asset sale as if it had
occurred on January 1, 2014. The unaudited pro forma condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2016 and the year ended December 31, 2015 also give effect to the use
of a portion of the proceeds from the proposed asset sale to redeem all $175.0 million aggregate principal amount of Merrimacks senior secured notes due 2022 (the Notes), as if the redemption had occurred on December 22,
2015, which was the issuance date of the Notes.
The pro forma adjustments related to the sale of the Commercial Business are based on
available information and assumptions that management believes are (1) directly attributable to the sale of the Commercial Business; (2) factually supportable; and (3) with respect to the unaudited pro forma condensed consolidated
statements of operations and comprehensive loss, expected to have a continuing impact on consolidated operating results. Certain of the most significant assumptions are set forth under the Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
The pro forma adjustments may differ from those that will be calculated for purposes of reporting discontinued
operations in future filings. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of the results of operations or financial position that might have been achieved for the dates or periods indicated, nor
is it indicative of the results of operations or financial position that may occur in the future. Merrimack cautions stockholders that its future results of operations, including uses of cash and financial position, will significantly differ from
those described in these unaudited pro forma condensed consolidated financial statements, and accordingly, these unaudited pro forma condensed consolidated financial statements should be read in conjunction with the disclosures in the proxy
statement to which they are attached regarding the nature of Merrimacks business following completion of the transactions contemplated by the Asset Sale Agreement.
D-1
Merrimack Pharmaceuticals, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Historical
Merrimack
Pharmaceuticals,
Inc.
|
|
|
Sale of
Commercial
Business
|
|
|
|
|
Pro Forma
Without
Commercial
Business
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,463
|
|
|
$
|
361,922
|
|
|
(a) (b)
|
|
$
|
398,385
|
|
Marketable securities
|
|
|
12,003
|
|
|
|
|
|
|
|
|
|
12,003
|
|
Restricted cash
|
|
|
102
|
|
|
|
|
|
|
|
|
|
102
|
|
Accounts receivable, net
|
|
|
22,170
|
|
|
|
(22,170
|
)
|
|
(c)
|
|
|
|
|
Inventory
|
|
|
14,770
|
|
|
|
(14,770
|
)
|
|
(c)
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
4,109
|
|
|
|
(1,705
|
)
|
|
(c)
|
|
|
2,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
89,617
|
|
|
|
323,277
|
|
|
|
|
|
412,894
|
|
Restricted cash
|
|
|
674
|
|
|
|
|
|
|
|
|
|
674
|
|
Property and equipment, net
|
|
|
17,564
|
|
|
|
(4,402
|
)
|
|
(c)
|
|
|
13,162
|
|
Other assets
|
|
|
27
|
|
|
|
|
|
|
|
|
|
27
|
|
Intangible assets, net
|
|
|
6,922
|
|
|
|
(4,122
|
)
|
|
(c)
|
|
|
2,800
|
|
Goodwill
|
|
|
3,605
|
|
|
|
(3,605
|
)
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
118,409
|
|
|
$
|
311,148
|
|
|
|
|
$
|
429,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
non-controlling
interest and
stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
$
|
49,699
|
|
|
$
|
207,904
|
|
|
(c) (d) (f)
|
|
$
|
257,603
|
|
Deferred revenues
|
|
|
36,610
|
|
|
|
(36,610
|
)
|
|
(c)
|
|
|
|
|
Deferred rent
|
|
|
1,974
|
|
|
|
|
|
|
|
|
|
1,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
88,283
|
|
|
|
171,294
|
|
|
|
|
|
259,577
|
|
Deferred revenues, net of current portion
|
|
|
36,328
|
|
|
|
(36,328
|
)
|
|
(c)
|
|
|
|
|
Deferred rent, net of current portion
|
|
|
3,905
|
|
|
|
|
|
|
|
|
|
3,905
|
|
Deferred tax incentives, net of current portion
|
|
|
165
|
|
|
|
|
|
|
|
|
|
165
|
|
Long-term debt
|
|
|
216,871
|
|
|
|
(169,714
|
)
|
|
(d)
|
|
|
47,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
345,552
|
|
|
|
(34,748
|
)
|
|
|
|
|
310,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
(361
|
)
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value: 10,000 shares authorized at September 30, 2016; no shares
issued or outstanding at September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: 200,000 shares authorized at September 30, 2016; 129,435
shares issued and outstanding at September 30, 2016
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
1,294
|
|
Additional
paid-in
capital
|
|
|
693,449
|
|
|
|
|
|
|
|
|
|
693,449
|
|
Accumulated other comprehensive loss
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
(2
|
)
|
Accumulated deficit
|
|
|
(921,523
|
)
|
|
|
345,896
|
|
|
(d) (e)
|
|
|
(575,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(226,782
|
)
|
|
|
345,896
|
|
|
|
|
|
119,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities,
non-controlling
interest and
stockholders deficit
|
|
$
|
118,409
|
|
|
$
|
311,148
|
|
|
|
|
$
|
429,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial
statements.
D-2
Merrimack Pharmaceuticals, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations and Comprehensive Loss
for the Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Historical
Merrimack
Pharmaceuticals,
Inc.
|
|
|
Sale of
Commercial
Business
|
|
|
|
|
Pro Forma
Without
Commercial
Business
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues, net
|
|
$
|
37,312
|
|
|
$
|
(37,312
|
)
|
|
(g)
|
|
$
|
|
|
License and collaboration revenues
|
|
|
43,062
|
|
|
|
(43,062
|
)
|
|
(g)
|
|
|
|
|
Other revenues
|
|
|
2,659
|
|
|
|
(2,659
|
)
|
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
83,033
|
|
|
|
(83,033
|
)
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
3,593
|
|
|
|
(3,593
|
)
|
|
(g)
|
|
|
|
|
Research and development expenses
|
|
|
105,956
|
|
|
|
(22,543
|
)
|
|
(g)
|
|
|
83,413
|
|
Selling, general and administrative expenses
|
|
|
56,523
|
|
|
|
(33,499
|
)
|
|
(g)
|
|
|
23,024
|
|
Restructuring expenses
|
|
|
809
|
|
|
|
|
|
|
|
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
166,881
|
|
|
|
(59,635
|
)
|
|
|
|
|
107,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(83,848
|
)
|
|
|
(23,398
|
)
|
|
|
|
|
(107,246
|
)
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
258
|
|
|
|
|
|
|
|
|
|
258
|
|
Interest expense
|
|
|
(36,579
|
)
|
|
|
15,648
|
|
|
(h)
|
|
|
(20,931
|
)
|
Other income, net
|
|
|
278
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(119,891
|
)
|
|
|
(7,750
|
)
|
|
|
|
|
(127,641
|
)
|
Net loss attributable to
non-controlling
interest
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Merrimack Pharmaceuticals, Inc.
|
|
$
|
(119,291
|
)
|
|
$
|
(7,750
|
)
|
|
|
|
$
|
(127,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on
available-for-sale
securities
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(119,293
|
)
|
|
$
|
(7,750
|
)
|
|
|
|
$
|
(127,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share available to common stockholdersbasic and diluted
|
|
$
|
(0.96
|
)
|
|
|
|
|
|
|
|
$
|
(1.03
|
)
|
Weighted-average common shares used in computing net loss per share available to common
stockholdersbasic and diluted
|
|
|
123,832
|
|
|
|
|
|
|
|
|
|
123,832
|
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
D-3
Merrimack Pharmaceuticals, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations and Comprehensive Loss
for the Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Historical
Merrimack
Pharmaceuticals,
Inc.
|
|
|
Sale of
Commercial
Business
|
|
|
|
|
Pro Forma
Without
Commercial
Business
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues, net
|
|
$
|
4,328
|
|
|
$
|
(4,328
|
)
|
|
(g)
|
|
$
|
|
|
License and collaboration revenues
|
|
|
84,930
|
|
|
|
(84,930
|
)
|
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
89,258
|
|
|
|
(89,258
|
)
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
46
|
|
|
|
(46
|
)
|
|
(g)
|
|
|
|
|
Research and development expenses
|
|
|
160,988
|
|
|
|
(41,739
|
)
|
|
(g)
|
|
|
119,249
|
|
Selling, general and administrative expenses
|
|
|
57,795
|
|
|
|
(30,536
|
)
|
|
(g)
|
|
|
27,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
218,829
|
|
|
|
(72,321
|
)
|
|
|
|
|
146,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(129,571
|
)
|
|
|
(16,937
|
)
|
|
|
|
|
(146,508
|
)
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
99
|
|
|
|
|
|
|
|
|
|
99
|
|
Interest expense
|
|
|
(19,232
|
)
|
|
|
463
|
|
|
(h)
|
|
|
(18,769
|
)
|
Other income, net
|
|
|
917
|
|
|
|
|
|
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(147,787
|
)
|
|
|
(16,474
|
)
|
|
|
|
|
(164,261
|
)
|
Net income attributable to
non-controlling
interest
|
|
|
170
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Merrimack Pharmaceuticals, Inc.
|
|
$
|
(147,957
|
)
|
|
$
|
(16,474
|
)
|
|
|
|
$
|
(164,431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on
available-for-sale
securities
|
|
|
74
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
74
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(147,883
|
)
|
|
$
|
(16,474
|
)
|
|
|
|
$
|
(164,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share available to common stockholdersbasic and diluted
|
|
$
|
(1.33
|
)
|
|
|
|
|
|
|
|
$
|
(1.48
|
)
|
Weighted-average common shares used in computing net loss per share available to common
stockholdersbasic and diluted
|
|
|
111,356
|
|
|
|
|
|
|
|
|
|
111,356
|
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
D-4
Merrimack Pharmaceuticals, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations and Comprehensive Loss
for the Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Historical
Merrimack
Pharmaceuticals,
Inc.
|
|
|
Sale of
Commercial
Business
|
|
|
|
|
Pro Forma
Without
Commercial
Business
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License and collaboration revenues
|
|
$
|
102,756
|
|
|
$
|
(10,460
|
)
|
|
(g)
|
|
$
|
92,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
102,756
|
|
|
|
(10,460
|
)
|
|
|
|
|
92,296
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
138,495
|
|
|
|
(36,037
|
)
|
|
(g)
|
|
|
102,458
|
|
Selling, general and administrative expenses
|
|
|
30,517
|
|
|
|
(8,768
|
)
|
|
(g)
|
|
|
21,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
169,012
|
|
|
|
(44,805
|
)
|
|
|
|
|
124,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(66,256
|
)
|
|
|
34,345
|
|
|
|
|
|
(31,911
|
)
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
114
|
|
|
|
|
|
|
|
|
|
114
|
|
Interest expense
|
|
|
(18,230
|
)
|
|
|
|
|
|
|
|
|
(18,230
|
)
|
Other income, net
|
|
|
813
|
|
|
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(83,559
|
)
|
|
|
34,345
|
|
|
|
|
|
(49,214
|
)
|
Net loss attributable to
non-controlling
interest
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Merrimack Pharmaceuticals, Inc.
|
|
$
|
(83,291
|
)
|
|
$
|
34,345
|
|
|
|
|
$
|
(48,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on
available-for-sale
securities
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(83,341
|
)
|
|
$
|
34,345
|
|
|
|
|
$
|
(48,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share available to common stockholdersbasic and diluted
|
|
$
|
(0.80
|
)
|
|
|
|
|
|
|
|
$
|
(0.47
|
)
|
Weighted-average common shares used in computing net loss per share available to common
stockholdersbasic and diluted
|
|
|
104,410
|
|
|
|
|
|
|
|
|
|
104,410
|
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
D-5
Merrimack Pharmaceuticals, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
1. Background
On January 7, 2017,
Merrimack Pharmaceuticals, Inc. (Merrimack) entered into an Asset Purchase and Sale Agreement (the Asset Sale Agreement) with Ipsen S.A. (Ipsen). Pursuant to the Asset Sale Agreement, Ipsen will acquire
Merrimacks right, title and interest in the
non-cash
assets, equipment, inventory, contracts and intellectual property primarily related to or used in Merrimacks business operations and activities
involving or relating to developing, manufacturing and commercializing ONIVYDE and
MM-436
(the Commercial Business). Ipsen will not acquire Merrimacks rights to $33.0 million in net
milestone payments that may become payable pursuant to the Baxalta Agreement, among other excluded assets. Pursuant to the Asset Sale Agreement, Ipsen will pay Merrimack $575.0 million in cash (subject to a working capital adjustment as
provided in the Asset Sale Agreement) and will assume certain related liabilities. Following the closing of the asset sale, Merrimack may be entitled to up to $450.0 million of additional payments based on achievement by or on behalf of Ipsen
of certain milestone events related to FDA approval of ONIVYDE for certain indications.
The consummation of the transaction is subject to
customary closing conditions, including, among others: (i) the receipt of the approval of Merrimacks stockholders; (ii) the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976; (iii) the absence of a breach of Merrimacks representations and warranties that would cause a material adverse effect on the Commercial Business; (iv) the absence of a business material adverse effect; and (v) the
performance of certain covenants in all material respects.
The Asset Sale Agreement contains certain termination rights for Merrimack and
Ipsen. Upon termination of the Asset Sale Agreement under specified circumstances, Merrimack would be required to pay Ipsen a termination fee of $25.0 million. This includes where the Asset Sale Agreement is terminated in connection with
Merrimack accepting a superior proposal or because Merrimacks Board of Directors has changed its recommendation of the sale to its stockholders. The termination fee will also be payable if the Asset Sale Agreement is terminated because
Merrimacks stockholders do not vote to adopt the Asset Sale Agreement and, prior to such termination, a proposal to acquire at least 50% of the consolidated assets of Merrimack with respect to the Commercial Business or at least 50% of
Merrimack voting securities has been publicly disclosed and Merrimack enters into a definitive agreement with respect to such proposal within 12 months after such termination, which is subsequently consummated. In addition, Merrimack would be
required to reimburse Ipsen for up to $3.0 million of its
out-of-pocket
expenses incurred in connection with the transaction and the Asset Sale Agreement if the
Asset Sale Agreement is terminated because Merrimack stockholders do not vote to approve it.
In addition to the foregoing termination
rights, and subject to certain limitations, Merrimack or Ipsen may terminate the Asset Sale Agreement if the asset sale is not consummated by June 30, 2017.
Ipsen has also agreed to sublease up to 68,409 square feet of Merrimacks manufacturing facility at the closing of the asset sale. In
addition, at the closing of the asset sale, Merrimack and Ipsen will enter into an intellectual property license agreement pursuant to which Ipsen will grant Merrimack an exclusive license with respect to the portion of the transferred patents
relating to certain liposomal technology and a
non-exclusive
license to the remainder of the transferred patents, in both cases for use outside of the field in which the Commercial Business will operate. In
turn, Merrimack will grant Ipsen a
non-exclusive
license with respect to the remaining patents owned by Merrimack at the closing for use in the field in which the Commercial Business will operate. As neither
the sublease agreement nor the intellectual property license agreement have yet been completed, no related amounts have been included as pro forma adjustments in the unaudited pro forma condensed consolidated financial statements as such pro forma
adjustments are not factually supportable at this time.
D-6
Additionally, Merrimacks senior secured notes due 2022 (the Notes) are
collateralized by substantially all of Merrimacks assets. In connection with the closing of the asset sale, Merrimack will redeem all $175.0 million aggregate principal amount of outstanding Notes at the then applicable redemption price,
plus accrued and unpaid interest to the date of redemption. The current applicable redemption price is equal to 111.5% of the outstanding principal amount of the Notes to be redeemed, plus accrued and unpaid interest to the redemption date.
2. Unaudited Pro Forma Adjustments
The
following pro forma adjustments are included in the unaudited pro forma condensed consolidated balance sheet and/or the unaudited pro forma condensed consolidated statements of operations and comprehensive loss.
|
(a)
|
Reflects the proceeds from the sale of the Commercial Business of $575.0 million, less $195.1 million to extinguish the Notes, $5.9 million of accrued interest as of September 30, 2016 related to the
Notes and $12.1 million of transaction-related expenses.
|
|
(b)
|
In connection with the Asset Sale Agreement, Merrimack intends to enter into an escrow agreement with Ipsen and JPMorgan Chase Bank, N.A. pursuant to which Ipsen will deposit an amount between $3.0 million and
$10.0 million, depending upon the amount by which the purchase price is increased due to the working capital adjustment outlined in the Asset Sale Agreement, into an escrow account for purposes of securing post-closing finalization of any net
working capital adjustment to the purchase price at the closing of the asset sale. As this amount is not determinable at this time, an associated pro forma adjustment has not been included.
|
|
(c)
|
Reflects the elimination of assets and liabilities attributable to the Commercial Business.
|
|
(d)
|
Pursuant to the terms of the Notes, Merrimack is required to repay the $175.0 million aggregate principal amount of Notes outstanding and pay a make-whole premium upon the sale of assets representing collateral for
the Notes. As the sale of the Commercial Business will result in the sale of assets securing the Notes, upon the closing of the asset sale, Merrimack will redeem all $175.0 million aggregate principal amount of outstanding Notes at the then
applicable redemption price, plus accrued and unpaid interest to the date of redemption, with a portion of the proceeds received from Ipsen. Accordingly, Merrimack will pay $195.1 million to redeem the Notes and the associated liability of
$169.7 million will be extinguished, resulting in an overall loss on extinguishment of $25.4 million that is included as adjustment to accumulated deficit. The pro forma adjustment to accrued expenses, accounts payable and other also
includes the removal of $5.9 million of accrued interest as of September 30, 2016 related to the Notes.
|
|
(e)
|
The overall adjustment to accumulated deficit includes the
after-tax
gain on the sale of the Commercial Business of $371.3 million, which is calculated as follows:
|
|
|
|
|
|
(in thousands)
|
|
|
|
Purchase price
|
|
$
|
575,000
|
|
Less transaction-related expenses
|
|
|
(12,083
|
)
|
|
|
|
|
|
Net proceeds
|
|
|
562,917
|
|
Assets of the Commercial Business
|
|
|
(50,774
|
)
|
Liabilities of the Commercial Business
|
|
|
86,738
|
|
|
|
|
|
|
Pre-tax
gain on sale of the Commercial Business
|
|
|
598,881
|
|
Taxes on gain on sale of the Commercial Business at the combined federal and state statutory tax
rate of 38%
|
|
|
(227,574
|
)
|
|
|
|
|
|
After-tax
gain on sale of the Commercial Business
|
|
$
|
371,307
|
|
|
|
|
|
|
D-7
Merrimack expects that the actual cash taxes paid on the gain on sale of the Commercial Business
will be significantly less than the statutory obligation outlined above as Merrimack expects to be able to utilize substantial net operating losses to offset the taxable gain generated by the sale.
|
(f)
|
This figure includes the $227.6 million in taxes payable that arise from the gain on sale of the Commercial Business on a pro forma basis. Merrimack expects that the actual cash taxes paid on the gain on sale of
the Commercial Business will be significantly less than the statutory obligation outlined above as Merrimack expects to be able to utilize substantial net operating losses to offset the taxable gain generated by the sale.
|
|
(g)
|
Reflects the elimination of revenues, cost of revenues, research and development expenses and selling, general and administrative expenses directly attributable to the Commercial Business.
|
|
(h)
|
Reflects the elimination of interest expense attributable to the Notes for the nine months ended September 30, 2016 and the year ended December 31, 2015.
|
|
(i)
|
Merrimack has historically not recognized any income tax benefit related to its net losses because Merrimack maintains a full valuation allowance on its deferred tax assets. A full valuation allowance is maintained, as
future profitability is uncertain. As a result, no income tax benefit is being presented on a pro forma basis.
|
|
(j)
|
The unaudited pro forma condensed consolidated financial statements of operations and comprehensive loss do not reflect the $25.4 million loss on extinguishment of the Notes described in footnote (d), or the
after-tax
gain on sale of the Commercial Business described in footnote (e), as these represent
non-recurring
items that will not have a continuing impact on the consolidated
operating results of Merrimack.
|
D-8
Annex E
Merrimack Pharmaceuticals, Inc.
Unaudited Combined Financial Statements for the Commercial Business
Merrimack Pharmaceuticals, Inc. (Merrimack) has prepared the following unaudited combined financial statements to show the balance
sheets, statements of operations and comprehensive loss and statements of cash flows of Merrimacks business operations and activities involving or relating to developing, manufacturing and commercializing ONIVYDE and
MM-436
(the Commercial Business).
The unaudited combined balance sheets are presented as of
September 30, 2016, December 31, 2015 and December 31, 2014. The unaudited combined statements of operations and comprehensive loss and unaudited combined statements of cash flows are presented for the nine months ended
September 30, 2016 and 2015 and for the years ended December 31, 2015 and 2014. The unaudited combined statements of changes in net parent company investment are presented for the years ended December 31, 2015 and 2014. These
unaudited combined financial statements of the Commercial Business, in the opinion of management, include all necessary adjustments that are necessary for a fair presentation of the financial position and results of operations of the Commercial
Business for the periods presented. The historical financial information presented is not indicative of future performance and does not necessarily reflect what the Commercial Businesss financial position and results of operations would have
been had it operated as an independent, standalone entity for the periods presented. Merrimack believes that the value of the Commercial Business is principally determined by expected future performance rather than the historical performance
reflected in these unaudited combined financial statements, and accordingly, Merrimack cautions stockholders not to place significant reliance on these unaudited combined financial statements and instead to refer to the financial projections
described in the proxy statement to which these are attached.
The unaudited combined financial statements of the Commercial Business
should be read in conjunction with the historical consolidated financial statements and notes thereto included in Merrimacks Annual Report on Form
10-K
for the year ended December 31, 2015 filed
with the United States Securities and Exchange Commission (the SEC) on February 26, 2016 and Quarterly Report on Form
10-Q
for the three months ended September 30, 2016 filed with the SEC
on November 9, 2016.
E-1
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Unaudited Combined Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
6,472
|
|
|
$
|
1,648
|
|
Inventory
|
|
|
3,717
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
1,789
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
11,978
|
|
|
|
2,293
|
|
Property and equipment, net
|
|
|
5,355
|
|
|
|
1,271
|
|
Intangible assets, net
|
|
|
4,555
|
|
|
|
4,925
|
|
Goodwill
|
|
|
3,605
|
|
|
|
3,605
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,493
|
|
|
$
|
12,094
|
|
|
|
|
|
|
|
|
|
|
Liabilities and net parent company investment
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
$
|
16,309
|
|
|
$
|
14,935
|
|
Deferred revenues
|
|
|
50,137
|
|
|
|
59,275
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
66,446
|
|
|
|
74,210
|
|
Deferred revenues, net of current portion
|
|
|
51,197
|
|
|
|
35,682
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
117,643
|
|
|
|
109,892
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Net parent company investment
|
|
|
(92,150
|
)
|
|
|
(97,798
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and net parent company investment
|
|
$
|
25,493
|
|
|
$
|
12,094
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined
financial statements.
E-2
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Unaudited Combined Statements of Operations and Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product revenues, net
|
|
$
|
4,328
|
|
|
$
|
|
|
License and collaboration revenues
|
|
|
84,930
|
|
|
|
10,460
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
89,258
|
|
|
|
10,460
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
46
|
|
|
|
|
|
Research and development expenses
|
|
|
48,754
|
|
|
|
41,054
|
|
Selling, general and administrative expenses
|
|
|
42,364
|
|
|
|
14,100
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
91,164
|
|
|
|
55,154
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes
|
|
|
(1,906
|
)
|
|
|
(44,694
|
)
|
Income tax expense
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(2,361
|
)
|
|
$
|
(44,694
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined
financial statements.
E-3
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Unaudited Combined Statements of Changes in Net Parent Company Investment
|
|
|
|
|
(in thousands)
|
|
|
|
Balance at December 31, 2013
|
|
$
|
(1,278
|
)
|
Net loss
|
|
|
(44,694
|
)
|
Net transfers to parent
|
|
|
(51,826
|
)
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
(97,798
|
)
|
|
|
|
|
|
Net loss
|
|
|
(2,361
|
)
|
Net transfers from parent
|
|
|
8,009
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
(92,150
|
)
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined financial statements.
E-4
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Unaudited Combined Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,361
|
)
|
|
$
|
(44,694
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,054
|
|
|
|
590
|
|
Stock-based compensation expense
|
|
|
4,221
|
|
|
|
2,241
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,824
|
)
|
|
|
(1,648
|
)
|
Prepaid expenses and other current assets
|
|
|
(1,144
|
)
|
|
|
156
|
|
Inventory
|
|
|
(3,717
|
)
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
|
1,374
|
|
|
|
5,684
|
|
Deferred revenues
|
|
|
6,377
|
|
|
|
92,874
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
980
|
|
|
|
55,203
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(4,876
|
)
|
|
|
(1,157
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,876
|
)
|
|
|
(1,157
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net transfers from (to) parent
|
|
|
3,896
|
|
|
|
(54,046
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
3,896
|
|
|
|
(54,046
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined financial statements.
E-5
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Notes to Unaudited Combined Financial Statements
1. Background and Summary of Significant Accounting Policies
Background
On January 7,
2017, Merrimack Pharmaceuticals, Inc. (Merrimack) entered into an Asset Purchase and Sale Agreement (the Asset Sale Agreement) with Ipsen S.A. (Ipsen). Pursuant to the Asset Sale Agreement, Ipsen will acquire
Merrimacks right, title and interest in the
non-cash
assets, equipment, inventory, contracts and intellectual property primarily related to or used in Merrimacks business operations and activities
involving or relating to developing, manufacturing and commercializing ONIVYDE and
MM-436
(the Commercial Business).
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying
unaudited combined financial statements have been prepared on a standalone basis and are derived from Merrimacks consolidated financial statements and accounting records. The unaudited combined financial statements reflect the Commercial
Businesss historical financial position, results of operations and cash flows, in conformity with generally accepted accounting principles in the United States of America (GAAP).
These unaudited combined financial statements include allocations from Merrimack to the Commercial Business for certain research and
development and selling, general and administrative expenses not directly attributable to the Commercial Business. The research and development expenses include depreciation and other facility-based expenses, medical and regulatory affairs
functions, pharmacovigilance, other infrastructure and management costs supporting multiple projects. The selling, general and administrative expenses include certain services provided by Merrimack, which include, but are not limited to, executive
oversight, treasury, finance, legal, human resources, information technology, investor relations, insurance, employee benefits and incentives and stock-based compensation. These expenses have been allocated to the Commercial Business based on direct
usage or benefit where specifically identifiable, with the remainder allocated primarily based on hours or direct costs. The Commercial Business considers the expense methodology and results to be reasonable for all periods presented. However, the
allocations may not be indicative of the actual expense that would have been incurred had the Commercial Business operated as an independent, standalone entity for the years presented.
Merrimack maintains various benefit and stock-based compensation plans at a corporate level. The Commercial Businesss employees
participate in such programs and a portion of the cost of those plans is included in the Commercial Businesss combined financial statements. However, the unaudited combined balance sheets do not include any equity related to stock-based
compensation plans.
The income tax amounts in these unaudited combined financial statements have been calculated based on a separate
return methodology and presented as if the Commercial Businesss operations were separate taxpayers in the respective jurisdictions.
The Commercial Businesss net parent company investment balance in these unaudited combined financial statements represents the excess of
total assets over total liabilities, including the due to/from balances between the Commercial Business and Merrimack. Net parent company investment is primarily impacted by contributions from Merrimack which are the result of treasury activities
and net funding provided by Merrimack.
Merrimack uses a centralized approach to cash management and financing of its operations and
substantially all cash generated by the Commercial Business is assumed to be remitted to Merrimack. Cash management and financing transactions relating to the Commercial Business are accounted for through Merrimacks net parent
E-6
company investment. Accordingly, none of Merrimacks cash and cash equivalents or marketable securities at the corporate level have been assigned to the Commercial Business in the unaudited
combined financial statements. Merrimacks debt and related interest expense have also not been allocated to the Commercial Business for any of the periods presented as the Commercial Business is not the legal obligor of the debt and
Merrimacks borrowings are not directly attributable to the Commercial Business.
Operating results for the years ended
December 31, 2015 and 2014 are not necessarily indicative of the results that may be expected for any future period. In the opinion of management, the unaudited combined financial statements include all adjustments necessary to present fairly
the financial position and operating results of the Commercial Business for the periods presented.
Segment Information
Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is
available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Commercial Business views its operations and manages its business as one operating segment and the
Commercial Business operates in only one geographic region, the United States of America.
Use of Estimates
The preparation of the unaudited combined financial statements requires the Commercial Business to make estimates and judgments that may affect
the reported amounts of assets, liabilities, revenues, expenses and related disclosures. The Commercial Business bases estimates and judgments on historical experience and on various other factors that it believes to be reasonable under the
circumstances. The most significant estimates in these unaudited combined financial statements include, but may not be limited to, revenue recognition, estimated service periods and services to be completed under a collaboration, estimates used in
accounting for revenue separability and recognition, estimates of discounts and allowances related to commercial sales of ONIVYDE, estimates utilized in the valuation of inventory, useful lives with respect to long-lived assets and intangible
assets, accounting for stock-based compensation, contingencies, intangible assets, goodwill,
in-process
research and development, tax valuation allowances and accrued expenses. The Commercial Businesss
actual results may differ from these estimates under different assumptions or conditions. The Commercial Business evaluates its estimates on an ongoing basis. Changes in estimates are reflected in reported results in the period in which they become
known by the Commercial Businesss management.
Inventory
The Commercial Business values its inventories at the lower of cost or net realizable value. The Commercial Business determines the cost of its
inventories on a
first-in,
first-out
basis. The Commercial Business performs an assessment of the recoverability of capitalized inventory during each reporting period,
and it writes down any excess and obsolete inventories to their realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a component of Cost of revenues.
The Commercial Business capitalizes inventory costs associated with the Commercial Businesss products after regulatory approval when,
based on managements judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Inventory acquired prior to receipt of marketing approval of a product candidate is expensed as research
and development expense as incurred. Inventory that can be used in either the production of clinical or commercial product is expensed as research and development expense when selected for use in a clinical manufacturing campaign.
Shipping and handling costs for product shipments are recorded as incurred as a component of Cost of revenues along with
amortization expense related to definite-lived intangible assets, costs associated with manufacturing the product and any inventory reserves or write-downs.
E-7
Property and Equipment
Property and equipment, including leasehold improvements, are recorded at cost and depreciated when placed into service using the straight-line
method, based on their estimated useful lives as follows:
|
|
|
Asset Classification
|
|
Estimated Useful Life
(in years)
|
Lab equipment
|
|
3 - 7
|
IT equipment
|
|
3 - 7
|
Leaseholds improvements
|
|
Lesser of useful life or lease term
|
Furniture and fixtures
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3 - 7
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Costs for capital assets not yet placed into service have been capitalized as
construction-in-progress
and will be depreciated in accordance with the above guidelines once placed into service. Costs for repairs and maintenance are expensed as
incurred, while major betterments are capitalized. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in earnings.
The Commercial Business reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the
carrying amount of assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flow to the recorded value of the asset. If impairment
is indicated, the asset will be written down to its estimated fair value on a discounted cash flow basis.
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets, including
in-process
research and development
(IPR&D), are evaluated for impairment on an annual basis or more frequently if an indicator of impairment is present. The Commercial Business performs its annual goodwill and IPR&D impairment evaluations on August 31
st
of each year.
When performing an evaluation of goodwill impairment, the Commercial
Business has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative
two-step
impairment test. If the Commercial Business elects this option and finds,
as a result of the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative
two-step
impairment test is required;
otherwise, further testing is not required. This requires the Commercial Business to assess the impact of significant events, milestones and changes to expectations and activities that may have occurred since the last impairment evaluation.
Significant changes to these estimates, judgments and assumptions could materially change the outcome of the impairment assessment. Alternatively, the Commercial Business may elect to not first assess qualitative factors and immediately perform the
quantitative
two-step
impairment test. If such an election occurs, in the first step, the fair value of the Commercial Businesss reporting unit is compared to the carrying value. If the carrying value of
the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units goodwill. If the carrying
value of the reporting units goodwill exceeds the implied fair value, then the Commercial Business would record an impairment loss equal to the difference. As described above, the Commercial Business operates in one operating segment, which is
considered the only reporting unit.
The Commercial Business commences amortization of indefinite-lived intangible assets, such as
IPR&D, once the associated research and development efforts have been completed. The Commercial Business amortizes these product-related intangible assets over their estimated useful lives, and amortization expense is recorded as a component of
Cost of revenues. The Commercial Business amortizes other definite-lived assets, such as core
E-8
technology, over their estimated useful lives as a component of Research and development expenses. Definite-lived intangible assets are evaluated for impairment whenever events or
circumstances indicate that the carrying value may not be fully recoverable.
Accrued Expenses
As part of the process of preparing financial statements, the Commercial Business is required to estimate accrued expenses. This process
involves identifying services that have been performed on the Commercial Businesss behalf and estimating the level of services performed and the associated costs incurred for such services where the Commercial Business has not yet been
invoiced or otherwise notified of actual cost. The Commercial Business records these estimates in its unaudited combined financial statements as of each balance sheet date. Examples of estimated accrued expenses include:
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fees due to contract research organizations in connection with preclinical and toxicology studies and clinical trials;
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fees paid to investigative sites in connection with clinical trials; and
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professional service fees.
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In accruing service fees, the Commercial Business estimates the
time period over which services will be provided and the level of effort in each period. If the actual timing of the provision of services or the level of effort varies from the estimate, the Commercial Business adjusts the accrual accordingly. In
the event that the Commercial Business does not identify costs that have been incurred or it under or overestimates the level of services performed or the costs of such services, its actual expenses could differ from such estimates. The date on
which some services commence, the level of services performed on or before a given date and the cost of such services are often subjective determinations. The Commercial Business prepares its estimates based on the facts and circumstances known to
it at the time and in accordance with GAAP. There have been no material changes in estimates for the periods presented.
Revenue Recognition
The Commercial Business recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery
has occurred or services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured.
Product
Revenues, Net
The Commercial Business sells ONIVYDE to a limited number of specialty pharmaceutical distributors in the United States
(collectively, its Distributors). The Commercial Businesss Distributors subsequently resell the products to healthcare providers. The Commercial Business recognizes revenue on product sales when title and risk of loss have passed
to the Distributor, which is typically upon delivery. Product revenues are recorded net of applicable reserves for discounts and allowances.
In order to conclude that the price is fixed or determinable, the Commercial Business must be able to reasonably estimate its net product
revenues upon delivery to its Distributors. As such, the Commercial Business estimates its net product revenues by deducting from its gross product revenues trade allowances, estimated contractual discounts, estimated Medicaid rebates, estimated
reserves for product returns and estimated costs of other incentives offered to patients.
These discounts and allowances are based on
estimates of the amounts earned or to be claimed on the related sales. The Commercial Businesss estimates take into consideration its historical experience, current contractual and statutory requirements, specific known market events and
trends, industry data and forecasted
E-9
Distributor buying and payment patterns. Actual amounts may ultimately differ from the Commercial Businesss estimates. If actual results vary, the Commercial Business will adjust these
estimates, which could have an effect on earnings in the period of adjustment.
Product revenue reserves and allowances that reduce gross
revenue are categorized as follows:
Trade Allowances:
The Commercial Business pays fees to its Distributors for providing certain
data to the Commercial Business as well as for maintaining contractual inventory and service levels. These trade allowances are recorded as a reduction to accounts receivable on the unaudited combined balance sheet at the time revenue is recognized.
Rebates and Chargeback Discounts:
The Commercial Business is subject to discount obligations under state Medicaid programs and the
Public Health Service 340B Drug Pricing Program, contracts with Federal government entities purchasing via the Federal Supply Schedule and various private organizations, such as group purchasing organizations (collectively, its Third-party
Payors). The Commercial Business estimates the rebates and chargeback discounts it will provide to Third-party Payors, based upon its estimated payor mix, and deducts these estimated amounts from its gross product revenues at the time revenue
is recognized. Chargeback discounts are processed when the Third-party Payor purchases the product at a discount from the Distributor, who then in turn charges back to the Commercial Business the difference between the price initially paid by the
Distributor and the discounted price paid by the Third-party Payor. These chargeback discounts are recorded as a reduction to accounts receivable on the unaudited combined balance sheet at the time revenue is recognized. Rebates that are invoiced
directly to the Commercial Business are recorded as accrued liabilities on the unaudited combined balance sheet at the time revenue is recognized.
Product Returns:
An allowance for product returns is established for returns expected to be made by Distributors and is recorded at the
time revenue is recognized, resulting in a reduction to product sales. In accordance with contractual terms, Distributors have the right to return unopened and undamaged product that is within a permissible number of months before and after the
products expiration date, subject to contractual limitations. The Commercial Business has the ability to monitor inventory levels and the shelf life of product at Distributors and can contractually control the amount of inventory that is sold
to Distributors. Based on inventory levels held by Distributors and the structure of the Commercial Businesss distribution model, the Commercial Business has concluded that it has the ability to reasonably estimate product returns at the time
revenue is recognized. The Commercial Businesss estimated rate of return is based on historical rates of return for comparable oncology products.
Other Incentives:
The Commercial Business offers
co-pay
mitigation support to commercially
insured patients. The Commercial Businesss
co-pay
mitigation program is intended to reduce each participating patients portion of the financial responsibility for a products purchase price to
a specified dollar amount. Based upon the terms of the Commercial Businesss
co-pay
mitigation program, the Commercial Business estimates average
co-pay
mitigation
amounts in order to establish a reserve for
co-pay
mitigation claims and deducts these estimated amounts from its gross product revenues at the later of the date that (i) the revenues are recognized or
(ii) the incentive is offered. Claims under the Commercial Businesss
co-pay
mitigation program are subject to expiration.
License and Collaboration Revenues
The
Commercial Business enters into biopharmaceutical product development agreements with collaborative partners for the research and development of therapeutic and diagnostic products. The terms of the agreements may include nonrefundable signing and
licensing fees, funding for research, development and manufacturing, milestone payments and royalties or profit-sharing on any product sales derived from collaborations. These multiple-element arrangements are analyzed to determine whether the
deliverables can be separated or whether they must be accounted for as a single unit of accounting.
E-10
The revenue recognition guidance related to multiple-element arrangements requires entities to
separate and allocate consideration in a multiple-element arrangement according to the relative selling price of each deliverable. The fair value of deliverables under the arrangement may be derived using a best estimate of selling price if vendor
specific objective evidence and third-party evidence are not available. Deliverables under the arrangement will be separate units of accounting provided that a delivered item has value to the customer on a stand-alone basis and if the arrangement
does not include a general right of return relative to the delivered item and delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor.
In September 2014, the Commercial Business entered into a license and collaboration agreement with Baxter International Inc., Baxter
Healthcare Corporation and Baxter Healthcare SA (the Baxalta Agreement) for the development and commercialization of ONIVYDE outside of the United States and Taiwan (the Licensed Territory). In connection with Baxter
International Inc.s separation of the Baxalta business, the Baxalta Agreement was assigned to Baxalta Incorporated, Baxalta US Inc. and Baxalta GmbH (collectively, Baxalta) during the second quarter of 2015. The Baxalta Agreement
was evaluated under the accounting guidance on revenue recognition for multiple-element arrangements. The Commercial Business determined that the obligations under this agreement represent a single unit of accounting and that the agreement
represents a services agreement. As a result, the Commercial Business has estimated the level of effort expected to be completed as a result of providing the identified deliverables and will recognize revenue related to the agreement based on
proportional performance as effort is completed over the expected services period.
The Commercial Business also entered into a
collaboration agreement with Watson Laboratories, Inc. (Actavis) in November 2013, which was evaluated under the accounting guidance on revenue recognition for multiple-element arrangements. See Note 2, License and Collaboration
Agreements, for additional information. No revenue was recognized under this arrangement during the years ended December 31, 2015 or 2014.
Whenever the Commercial Business determines that an arrangement should be accounted for as a single unit of accounting, it determines the
period over which the performance obligations would be performed and revenue would be recognized. If the Commercial Business cannot reasonably estimate the timing and the level of effort to complete its performance obligations under the arrangement,
then revenue under the arrangement is recognized on a straight-line basis over the period the Commercial Business expects to complete its performance obligations.
The Commercial Businesss collaboration agreements may include additional payments upon the achievement of performance-based milestones.
As milestones are achieved, a portion of the milestone payment, equal to the percentage of the total time that the Commercial Business has performed the performance obligations to date divided by the total estimated time to complete the performance
obligations, multiplied by the amount of the milestone payment, will be recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period. Milestones that are
tied to regulatory approvals are not considered probable of being achieved until such approval is received. Milestones tied to counterparty performance are not included in the Commercial Businesss revenue model until the performance conditions
are met.
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses are comprised of costs incurred in
performing research and development activities, including personnel-related costs, stock-based compensation, facilities, research-related overhead, clinical trial costs, contracted services, research-related manufacturing, license fees and other
external costs. The Commercial Business accounts for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the services have been performed or when the goods have been
received rather than when the payment is made. Research and development expenses incurred in connection with the completion of performance obligations under the Baxalta Agreement are included within research and development expenses.
E-11
Advertising Expenses
In connection with the commercial launch of ONIVYDE on October 22, 2015, the Commercial Business began incurring advertising expenses.
Advertising expenses are expensed as incurred. For the year ended December 31, 2015, advertising expenses totaled $1.0 million.
Stock-Based
Compensation Expense
The Commercial Business accounts for its stock-based compensation awards in accordance with Accounting Standards
Codification (ASC) 718,
Compensation Stock Compensation
. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the unaudited combined statements of
operations and comprehensive loss based on their grant date fair values. For stock options granted to employees, the Commercial Business estimates the grant date fair value of each option award using the Black-Scholes option pricing model. The use
of the Black-Scholes option pricing model requires the Commercial Business to make assumptions with respect to the expected term of the option, the expected volatility of the Commercial Businesss common stock consistent with the expected term
of the option, the risk-free interest rate consistent with the expected term of the option and the expected dividend yield of Merrimacks common stock. Stock-based compensation expense related to employee stock options is measured using the
fair value of the award at the grant date, net of estimated forfeitures, and is adjusted annually to reflect actual forfeitures. Stock-based compensation expense is then recognized on a straight-line basis over the vesting period, which is also the
requisite service period.
Income Taxes
In the Commercial Businesss unaudited combined financial statements, income tax expense and deferred tax balances have been calculated on
a separate return basis although the Commercial Businesss operations have historically been included in the tax returns filed by Merrimack.
The Commercial Business accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities
are recognized for the estimated future tax effects of temporary differences between financial and income tax reporting based upon enacted tax laws. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which
these temporary differences are expected to be recovered or settled. The Commercial Business maintains valuation allowances unless it is more likely than not that some or all or the deferred tax assets will be realized.
The Commercial Business provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions. The
Commercial Business determines whether a position is more likely than not to be sustained upon examination, based upon the technical merits of the position. Any tax position that meets the
more-likely-than-not
recognition threshold is measured and recognized in the unaudited combined financial statements at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The liability relating to uncertain tax
positions is classified as current in the unaudited combined balance sheets to the extent the Commercial Business anticipates making a payment within one year. Potential interest and penalties associated with such uncertain tax positions are
recorded as components of income tax expense. To date, the Commercial Business has not taken any uncertain tax positions or recorded any reserves, interest or penalties.
Concentration of Credit Risk
The
Commercial Business is subject to credit risk from its accounts receivable related to its product sales and collaborators. The Commercial Business evaluates the creditworthiness of each of its customers and has determined that all of its customers
are creditworthy. To date, the Commercial Business has not experienced significant losses with respect to the collection of its accounts receivable. The Commercial Business has no significant
off-balance
sheet
concentrations of credit risk such as foreign currency exchange contracts, option contracts or other hedging arrangements.
E-12
Approximately 93% of gross revenues recognized during the year ended December 31, 2015 were
directly related to the Companys Baxalta Agreement, which is discussed in more detail in Note 2, License and Collaboration Agreements. All revenues recognized during the year ended December 31, 2014 were directly related to
the Baxalta Agreement.
Gross accounts receivable related to each of the Commercial Businesss customers who individually accounted
for 10% or more of total gross accounts receivable as of December 31, 2015 and 2014 consisted of the following:
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December 31,
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|
|
2015
|
|
|
2014
|
|
Baxalta
|
|
|
29
|
%
|
|
|
98
|
%
|
AmerisourceBergen Corporation
|
|
|
29
|
%
|
|
|
|
|
McKesson Corporation
|
|
|
25
|
%
|
|
|
|
|
Cardinal Health, Inc.
|
|
|
16
|
%
|
|
|
|
|
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2014-09,
Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company
to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. This guidance was originally effective for interim and annual periods
beginning after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. Early adoption was originally not permitted. Subsequent to the issuance of ASU
2014-09,
the FASB also issued the following updates related to ASC 606,
Revenue from Contracts with Customers:
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In August 2015, the FASB issued ASU
2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, whereby the effective date for the new
revenue standard was deferred by one year. As a result of ASU
2015-14,
the new revenue standard is now effective for annual periods, and interim periods within those annual periods, beginning after
December 15, 2017, and early adoption is now permitted for annual periods beginning after December 15, 2016, including interim periods within that annual period.
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In March 2016, the FASB issued ASU
2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus
Net), to clarify the implementation guidance on principal versus agent considerations.
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In April 2016, the FASB issued ASU
2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify the
principle for determining whether a good or service is separately identifiable from other promises in the contract and to clarify the categorization of licenses of intellectual property.
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In May 2016, the FASB issued ASU
2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Technical Expedients, to clarify guidance on
transition, determining collectibility,
non-cash
consideration and the presentation of sales and other similar taxes.
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In December 2016, the FASB issued ASU
2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, that allows entities not to
make qualitative disclosures about remaining performance obligations in certain cases, adds disclosure requirements for entities that elect certain optional exemptions and adds twelve additional technical corrections and improvements to the new
revenue standard.
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E-13
The Commercial Business is currently evaluating the potential impact that the adoption of this
guidance and the related transition guidance may have on the combined financial statements, including the adoption method to be utilized.
In March 2016, the FASB issued ASU
2016-09,
Compensation Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting, which simplifies several areas of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either liabilities or equity and
classification of excess tax benefits on the statement of cash flows. This guidance also permits a new entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they
occur. This guidance will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods, and early adoption is permitted. An entity that elects early adoption must
adopt all of the amendments in the same period. The Commercial Business is currently evaluating the potential impact that the adoption of this guidance may have on the combined financial statements.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how entities present certain types of cash transactions in the statement of cash flows. This guidance also clarifies how the predominance
principle should be applied when classifying cash receipts and cash payments that have attributes of more than one class of cash flows. This guidance will be effective for annual reporting periods beginning after December 15, 2017, including
interim periods within those annual reporting periods, and early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Commercial Business does not anticipate a material impact to the
combined financial statements as a result of the adoption of this guidance.
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash, which will required entities to show the change in the total of cash, cash equivalents, restricted cash and restricted cash equivalents
within the statement of cash flows. As a result, entities will no longer separately present transfers between unrestricted cash and restricted cash. This guidance will be effective for annual reporting periods beginning after December 15, 2017,
including interim periods within those annual reporting periods, and early adoption is permitted. The Commercial Business does not anticipate a material impact to the combined financial statements as a result of the adoption of this guidance.
In January 2017, the FASB issued ASU
2017-04,
Intangibles Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, which will eliminate the requirement to calculate the implied fair value of goodwill, commonly referred to as Step 2 in the current goodwill impairment test. An entity will still have
the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance will be effective for annual and interim impairment tests performed in annual reporting periods
beginning after December 15, 2020, and early adoption is permitted for annual or interim impairment tests performed after January 1, 2017. The Commercial Business is currently evaluating the potential impact that the adoption of this
guidance may have on the combined financial statements.
Other accounting standards that have been issued by the FASB or other
standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Commercial Businesss combined financial statements upon adoption.
2. License and Collaboration Agreements
Baxalta
On September 23, 2014, the Commercial Business and Baxalta entered into the Baxalta Agreement for the development and
commercialization of ONIVYDE outside of the Licensed Territory. As part of the Baxalta
E-14
Agreement, the Commercial Business granted Baxalta an exclusive, royalty-bearing right and license under the Commercial Businesss patent rights and
know-how
to develop and commercialize ONIVYDE in the Licensed Territory. Baxalta is responsible for using commercially reasonable efforts to develop, obtain regulatory approvals for and, following regulatory
approval, commercialize ONIVYDE in the Licensed Territory. A joint steering committee comprised of an equal number of representatives from each of Baxalta and the Commercial Business is responsible for approving changes to the global development
plan for ONIVYDE, including all budgets, and overseeing the parties development and commercialization activities with respect to ONIVYDE. Unless otherwise agreed, the Commercial Business will be responsible for conducting all clinical trials
contemplated by the global development plan for ONIVYDE and manufacturing all clinical material needed for such trials. Baxalta also has the option to manufacture ONIVYDE, in which case the Commercial Business will perform a technology transfer of
its manufacturing process to Baxalta.
Under the terms of the Baxalta Agreement, the Commercial Business received a $100.0 million
upfront, nonrefundable cash payment in September 2014. In addition, the Commercial Business is eligible to receive from Baxalta (i) up to an aggregate of $100.0 million upon the achievement of specified research and development milestones,
of which the Commercial Business has received $62.5 million from Baxalta through December 31, 2015, (ii) up to an aggregate of $520.0 million upon the achievement of specified regulatory milestones, of which the Commercial Business
has received $20.0 million from Baxalta through December 31, 2015, and (iii) up to an aggregate of $250.0 million upon the achievement of specified sales milestones. Under the terms of the Baxalta Agreement, the Commercial
Business will bear up to the first $98.8 million of costs related to the development of ONIVYDE for pancreatic cancer patients who have not previously received gemcitabine-based therapy; however, the Commercial Business expects most of these
costs to be offset by payments received upon the achievement of clinical trial-related milestones. The Commercial Business and Baxalta will share equally all other clinical trial costs contemplated by the global development plan. The Commercial
Business is also entitled to tiered, escalating royalties ranging from
sub-teen
double digits to low twenties percentages of net sales of ONIVYDE in the Licensed Territory.
If not terminated earlier by either party, the Baxalta Agreement will expire upon expiration of all royalty and other payment obligations of
Baxalta under the Baxalta Agreement. Either party may terminate the Baxalta Agreement in the event of an uncured material breach by the other party. Baxalta may also terminate the Baxalta Agreement on a
product-by-product,
country-by-country
or
sub-territory-by-sub-territory
basis or in its entirety, for its convenience, upon 180 days prior written notice. In addition, the Commercial Business may
terminate the Baxalta Agreement if Baxalta challenges or supports any challenge of the Commercial Businesss licensed patent rights.
At the inception of the collaboration, the Commercial Business identified the following deliverables as part of the Baxalta Agreement:
(i) license to develop and commercialize ONIVYDE in Baxaltas territories, (ii) discovery, research, development and manufacturing services required to complete ongoing clinical trials related to ONIVYDE, (iii) discovery,
research, development and manufacturing services needed to complete future clinical trials in further indications related to ONIVYDE, (iv) the option to perform a technology transfer of the Commercial Businesss manufacturing process
related to the production of ONIVYDE to Baxalta and (v) participation on the joint steering committee.
The Commercial Business
concluded that none of the deliverables identified at the inception of the collaboration has standalone value from the other undelivered elements. As such, all deliverables represent a single unit of accounting.
The Commercial Business has determined that the collaboration represents a services agreement and as such has estimated the level of effort
expected to be completed as a result of providing the identified deliverables. The Commercial Business will recognize revenue from the nonrefundable upfront payment, forecasted
non-substantive
milestone
payments and estimated payments related to discovery, research, development and technology transfer services based on proportional performance as effort is completed over the expected services
E-15
period, which was estimated as of December 31, 2015 to be substantially complete by June 30, 2020. The Commercial Business will periodically review and, if necessary, revise the
estimated service period related to its collaboration with Baxalta. As of December 31, 2015, the Commercial Business has achieved $62.5 million of the $90.0 million of forecasted
non-substantive
milestones that are included in the Commercial Businesss proportional performance revenue recognition model and $20.0 million of the $530.0 million of substantive milestones that are included in the Baxalta Agreement.
Research, development and regulatory milestones that are considered substantive on the basis of the contingent nature of the milestone will be
recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. All sales milestones will be accounted for in the same manner as royalties and recorded as revenue
upon achievement of the milestone, assuming all other revenue recognition criteria are met.
From the inception of the Baxalta Agreement
through December 31, 2015, the Commercial Business has achieved the following substantive and
non-substantive
milestones:
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In the second quarter of 2015, the European Medicines Agency (EMA) accepted for review a Marketing Authorization Application (MAA) filed by Baxalta for ONIVYDE. As a result of this acceptance,
the Commercial Business recognized $20.0 million of license and collaboration revenue related to a substantive milestone payment owed from Baxalta.
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In August 2015, the Commercial Business achieved a $15.0 million milestone related to the submission of the protocol for the Commercial Businesss Phase 2 clinical trial of ONIVYDE in front-line metastatic
pancreatic cancer. This milestone is a
non-substantive
milestone, and revenue related to the achievement of this milestone will be recognized through the proportional performance revenue recognition model.
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In October 2015, the Commercial Business achieved an additional $47.5 million milestone related to the enrollment of the first patient in a Phase 2 clinical trial of ONIVYDE in front-line pancreatic cancer. This
milestone is a
non-substantive
milestone, and revenue related to the achievement of this milestone will be recognized through the proportional performance revenue recognition model.
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During the years ended December 31, 2015 and 2014, the Commercial Business recognized license and collaboration revenues based on the
following components of the Baxalta Agreement:
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|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Proportional performance revenue recognition model
|
|
$
|
64,930
|
|
|
$
|
10,460
|
|
Substantive milestones
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
84,930
|
|
|
$
|
10,460
|
|
|
|
|
|
|
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|
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|
As of December 31, 2015 and 2014, the Commercial Business maintained the following assets and liabilities
related to the Baxalta Agreement:
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|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Accounts receivable, billed
|
|
$
|
1,336
|
|
|
$
|
|
|
Accounts receivable, unbilled
|
|
|
626
|
|
|
|
1,615
|
|
Deferred revenues
|
|
|
97,365
|
|
|
|
91,156
|
|
Of the $97.4 million of deferred revenue related to the Baxalta Agreement as of December 31, 2015,
$50.1 million is classified as current in the unaudited combined balance sheets based upon the Commercial Businesss estimate of revenue that will be recognized under the proportional performance revenue recognition model as a result of
effort expected to be completed within the next twelve months.
E-16
PharmaEngine
On May 5, 2011, the Commercial Business and PharmaEngine entered into an assignment, sublicense and collaboration agreement (the
PharmaEngine Agreement) under which the Commercial Business reacquired rights in Europe and certain countries in Asia to ONIVYDE. In exchange, the Commercial Business agreed to pay PharmaEngine a nonrefundable, noncreditable upfront
payment of $10.0 million and up to an additional $80.0 million in aggregate development and regulatory milestones and $130.0 million in aggregate sales milestones. PharmaEngine is also entitled to tiered royalties on net sales of
ONIVYDE in Europe and certain countries in Asia. PharmaEngine is not responsible for any future development costs of ONIVYDE except those required specifically for regulatory approval in Taiwan.
On September 22, 2014, the Commercial Business amended the PharmaEngine Agreement to redefine sublicense revenue and reduce the portion
of sublicense revenue that the Commercial Business is required to pay to PharmaEngine. As a result of this amendment, the Commercial Business made a $7.0 million milestone payment to PharmaEngine in September 2014. Additionally, as a result of
this amendment, a previously contingent $5.0 million milestone payment was paid to PharmaEngine in the second quarter of 2015. Prior to the amendment of the PharmaEngine Agreement, this milestone payment was contingent upon the award of certain
specified regulatory designations. These milestone payments were recognized as research and development expense during the year ended December 31, 2014. In July 2015, the Commercial Business made an $11.0 million milestone payment to
PharmaEngine in connection with the EMAs acceptance for review of an MAA for ONIVYDE, which occurred, and was recognized as research and development expense, in the second quarter of 2015.
During the years ended December 31, 2015 and 2014, the Commercial Business recognized research and development expenses of
$11.4 million and $12.6 million, respectively, related to the PharmaEngine Agreement.
In August 2015, the Commercial Business
and PharmaEngine also entered into a commercial supply agreement (the PharmaEngine Supply Agreement) pursuant to which the Commercial Business supplies ONIVYDE bulk drug substance to PharmaEngine. No revenue related to the PharmaEngine
Supply Agreement was recognized during the year ended December 31, 2015.
Actavis
In November 2013, the Commercial Business and Watson Laboratories, Inc. (Actavis) entered into a development, license and supply
agreement (the Actavis Agreement) pursuant to which the Commercial Business will develop, manufacture and exclusively supply the bulk form of doxorubicin hydrochloride (HCl) liposome injection (the Initial Product) to
Actavis. The Actavis Agreement was subsequently amended in January 2015 to transfer certain responsibilities from the Commercial Business to Actavis in exchange for reducing the aggregate milestone payments that the Commercial Business is eligible
to receive by $0.4 million. Under the Actavis Agreement, Actavis is responsible for all costs related to finished product processing and global commercialization. Pursuant to the agreement, additional products may be developed for Actavis in
the future, the identities of which will be mutually agreed upon. The Commercial Business is eligible to receive up to $15.1 million in milestone and development payments, as well as additional reimbursement for specific activities performed by
the Commercial Business at the request of Actavis. The Commercial Business will also receive a
mid-twenties
percentage of net profits on global sales of the Initial Product and any additional products. The
Commercial Business will manufacture and supply the Initial Product to Actavis in bulk form at an agreed upon unit price. As of December 31, 2015, the Commercial Business had received $3.9 million in total milestone and development
payments and reimbursement for specific activities from Actavis.
The Actavis Agreement will expire with respect to the Initial Product
and any additional products developed in the future ten years after Actavis first sale of the applicable product, unless terminated earlier, and will automatically renew for additional two year periods thereafter unless either party provides
notice of
non-renewal.
E-17
Either party may terminate the Actavis Agreement in the event of an uncured material breach or bankruptcy filing by the other party. Actavis may also terminate the Actavis Agreement for
convenience in specified circumstances upon 90 days prior written notice.
The Commercial Business applied revenue recognition
guidance to determine whether the performance obligations under the Actavis Agreement, including the license, participation on steering committees, development services, and manufacturing and supply services could be accounted for separately or as a
single unit of accounting. The Commercial Business determined that these obligations represent a single unit of accounting and will recognize revenue as product is supplied to Actavis. Therefore, the Commercial Business has recorded
$4.0 million and $3.8 million of billed and billable milestones and development expenses related to the Actavis Agreement as deferred revenue as of December 31, 2015 and 2014, respectively. This revenue is expected to be recognized by
the Commercial Business over the ten year period that begins after Actavis first sale of the applicable product under the Actavis Agreement.
3.
Product Revenue Reserves and Allowances
The following table summarizes activity in each of the product revenue reserve and allowance
categories for the year ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Trade
Allowances
|
|
|
Rebates and
Chargeback
Discounts
|
|
|
Product
Returns
|
|
|
Other
Incentives
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Provisions related to sales in the current year
|
|
|
153
|
|
|
|
456
|
|
|
|
32
|
|
|
|
8
|
|
|
|
649
|
|
Adjustments related to sales in the prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credits and payments made
|
|
|
(15
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
138
|
|
|
$
|
362
|
|
|
$
|
32
|
|
|
$
|
8
|
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Fair Value of Financial Instruments
Recurring Fair Value Measurements
The
carrying values of prepaid expenses, accounts receivable, accounts payable and accrued expenses, and other short-term assets and liabilities approximate their respective fair values due to the short-term maturities of these assets and liabilities.
There were no assets or liabilities measured at fair value on a recurring basis as of either December 31, 2015 or 2014.
Non-Recurring
Fair Value Measurements
Certain assets, including
in-process
research and development intangible assets, may be measured at
fair value on a
non-recurring
basis in periods subsequent to initial recognition. No
non-recurring
fair value measurements were required during the years ended
December 31, 2015 or 2014.
5. Inventory
Inventory as of December 31, 2015 consisted of the following:
|
|
|
|
|
(in thousands)
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
900
|
|
Work in process
|
|
|
2,743
|
|
Finished goods
|
|
|
74
|
|
|
|
|
|
|
Total inventory
|
|
$
|
3,717
|
|
|
|
|
|
|
E-18
Inventory acquired prior to receipt of marketing approval of ONIVYDE was expensed as research and
development expense as incurred. The Commercial Business began to capitalize the costs associated with the production of ONIVYDE upon receipt of FDA approval on October 22, 2015.
6. Goodwill and Intangible Assets, Net
As part of the acquisition of Hermes BioSciences, Inc. (Hermes) on October 6, 2009, the Commercial Business recognized
goodwill of $3.6 million and an acquired IPR&D asset of $3.4 million related to a nanotherapeutic that contains a chemotherapy drug. The Commercial Business also acquired intangible assets of $3.2 million related to core
nano-carrier technology. These values were determined at the time of acquisition by estimating the costs to develop the acquired IPR&D into commercially viable products, estimating the net cash flows from such projects and discounting the net
cash flows back to their present values. The probability of success factors and discount rates used for each project considered the uncertainty surrounding the successful development of the acquired IPR&D.
During the fourth quarter of 2015, upon the approval of ONIVYDE by the FDA, the Commercial Business reclassified the acquired IPR&D asset
related to the nanotherapeutic that contains a chemotherapy drug to definite-lived intangible assets and commenced amortization. This definite-lived ONIVYDE intangible asset is amortized on a straight-line basis through 2028.
The core nano-carrier technology intangible asset is being amortized on a straight-line basis over a period of ten years, which is the
Commercial Businesss best estimate of the useful life of this technology.
The Commercial Business has not recorded any impairment
charges related to either goodwill or definite-lived intangible assets during the years ended December 31, 2015 or 2014.
Goodwill
and intangible assets as of December 31, 2015 and 2014 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
(in thousands)
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying Value
|
|
Nano-carrier technology intangible asset
|
|
$
|
3,200
|
|
|
$
|
(1,995
|
)
|
|
$
|
1,205
|
|
ONIVYDE definite-lived intangible asset
|
|
|
3,400
|
|
|
|
(50
|
)
|
|
|
3,350
|
|
Goodwill
|
|
|
3,605
|
|
|
|
|
|
|
|
3,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
10,205
|
|
|
$
|
(2,045
|
)
|
|
$
|
8,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
(in thousands)
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying Value
|
|
Nano-carrier technology intangible asset
|
|
$
|
3,200
|
|
|
$
|
(1,675
|
)
|
|
$
|
1,525
|
|
ONIVYDE IPR&D intangible asset
|
|
|
3,400
|
|
|
|
|
|
|
|
3,400
|
|
Goodwill
|
|
|
3,605
|
|
|
|
|
|
|
|
3,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
10,205
|
|
|
$
|
(1,675
|
)
|
|
$
|
8,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $0.4 million and $0.3 million for the years ended December 31, 2015
and 2014, respectively. The weighted-average remaining amortization period for the Commercial Businesss intangible assets subject to amortization is approximately 10.6 years as of December 31, 2015.
E-19
Future amortization expense for the next five-year period is expected to be as follows:
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2016
|
|
$
|
578
|
|
2017
|
|
|
578
|
|
2018
|
|
|
578
|
|
2019
|
|
|
503
|
|
2020
|
|
|
258
|
|
7. Property and Equipment, Net
Property and equipment, net as of December 31, 2015 and 2014 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Lab equipment
|
|
$
|
2,112
|
|
|
$
|
1,783
|
|
IT equipment
|
|
|
4,382
|
|
|
|
217
|
|
Furniture and fixtures
|
|
|
32
|
|
|
|
32
|
|
Construction in process
|
|
|
546
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, gross
|
|
|
7,072
|
|
|
|
2,215
|
|
Less: Accumulated depreciation
|
|
|
(1,717
|
)
|
|
|
(944
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
5,355
|
|
|
$
|
1,271
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $0.7 million and $0.3 million for the years ended December 31, 2015
and 2014, respectively.
There were no significant losses recognized related to the disposal of property and equipment during the years
ended December 31, 2015 or 2014.
8. Accounts Payable, Accrued Expenses and Other
Accounts payable, accrued expenses and other as of December 31, 2015 and 2014 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Accounts payable
|
|
$
|
1,482
|
|
|
$
|
164
|
|
Accrued goods and services
|
|
|
6,333
|
|
|
|
3,116
|
|
Accrued clinical trial costs
|
|
|
3,634
|
|
|
|
4,888
|
|
Accrued drug purchase costs
|
|
|
840
|
|
|
|
|
|
Accrued milestone payments
|
|
|
|
|
|
|
5,000
|
|
Accrued taxes payable
|
|
|
323
|
|
|
|
|
|
Accrued payroll and related benefits
|
|
|
3,697
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable, accrued expenses and other
|
|
$
|
16,309
|
|
|
$
|
14,935
|
|
|
|
|
|
|
|
|
|
|
9. Stock-Based Compensation
In 2008, Merrimack adopted the 2008 Stock Incentive Plan (as amended, the 2008 Plan) for employees, officers, directors,
consultants and advisors. The 2011 Stock Incentive Plan (the 2011 Plan) became effective upon closing of Merrimacks initial public offering in April 2012. Upon effectiveness of the 2011 Plan, no further awards were available to be
issued under the 2008 Plan. The 2011 Plan is administered by the Board of
E-20
Directors of Merrimack and permits Merrimack to grant incentive and
non-qualified
stock options, stock appreciation rights, restricted stock, restricted
stock units and other stock-based awards. Stock options granted to employees generally vest over a three-year period.
The Commercial
Businesss stock-based compensation has been derived from the equity awards granted by Merrimack to the Commercial Businesss employees. As the stock-based compensation plans are Merrimacks plans, the amounts have been recognized
through net parent company investment on the unaudited combined balance sheets. All shares described herein represent shares of Merrimack.
The fair value of stock options granted to employees of the Commercial Business during the years ended December 31, 2015 and 2014 was
estimated at the date of grant using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Risk-free interest rate
|
|
|
1.6
|
%
|
|
|
1.9
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term
|
|
|
5.9 years
|
|
|
|
5.8 years
|
|
Expected volatility
|
|
|
67.4
|
%
|
|
|
69.4
|
%
|
The Commercial Business uses the simplified method to calculate the expected term as it does not have
sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of stock options granted to its employees. Under this approach, the expected term is calculated to be the average of the
ten-year
contractual term of the option and the weighted-average vesting term of the option, taking into consideration multiple vesting tranches. The computation of expected volatility is based on the historical
volatility of comparable companies from a representative peer group selected based on industry and market capitalization. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock
options. Management estimates expected forfeitures based on historical experience and recognizes compensation costs only for those equity awards expected to vest.
Stock-based compensation expense directly attributable to the Commercial Businesss employees during the years ended December 31,
2015 and 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Research and development expense
|
|
$
|
2,389
|
|
|
$
|
1,454
|
|
Selling, general and administrative expense
|
|
|
1,832
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
4,221
|
|
|
$
|
2,241
|
|
|
|
|
|
|
|
|
|
|
The amounts in the above table do not include stock-based compensation expense allocated to the Commercial
Business from Merrimack, which totaled $1.9 million and $1.1 million for the years ended December 31, 2015 and 2014, respectively.
E-21
The following table summarizes stock option activity during the year ended December 31,
2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Options
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2014
|
|
|
3,234
|
|
|
$
|
4.90
|
|
|
|
6.35
|
|
|
$
|
20,693
|
|
Granted
|
|
|
1,438
|
|
|
$
|
9.69
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(216
|
)
|
|
$
|
3.55
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(140
|
)
|
|
$
|
7.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
4,316
|
|
|
$
|
6.47
|
|
|
|
6.59
|
|
|
$
|
8,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2015
|
|
|
4,201
|
|
|
$
|
6.42
|
|
|
|
6.55
|
|
|
$
|
8,584
|
|
Exercisable at December 31, 2015
|
|
|
2,652
|
|
|
$
|
5.19
|
|
|
|
5.64
|
|
|
$
|
7,621
|
|
The weighted-average grant date fair value of stock options granted during the years ended December 31,
2015 and 2014 was $5.86 and $3.68, respectively.
The aggregate intrinsic value was calculated as the difference between the exercise
price of the stock options and the fair value of the underlying common stock. The aggregate intrinsic value of options exercised during the years ended December 31, 2015 and 2014 was $1.6 million and $1.8 million, respectively.
As of December 31, 2015, there was $9.0 million of total unrecognized stock-based compensation expense related to unvested employee
stock options. The Commercial Business expects to recognize this expense over a weighted-average period of approximately 1.1 years.
10. Income Taxes
During the year ended December 31, 2015, the tax profile of the Commercial Business changed due to the commercial launch of
ONIVYDE, which occurred in October 2015, as well as the recognition for tax purposes of deferred revenue related to the upfront payment received under the Baxalta Agreement. A reconciliation of the Commercial Businesss effective tax rate to
the statutory federal income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Federal income tax at statutory federal rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes
|
|
|
(50.9
|
)
|
|
|
3.3
|
|
Permanent differences
|
|
|
(323.9
|
)
|
|
|
(11.8
|
)
|
Stock-based compensation
|
|
|
(40.4
|
)
|
|
|
(0.8
|
)
|
Tax credits
|
|
|
945.0
|
|
|
|
34.4
|
|
Foreign rate differential
|
|
|
|
|
|
|
(4.8
|
)
|
Alternative minimum tax
|
|
|
(23.9
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
10.9
|
|
Change in valuation allowance
|
|
|
(564.8
|
)
|
|
|
(66.2
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(23.9
|
)%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
E-22
Temporary differences that give rise to significant net deferred tax assets as of
December 31, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
32,214
|
|
|
$
|
60,969
|
|
Capitalized research and development expenses
|
|
|
4,523
|
|
|
|
5,140
|
|
Credit carryforwards
|
|
|
45,778
|
|
|
|
27,758
|
|
Depreciation
|
|
|
70
|
|
|
|
190
|
|
Deferred compensation
|
|
|
3,621
|
|
|
|
2,733
|
|
Deferred revenue
|
|
|
12,194
|
|
|
|
960
|
|
Other temporary differences
|
|
|
15,114
|
|
|
|
5,144
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
113,514
|
|
|
|
102,894
|
|
Valuation allowance
|
|
|
(111,683
|
)
|
|
|
(100,914
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
1,831
|
|
|
|
1,980
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(1,831
|
)
|
|
|
(1,980
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Commercial Business concluded that there are no significant uncertain tax positions requiring recognition
in the unaudited combined financial statements. The Commercial Business has not recognized any interest and penalties historically through December 31, 2015.
At December 31, 2015, net operating loss carryforwards for federal and state income tax purposes of $94.8 million and
$70.0 million, respectively, were attributable to the Commercial Business. Included in the federal and state net operating loss carryforwards is approximately $11.5 million and $11.4 million, respectively, of deduction related to the
exercise of stock options. This amount represents an excess tax benefit, which will be realized when it results in reduction of cash taxes in accordance with ASC 718,
Compensation Stock Compensation
. This excess tax benefit will be
directly credited to additional
paid-in
capital when it is realized. The Commercial Businesss existing federal and state net operating loss carryforwards will expire in years through 2034. The Commercial
Business also has available research and development credits for state income tax purposes of approximately $2.7 million. The state research and development credits will begin to expire in 2026. As of December 31, 2015, the Commercial
Business also had available investment tax credits for state income tax purposes of $0.1 million, which will expire in years through 2018 if unused. In addition, the Commercial Business has federal orphan drug credits of $43.9 million
which begin to expire in 2032.
The Commercial Business has evaluated the positive and negative evidence bearing upon the realizability of
its deferred tax assets, which are comprised principally of net operating loss carryforwards, deferred revenue, capitalized research and development expenses and credit carryforwards. The Commercial Business has incurred cumulative operating losses
to date and, as such, has established a valuation allowance of $111.7 million and $100.9 million as of December 31, 2015 and 2014, respectively. Given that the Commercial Business has continued to incur cumulative operating losses
through September 30, 2016, the Commercial Business continues to conclude that a full valuation allowance against its deferred tax assets is appropriate. The net operating losses and research and development credit carryforwards represent tax
attributes that the Commercial Business would have generated on a standalone basis had the Commercial Business filed separate tax returns. Utilization of the net operating loss and research and development credit carryforwards may be subject to a
substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), due to ownership change limitations that have occurred previously or that could occur in the future. These
ownership changes may limit the amount of net operating loss and research and development credit
E-23
carryforwards that can be utilized annually to offset future taxable income and tax. The Commercial Business has not currently completed an evaluation of ownership changes through
December 31, 2015 to assess whether utilization of the Commercial Businesss net operating loss or research and development credit carryforwards would be subject to an annual limitation under Section 382 of the Internal Revenue Code.
To the extent an ownership change occurs in the future, the net operating loss and credit carryforwards may be subject to limitation.
The
change in the valuation allowance against the deferred tax assets in the years ended December 31, 2015 and 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at
Beginning
of Period
|
|
|
Additions
|
|
|
Deductions
|
|
|
Balance at
End of
Period
|
|
December 31, 2014
|
|
$
|
71,324
|
|
|
$
|
29,590
|
|
|
$
|
|
|
|
$
|
100,914
|
|
December 31, 2015
|
|
|
100,914
|
|
|
|
10,769
|
|
|
|
|
|
|
|
111,683
|
|
11. Related Party Transactions
The Commercial Business has not historically operated as a standalone business and has various relationships with Merrimack whereby Merrimack
provides services to the Commercial Business.
These unaudited combined financial statements include an allocation from Merrimack to the
Commercial Business for certain research and development and selling, general and administrative expenses not directly attributable to the Commercial Business. The research and development expenses include depreciation and other facility-based
expenses, medical and regulatory affairs functions, pharmacovigilance, other infrastructure and management costs supporting multiple projects. The selling, general and administrative expenses include certain services provided by Merrimack, which
include, but are not limited to, executive oversight, treasury, finance, legal, human resources, information technology, investor relations, insurance, employee benefits and incentives and stock-based compensation. Allocated amounts have been
included in research and development expenses and selling, general and administrative expenses in the unaudited combined financial statements. These expenses have been allocated to the Commercial Business based on direct usage or benefit where
specifically identifiable, with the remainder allocated primarily based on hours or direct costs. The Commercial Business considers the expense methodology and results to be reasonable for all periods presented. However, the allocations may not be
indicative of the actual expense that would have been incurred had the Commercial Business operated as an independent, standalone entity for the periods presented. These allocations were reflected as follows in the unaudited combined financial
statements:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Research and development expenses
|
|
$
|
4,466
|
|
|
$
|
3,357
|
|
Selling, general and administrative expenses
|
|
|
13,766
|
|
|
|
6,945
|
|
|
|
|
|
|
|
|
|
|
Total corporate overhead and other allocations from Merrimack
|
|
$
|
18,232
|
|
|
$
|
10,302
|
|
|
|
|
|
|
|
|
|
|
The amounts in the above table include allocated stock-based compensation expense of $1.9 million and
$1.1 million for the years ended December 31, 2015 and 2014, respectively.
12. Commitments and Contingencies
As of December 31, 2015 and 2014, the Commercial Business was not a party to any future firm purchase commitments or lease agreements. In
addition, there were no loss contingencies considered to be reasonably possible as of December 31, 2015 or 2014.
E-24
13. Subsequent Events
Asset Sale
On January 7, 2017,
Merrimack entered into the Asset Sale Agreement with Ipsen. Pursuant to the Asset Sale Agreement, Ipsen will acquire Merrimacks right, title and interest in the Commercial Business. Ipsen will not acquire Merrimacks rights to
$33.0 million in net milestone payments that may become payable pursuant to the Baxalta Agreement, among other excluded assets. Pursuant to the Asset Sale Agreement, Ipsen will pay Merrimack $575.0 million in cash (subject to a working
capital adjustment as provided in the Asset Sale Agreement) and will assume certain related liabilities. Following the closing of the asset sale, Merrimack may be entitled to up to $450.0 million of additional payments based on achievement by
or on behalf of Ipsen of certain milestone events related to FDA approval of ONIVYDE for certain indications.
The consummation of the
transaction is subject to customary closing conditions, including, among others: (i) the receipt of the approval of Merrimacks stockholders; (ii) the expiration or termination of the required waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; (iii) the absence of a breach of Merrimacks representations and warranties that would cause a material adverse effect on the Commercial Business; (iv) the absence of a business
material adverse effect; and (v) the performance of certain covenants in all material respects.
The Asset Sale Agreement contains
certain termination rights for Merrimack and Ipsen. Upon termination of the Asset Sale Agreement under specified circumstances, Merrimack would be required to pay Ipsen a termination fee of $25.0 million. This includes where the Asset Sale
Agreement is terminated in connection with Merrimack accepting a superior proposal or because Merrimacks Board of Directors has changed its recommendation of the sale to its stockholders. The termination fee will also be payable if the Asset
Sale Agreement is terminated because Merrimacks stockholders did not vote to adopt the Asset Sale Agreement and, prior to such termination, a proposal to acquire at least 50% of the consolidated assets of Merrimack with respect to the
Commercial Business or at least 50% of Merrimack voting securities has been publicly disclosed and Merrimack enters into a definitive agreement with respect to such proposal within 12 months after such termination, which is subsequently consummated.
In addition, Merrimack would be required to reimburse Ipsen for up to $3.0 million of its
out-of-pocket
expenses incurred in connection with the transaction and the
Asset Sale Agreement if the Asset Sale Agreement is terminated because Merrimack stockholders do not vote to approve it.
In addition to
the foregoing termination rights, and subject to certain limitations, Merrimack or Ipsen may terminate the Asset Sale Agreement if the asset sale is not consummated by June 30, 2017.
Ipsen has also agreed to sublease up to 68,409 square feet of Merrimacks manufacturing facility at the closing of the asset sale. In
addition, at the closing of the asset sale, Merrimack and Ipsen will enter into an intellectual property license agreement pursuant to which Ipsen will grant Merrimack an exclusive license with respect to the portion of the transferred patents
relating to certain liposomal technology and a
non-exclusive
license to the remainder of the transferred patents, in both cases for use outside of the field in which the Commercial Business will operate. In
turn, Merrimack will grant Ipsen a
non-exclusive
license with respect to the remaining patents owned by Merrimack at the closing for use in the field in which the Commercial Business will operate.
Regulatory Milestones Related to ONIVYDE
In the second quarter of 2016, the South Korean Ministry of Food and Drug Safety (the MFDS) accepted for review a new drug
application filed by Baxalta for ONIVYDE. As a result of this acceptance, the Commercial Business recognized $10.0 million of license and collaboration revenue related to a substantive milestone payment owed from Baxalta. In the fourth quarter
of 2016, the European Commission granted Marketing Authorization to Baxalta for ONIVYDE in combination with
5-FU
and leucovorin for the treatment of adult patients with metastatic adenocarcinoma of the
pancreas who have progressed following gemcitabine-based
E-25
therapy. As a result of this approval and the first commercial sale of ONIVYDE made by Baxalta during the fourth quarter of 2016, the Commercial Business recognized $30.0 million of license
and collaboration revenue related to a substantive milestone payment owed from Baxalta.
In June 2016, the Commercial Business made a
$10.0 million milestone payment to PharmaEngine in connection with the MFDSs acceptance for review of a new drug application for ONIVYDE, which occurred, and was recognized as research and development expense, in the second quarter of
2016. In December 2016, the Commercial Business made a $25.0 million milestone payment to PharmaEngine in connection with Baxaltas receipt of Marketing Authorization from the European Commission for ONIVYDE in combination with
5-FU
and leucovorin for the treatment of adult patients with metastatic adenocarcinoma of the pancreas who have progressed following gemcitabine-based therapy, which occurred, and was recognized as research and
development expense, in the fourth quarter of 2016.
Regulatory Milestones Related to
MM-436
In October 2016, the U.S. Food and Drug Administration accepted for review an Abbreviated New Drug Application filed by Actavis for the Initial
Product, which triggered the payment of $1.1 million of milestones from Actavis to the Commercial Business.
E-26
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Unaudited Condensed Combined Balance Sheets
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
22,170
|
|
|
$
|
6,472
|
|
Inventory
|
|
|
14,770
|
|
|
|
3,717
|
|
Prepaid expenses and other current assets
|
|
|
1,705
|
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
38,645
|
|
|
|
11,978
|
|
Property and equipment, net
|
|
|
4,738
|
|
|
|
5,355
|
|
Intangible assets, net
|
|
|
4,122
|
|
|
|
4,555
|
|
Goodwill
|
|
|
3,605
|
|
|
|
3,605
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
51,110
|
|
|
$
|
25,493
|
|
|
|
|
|
|
|
|
|
|
Liabilities and net parent company investment
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
$
|
20,243
|
|
|
$
|
16,309
|
|
Deferred revenues
|
|
|
36,610
|
|
|
|
50,137
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
56,853
|
|
|
|
66,446
|
|
Deferred revenues, net of current portion
|
|
|
36,328
|
|
|
|
51,197
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
93,181
|
|
|
|
117,643
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Net parent company investment
|
|
|
(42,071
|
)
|
|
|
(92,150
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and net parent company investment
|
|
$
|
51,110
|
|
|
$
|
25,493
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed combined financial statements.
E-27
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Unaudited Condensed Combined Statements of Operations and Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product revenues, net
|
|
$
|
37,312
|
|
|
$
|
|
|
License and collaboration revenues
|
|
|
43,062
|
|
|
|
67,839
|
|
Other revenues
|
|
|
2,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
83,033
|
|
|
|
67,839
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
3,593
|
|
|
|
|
|
Research and development expenses
|
|
|
29,617
|
|
|
|
39,509
|
|
Selling, general and administrative expenses
|
|
|
45,291
|
|
|
|
28,028
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
78,501
|
|
|
|
67,537
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
4,532
|
|
|
|
302
|
|
Income tax expense
|
|
|
950
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Net income and comprehensive income
|
|
$
|
3,582
|
|
|
$
|
270
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed combined financial statements.
E-28
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Unaudited Condensed Combined Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,582
|
|
|
$
|
270
|
|
Adjustments to reconcile net income to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,479
|
|
|
|
640
|
|
Stock-based compensation expense
|
|
|
2,851
|
|
|
|
3,047
|
|
Loss on disposal of property and equipment
|
|
|
227
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(15,698
|
)
|
|
|
(402
|
)
|
Prepaid expenses and other current assets
|
|
|
84
|
|
|
|
(1,701
|
)
|
Inventory
|
|
|
(10,745
|
)
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
|
3,934
|
|
|
|
(185
|
)
|
Deferred revenues
|
|
|
(28,396
|
)
|
|
|
(25,922
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(42,682
|
)
|
|
|
(24,253
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(865
|
)
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(865
|
)
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net transfers from parent
|
|
|
43,547
|
|
|
|
25,857
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
43,547
|
|
|
|
25,857
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed combined financial statements.
E-29
The Commercial Business of Merrimack Pharmaceuticals, Inc.
Notes to Unaudited Condensed Combined Financial Statements
1. Background
On January 7, 2017,
Merrimack Pharmaceuticals, Inc. (Merrimack) entered into an Asset Purchase and Sale Agreement (the Asset Sale Agreement) with Ipsen S.A. (Ipsen). Pursuant to the Asset Sale Agreement, Ipsen will acquire
Merrimacks right, title and interest in the
non-cash
assets, equipment, inventory, contracts and intellectual property primarily related to or used in Merrimacks business operations and activities
involving or relating to developing, manufacturing and commercializing ONIVYDE and
MM-436
(the Commercial Business).
2. Basis of Presentation
The
accompanying unaudited condensed combined financial statements have been prepared on a standalone basis and are derived from Merrimacks consolidated financial statements and accounting records. The unaudited condensed combined financial
statements reflect the Commercial Businesss historical financial position, results of operations and cash flows, in conformity with generally accepted accounting principles in the United States of America (GAAP).
These unaudited condensed combined financial statements include allocations from Merrimack to the Commercial Business for certain research and
development and selling, general and administrative expenses not directly attributable to the Commercial Business. The research and development costs include depreciation and other facility-based expenses, medical and regulatory affairs functions,
pharmacovigilance, other infrastructure and management costs supporting multiple projects. The selling, general and administrative expenses include certain services provided by Merrimack, which include, but are not limited to, executive oversight,
treasury, finance, legal, human resources, information technology, investor relations, insurance, employee benefits and incentives and stock-based compensation. These expenses have been allocated to the Commercial Business based on direct usage or
benefit where specifically identifiable, with the remainder allocated primarily based on hours or direct costs. The Commercial Business considers the expense methodology and results to be reasonable for all periods presented. However, the
allocations may not be indicative of the actual expense that would have been incurred had the Commercial Business operated as an independent, standalone entity for the periods presented.
Merrimack maintains various benefit and stock-based compensation plans at a corporate level. The Commercial Businesss employees
participate in such programs and a portion of the cost of those plans is included in the Commercial Businesss condensed combined financial statements. However, the unaudited condensed combined balance sheets do not include any equity related
to stock-based compensation plans.
The income tax amounts in these unaudited condensed combined financial statements have been calculated
based on a separate return methodology and presented as if the Commercial Businesss operations were separate taxpayers in the respective jurisdictions.
The Commercial Businesss net parent company investment balance in these unaudited condensed combined financial statements represents the
excess of total assets over total liabilities, including the due to/from balances between the Commercial Business and Merrimack. Net parent company investment is primarily impacted by contributions from Merrimack which are the result of treasury
activities and net funding provided by Merrimack.
Merrimack uses a centralized approach to cash management and financing of its
operations and substantially all cash generated by the Commercial Business is assumed to be remitted to Merrimack. Cash management and financing transactions relating to the Commercial Business are accounted for through Merrimacks net parent
company investment. Accordingly, none of Merrimacks cash and cash equivalents or marketable securities at
E-30
the corporate level have been assigned to the Commercial Business in the unaudited condensed combined financial statements. Merrimacks debt and related interest expense have also not been
allocated to the Commercial Business for any of the periods presented as the Commercial Business is not the legal obligor of the debt and Merrimacks borrowings are not directly attributable to the Commercial Business.
Operating results for the nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results that may be
expected for any future period. In the opinion of management, the unaudited condensed combined financial statements include all adjustments necessary to present fairly the financial position and operating results of the Commercial Business for the
periods presented.
3. License and Collaboration Agreements
Baxalta
On September 23, 2014, the
Commercial Business and Baxalta entered into the Baxalta Agreement for the development and commercialization of ONIVYDE outside of the Licensed Territory. As part of the Baxalta Agreement, the Commercial Business granted Baxalta an exclusive,
royalty-bearing right and license under the Commercial Businesss patent rights and
know-how
to develop and commercialize ONIVYDE in the Licensed Territory. Baxalta is responsible for using commercially
reasonable efforts to develop, obtain regulatory approvals for and, following regulatory approval, commercialize ONIVYDE in the Licensed Territory. A joint steering committee comprised of an equal number of representatives from each of Baxalta and
the Commercial Business is responsible for approving changes to the global development plan for ONIVYDE, including all budgets, and overseeing the parties development and commercialization activities with respect to ONIVYDE. Unless otherwise
agreed, the Commercial Business will be responsible for conducting all clinical trials contemplated by the global development plan for ONIVYDE and manufacturing all clinical material needed for such trials. Baxalta also has the option to manufacture
ONIVYDE, in which case the Commercial Business will perform a technology transfer of its manufacturing process to Baxalta.
Under the
terms of the Baxalta Agreement, the Commercial Business received a $100.0 million upfront, nonrefundable cash payment in September 2014. In addition, the Commercial Business is eligible to receive from Baxalta (i) up to an aggregate of
$100.0 million upon the achievement of specified research and development milestones, of which the Commercial Business has received $62.5 million from Baxalta through September 30, 2016, (ii) up to an aggregate of $520.0 million
upon the achievement of specified regulatory milestones, of which the Commercial Business has received $30.0 million from Baxalta through September 30, 2016, and (iii) up to an aggregate of $250.0 million upon the achievement of
specified sales milestones. Under the terms of the Baxalta Agreement, the Commercial Business will bear up to the first $98.8 million of costs related to the development of ONIVYDE for pancreatic cancer patients who have not previously received
gemcitabine-based therapy; however, the Commercial Business expects most of these costs to be offset by payments received upon the achievement of clinical trial-related milestones. The Commercial Business and Baxalta will share equally all other
clinical trial costs contemplated by the global development plan. The Commercial Business is also entitled to tiered, escalating royalties ranging from
sub-teen
double digits to low twenties percentages of net
sales of ONIVYDE in the Licensed Territory.
If not terminated earlier by either party, the Baxalta Agreement will expire upon expiration
of all royalty and other payment obligations of Baxalta under the Baxalta Agreement. Either party may terminate the Baxalta Agreement in the event of an uncured material breach by the other party. Baxalta may also terminate the Baxalta Agreement on
a
product-by-product,
country-by-country
or
sub-territory-by-sub-territory
basis or in its entirety, for its convenience, upon 180 days prior written notice. In
addition, the Commercial Business may terminate the Baxalta Agreement if Baxalta challenges or supports any challenge of the Commercial Businesss licensed patent rights.
At the inception of the collaboration, the Commercial Business identified the following deliverables as part of the Baxalta Agreement:
(i) license to develop and commercialize ONIVYDE in Baxaltas territories,
E-31
(ii) discovery, research, development and manufacturing services required to complete ongoing clinical trials related to ONIVYDE, (iii) discovery, research, development and
manufacturing services needed to complete future clinical trials in further indications related to ONIVYDE, (iv) the option to perform a technology transfer of the Commercial Businesss manufacturing process related to the production of
ONIVYDE to Baxalta and (v) participation on the joint steering committee.
The Commercial Business concluded that none of the
deliverables identified at the inception of the collaboration has standalone value from the other undelivered elements. As such, all deliverables represent a single unit of accounting.
The Commercial Business has determined that the collaboration represents a services agreement and as such has estimated the level of effort
expected to be completed as a result of providing the identified deliverables. The Commercial Business will recognize revenue from the nonrefundable upfront payment, forecasted
non-substantive
milestone
payments and estimated payments related to discovery, research, development and technology transfer services based on proportional performance as effort is completed over the expected services period, which was estimated as of September 30,
2016 to be substantially complete by June 30, 2022. The Commercial Business will periodically review and, if necessary, revise the estimated service period related to its collaboration with Baxalta. As of September 30, 2016, the Commercial
Business has achieved $62.5 million of the $90.0 million of forecasted
non-substantive
milestones that are included in the Commercial Businesss proportional performance revenue recognition
model and $30.0 million of the $530.0 million of substantive milestones that are included in the Baxalta Agreement.
Research,
development and regulatory milestones that are considered substantive on the basis of the contingent nature of the milestone will be recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other
revenue recognition criteria are met. All sales milestones will be accounted for in the same manner as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.
From the inception of the Baxalta Agreement through September 30, 2016, the Commercial Business has achieved the following substantive
and
non-substantive
milestones:
|
|
|
In the second quarter of 2015, the European Medicines Agency (EMA) accepted for review a Marketing Authorization Application (MAA) filed by Baxalta for ONIVYDE. As a result of this acceptance,
the Commercial Business recognized $20.0 million of license and collaboration revenue related to a substantive milestone payment owed from Baxalta.
|
|
|
|
In August 2015, the Commercial Business achieved a $15.0 million milestone related to the submission of the protocol for the Commercial Businesss Phase 2 clinical trial of ONIVYDE in front-line metastatic
pancreatic cancer. This milestone is a
non-substantive
milestone, and revenue related to the achievement of this milestone will be recognized through the proportional performance revenue recognition model.
|
|
|
|
In October 2015, the Commercial Business achieved an additional $47.5 million milestone related to the enrollment of the first patient in a Phase 2 clinical trial of ONIVYDE in front-line pancreatic cancer. This
milestone is a
non-substantive
milestone, and revenue related to the achievement of this milestone will be recognized through the proportional performance revenue recognition model.
|
|
|
|
In the second quarter of 2016, the South Korean Ministry of Food and Drug Safety (the MFDS) accepted for review a new drug application filed by Baxalta for ONIVYDE. As a result of this acceptance, the
Company recognized $10.0 million of license and collaboration revenue related to a substantive milestone payment owed from Baxalta.
|
E-32
During the nine months ended September 30, 2016 and 2015, the Commercial Business recognized
license and collaboration revenues based on the following components of the Baxalta Agreement:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Proportional performance revenue recognition model
|
|
$
|
33,062
|
|
|
$
|
47,839
|
|
Substantive milestones
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,062
|
|
|
$
|
67,839
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016 and December 31, 2015, the Commercial Business maintained the following
assets and liabilities related to the Baxalta Agreement:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Accounts receivable, billed
|
|
$
|
594
|
|
|
$
|
1,336
|
|
Accounts receivable, unbilled
|
|
|
385
|
|
|
|
626
|
|
Deferred revenues
|
|
|
68,944
|
|
|
|
97,365
|
|
Of the $68.9 million of deferred revenue related to the Baxalta Agreement as of September 30, 2016,
$36.6 million is classified as current in the unaudited combined balance sheets based upon the Commercial Businesss estimate of revenue that will be recognized under the proportional performance revenue recognition model as a result of
effort expected to be completed within the next twelve months.
In February 2016, the Commercial Business and Baxalta entered into a
commercial supply agreement (the Baxalta Supply Agreement) pursuant to which the Commercial Business supplies ONIVYDE bulk drug substance to Baxalta and, at Baxaltas option, manages fill and finish activities conducted by a
third-party contract manufacturer for Baxalta. The Commercial Business began supplying bulk drug substance under the Baxalta Supply Agreement during the second quarter of 2016 and recognized $2.4 million of revenue during the nine months ended
September 30, 2016. Revenue and cost of goods sold associated with the Baxalta Supply Agreement are included within Other revenues and Cost of revenues on the unaudited condensed combined statements of operations and
comprehensive loss.
PharmaEngine
On
May 5, 2011, the Commercial Business and PharmaEngine entered into an assignment, sublicense and collaboration agreement (the PharmaEngine Agreement) under which the Commercial Business reacquired rights in Europe and certain
countries in Asia to ONIVYDE. In exchange, the Commercial Business agreed to pay PharmaEngine a nonrefundable, noncreditable upfront payment of $10.0 million and up to an additional $80.0 million in aggregate development and regulatory
milestones and $130.0 million in aggregate sales milestones. PharmaEngine is also entitled to tiered royalties on net sales of ONIVYDE in Europe and certain countries in Asia. PharmaEngine is not responsible for any future development costs of
ONIVYDE except those required specifically for regulatory approval in Taiwan.
On September 22, 2014, the Commercial Business amended
the PharmaEngine Agreement to redefine sublicense revenue and reduce the portion of sublicense revenue that the Commercial Business is required to pay to PharmaEngine. As a result of this amendment, the Commercial Business made a $7.0 million
milestone payment to PharmaEngine in September 2014. Additionally, as a result of this amendment, a previously contingent $5.0 million milestone payment was paid to PharmaEngine in the second quarter of 2015. Prior to the amendment of the
PharmaEngine Agreement, this milestone payment was contingent upon the award of certain specified regulatory designations. These milestone payments were recognized as research and development
E-33
expense during the year ended December 31, 2014. In July 2015, the Commercial Business made an $11.0 million milestone payment to PharmaEngine in connection with the EMAs
acceptance for review of an MAA for ONIVYDE, which occurred, and was recognized as research and development expense, in the second quarter of 2015. In June 2016, the Commercial Business also made a $10.0 million milestone payment to
PharmaEngine in connection with the MFDSs acceptance for review of a new drug application for ONIVYDE, which occurred, and was recognized as research and development expense, in the second quarter of 2016.
During the nine months ended September 30, 2016 and 2015, the Commercial Business recognized research and development expenses of
$10.1 million and $11.4 million, respectively, related to the PharmaEngine Agreement.
In August 2015, the Commercial Business
and PharmaEngine also entered into a commercial supply agreement (the PharmaEngine Supply Agreement) pursuant to which the Commercial Business supplies ONIVYDE bulk drug substance to PharmaEngine. The Commercial Business began supplying
bulk drug substance under the PharmaEngine Supply Agreement in the second quarter of 2016 and has recognized $0.3 million of revenue during the nine months ended September 30, 2016.
Actavis
In November 2013, the Commercial
Business and Watson Laboratories, Inc. (Actavis) entered into a development, license and supply agreement (the Actavis Agreement) pursuant to which the Commercial Business will develop, manufacture and exclusively supply the
bulk form of doxorubicin hydrochloride (HCl) liposome injection (the Initial Product) to Actavis. The Actavis Agreement was subsequently amended in January 2015 to transfer certain responsibilities from the Commercial Business to Actavis
in exchange for reducing the aggregate milestone payments that the Commercial Business is eligible to receive by $0.4 million. Under the Actavis Agreement, Actavis is responsible for all costs related to finished product processing and global
commercialization. Pursuant to the agreement, additional products may be developed for Actavis in the future, the identities of which will be mutually agreed upon. The Commercial Business is eligible to receive up to $15.1 million in milestone
and development payments, as well as additional reimbursement for specific activities performed by the Commercial Business at the request of Actavis. The Commercial Business will also receive a
mid-twenties
percentage of net profits on global sales of the Initial Product and any additional products. The Commercial Business will manufacture and supply the Initial Product to Actavis in bulk form at an agreed upon unit price. As of September 30,
2016, the Commercial Business had received $4.0 million in total milestone and development payments and reimbursement for specific activities from Actavis.
The Actavis Agreement will expire with respect to the Initial Product and any additional products developed in the future ten years after
Actavis first sale of the applicable product, unless terminated earlier, and will automatically renew for additional two year periods thereafter unless either party provides notice of
non-renewal.
Either
party may terminate the Actavis Agreement in the event of an uncured material breach or bankruptcy filing by the other party. Actavis may also terminate the Actavis Agreement for convenience in specified circumstances upon 90 days prior
written notice.
The Commercial Business applied revenue recognition guidance to determine whether the performance obligations under the
Actavis Agreement, including the license, participation on steering committees, development services, and manufacturing and supply services could be accounted for separately or as a single unit of accounting. The Commercial Business determined that
these obligations represent a single unit of accounting and will recognize revenue as product is supplied to Actavis. Therefore, the Commercial Business has recorded $4.0 million of billed and billable milestones and development expenses
related to the Actavis Agreement as deferred revenue as of both September 30, 2016 and December 31, 2015. This revenue is expected to be recognized by the Commercial Business over the ten year period that begins after Actavis first
sale of the applicable product under the Actavis Agreement.
E-34
4. Product Revenue Reserves and Allowances
The following table summarizes activity in each of the product revenue reserve and allowance categories for the nine months ended
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Trade
Allowances
|
|
|
Rebates and
Chargeback
Discounts
|
|
|
Product
Returns
|
|
|
Other
Incentives
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
138
|
|
|
$
|
362
|
|
|
$
|
32
|
|
|
$
|
8
|
|
|
$
|
540
|
|
Provisions related to sales in the current year
|
|
|
1,332
|
|
|
|
4,073
|
|
|
|
278
|
|
|
|
7
|
|
|
|
5,690
|
|
Adjustments related to sales in the prior year
|
|
|
|
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
|
(156
|
)
|
Credits and payments made
|
|
|
(978
|
)
|
|
|
(3,354
|
)
|
|
|
(26
|
)
|
|
|
(7
|
)
|
|
|
(4,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
$
|
492
|
|
|
$
|
925
|
|
|
$
|
284
|
|
|
$
|
8
|
|
|
$
|
1,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Fair Value of Financial Instruments
Recurring Fair Value Measurements
The
carrying values of prepaid expenses, accounts receivable, accounts payable and accrued expenses, and other short-term assets and liabilities approximate their respective fair values due to the short-term maturities of these assets and liabilities.
There were no assets or liabilities measured at fair value on a recurring basis as of either September 30, 2016 or December 31,
2015.
Non-Recurring
Fair Value Measurements
Certain assets, including
in-process
research and development intangible assets, may be measured at
fair value on a
non-recurring
basis in periods subsequent to initial recognition. No
non-recurring
fair value measurements were required during the nine months ended
September 30, 2016 or 2015.
6. Inventory
Inventory as of September 30, 2016 and December 31, 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
4,669
|
|
|
$
|
900
|
|
Work in process
|
|
|
8,775
|
|
|
|
2,743
|
|
Finished goods
|
|
|
1,326
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
14,770
|
|
|
$
|
3,717
|
|
|
|
|
|
|
|
|
|
|
Inventory acquired prior to receipt of marketing approval of ONIVYDE was expensed as research and development
expense as incurred. The Commercial Business began to capitalize the costs associated with the production of ONIVYDE upon receipt of FDA approval on October 22, 2015.
E-35
7. Accounts Payable, Accrued Expenses and Other
Accounts payable, accrued expenses and other as of September 30, 2016 and December 31, 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Accounts payable
|
|
$
|
2,039
|
|
|
$
|
1,482
|
|
Accrued goods and services
|
|
|
8,900
|
|
|
|
6,333
|
|
Accrued clinical trial costs
|
|
|
3,288
|
|
|
|
3,634
|
|
Accrued drug purchase costs
|
|
|
35
|
|
|
|
840
|
|
Accrued taxes payable
|
|
|
920
|
|
|
|
323
|
|
Accrued payroll and related benefits
|
|
|
5,061
|
|
|
|
3,697
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable, accrued expenses and other
|
|
$
|
20,243
|
|
|
$
|
16,309
|
|
|
|
|
|
|
|
|
|
|
8. Related Party Transactions
The Commercial Business has not historically operated as a standalone business and has various relationships with Merrimack whereby Merrimack
provides services to the Commercial Business.
These unaudited condensed combined financial statements include an allocation from
Merrimack to the Commercial Business for certain research and development and selling, general and administrative expenses not directly attributable to the Commercial Business. The research and development expenses include depreciation and other
facility-based expenses, medical and regulatory affairs functions, pharmacovigilance, other infrastructure and management costs supporting multiple projects. The selling, general and administrative expenses include certain services provided by
Merrimack, which include, but are not limited to, executive oversight, treasury, finance, legal, human resources, information technology, investor relations, insurance, employee benefits and incentives and stock-based compensation. Allocated amounts
have been included in research and development expenses and selling, general and administrative expenses in the unaudited combined financial statements. These expenses have been allocated to the Commercial Business based on direct usage or benefit
where specifically identifiable, with the remainder allocated primarily based on hours or direct costs. The Commercial Business considers the expense methodology and results to be reasonable for all periods presented. However, the allocations may
not be indicative of the actual expense that would have been incurred had the Commercial Business operated as an independent, standalone entity for the periods presented. These allocations were reflected as follows in the unaudited condensed
combined financial statements:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Research and development expenses
|
|
$
|
5,089
|
|
|
$
|
3,201
|
|
Selling, general and administrative expenses
|
|
|
13,005
|
|
|
|
9,689
|
|
|
|
|
|
|
|
|
|
|
Total corporate overhead and other allocations from Merrimack
|
|
$
|
18,094
|
|
|
$
|
12,890
|
|
|
|
|
|
|
|
|
|
|
The amounts in the above table include allocated stock-based compensation expense of $1.8 million and
$1.6 million for the nine months ended September 30, 2016 and 2015, respectively.
On October 3, 2016, Merrimack announced
a 22% reduction in headcount as part of a major corporate restructuring with the objective of prioritizing its research and development on a focused set of systems biology-derived oncology products and strengthening its financial runway. On this
same date, Merrimack also announced the resignation of Robert Mulroy, Merrimacks former President and Chief Executive Officer. Accordingly,
E-36
restructuring expenses of $0.3 million related to contractual termination benefits are included as a component of selling, general and administrative expenses in the above table as an
allocated expense for the nine months ended September 30, 2016.
9. Commitments and Contingencies
As of September 30, 2016 and December 31, 2015, the Commercial Business was not a party to any future firm purchase commitments or
lease agreements. In addition, there were no loss contingencies considered to be reasonably possible as of September 30, 2016 or December 31, 2015.
10. Subsequent Events
Asset Sale
On January 7, 2017, Merrimack entered into the Asset Sale Agreement with Ipsen. Pursuant to the Asset Sale Agreement, Ipsen will acquire
Merrimacks right, title and interest in the Commercial Business. Ipsen will not acquire Merrimacks rights to $33.0 million in net milestone payments that may become payable pursuant to the Baxalta Agreement, among other excluded
assets. Pursuant to the Asset Sale Agreement, Ipsen will pay Merrimack $575.0 million in cash (subject to a working capital adjustment as provided in the Asset Sale Agreement) and will assume certain related liabilities. Following the closing
of the asset sale, Merrimack may be entitled to up to $450.0 million of additional payments based on achievement by or on behalf of Ipsen of certain milestone events related to FDA approval of ONIVYDE for certain indications.
The consummation of the transaction is subject to customary closing conditions, including, among others: (i) the receipt of the approval
of Merrimacks stockholders; (ii) the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (iii) the absence of a breach of Merrimacks representations and
warranties that would cause a material adverse effect on the Commercial Business; (iv) the absence of a business material adverse effect; and (v) the performance of certain covenants in all material respects.
The Asset Sale Agreement contains certain termination rights for Merrimack and Ipsen. Upon termination of the Asset Sale Agreement under
specified circumstances, Merrimack would be required to pay Ipsen a termination fee of $25.0 million. This includes where the Asset Sale Agreement is terminated in connection with Merrimack accepting a superior proposal or because
Merrimacks Board of Directors has changed its recommendation of the sale to its stockholders. The termination fee will also be payable if the Asset Sale Agreement is terminated because Merrimacks stockholders did not vote to adopt the
Asset Sale Agreement and, prior to such termination, a proposal to acquire at least 50% of the consolidated assets of Merrimack with respect to the Commercial Business or at least 50% of Merrimack voting securities has been publicly disclosed and
Merrimack enters into a definitive agreement with respect to such proposal within 12 months after such termination, which is subsequently consummated. In addition, Merrimack would be required to reimburse Ipsen for up to $3.0 million of its
out-of-pocket
expenses incurred in connection with the transaction and the Asset Sale Agreement if the Asset Sale Agreement is terminated because Merrimack stockholders do not
vote to approve it.
In addition to the foregoing termination rights, and subject to certain limitations, Merrimack or Ipsen may terminate
the Asset Sale Agreement if the asset sale is not consummated by June 30, 2017.
Ipsen has also agreed to sublease up to 68,409
square feet of Merrimacks manufacturing facility at the closing of the asset sale. In addition, at the closing of the asset sale, Merrimack and Ipsen will enter into an intellectual property license agreement pursuant to which Ipsen will grant
Merrimack an exclusive license with respect to the portion of the transferred patents relating to certain liposomal technology and a
non-exclusive
license to the remainder of the transferred patents, in both
cases for use outside of the field in which the Commercial Business will operate. In turn, Merrimack will grant Ipsen a
non-exclusive
license with respect to the remaining patents owned by Merrimack at the
closing for use in the field in which the Commercial Business will operate.
E-37
Regulatory Milestones Related to ONIVYDE
In the fourth quarter of 2016, the European Commission granted Marketing Authorization to Baxalta for ONIVYDE in combination with
5-FU
and leucovorin for the treatment of adult patients with metastatic adenocarcinoma of the pancreas who have progressed following gemcitabine-based therapy. As a result of this approval and the first commercial
sale of ONIVYDE made by Baxalta during the fourth quarter of 2016, the Commercial Business recognized $30.0 million of license and collaboration revenue related to a substantive milestone payment owed from Baxalta.
In December 2016, the Commercial Business made a $25.0 million milestone payment to PharmaEngine in connection with Baxaltas
receipt of Marketing Authorization from the European Commission for ONIVYDE in combination with
5-FU
and leucovorin for the treatment of adult patients with metastatic adenocarcinoma of the pancreas who have
progressed following gemcitabine-based therapy, which occurred, and was recognized as research and development expense, in the fourth quarter of 2016.
Regulatory Milestones Related to
MM-436
In October 2016, the U.S. Food and Drug Administration accepted for review an Abbreviated New Drug Application filed by Actavis for the Initial
Product, which triggered the payment of $1.1 million of milestones from Actavis to the Commercial Business.
E-38