Item 2.01 Completion of Acquisition or Disposition of Assets.
On February 15, 2017 (the “Closing Date”), Cytori Therapeutics, Inc. (the “Company”) completed its previously announced acquisition from Azaya Therapeutics, Inc. (“Azaya”) of substantially all of the assets of Azaya and the assumption of certain of liabilities of Azaya (the “Acquisition”), pursuant to an Asset Purchase Agreement with Azaya, dated January 16, 2017 (the “Purchase Agreement”). Pursuant to the Acquisition, the Company has acquired the rights, title and interest in and to (i) Azaya’s ATI-0918 drug candidate, a generic bioequivalent formulation of DOXIL/CAELYX, a chemotherapy drug that is a liposomal encapsulation of doxorubicin (“ATI-0918”); (ii) Azaya’s ATI-1123 drug candidate, a liposomal formulation of docetaxel (“ATI-1123”); and (iii) certain equipment, inventory and other assets necessary to develop, manufacture, test and validate ATI-0918 and ATI-1123.
Under the terms of the Purchase Agreement, at the closing of the Acquisition (the “Closing”) the Company (i) issued 1,173,241 of shares of its common stock, par value, $0.001 per share (“Common Stock”), in Azaya’s name, (A) 879,931 of which will be delivered to Azaya promptly after the Closing (the “Closing Shares”), and (B) 293,310 of which will be deposited into a 15-month escrow pursuant to a standard escrow agreement (the “Escrow Shares,” and together with the Closing Shares, the “Shares”); and (ii) assumed the obligation to pay approximately $2.0 million of Azaya’s existing trade payables, which payments the Company intends to make at or within thirty (30) days after the Closing. The price per Share was $1.7047, which price was equal to the volume weighted average closing price of the Shares on the Nasdaq Capital Market over the ten (10) consecutive trading days ending on the trading date immediately prior to the date of the Closing Date.
Pursuant to the Purchase Agreement, the Company will use best efforts to file a registration statement covering the resale of the Shares issued to Azaya within 30 days of the Closing Date, and use commercially reasonable efforts to cause such registration statement to be declared effective as promptly as practicable following the filing. Azaya has agreed to abide by certain weekly and monthly sale/transfer volume limitations with respect to selling the Shares following their registration.
In addition, as of the Closing Date, the Company assumed obligations to: (i) pay Azaya fixed commercialization milestone payments of up to $16.3 million in the aggregate, based upon achievement of certain net sales milestones for ATI-0918; (ii) make certain earn-out payments to Azata equal to a mid single-digit percentage of net sales of ATI-0918; and (iii) make certain earn-out payments to Azaya equal to a low single-digit percentage of net sales of any product (each a “Patented Product”), including ATI-1123, that practices a claim in the related patent assigned by Azaya to the Company (the “ATI-1123 Patent”). The Company’s aggregate earn-out payment obligations to Azaya from global net sales of both ATI-0918 and any Patented Product will not exceed $100.0 million (the “Earn-Out Cap”).
Further, the Purchase Agreement provides that if the Company enters into certain assignments, licenses or other transfers of rights to a Patented Product or the ATI-1123 Patent, the Company will pay Azaya a percentage in the low to mid teens of the consideration received by the Company, provided, that the Company’s aggregate payment obligation to Azaya for any such assignment, license or other transfer of rights will not exceed $50.0 million.
If the Company or its successors, sublicensees or transferees sells a competing product to ATI-0918 at any time prior to satisfaction of the Earn-Out Cap, other than because ATI-0918 fails
to receive marketing authorization from the European Medicines Agency within a certain period of time or fails to generate a minimum threshold of net sales within a pre-determined amount of time, then 50% of the net sales of such competing product would b
e deemed to be net sales of ATI-0918 under the Purchase Agreement for purposes of calculating commercialization milestone payments and earn-out payments.
The Company has agreed to, and has agreed to require that any successors, sublicensees or transferees, use commercially reasonable efforts to develop and commercialize ATI-0918 and any Patented Product.
Both the Company and Azaya agreed to customary representations, warranties and covenants in the Purchase Agreement. Each party also agreed to customary indemnification obligations, provided, that Azaya’s maximum liability to the Company for breaches of Azaya’s representations and warranties in the Purchase Agreement and any ancillary agreements entered into in connection therewith, is limited to $3.9 million, subject to limited exceptions.
The Company entered into a five-year lease for Azaya’s facility located in San Antonio, Texas that became effective on the Closing Date. The lease represents an initial annual base rent obligation of approximately $93,000.
Prior to the Acquisition, the Company had no material relationships with Azaya or its affiliates.
The foregoing description of the terms of the Purchase Agreement is qualified in its entirety by reference to the provisions of such agreement. The Company expects to file the Purchase Agreement with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.