Item
1.01 Entry into a Material
Definitive Agreement
On March 12,
2008, AVI BioPharma, Inc. (the Company)
entered into an Agreement and Plan of
Merger (the Merger Agreement) with Ercole Biotech, Inc., a privately
held Delaware corporation (Ercole).
Under the terms of the Merger Agreement, a wholly-owned subsidiary of
the Company will merge with and into Ercole, and Ercole will survive the merger
as a wholly-owned subsidiary of the Company.
Subject to potential reduction as described below, the Company will issue
5,698,655 shares of our common stock valued at $1.3161 per share in exchange
for the shares of Ercole capital stock and will assume Ercole debt and
liabilities of $1,500,000. The number of shares to be delivered to Ercoles
stockholders may be decreased in connection with such liabilities and
indemnification obligations as described in greater detail in the Merger
Agreement.
Under the terms of the
Merger Agreement, the Company will not assume any outstanding warrants for
Ercole stock, except for warrants to purchase shares of Ercoles Class A
Voting Common Stock issued to Isis Pharmaceuticals, Inc. (the Isis
Warrants). At the Effective Time, the
Isis Warrants will be exchanged for warrants to acquires shares of the Companys
Common Stock, the number of which and the exercise price therefor adjusted in
accordance with the Exchange Ratio, as defined in the Merger Agreement.
In addition, in
anticipation of the closing of the merger, on March 12, 2008, the Company
loaned Ercole approximately $900,000 to be used by Ercole to repay its debt
obligation to Isis Pharmaceuticals, Inc. In exchange, Ercole issued a convertible
promissory note to the Company. In the
event the merger closes, this debt will be forgiven. If the merger does not close, Ercole will either
repay the amounts owing or the Company may convert such amounts into shares of
Ercole Class A Voting Common Stock.
The Merger Agreement
contains representations, warranties and covenants customary for transactions
of this size and nature. The closing of the transaction is subject to customary
closing conditions, including the approval of Ercoles stockholders, and is
expected to occur in the current quarter.
The Merger Agreement
contains representations and warranties that the Company and Ercole made to
each other, and such representations and warranties should not be relied upon
by any other person. The assertions embodied in those representations and
warranties were made solely for purposes of the contract between the Company
and Ercole, and are subject to important qualifications and limitations agreed
to by the Company and Ercole in connection with negotiating the Merger
Agreement. Accordingly, you should not rely on the representations and
warranties as accurate or complete characterizations of the actual state of
facts as of any specified date, since they are modified in important part by
the underlying disclosure schedules and are subject to a contractual standard
of materiality different from that generally applicable to investors in our common
stock and were used for the purpose of allocating risk between the Company and
Ercoles stockholders, rather than establishing matters as facts.
The
foregoing summary of the Merger Agreement does not purport to be complete and
is qualified in its entirety by the Merger Agreement, which is attached hereto
as Exhibit 2.1 and is incorporated herein by reference. The press release
issued by the Company announcing the signing of the Merger Agreement is filed
as Exhibit 99.1 hereto.