UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 13, 2011
RXi Pharmaceuticals Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
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001-33958
(Commission File Number)
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20-8099512
(IRS Employer Identification No.)
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60 Prescott Street, Worcester, MA 01605
(Address of principal executive offices and Zip Code)
(508) 767-3861
(Registrants telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing
obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-14(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
The disclosures set forth below under Item 2.01 of this report with respect to the CVR
Agreement and the Escrow Agreement are incorporated by reference into this Item 1.01.
Item 2.01 Completion of Acquisition or Disposition of Assets.
On April 13, 2011, RXi Pharmaceuticals Corporation (the Company) completed its previously
announced acquisition of Apthera, Inc., a Delaware corporation (Apthera). The acquisition was
made pursuant to an Agreement and Plan of Merger (the Merger Agreement), dated March 31, 2011, by
and among the Company, Diamondback Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of the Company (Merger Sub), Apthera, and Robert E. Kennedy, in his capacity as
representative of Aptheras stockholders (the Stockholder Representative). Under the terms of
the Merger Agreement, Merger Sub merged with and into Apthera, with Apthera surviving as a
wholly-owned subsidiary of the Company (the Merger).
Pursuant to the Merger Agreement, the Company issued an aggregate of approximately 4.8 million
shares of common stock (the Aggregate Stock Consideration) to Aptheras stockholders. The
Company may also be required to make contingent payments to Aptheras stockholders of up to $32
million (the Contingent Consideration) based on the achievement of certain development and
commercial milestones relating to Aptheras NeuVax product candidate.
Sanford Hillsberg, Chairman of the Companys Board of Directors, owned approximately 2.4% of
the outstanding shares of Apthera prior to the Merger, for which he will receive the same per share
consideration on the same terms and conditions as the other stockholders of Apthera. Mr.
Hillsberg disclosed such ownership to the Companys Board of Directors prior to the Company
submitting its initial letter of intent to Apthera and did not participate in any vote relating to
the Merger taken by the Companys Board of Directors.
On April 13, 2011, the Company entered into a Contingent Value Rights Agreement (the CVR
Agreement) with the Stockholder Representative, Computershare Trust Company, N.A., and
Computershare, Inc. (Computershare), setting forth the terms and conditions governing payment of
the Contingent Consideration. Under the CVR Agreement, the Contingent Consideration is payable, at
the election of the Company, in either cash or additional shares of common stock; provided,
however, that the Company may not issue any shares in satisfaction of any Contingent Consideration
unless it has first obtained approval of its stockholders in accordance with Rule 5635(a) of the
NASDAQ Listing Rules.
Also on April 13, 2011, the Company entered into an Escrow Agreement (the Escrow Agreement)
with the Stockholder Representative and Computershare, pursuant to which the Company deposited 10%
of the Aggregate Stock Consideration (the Escrow Shares) with Computershare. Subject to the
terms and conditions set forth in the Escrow Agreement, the Escrow Shares will be available to
compensate the Company and related parties for certain indemnifiable losses as described in the
Merger Agreement.
Further information concerning the Merger and the terms of the Merger Agreement is set forth
in Item 1.01 of the Companys Current on Form 8-K filed with the Securities and Exchange Commission
on April 5, 2011, and in a copy of the Merger Agreement filed as Exhibit 10.1 thereto, and such
Item 1.01 and Exhibit 10.1 are incorporated herein by reference. The foregoing summaries of the
material terms of the CVR Agreement and Escrow Agreement are qualified in their entirety by
reference to the complete agreements, forms of which are attached hereto as Exhibits 10.1 and 10.2,
respectively, and incorporated herein by reference.
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On April 14, 2011, the Company issued a press release announcing completion of the Merger, a
copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
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Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
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Appointment of Executive Vice President and Chief Operating Officer
On April 13, 2011 (the Effective Date), the Company appointed Mark W. Schwartz, Ph.D., as
its Executive Vice President and Chief Operating Officer, effective immediately. Dr. Schwartz, age
56, has over 25 years of experience in the biotechnology and life sciences industry. Since January
2010, Dr. Schwartz has served as Aptheras President and Chief Executive Officer and as a member of
Aptheras board of directors. Prior to joining Apthera, Dr. Schwartz served as President and Chief
Executive Officer of Bayhill Therapeutics, a privately-held biopharmaceutical company focused on
the development of therapies for autoimmune diseases, from March 2004 to September 2009. From 2001
to 2003, Dr. Schwartz served as President and Chief Executive Officer of Calyx Therapeutics, a
privately-held pharmaceutical company focused on the development of therapies for diabetes and
inflammatory diseases. Dr. Schwartz holds a Ph.D. in biochemistry from Arizona State University
and received his bachelor of arts degree in chemistry from Grinnell College in Iowa. Dr. Schwartz
does not have a family relationship with any member of the Companys board of directors or any
executive officer of the Company.
The terms of Dr. Schwartzs employment with the Company are set forth in an Employment
Agreement dated as of the Effective Date (the Employment Agreement). The Employment Agreement
provides for a one-year term expiring on April 13, 2012 (the Term) and that Dr. Schwartz will
receive an initial annual base salary of $225,000. Dr. Schwartzs base salary will be increased to
$275,000 if the Company completes a financing transaction with net proceeds of at least $5 million
during the Term, and will be increased to $300,000 if the Company completes a financing transaction
with net proceeds of at least $10 million during the Term. Pursuant to the Employment Agreement,
on the Effective Date, Dr. Schwartz was granted a 10-year stock option (the Option) to purchase
40,000 shares of the Companys common stock at an exercise price of $1.275 per share. The Option
was awarded pursuant to the Companys Amended and Restated 2007 Stock Incentive Plan and shall vest
and become exercisable in 12 equal quarterly installments beginning on July 13, 2011; provided, in
each case, that Dr. Schwartz remains in the continuous employ of the Company through such vesting
date.
The Employment Agreement provides that if the Company terminates Dr. Schwartzs employment
without cause (as defined in the Employment Agreement) during the Term, then he is entitled to:
(i) continue receiving his then current annualized base salary for the remainder of the Term, and
(ii) continued vesting under the Option for the duration of the Term. The Employment Agreement
further provides that if in connection with a change of control of the Company during the Term, Dr.
Schwartzs compensation, benefits, title, or duties are reduced, or if Dr. Schwartz is required to
relocate more than 50 miles from his current residence in connection with such change of control,
then Dr. Schwartz shall be considered terminated without cause, in which case he shall be entitled
to the benefits set forth in the preceding sentence.
The foregoing summary of the material terms of the Employment Agreement is qualified in its
entirety by reference to the complete agreement, a copy of which will be filed as an exhibit to the
Companys Quarterly Report on Form 10-Q for the quarter ending June 30, 2011.
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Appointment of Vice President and Chief Financial Officer
On April 13, 2011 (the Effective Date), the Company appointed Robert E. Kennedy as its Vice
President and Chief Financial Officer, effective immediately. Mr. Kennedy, age 55, co-founded
Apthera in 2005, and currently serves as Aptheras Chief Financial Officer and as a member of
Aptheras board of directors. Prior to joining Apthera, Mr. Kennedy provided financial consulting
services to several biotechnology companies and private equity groups. From April 2001 to January
2004, Mr. Kennedy served as Chief Financial Officer and director of Blue Dot Services, Inc., a
nationwide heating, ventilation, air-conditioning and plumbing construction and services company
headquartered in South Dakota. From December 1997 to April 2001, Mr. Kennedy served as the
managing director for Koch Ventures, the venture capital arm of Koch Industries, one of the largest
privately-held companies in the United States. Since April 2009, Mr. Kennedy has served on the
board of directors of Immunologix, Inc., a privately-held antibody development company. Mr.
Kennedy also serves as Director of the Arizona BioIndustry Association and as a mentor in Arizona
State Universitys Technopolis program for start-up companies. He earned his BBA degree at Wichita
State University and is a Certified Public Accountant. Mr. Kennedy does not have a family
relationship with any member of the Companys board of directors or any executive officer of the
Company.
The terms of Mr. Kennedys employment with the Company are set forth in an Employment
Agreement dated as of the Effective Date (the Employment Agreement). The Employment Agreement
provides for a one-year term expiring on April 13, 2012 (the Term) and that Mr. Kennedy will
receive an initial annual base salary of $175,000. Mr. Kennedys base salary will be increased to
$200,000 if the Company completes a financing transaction with net proceeds of at least $5 million
during the Term, and will be increased to $225,000 if the Company completes a financing transaction
with net proceeds of at least $7.5 million during the Term. Pursuant to the Employment Agreement,
on the Effective Date, Mr. Kennedy was granted a 10-year stock option (the Option) to purchase
30,000 shares of the Companys common stock at an exercise price of $1.275 per share. The Option
was awarded pursuant to the Companys Amended and Restated 2007 Stock Incentive Plan and shall vest
and become exercisable in 12 equal quarterly installments beginning on July 13, 2011; provided, in
each case, that Mr. Kennedy remains in the continuous employ of the Company through such vesting
date.
The Employment Agreement provides that if the Company terminates Mr. Kennedys employment
without cause (as defined in the Employment Agreement) during the Term, then he is entitled to:
(i) continue receiving his then current annualized base salary for the remainder of the Term, and
(ii) continued vesting under the Option for the duration of the Term.
The Employment Agreement further provides that the Company shall apply its best efforts to
negotiate in good faith a replacement employment agreement with Mr. Kennedy on or before September
30, 2011. In the event the parties have not entered into a new employment agreement by October 1,
2011, then, upon Mr. Kennedys written request, he shall be terminated without cause and shall be
entitled to the benefits set forth in the preceding paragraph.
The foregoing summary of the material terms of the Employment Agreement is qualified in its
entirety by reference to the complete agreement, a copy of which will be filed as an exhibit to the
Companys Quarterly Report on Form 10-Q for the quarter ending June 30, 2011.
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Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The financial statements contemplated by this item are not being filed herewith. To the extent
such information is required by this item, it will be filed by amendment to this Current Report on
Form 8-K not later than 71 days after the date on which this Current Report on Form 8-K is required
to be filed.
(b) Pro Forma Financial Information.
The pro forma financial information contemplated by this item is not being filed herewith. To
the extent such information is required by this item, it will be filed by amendment to this Current
Report on Form 8-K not later than 71 days after the date on which this Current Report on Form 8-K
is required to be filed.
(d) Exhibits.
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Exhibit No.
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Description
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10.1
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Form of Contingent Value Rights Agreement entered into among RXi
Pharmaceuticals Corporation, Computershare Trust Company, N.A.,
Computershare, Inc., and Robert E. Kennedy, in his capacity as the
Stockholder Representative, on April 13, 2011.
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10.2
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Form of Escrow Agreement entered into among RXi Pharmaceuticals
Corporation, Computershare Trust Company, N.A., and Robert E. Kennedy, in
his capacity as the Stockholder Representative, on April 13, 2011.
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99.1
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Press Release issued by RXi Pharmaceuticals Corporation on April 14, 2011.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: April 14, 2011
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RXi Pharmaceuticals Corporation
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By:
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/s/ Mark J. Ahn
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Mark J. Ahn
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President & Chief Executive Officer
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EXHIBIT INDEX
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Exhibit No.
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Description
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10.1
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Form of Contingent Value Rights Agreement entered into among RXi
Pharmaceuticals Corporation, Computershare Trust Company, N.A.,
Computershare, Inc., and Robert E. Kennedy, in his capacity as the
Stockholder Representative, on April 13, 2011.
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10.2
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Form of Escrow Agreement entered into among RXi Pharmaceuticals
Corporation, Computershare Trust Company, N.A., and Robert E. Kennedy, in
his capacity as the Stockholder Representative, on April 13, 2011.
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99.1
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Press Release issued by RXi Pharmaceuticals Corporation on April 14, 2011.
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Exhibit 10.1
[FORM OF]
CONTINGENT VALUE RIGHTS AGREEMENT
BY AND AMONG
RXI PHARMACEUTICALS CORPORATION,
COMPUTERSHARE TRUST COMPANY, N.A.,
COMPUTERSHARE INC., AND
ROBERT E. KENNEDY, IN HIS CAPACITY AS
THE STOCKHOLDER REPRESENTATIVE
April 13, 2011
TABLE OF CONTENTS
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Page
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ARTICLE 1 DEFINITIONS
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1
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1.1 Definitions
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1
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ARTICLE 2 CONTINGENT VALUE RIGHTS
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6
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2.1 Appointment of Rights Agent
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6
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2.2 Nontransferable
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6
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2.3 No Certificate; Registration; Registration of Transfer; Change of Address
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7
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2.4 Payment Procedures
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7
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2.5 No Parent Stockholder Rights
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10
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2.6 Sole Discretion and Decision Making Authority
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10
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2.7 Limitation on Use of Parent Common Stock
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10
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ARTICLE 3 THE RIGHTS AGENT
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11
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3.1 Certain Duties and Responsibilities
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11
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3.2 Certain Rights of Rights Agent
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11
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3.3 Resignation and Removal; Appointment of Successor
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12
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3.4 Acceptance of Appointment by Successor
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12
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ARTICLE 4 COVENANTS
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13
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4.1 List of Holders
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13
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4.2 Provision of Milestone Payments
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13
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ARTICLE 5 CONSOLIDATION, MERGER, SALE OR CONVEYANCE
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13
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5.1 Parent May Consolidate, Etc.
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13
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ARTICLE 6 OTHER PROVISIONS OF GENERAL APPLICATION
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14
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6.1 Notices to Rights Agent, Parent and Stockholder Representative
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14
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6.2 Amendments
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15
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6.3 Assignment
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15
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6.4 Successors and Assigns
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15
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6.5 Governing Law
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15
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6.6 Counterparts
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15
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6.7 Interpretation
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6.8 Entire Agreement
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15
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6.9 Severability
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16
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6.10 Benefits of Agreement
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6.11 Legal Holidays
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6.12 Termination; Survival
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6.13 Disputes
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6.14 Confidentiality
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6.15 Force Majeure
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i
[FORM OF] CONTINGENT VALUE RIGHTS AGREEMENT
THIS CONTINGENT VALUE RIGHTS AGREEMENT, dated as of April 13, 2011 (this
Agreement
),
by and among RXi Pharmaceuticals Corporation, a Delaware corporation (
Parent
), and
Computershare Trust Company, N.A., a national banking association (
Trust Company
) and
Computershare Inc., a Delaware Corporation , as exchange agent (
Computershare
and
together with Trust Company, the
Rights Agent
), and Robert E. Kennedy, an individual
acting as the Company Stockholders representative (the
Stockholder Representative
) in
favor of each person who from time to time holds one or more Contingent Value Rights (the
CVRs
) to receive cash payments or stock issuances in the amounts and subject to the terms
and conditions set forth herein.
WHEREAS, this Agreement is entered into pursuant to the Agreement and Plan of Merger, dated as
of March 31, 2011 (the
Merger Agreement
), by and among Parent, Diamondback Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of Parent (
Merger Subsidiary
),
Apthera, Inc., a Delaware corporation (the
Company
), and with respect to Section 10.11
and other sections explicitly identified in the Merger Agreement, the Stockholder Representative;
WHEREAS, pursuant to the Merger Agreement, Merger Subsidiary will merge with and into the
Company (the
Merger
), with the Company being the surviving corporation in the Merger and
becoming a wholly-owned subsidiary of Parent;
WHEREAS, in the Merger, one CVR will be issued in respect of each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (except for Dissenting Shares
and those shares described in Section 2.3(b)(ii) of the Merger Agreement); and
WHEREAS, Parent desires that the Rights Agent act as its special agent for the purposes of
effecting the distribution of the Merger Consideration to the holders of Company Common Stock,
including (i) the Closing Consideration, and (ii) the CVRs.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1
Definitions
. As used in this Agreement, the following terms shall have the meanings set
forth or as referenced below, as indicated elsewhere in this Agreement, or as defined in the Merger
Agreement:
(a) the terms defined in this Article have the meanings assigned to them in this
Article, and include the plural as well as the singular;
(b) all capitalized terms used in this Agreement without definition shall have the
respective meanings ascribed to them in the Merger Agreement;
(c) The words hereof, herein, and hereunder and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole and not to any particular
provisions of this Agreement.
(d) Unless the context requires otherwise, references herein (i) to an agreement,
instrument or other document mean such agreement, instrument or other document as amended,
supplemented and modified from time to time to the extent permitted by the provisions
thereof and by this Agreement; and (ii) to a statute, ordinance or regulation mean such
statute, ordinance or regulation as amended from time to time and includes any successor
thereto.
(e) References to an Exhibit or to a Schedule are, unless otherwise specified, to
one of the Exhibits or Schedules attached to or referenced in this Agreement, and references
to an Article or a Section are, unless otherwise specified, to one of the Articles or
Sections of this Agreement.
(f) All accounting terms used herein and not expressly defined herein shall have the
meanings assigned to such terms in accordance with GAAP, as in effect on the date hereof.
(g) Any reference herein to the sale price of Parent Common Stock on NASDAQ shall be
deemed to refer to any alternative exchange or OTBB on which the Parent Common Stock or the
capital stock of any successor entity may be traded.
Affiliate
of a specified person means any other person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified. Control shall mean ownership of more than 50%
of the shares of stock entitled to vote for the election of directors in the case of a
corporation, and more than 50% of the voting power in the case of a business entity other
than a corporation.
Business Day
means any day other than a Saturday, Sunday or a day on which
banking institutions in Delaware, Massachusetts, or Arizona are authorized or obligated by
law or executive order to remain closed.
Clinical Trial
means the Phase III clinical trial of the Product Candidate
sponsored by Parent, the Surviving Corporation, or an Affiliate or licensee thereof.
Combination Product
means any Product Candidate that comprises a Product
Candidate sold in conjunction with another active component (whether packaged together or in
the same therapeutic formulation or otherwise) or service.
CVR Register
has the meaning set forth in Section 2.3(b).
FDA
means the United States Food and Drug Administration or any successor
agency.
GAAP
means United States Generally Accepted Accounting Principles.
2
Governmental Entity
means any domestic (federal or state), or foreign court,
commission, governmental body, regulatory or administrative agency or other political
subdivision thereof.
Holder
means a Person in whose name a CVR is registered in the CVR Register.
Intellectual Property
means all rights, privileges and priorities provided
under U.S., state and foreign law relating to intellectual property, including all (a)(1)
patents, patent applications, proprietary inventions, discoveries, processes, formulae,
designs, methods, techniques, procedures, concepts, developments, technology, new and useful
improvements thereof and proprietary know-how relating thereto, whether or not reduced to
practice or patented or eligible for patent protection; (2) copyrights and copyrightable
works, including computer applications, programs, software, databases and related items; (3)
trademarks, service marks, trade names, logos, domain names and trade dress, the goodwill of
any business symbolized thereby, and all common-law rights relating thereto; and (4) trade
secrets and other confidential information; (b) all registrations, applications, and
recordings for, and amendments, modifications, improvements, extensions, continuations,
continuations-in-part, re-examinations and reissues to any of the foregoing; and (c)
licenses or other similar agreements granting rights to use any of the foregoing.
Intellectual Property Losses
means all demands, claims, actions or causes of
action, assessments, losses, damages, liabilities, interest and penalties, costs, expenses,
fees or royalties (including, without limitation, reasonable legal fees and disbursements
incurred in connection therewith, and any amounts or expenses required to be paid or
incurred in connection with any license agreement, action, suit, proceeding, claim, appeal,
demand, assessment, judgment), whether or not involving a third party (collectively,
Losses
), resulting from, arising out of, or imposed upon or incurred by Parent (or
any Affiliate thereof) in connection with any of the Intellectual Property acquired by
Parent pursuant to the Merger Agreement (the
Acquired IP
), including without
limitation, Losses related to (i) Parents failure to own to have the right to use any
portion of the Acquired IP that is useful or necessary to conduct the Business, (ii)
Parents use of the Acquired IP (including pursuant to any license agreement included in the
Acquired IP), (iii) infringement by Parent due the conduct of Parents business, or the
manufacture, marketing, distribution, use or sale of any product covered by any Acquired IP;
(iv) the validity of the Acquired IP; (v) inventorship of the Acquired IP; (vi) license or
indemnification obligations with respect to any alleged infringement or misappropriation of
any third partys intellectual property by Parent arising from the Acquired IP
(collectively,
Intellectual Property Losses
), regardless of whether any of the
foregoing Intellectual Property Losses constitute an Indemnifiable Loss under the Merger
Agreement;
provided
,
however
, that the foregoing shall not include any
payment made or expenses incurred in connection with the Clinical Study Agreement entered
into with Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc.,
effective October 29, 2007, or any licenses resulting therefrom.
3
Law
means any foreign, federal, state, local or municipal laws, rules,
judgments orders, regulations, statutes, ordinances, codes, decisions, injunctions, orders,
decrees or requirements of any Governmental Entity.
Merger
shall have the meaning set forth in the Recitals of this Agreement.
Merger Agreement
shall have the meaning set forth in the Recitals of this
Agreement.
Milestone
means each of (i) Milestone #1, (ii) Milestone #2, (iii) Milestone
#3, (iv) Milestone #4, and (v) Milestone #5.
Milestone #1
means enrollment of the first patient in the Clinical Trial, but
only if the foregoing Milestone is achieved no later than the Milestone Target Date.
Milestone #2
means the earliest to occur of (i) an Early Interim Analysis
(EIA) in respect of the Clinical Trial the receipt of which does not cause the
discontinuance of the Clinical Trial, or (ii) enrollment of seventy (70) patients in the
Clinical Trial, but only if one of the foregoing occurs no later than the Milestone Target
Date.
Milestone #3
means U.S. Regulatory Approval of Parents new drug application
or biologic license application for the Product Candidate, which U.S. Regulatory Approval
permits Parent to market such Product Candidate immediately, but only if the foregoing
Milestone is achieved no later than the Milestone Target Date. For the avoidance of doubt,
an approvable letter or similar communication published by the FDA shall not constitute
approval for purposes of the foregoing.
Milestone #4
means cumulative Net Sales of the Product Candidate exceeding
one hundred million dollars ($100,000,000), but only if the foregoing Milestone is achieved
no later than the Milestone Target Date.
Milestone #5
means cumulative Net Sales of the Product Candidate exceeding
three hundred million dollars ($300,000,000), inclusive of Milestone #4, but only if the
foregoing Milestone is achieved no later than the Milestone Target Date.
Milestone Payment
means, as applicable, (i) one million dollars ($1,000,000),
with respect to the achievement of Milestone #1; (ii) one million dollars ($1,000,000), with
respect to the achievement of Milestone #2; (iii) five million dollars ($5,000,000), with
respect to the achievement of Milestone #3, (iv) ten million dollars ($10,000,000), with
respect to the achievement of Milestone #4, and (v) means fifteen million dollars
($15,000,000), with respect to the achievement of Milestone #5. Each of the foregoing
Milestone Payments may be paid in cash or in shares of Parent Common Stock, as determined in
Parents discretion. If Parent elects the latter, the number of shares shall be calculated
based upon the value of Parents Common Stock, which shall be equal to the closing price for
Parent Common Stock on NASDAQ, as reported in The Wall Street Journal, on the day prior to
the applicable Milestone being achieved.
4
Milestone Target Date
means with respect to all Milestones, the date that is
five (5) years from the later of (i) the expiration, invalidation or rejection of the last
patent or patent application included in the patents exclusively licensed to the Surviving
Corporation from The University of Texas M. D. Anderson Cancer Center, The Henry M. Jackson
Foundation for the Advancement of Military Medicine, Inc. or otherwise covering any portion
of the Product Candidate, including all patent adjustments and extensions thereof, (ii) the
latest to expire of any new drug product exclusivity granted by the FDA or any foreign
Governmental Entity with respect to the Product Candidate, including but not limited to
orphan drug status or data exclusivity periods granted under The Biologics Price Competition
and Innovation Act or any foreign equivalent, or (iii) to the extent Parent acquires an
exclusive license on any Invention pursuant to the Clinical Study Agreement entered into
with Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., effective
October 29, 2007, the expiration of such exclusive license. If any Milestone does not occur
by the Milestone Target Date, the CVRs underlying each such Milestone will terminate and all
rights thereunder and all rights in respect thereof under this Agreement shall cease.
Net Sales
means the sum of, without any duplication, the gross revenues
received by Parent, its Affiliates or its licensees from the sale of any Product Candidate
throughout the world, less sales discounts actually granted, sales and/or use taxes actually
paid, import and/or export duties actually paid, outbound transportation actually prepaid or
allowed, and amounts actually allowed or credited due to returns (not exceeding the original
billing or invoice amount), all as recorded by Parent, its Affiliate or its licensee in each
of their respective official books and records, in accordance with GAAP and consistent with
the financial statements and/or regulatory filings with the United States Securities and
Exchange Commission, if any, of Parent, its Affiliate or its licensee.
Product Candidate provided to third parties without charge, in connection with research
and development, the Clinical Trial, other clinical trials, compassionate use, humanitarian
and charitable donations, or indigent programs or for use as samples shall be excluded from
the computation of Net Sales.
Notwithstanding the foregoing, in the event a Product Candidate is sold as a
Combination Product Candidate in the United States, Net Sales shall be calculated by
multiplying the Net Sales of the Combination Product Candidate by the fraction A/(A+B),
where A is the gross invoice price of the Product Candidate if sold separately and B is the
gross invoice price of the other product(s) included in the Combination Product if sold
separately. If no such separate sales are made by Parent, its Affiliates or licensees, Net
Sales of the Combination Product shall be calculated in a manner determined by Parent in
good faith based upon the relative value of the active components of such Combination
Product.
Parent Common Stock
means common stock of Parent.
Party
shall mean the Rights Agent, Parent and/or the Stockholder
Representative, as applicable.
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Permitted Transfer
means: (i) the transfer of any or all of the CVRs (upon
the death of the Holder) by will or intestacy; (ii) transfer by instrument to an inter vivos
or testamentary trust in which the CVRs are to be passed to beneficiaries upon the death of
the trustee; (iii) transfers made pursuant to a court order of a court of competent
jurisdiction (such as in connection with divorce, bankruptcy or liquidation); (iv) if the
Holder is a partnership or limited liability company, a distribution by the transferring
partnership or limited liability company to its partners or members, as applicable; or (v) a
transfer made by operation of law (including a consolidation or merger) or in connection
with the dissolution, liquidation or termination of any corporation, limited liability
company, partnership or other entity.
Person
means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company, unincorporated
organization or government or any agency or political subdivision thereof.
Product Candidate
means E75 + GM-CSF, known as Neuvax, as used in the
currently pending clinical trial sponsored by Parent, Surviving Corporation, or an Affiliate
or licensee thereof.
Tax
shall mean all taxes, assessments, charges, duties, fees, levies or other
governmental charges, including any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, and all other taxes of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and including any transferee or secondary
liability in respect of any tax (whether imposed by Law, contractual agreement or otherwise)
and any liability in respect of any Tax as a result of being a member of any Affiliated
Group, and shall include all liabilities under any unclaimed property Law.
U.S. Regulatory Approval
means all approvals from the FDA necessary for the
commercial manufacture, marketing and sale of a Product Candidate in the United States.
ARTICLE 2
CONTINGENT VALUE RIGHTS
2.1
Appointment of Rights Agent
. Parent hereby appoints the Trust Company as the Rights Agent
to act as Rights Agent for Parent in accordance with the instructions hereinafter set forth in this
Agreement, and Computershare as the service provider to the Trust Company and as processor of all
payments received or made by or on behalf of Parent under this Agreement, the Trust Company and
Computershare hereby accept such respective appointments.
2.2
Nontransferable
. The CVRs shall not be sold, assigned, transferred, pledged, encumbered or
in any other manner transferred or disposed of, in whole or in part, other than through a Permitted
Transfer.
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2.3
No Certificate; Registration; Registration of Transfer; Change of Address
.
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(a)
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Not Certificated
. The CVRs shall not be evidenced by a certificate or other
instrument.
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(b)
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CVR Register
. The Rights Agent shall keep a register (the
CVR
Register
) for the registration of CVRs. The Rights Agent shall register CVRs and
transfer CVRs as herein provided.
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(c)
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Transfer Requests
. Subject to the restriction on transferability set forth in
Section 2.2, every request made to transfer a CVR must be in writing and accompanied by a
written instrument or instruments of transfer and any other requested documentation in form
reasonably satisfactory to Parent and the Rights Agent, including the authority of the
party presenting the CVR for transfer which authority may include, if applicable, a
signature guarantee from an eligible guarantor institution participating in a signature
guarantee program approved by the Securities Transfer Association, duly executed by the
registered Holder or Holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. A request for a transfer of a CVR shall be accompanied by
such documentation establishing satisfaction that the transfer is a Permitted Transfer as
may be reasonably requested by Parent and the Rights Agent (including opinions of counsel),
if appropriate. Upon receipt of such written notice, the Rights Agent shall, subject to its
reasonable determination that the transfer instrument is in proper form and the transfer
otherwise complies with the other terms and conditions herein, register the transfer of the
CVRs in the CVR Register. All duly transferred CVRs registered in the CVR Register shall be
the valid obligations of Parent, evidencing the same right and shall entitle the transferee
to the same benefits and rights under this Agreement, as those held by the transferor. No
transfer of a CVR shall be valid until registered in the CVR Register, and any transfer not
duly registered in the CVR Register will be void
ab initio
. Any transfer or assignment of
the CVRs shall be without charge (other than the cost of any transfer Tax which shall be
the responsibility of the transferor) to the Holder.
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(d)
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Change of Address Requests
. A Holder (or the Stockholder Representative, on
behalf of a Holder) may make a written request to the Rights Agent to change such Holders
address of record in the CVR Register. The written request must be duly executed by the
Holder or the Stockholder Representative, as applicable. Upon receipt of such written
notice, the Rights Agent shall promptly record the change of address in the CVR Register.
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2.4
Payment Procedures
.
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(a)
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Milestone Compliance Certificates
. Within 10 Business Days following the
occurrence of any Milestone, Parent shall deliver to the Rights Agent and the Stockholder
Representative a certificate (each a
Milestone Compliance Certificate
) certifying
that the Holders are entitled to receive the applicable Milestone Payment Amount and
establishing a payment date with respect to the applicable Milestone Payment Amount that is
within 5 Business Days of the date of the issuance of such certificate. Each such Milestone
Compliance Certificate shall specify whether the applicable Milestone Payment shall be made
in cash or in shares of Parents Common Stock. Upon payment
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of the applicable Milestone Payment Amount, no further payment by Parent pursuant to this
Agreement shall be required with respect to such Milestone. The Stockholder Representative
shall be responsible for distributing any Milestone Compliance Certificate to the Holders.
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(b)
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Non-Compliance Certificates
. If (A) prior to the delivery of any Milestone
Compliance Certificate events or circumstances occur that cause Parent reasonably to
believe that any Milestone Payment will not and cannot occur, or (B) the applicable
Milestone has been achieved, but Parent determines that the applicable Milestone Payment
shall be subject to the cost-sharing provision set forth in Section 2.4(e) hereof for
Intellectual Property Losses, then within 10 Business Days of the occurrence of such events
or determinations, as applicable, Parent shall deliver to the Rights Agent and the
Stockholder Representative a certificate (a
Non-Compliance Certificate
) setting
forth in reasonable detail the events and circumstances underlying its belief that delivery
of such Non-Compliance Certificate is required. The Stockholder Representative shall be
responsible for distributing any such Non-Compliance Certificates to the Holders.
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(c)
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Payment of Milestones
. On the applicable payment date, Parent shall cause the
Rights Agent or Computershare, as applicable, to (i) pay the applicable amount to each of
the Holders by check mailed to the address of each Holder as reflected in the CVR Register
as of the close of business on the last Business Day prior to such payment date, or (ii)
mail the applicable shares furnished by the Company to the Rights Agent to the address of
each Holder as reflected in the CVR Register as of the close of business on the last
Business Day prior to such payment date; in each case, the amount to which each Holder is
entitled to receive will be based on the number of CVRs held by such Holder as reflected on
the CVR Register.
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(d)
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Withholding
. Parent shall be entitled to deduct and withhold, or cause to be
deducted or withheld, from any amounts otherwise payable pursuant to this Agreement, such
amounts as it is required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code, or any provision of state, local or foreign Tax law. To
the extent that amounts are so withheld or paid over to or deposited with the relevant
Governmental Entity, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the Holder in respect of which such deduction and
withholding was made.
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(e)
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Cost-Sharing for Intellectual Property Losses
. During the term of this
Agreement (as described in Section 6.11 hereof), Parent shall have the right to set off
twenty percent (20%) of any Intellectual Property Losses (the
Stockholder
Portion
) against Milestone Payments otherwise payable to the Company Stockholders
hereunder. In no event, however, shall Parent be entitled to deduct from any Milestone
Payment more than twenty percent (20%) of the value of such Milestone Payment. To the
extent that any such deduction is insufficient to cover the Stockholder Portion at the time
such a deduction is made, the remaining portion of such Stockholder Portion shall be
applied toward the next Milestone Payment that becomes payable by Parent hereunder
(
Rolling Losses
). Parent shall have no right of action hereunder against the
Company Stockholders to recover any portion of a Milestone Payment that was previously
paid. In
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the event that a Non-Compliance Certificate has been provided pursuant to Section 2.4(b)
hereof with respect to any specific Intellectual Property Losses, and provided that Parent
and the Stockholder Representative have resolved any objections related to any such
Non-Compliance Certificate, Parent shall not be required to submit additional Non-Compliance
Certificates in the event it applies a deduction to future Milestone Payments in respect of
Rolling Losses.
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(f)
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Investment of Exchange Fund
. Computershare offers the custody of funds
placed, at the direction of the Parent, in bank account deposits. Computershare will not
provide any investment advice in connection with this service. During the term of this
Agreement, the Fund shall be held in a bank account, and shall be deposited in one or more
interest-bearing accounts to be maintained by Computershare in the name of Computershare at
one or more banks which shall be a commercial bank with capital exceeding $500,000,000
(each such bank an
Approved Bank
). The deposit of the Exchange Fund in any of
the Approved Banks shall be deemed to be at the direction of the Parent. At any time and
from time to time, Parent may direct Computershare by written notice (i) to deposit the
Exchange Fund with a specific Approved Bank, (ii) not to deposit any new amounts in any
Approved Bank specified in the notice and/or (iii) to withdraw all or any of the Exchange
Fund that may then be deposited with any Approved Bank specified in the notice. With
respect to any withdrawal notice, the Rights Agent will endeavor to withdraw such amount
specified in the notice as soon as reasonably practicable and the Parties acknowledge and
agree that such specified amount remains at the sole risk of Parent prior to and after such
withdrawal. Such withdrawn amounts shall be deposited with any other Approved Bank or any
Approved Bank specified by Parent in the notice. Computershare shall pay interest on the
Exchange Fund at a rate equal to 90% of the then current 3 month U.S. Treasury Bill rate.
Such interest shall accrue to the Exchange Fund within three (3) business days of each
month end. Computershare shall be entitled to retain for its own benefit, as partial
compensation for its services hereunder, any amount of interest earned on the Exchange Fund
that is not payable pursuant to this
Section 2.4(f)
.
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(g)
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Undistributed Amounts
. Any cash or stock certificates that remain undistributed
to the Holders of CVRs twelve (12) months after the applicable payment date set forth in
any Milestone Compliance Certificate, as applicable, shall be delivered to Parent, upon
demand, and any Holders of CVRs who have not theretofore received cash or stock
certificates in exchange for such CVRs shall thereafter look only to Parent for payment of
their claim therefor. Notwithstanding any other provisions of this Agreement, any portion
of the consideration provided by Parent to the Rights Agent that remains unclaimed 180 days
after termination of this Agreement in accordance with Section 6.11 hereof (or such earlier
date immediately prior to such time as such amounts would otherwise escheat to, or become
property of, any Governmental Entity) shall, to the extent permitted by law become the
property of Parent free and clear of any claims or interest of any person previously
entitled thereto.
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(h)
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Objections to Non-Compliance Certificates
. Within 60 days of the date of any
Non-Compliance Certificate, the Stockholder Representative, on behalf of such Holders, may
deliver a written notice to the Rights Agent and Parent stating that the Holders object to
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(a
Notice of Objection
) such Non-Compliance Certificate (collectively, the
Determinations
). If Parent does not agree with the objections to the applicable
Non-Compliance Certificate set forth in the Notice of Objection, the Determinations that are
in dispute shall be resolved by the procedure set forth in Section 6.12, which decision
shall be binding on the parties hereto and the Holders. If the Stockholder Representative
does not deliver a Notice of Objection to the Rights Agent and Parent within such 60 day
period, then the applicable Milestone Payment to which the Non-Compliance Certificate
relates shall not be due and payable to the Holders, and Parent and Rights Agent shall have
no further obligations with respect to such payments (but may have obligations with respect
to the other payments in accordance with the terms of this Agreement).
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(i)
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Information
. Parent shall furnish to the Rights Agent or the Stockholder
Representative information and documentation in connection with this Agreement and the
CVRs, including confidential information of Parent, if necessary, that the Rights Agent or
the Stockholder Representative may reasonably request in connection with the determination
of whether a Milestone has occurred or whether the applicable amount of Net Sales have been
achieved,. The Stockholder Representative shall forward any information and documentation
it receives to the Holders who request such information, provided, however, the Stockholder
Representative shall redact from any such information any documentation that Parent has
marked as confidential.
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2.5
No Parent Stockholder Rights
. The CVRs shall not have any voting, consent, notice or
dividend rights, and interest shall not accrue on any amounts payable on the CVRs to any Holder.
The CVRs shall not represent any equity or ownership interest in Parent or in any constituent
company to the Merger, and shall not convey to the Holders thereof any rights of any kind or nature
whatsoever possessed by a stockholder of Parent, either at law or in equity. The rights of a
Holder are limited to those expressed in this Agreement.
2.6
Sole Discretion and Decision Making Authority
. Notwithstanding anything contained herein to
the contrary, the Parties acknowledge that development and commercial potential of the Product
Candidate is uncertain and expensive, and as a result, Parent shall have sole discretion and
decision making authority over whether to continue to invest, how much to invest in the development
of Product Candidate, the timing of development and commercialization activities related to the
Product Candidate, including without limitation, with respect activities related to the protection
of intellectual property rights, and determinations regarding the jurisdictions in which marketing
approval will be sought, and whether and on what terms, if any, to enter into (i) a clinical trial
agreement, license or sale agreement related to the Product Candidate, (ii) any other agreement for
the development, marketing or sale of the Product Candidate, or (iii) any option to enter into any
such agreements.
2.7
Limitation on Use of Parent Common Stock
. Notwithstanding anything to the contrary
contained herein, under no circumstances shall Parent be permitted to satisfy any Milestone Payment
with shares of Parent Common Stock unless such issuance of Parent Common Stock has been approved by
the requisite vote of Parents stockholders in accordance with Rule 5635(a) of the NASDAQ Listing
Rules. If Parent is prohibited or otherwise restricted from distributing Parent Common Stock, it
shall not be relieved of its obligation to make
10
payment of the Milestone Payment and such Milestone Payment shall be made all in cash or in a
combination of cash and Parent Common Stock, to the extent permitted.
ARTICLE 3
THE RIGHTS AGENT
3.1
Certain Duties and Responsibilities
. The Rights Agent shall not have any liability for any
actions taken or not taken in connection with this Agreement, except to the extent of its willful
misconduct, bad faith or gross negligence. No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or powers. Notwithstanding
anything contained herein to the contrary, the Rights Agents aggregate liability during any term
of this Agreement, or from all services provided or omitted to be provided under this Agreement,
whether in contract, or in tort, or otherwise, is limited to, and shall not exceed, the amounts
paid hereunder by Parent to the Rights Agent as fees and charges, but not including reimbursable
expenses.
3.2
Certain Rights of Rights Agent
. The Rights Agent undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Rights Agent. In addition:
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(a)
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the Rights Agent may rely and shall be protected in acting or refraining from acting
upon any resolution, certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
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(b)
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the Rights Agent may engage and consult with counsel of its selection and the written
advice of such counsel or any opinion of counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;
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(c)
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in the event of arbitration, the Rights Agent may engage and consult with tax experts,
valuation firms and other experts and third parties that it, in its sole and absolute
discretion, deems appropriate or necessary to enable it to discharge its duties hereunder;
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(d)
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the Rights Agent shall not be required to give any note or surety in respect of the
execution of such powers or otherwise in respect of the premises; and
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(e)
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Parent agrees to indemnify the Rights Agent for, and hold the Rights Agent harmless
against, any loss, liability, claim, demands, suits or expense arising out of or in
connection with the Rights Agents duties under this Agreement, including the costs and
expenses of defending the Rights Agent against any claims, charges, demands, suits or loss,
unless such loss shall have been determined by a court of competent jurisdiction to be a
result of the Rights Agents willful misconduct, bad faith or gross negligence, provided,
however, that the Rights Agents aggregate liability with respect to, arising from, or
arising in connection with this Agreement, or from all services provided or omitted to be
provided under this Agreement, whether in contract, in tort, or otherwise, is
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limited to, and shall not exceed, the amounts paid hereunder by Parent to the Rights Agent.
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(f)
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Parent agrees (i) to pay the fees and expenses of the Rights Agent in connection with
this Agreement, as set forth in that certain Fee and Transfer Service Schedule between
Parent and Rights Agent dated as of April 1, 2011 (the Fee Schedule) , and (ii) to
reimburse the Rights Agent for all taxes and governmental charges, reasonable expenses and
other charges of any kind and nature incurred by the Rights Agent in the execution of this
Agreement (other than taxes measured by the Rights Agents net income) in accordance with
the Fee Schedule. The Rights Agent shall also be entitled to reimbursement from Parent for
all reasonable and necessary out-of-pocket expenses (including reasonable fees and expenses
of the Rights Agents counsel and agent) paid or incurred by it in connection with the
administration by the Rights Agent of its duties hereunder in accordance with the Fee
Schedule.An invoice for any out-of-pocket expenses and per item fees realized will be
rendered and payable within thirty (30) days after receipt by Parent, except for postage
and mailing expenses, which funds must be received one (1) Business Day prior to the
scheduled mailing date. Parent agrees to pay to the Rights Agent any amounts, including
fees and expenses, payable in favor of the Rights Agent in connection with any dispute,
resolution or arbitration arising under or in connection with this Agreement; provided,
however, that in the event of a resolution in favor of Parent, any amounts, including fees
and expenses, payable in favor of the Rights Agent related to such dispute, resolution or
arbitration shall be offset against the amount payable to the Rights Agent hereunder.
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3.3
Resignation and Removal; Appointment of Successor
.
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(a)
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The Rights Agent may resign at any time by giving written notice thereof to Parent
specifying a date when such resignation shall take effect, which notice shall be sent at
least thirty (30) days prior to the date so specified.
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(b)
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If the Rights Agent shall resign, be removed or become incapable of acting, Parent
shall promptly appoint a qualified successor Rights Agent who may be the Stockholder
Representative or a Holder but shall not be an officer of Parent. The successor Rights
Agent so appointed shall, forthwith upon its acceptance of such appointment in accordance
with this Section 3.3(b), become the successor Rights Agent.
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(c)
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Parent shall give notice of each resignation and each removal of a Rights Agent and
each appointment of a successor Rights Agent by mailing written notice of such event by
first-class mail, postage prepaid, to the Stockholder Representative. The Stockholder
Representative shall forward such notice to the Holders.
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3.4
Acceptance of Appointment by Successor
. Every successor Rights Agent appointed hereunder
shall execute, acknowledge and deliver to Parent, the Stockholder Representative and to the
retiring Rights Agent an instrument accepting such appointment and a counterpart of this Agreement,
and thereupon such successor Rights Agent, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring Rights Agent;
provided, that upon the request of Parent, the Stockholder Representative
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or the successor Rights Agent, such retiring Rights Agent shall execute and deliver an
instrument transferring to such successor Rights Agent all the rights, powers and trusts of the
retiring Rights Agent.
ARTICLE 4
COVENANTS
4.1
List of Holders
. The Stockholder Representative shall furnish or cause to be furnished to
the Rights Agent the names, addresses and shareholdings of the Holders immediately prior to
effective time of the Merger. After the effective time of the Merger, within five (5) Business
Days after receipt by Parent of any such request, Parent shall deliver a list, in such form as
Parent receives from its transfer agent (or other agent performing similar services for Parent), of
the names and the addresses of the Holders as of a date not more than 15 Business Days prior to the
time such list is furnished.
4.2
Provision of Milestone Payments
. Parent shall promptly provide the Rights Agent or
Computershare, as applicable, with the applicable cash or shares of Parent Common Stock payable in
respect of any Milestone Payment, if any, to be distributed to the Holders in the manner provided
for in Section 2.4 and in accordance with the terms of this Agreement.
ARTICLE 5
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
5.1
Parent May Consolidate, Etc
.
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(a)
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Parent shall not consolidate with or merge into any other Person or sell, convey,
transfer or license substantially all of its Business assets to any Person (including in
connection with a spin-off transaction) (a
Transaction
), unless:
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(i) Parent shall be the continuing Person, or the Person formed by such
Transaction or into which Parent is merged or the Person that acquires or becomes
the licensee of substantially all of Parents Business assets, or, in the case of a
spin-off, the Person who has received the largest portion of the Business assets
(the
Surviving Person
) shall expressly assume payment of amounts on all
the CVRs and the performance of every duty and covenant of this Agreement on the
part of Parent to be performed or observed; and
(ii) Parent or the Surviving Person, as the case may be, shall not immediately
after such merger or consolidation, spin-off, or such sale, license or conveyance,
be in breach in the performance of any covenant or condition contained herein;
(iii) Parent has delivered to the Rights Agent and the Stockholder
Representative an officers certificate, stating that, to Parents knowledge based
upon the reasons articulated in such certificate, such successor Person is capable
of fulfilling all obligations to be assumed by it under this Agreement, that such
Transaction complies with this Article 5 and that all conditions precedent herein
provided for relating to such Transaction have been complied with.
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(b)
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For purposes of this Section 5.1 only, substantially all of its Business assets shall
mean (i) assets contributing in the aggregate at least 80% of Parents revenues for the
Business during the then-current period, (ii) assets constituting in the aggregate at least
80% of Parents total assets for the Business for the-then current period or (iii) the
licenses from The University of Texas M. D. Anderson Cancer Center or The Henry M. Jackson
Foundation for the Advancement of Military Medicine, Inc., including those granted pursuant
to the Clinical Study Agreement. Business means the Parents business, including the
business of an Affiliate controlled by Parent, as it relates to the development and
commercialization of the Product Candidate.
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(c)
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Upon any Transaction consummated in accordance with this Section 5.1, the Surviving
Person shall succeed to, and be substituted for, and may exercise every right and power of
Parent under this Agreement with the same effect as if the Surviving Person had been named
as Parent herein, and, thereafter, Parent shall be relieved of all obligations and
covenants under this Agreement and the CVRs.
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ARTICLE 6
OTHER PROVISIONS OF GENERAL APPLICATION
6.1
Notices to Rights Agent, Parent and Stockholder Representative.
All notices and other
communications hereunder shall be in writing and shall be deemed given (i) on the date of delivery
if delivered personally by commercial courier service, federal express or otherwise or (ii) on the
date of confirmation of receipt (or the first Business Day following such receipt if the date is
not a Business Day), of transmission, by telecopier, or facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like notice):
(a) If to Parent, to it at:
RXi Pharmaceuticals Corporation
60 Prescott Street
Worcester, MA 01605
Attn: Chief Executive Officer
Facsimile: 508-767-3862
with separate copies thereof addressed to (which shall not constitute notice
to Parent):
Fredrikson & Byron, P.A.
200 South Sixth Street
Suite 4000
Minneapolis, MN 55402
Attn: Christopher J. Melsha
Facsimile: 612-492-7077
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(b) If to the Rights Agent, to it at:
Computershare Trust Company, N.A.
350 Indiana Street, Suite 750
Golden, Colorado 80401
Attention: Client Services
(c) If to the Stockholder Representative, to him at:
Robert E. Kennedy
9450 E. Larkspur Dr.
Scottsdale, AZ 85260
with separate copies thereof addressed to (which shall not constitute notice
to the Stockholder Representative):
Snell & Wilmer L.L.P.
One Arizona Center
400 East Van Buren St.
Phoenix, AZ 85004
Attn: Daniel M. Mahoney
Facsimile: 602-382-6070
6.2
Amendments
. Subject to applicable Law, this Agreement may be amended by the parties hereto.
This Agreement may not be amended except by execution of an instrument in writing signed on behalf
of each of the parties hereto. The Stockholder Representative has the authority to represent all of
the Holders for purposes of this Section and for purposes of this Agreement.
6.3
Assignment
. Neither this Agreement nor any rights or obligations hereunder may be
assigned by Parent or Rights Agent without the written consent of the other; provided, however,
that the Rights Agent may, without further consent of Parent, assign any of its rights and
obligations hereunder to any affiliated transfer agent registered under Rule 17Ac2-1 promulgated
under the Securities Exchange Act of 1934, as amended.
6.4
Successors and Assigns
. The provisions hereof shall inure to the benefit of, and be
binding upon, the respective permitted successors, assigns, heirs, executors and administrators of
the parties hereto. Subject to Article 5 hereof, any reference herein to Parent refers to Parent,
any Surviving Person and their successors and assigns.
6.5
Governing Law
. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware (regardless of the Laws that might otherwise govern under applicable
principles of conflicts of law).
6.6
Counterparts
. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and the
15
same instrument. A signature to this Agreement transmitted electronically shall have the same
authority, effect, and enforceability as an original signature.
6.7
Interpretation
. The Table of Contents, article and section headings contained in this
Agreement are inserted for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. This Agreement shall be construed without regard to any
presumption or other rule requiring the resolution of any ambiguity regarding the interpretation or
construction hereof against the party causing this Agreement to be drafted.
6.8
Entire Agreement
. This Agreement, including the exhibits and schedules hereto, embodies
the entire agreement and understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement supersede all prior agreements and the understandings between the
parties with respect to such subject matter.
6.9
Severability
. If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the parties as closely
as possible in a mutually acceptable manner in order that the transactions contemplated by this
Agreement be consummated as originally contemplated to the fullest extent possible.
6.10
Benefits of Agreement
. Nothing in this Agreement, express or implied, shall give to any
Person (other than the parties hereto, the Holders and their permitted successors and assigns
hereunder) any benefit or any legal or equitable right, remedy or claim under this Agreement or
under any covenant or provision herein contained, all such covenants and provisions being for the
sole benefit of the parties hereto, the Holders and their permitted successors and assigns.
6.11
Legal Holidays
. In the event that a Milestone Payment Date shall not be a Business Day,
then, notwithstanding any provision of this Agreement to the contrary, any payment required to be
made in respect of the CVRs on such date need not be made on such date, but may be made on the next
succeeding Business Day.
6.12
Termination; Survival
. This Agreement shall terminate upon the earliest to occur of (i) 180
days after payment of the last applicable Milestone Payment hereunder; or (ii) the expiration of
the Milestone Target Date. Notwithstanding any termination of this Agreement, Parent shall remain
obligated to make payment of any Milestone Payment that corresponds to a Milestone achieved prior
to the Milestone Target Date.
6.13
Disputes
. All claims, disputes and other matters in controversy (herein called a
Dispute
) arising directly or indirectly out of or related to this Agreement or the other
agreements referred to herein, or the breach thereof, whether contractual or noncontractual, and
whether during the term or after the termination of this Agreement, will be resolved exclusively
according to the procedures set forth in this Section 6.12.
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(a)
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The parties will attempt to settle Disputes arising out of or relating to this
Agreement, or the breach thereof, by a meeting of the Stockholder Representative and an
authorized representative of Parent within five (5) days after a request by either of the
parties to the other party asking for the same.
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(b)
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If such Dispute cannot be settled at such meeting, either party within five days of
such meeting may give a written notice (a
Dispute Notice
) to the other party
setting forth the nature of the Dispute. The parties will attempt in good faith to resolve
the Dispute by mediation in Los Angeles, California under the Commercial Mediation Rules of
AAA in effect on the date of the Dispute Notice. The parties will select a person who will
act as the mediator under this subsection (b) within 60 days of the date of this Agreement.
If the Dispute has not been resolved by mediation as provided above within 30 days after
delivery of the Dispute Notice, then the Dispute will be determined by arbitration in
accordance with the provisions of subsection (c) below.
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(c)
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Any Dispute that is not settled through mediation as provided in subsection (b) above
will be resolved by arbitration in Los Angeles, California, governed by the Federal
Arbitration Act, 9 U.S.C. § 1 et seq., and administered by the AAA under its Commercial
Arbitration Rules in effect on the date of the Dispute Notice, as modified by the
provisions of this subsection (c), by a single arbitrator. The arbitrator selected, in
order to be eligible to serve, will be a lawyer with at least 15 years experience
specializing in business matters related to the pharmaceutical industry. In the event the
parties cannot agree on a mutually acceptable single arbitrator from the list submitted by
the AAA, AAA will appoint the arbitrator who will meet the foregoing criteria. The
arbitrator will base the award on applicable law and judicial precedent and, unless both
parties agree otherwise, will include in such award the findings of fact and conclusions of
law upon which the award is based. Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
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(d)
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Notwithstanding the foregoing or anything in this Agreement to the contrary, upon the
application by either party to a court for an order confirming, modifying or vacating the
award, the court will have the power to review whether, as a matter of law based on the
findings of fact determined by the arbitrator, the award should be confirmed, modified or
vacated in order to correct any errors of law made by the arbitrator. In order to
effectuate such judicial review limited to issues of law, the parties agree (and will
stipulate to the court) that the findings of fact made by the arbitrator will be final and
binding on the parties and will serve as the facts to be submitted to and relied on by the
court in determining the extent to which the award should be confirmed, modified or
vacated.
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(e)
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If either party fails to proceed with mediation or arbitration as provided herein or
unsuccessfully seeks to stay such mediation or arbitration, or fails to comply with any
arbitration award, or is unsuccessful in vacating or modifying the award pursuant to a
petition or application for judicial review, the other party will be entitled to be awarded
costs, including reasonable attorneys fees, paid or incurred by such other party in
successfully compelling such arbitration or defending against the attempt to stay, vacate
or modify such arbitration award and/or successfully defending or enforcing the award.
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(f)
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All applicable statutes of limitations and defenses based upon the passage of time will
be tolled while the procedures specified in this Section 6.12 are pending. The parties
will take such action, if any, required to effectuate such tolling.
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6.14
Confidentiality
.
(a)
Definition
. Confidential Information shall mean any and all technical or
business information relating to a party, including, without limitation, financial,
marketing and product development information, stockholder information (including any
non-public information of such stockholder), proprietary information, and the terms and
conditions (but not the existence) of this Agreement, that is disclosed or otherwise becomes
known to the other party or its affiliates, agents or representatives before or during the
term of this Agreement. Confidential Information constitutes trade secrets and is of great
value to the owner (or its affiliates). Confidential Information shall not include any
information that is: (a) already known to the other party or its affiliates at the time of
the disclosure; (b) publicly known at the time of the disclosure or becomes publicly known
through no wrongful act or failure of the other party; (c) subsequently disclosed to the
other party or its affiliates on a non-confidential basis by a third party not having a
confidential relationship with the owner and which rightfully acquired such information; or
(d) independently developed by one party without access to the Confidential Information of
the other.
(b)
Use and Disclosure
. All Confidential Information of a party will be held
in confidence by the other party with at least the same degree of care as such party
protects its own confidential or proprietary information of like kind and import, but not
less than a reasonable degree of care. Neither party will disclose in any manner
Confidential Information of the other party in any form to any person or entity without the
other partys prior consent. However, each party may disclose relevant aspects of the other
partys Confidential Information to its officers, affiliates, agents, subcontractors and
employees to the extent reasonably necessary to perform its duties and obligations under
this Agreement and such disclosure is not prohibited by applicable law. To the extent that
a party delegates any duties and responsibilities under this Agreement to an agent or other
subcontractor, the party ensures that such agent and subcontractor are contractually bound
to confidentiality terms consistent with the terms of this Section 6.14.
(c)
Required or Permitted Disclosure
. In the event that any requests or
demands are made for the disclosure of Confidential Information, other than requests to
Rights Agent for stockholder records pursuant to standard subpoenas from state or federal
government authorities (e.g., divorce and criminal actions), the party receiving such
request will promptly notify the other party to secure instructions from an authorized
officer of such party as to such request and to enable the other party the opportunity to
obtain a protective order or other confidential treatment, unless such notification is
otherwise prohibited by law or court order. Each party expressly reserves the right,
however, to disclose Confidential Information to any person whenever it is advised by
counsel that it may be held liable for the failure to disclose such Confidential Information
or if required by law or court order.
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(d)
Costs
. Each party will bear the costs it incurs as a result of compliance
with this Section 6.14.
6.15
Force Majeure
. Notwithstanding anything to the contrary contained herein, Rights Agent
shall not be liable for any delays or failures in performance resulting from acts beyond its
reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply,
labor difficulties, war, or civil unrest.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
IN WITNESS WHEREOF, the Parties hereto have caused this Contingent Value Rights Agreement to
be duly executed, all as of the day and year first above written.
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Parent:
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RXI PHARMACEUTICALS CORPORATION
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By:
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Its:
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Rights Agent:
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COMPUTERSHARE TRUST COMPANY, N.A.
and COMPUTERSHARE, INC.
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By:
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Its:
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Stockholder Representative:
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By:
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Robert E. Kennedy
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Exhibit 10.2
[FORM OF] ESCROW AGREEMENT
THIS ESCROW AGREEMENT
, dated as of April 13, 2011 (this
Agreement
), is by and among
RXi Pharmaceuticals Corporation, a Delaware corporation (
Parent
), Robert E. Kennedy,
solely in his capacity as representative of the stockholders of Apthera, Inc. (the
Stockholder
Representative
), and Computershare Trust Company, N.A. (the
Escrow Agent
). Each
capitalized term used in this Agreement but not otherwise defined herein shall have the meaning
ascribed thereto in the Merger Agreement (as defined below). Parent shall provide the Escrow Agent
with a true and complete copy of the Merger Agreement for its records and reference.
WHEREAS
, Parent, Diamondback Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Parent (
Merger Sub
), Apthera, Inc., a Delaware corporation (the
Company
), and the Stockholder Representative are parties to an Agreement and Plan of
Merger, dated as of March 31, 2011 (as such agreement may be subsequently amended or modified, the
Merger Agreement
), providing for the merger of Merger Sub with and into the Company (the
Merger
), with the Company being the surviving corporation in the Merger and becoming a
wholly-owned subsidiary of Parent;
WHEREAS
, pursuant to the Merger Agreement, Parent shall deposit with the Escrow Agent the
Escrow Shares, which will be available to compensate the Parent Indemnified Parties for
Indemnifiable Losses pursuant to Article 9 of the Merger Agreement, on the terms and conditions set
forth therein; and
WHEREAS
, the parties desire to set forth their understandings with regard to the escrow
account established hereunder.
NOW, THEREFORE
, in consideration of the promises and agreements of the parties contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Appointment of Agent
. Parent and the Stockholder Representative hereby appoint the Escrow
Agent as their agent to hold in escrow, and to administer the disposition of, the Escrow Fund (as
defined below) in accordance with the terms of this Agreement, and the Escrow Agent hereby accepts
such appointment.
2. Stockholder Representative
. Pursuant to Section 10.11 of the Merger Agreement, the
Stockholder Representative has been designated to act as the representative, agent and
attorney-in-fact for the Company Stockholders and their successors and assigns for all purposes
under this Agreement and, after the Effective Time, the Merger Agreement. The Escrow Agent is
hereby relieved from any liability to any person for any acts done by the Escrow Agent in
accordance with any notice, direction, consent or instruction of or from the Stockholder
Representative under this Agreement.
3. Establishment of Escrow
. At the Effective Time, and in accordance with the terms of the
Merger Agreement, Parent shall deliver the Escrow Shares to a special escrow
account established by the Escrow Agent on behalf of Parent and the Stockholder Representative
for the benefit of the Company Stockholders (the
Escrow Account
). The Escrow Shares,
which may be delivered to the Escrow Agent in either certificated or book-entry form, shall be
1
registered in the name of the Escrow Agent or its nominee. Upon receipt of the Escrow Shares, the
Escrow Agent shall acknowledge such receipt in writing to Parent and the Stockholder
Representative. Any securities of Parent or any other issuer distributed in respect of or in
exchange for any of the Escrow Shares, whether by way of stock dividends, stock splits or
otherwise, shall be issued in the name of the Escrow Agent or its nominee, and shall be delivered
to the Escrow Agent, who shall hold such securities in the Escrow Account (such securities being
considered Escrow Shares for the purposes hereof). The Escrow Agent shall have no responsibility to
monitor or compel issuance of any Escrow Shares in its name, but shall merely hold such shares as
are delivered, as provided herein. The Escrow Shares held in the Escrow Account, together with any
further shares that may be deposited in the Escrow Account by Parent and with any securities or
other property deposited in the Escrow Account in accordance with Section 4(c) hereof, less any
shares released from the Escrow Account and/or disbursed to Parent, as the case may be, from time
to time in accordance with Sections 6 and 7 hereof, shall be referred to herein as the
Escrow
Fund
. The Escrow Agent agrees to administer the disposition of the Escrow Fund in accordance
with the terms and conditions of this Agreement. The Escrow Fund shall be segregated on the books
and records of the Escrow Agent from the other assets of the Escrow Agent and shall be held by the
Escrow Agent in trust for the benefit of Parent and the Company Stockholders in accordance with the
terms and conditions of this Agreement. The Escrow Fund shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of any party hereto, and
shall be held and disbursed solely for the purposes of, and in accordance with the terms and
conditions of, this Agreement.
4. Voting and Rights of Ownership
.
(a) While the Escrow Shares remain in escrow pursuant to this Agreement, the Company
Stockholders will retain and will be able to exercise all incidents of ownership of said Escrow
Shares that are not inconsistent with the terms and conditions of this Agreement. The Escrow Shares
held pursuant to this Agreement will be shown as issued and outstanding on the books and records of
Parent.
(b) With respect to the voting rights attached to the Escrow Shares, each Company Stockholder
will have the right, in its sole discretion, to direct the Escrow Agent in writing as to the
exercise of any voting rights pertaining to the Escrow Shares held in the Escrow Account for the
account of such Company Stockholder, and the Escrow Agent shall comply with any such written
instructions. In the absence of such instructions, the Escrow Agent shall not vote any of the
Escrow Shares. Parent will deliver to the Escrow Agent sufficient quantities of all notices,
solicitations or other documents or information issued to Parents stockholders generally with
respect to the Parent Common Stock, including, but not limited to, proxy materials, which shall be
forwarded by the Escrow Agent to each Company Stockholder and the Stockholder Representative. Any
such notice, solicitation or other document or information shall be sent to the Escrow Agent at the
same time as they are sent to the stockholders of Parent generally. The Escrow Agent shall have no
obligation to solicit consents or proxies from the Company Stockholders for purposes of any such
vote. The number of Escrow Shares held in the Escrow Account for the account of each Company
Stockholder shall be set forth on
Schedule A
.
(c) Any cash dividends distributed prior to the First Release Date (as defined below) in
respect of the Escrow Shares shall be promptly distributed by the Escrow Agent to the
2
Company
Stockholders by check payable to the Company Stockholders in proportion to the number of Escrow
Shares that would be released to the Company Stockholders if the First Release Date occurred on the
record date for payment of such dividends. Any cash dividends distributed prior to the Second
Release Date (as defined below) in respect of the Escrow Shares shall be promptly distributed by
the Escrow Agent to the Company Stockholders by check payable to the Company Stockholders in
proportion to the number of Escrow Shares that would be released to the Company Stockholders if the
Second Release Date occurred on the record date for payment of such dividends. Any stock dividend
paid on the Escrow Shares in connection with a Capital Change (as defined in Section 8, below)
shall be issued in the name of the Escrow Agent or its nominee and deposited with the Escrow Agent
to be held in escrow as additional Escrow Shares along with the corresponding Escrow Shares
previously deposited. Any non-cash dividends or distributions of securities or other property paid
on the Escrow Shares (other than in connection with a Capital Change) shall be deposited with the
Escrow Agent to be held in escrow as additional Escrow Shares along with the corresponding Escrow
Shares previously deposited (any such non-cash dividends or distributions of securities or other
property shall be referred to herein as
Additional Escrow Property
).
(d) If the Escrow Shares are reclassified, converted or changed into, or exchanged for
securities or other property pursuant to a merger, consolidation or other reorganization of Parent
after the Effective Time, then such reclassified shares or securities or other property, as the
case may be, shall be deposited with the Escrow Agent to be held in escrow and released from escrow
and/or disbursed to Parent, as the case may be, in conjunction with the terms of this Agreement at
the same time and in the same respective amounts as the related Escrow Shares, assuming for this
purpose that such reclassification, merger, consolidation or other reorganization had not been
effected.
5. Tax Matters
.
(a) The parties agree solely for U.S. Tax purposes and, to the extent permitted by applicable
Law, state and local Tax purposes, (i) the Escrow Shares shall be treated as issued to the Company
Stockholders, (ii) the Company Stockholders shall be treated as receiving the Escrow Shares on the
Closing Date, (iii) the Company Stockholders, as owners of the Escrow Shares for Tax purposes,
shall be responsible for any Taxes related to (x) the Escrow Shares, (y) any dividend or other
distribution on the Escrow Shares, whether in the form of securities or cash, or (z) any interest
and earnings from the investment and reinvestment of any dividends or other distribution on the
Escrow Shares (such items (y) and (z) collectively,
Escrow Earnings
), and (iv) the Escrow
Agent does not have any interest in the Escrow Shares or Escrow Earnings. In accordance with its
respective share of the Escrow Earnings, each Company Stockholder shall report on its respective
Tax Returns and be liable for the payment of, and shall pay when due, all Taxes upon the Escrow
Earnings. For Tax reporting purposes, all Escrow Earnings in any Tax year shall be reported as
allocated to the Company Stockholders (in accordance with each Company Stockholders ownership of
Escrow Shares as described in
Schedule A
hereto (as adjusted to include any Capital Change
(as defined below) and/or any dividends or other distributions paid or made thereon)) until the
release of the Escrow Shares to the Company Stockholders or the disbursement of the Escrow Shares
to Parent. The Escrow Agent shall report
all Escrow Earnings on Form 1099 or other appropriate forms with respect to each calendar year
during the term of this Agreement in a manner consistent with the provisions of this Section 5(a).
3
(b) Each Company Stockholder agrees to complete, sign and send to the Escrow Agent, a Form
W-9, or Form W-8, as applicable, and any other forms and documents that the Escrow Agent may
reasonably request for Tax reporting purposes. Moreover, each Company Stockholder acknowledges and
agrees that, in the event the Escrow Agent is required to withhold any Taxes, the Escrow Agent
shall, upon direction from Parent in its sole discretion, either obligate the Company Stockholder
to pay such portion of the Escrow Earnings to the Escrow Agent or remove such portion from the
Escrow Earnings as is required to be remitted to the IRS in compliance with the Code or to any
other applicable Tax authority.
6. Indemnification Claims
.
(a) Parent (on behalf of any Parent Indemnified Party) may, in accordance with the provisions
of Article 9 of the Merger Agreement, from time to time deliver to the Stockholder Representative,
with contemporaneous delivery to the Escrow Agent, a Claim Notice pursuant to Section 9.3(b) of the
Merger Agreement containing (i) a description and, if known, the estimated amount of any
Indemnifiable Losses incurred or reasonably expected to be incurred by the Parent Indemnified
Party, (ii) a reasonable explanation of the basis for the Claim Notice to the extent of the facts
then known by Parent, and (iii) a demand for payment of the Claimed Amount.
(b) Within 20 days after delivery of a Claim Notice, pursuant to Section 9.3(c) of the Merger
Agreement, the Stockholder Representative will deliver to Parent, with contemporaneous delivery to
the Escrow Agent, a Response, in which the Stockholder Representative will:
(i) agree that the Parent Indemnified Party is entitled to receive all of the Claimed Amount,
in which event the Escrow Agent will promptly disburse the Claimed Amount to Parent from and to the
extent of the Escrow Fund pursuant to Section 6(e) hereof;
(ii) dispute that the Parent Indemnified Party is entitled to receive all of the Claimed
Amount, but agree that the Parent Indemnified Party is entitled to receive the Agreed Amount (a
Partial Objection Notice
), in which event the Escrow Agent will promptly disburse the
Agreed Amount to Parent from and to the extent of the Escrow Fund pursuant to Section 6(e) hereof;
or
(iii) dispute that the Parent Indemnified Party is entitled to receive any of the Claimed
Amount (an
Objection Notice
).
(c) If the Stockholder Representative fails to deliver a Response to Parent within 20 days
after delivery of the Claim Notice, then the Stockholder Representative will be deemed to have
irrevocably accepted the Claim Notice and the Stockholder Representative will be deemed to have
irrevocably agreed to the Claimed Amount. In such event, Parent will send written notice of such
failure to the Escrow Agent, who will promptly disburse to Parent from and to the extent of the
Escrow Fund the Claimed Amount pursuant to Section 6(e) hereof.
(d) If a Partial Objection Notice or an Objection Notice is delivered by the Stockholder
Representative in accordance with Sections 6(b)(ii) or 6(b)(iii) hereof, respectively,
4
then the
Claimed Amount less the Agreed Amount, if any, will be treated as a disputed claim and the amount
of such disputed claim will be held by the Escrow Agent as an undivided portion of the Escrow Fund
(which amount will continue to be available to satisfy other Claim Notices), and the Escrow Agent
will make disbursements with respect thereto only in accordance with the Escrow Agents receipt of
joint written instructions executed by Parent and the Stockholder Representative with respect to
such amount following the resolution of such disputed claim pursuant to Section 10.12 of the Merger
Agreement.
(e) Any indemnification of the Parent Indemnified Parties pursuant to Article 9 of the Merger
Agreement will be effected by the disbursement to Parent of all or a portion of the Escrow Fund;
provided, however, that to the extent the Escrow Fund includes Additional Escrow Property at the
time of any such disbursement to Parent pursuant to this Section 6(e), such disbursement shall
consist of amounts of Parent Common Stock and Additional Escrow Property in proportion to the
relative value of each in the Escrow Fund at the time of disbursement. Each Escrow Share
consisting of Parent Common Stock shall have a deemed value equal to the average of the last
closing sale prices for Parent Common Stock on NASDAQ, as reported in The Wall Street Journal, over
the five consecutive trading days ending two trading days immediately preceding such disbursement.
The deemed value of Additional Escrow Property shall be determined as follows:
(i) If such property consists of securities that are traded on a stock market, the per unit or
share value of such securities shall be deemed to be the average of the last closing sale prices of
such security on the primary stock exchange or other over-the-counter market on which such
securities are listed or quoted over the five consecutive trading days ending two trading days
immediately preceding such disbursement; and
(ii) If such property does not consist of securities traded on a stock market, the value of
such property shall be deemed to be its fair market value as mutually agreed upon by Parent and the
Stockholder Representative; provided, however, that if Parent and the Stockholder Representative
are unable to reach agreement on any valuation of such property or securities, such valuation shall
be submitted to and determined by a nationally recognized independent investment bank selected by
Parent and the Stockholder Representative (or, if such selection cannot be agreed upon promptly, or
in any event within 10 days, then such valuation shall be made by a nationally recognized
independent investment banking firm selected by the American Arbitration Association in Los
Angeles, CA in accordance with its rules), the costs of which valuation shall be paid for by
Parent.
(f) In all cases, the number of Escrow Shares to be disbursed pursuant to Section 6(e) hereof
shall be determined by Parent and the Stockholder Representative and such Escrow Shares shall only
be disbursed upon Escrow Agents receipt of joint written instructions executed by Parent and the
Stockholder Representative.
7. Distribution of Remaining Escrow Fund
.
(a) If not earlier distributed pursuant to Section 6 hereof, the Escrow Agent will distribute
to the Company Stockholders on October 13, 2011 (the
First Release Date
) one-half of the
Escrow Shares (the
First Release Date Shares
) on a pro rata basis in accordance
5
with each
Company Stockholders ownership of Escrow Shares as described in
Schedule A
, unless on or
prior to such date the Escrow Agent has received one or more Claim Notices which have not been
fully resolved or satisfied in accordance with Section 6; in which case the First Release Date
Shares will be retained by the Escrow Agent in accordance with this Agreement until such unresolved
or unsatisfied Claim Notices are settled in accordance with Section 6.
(b) If not earlier distributed pursuant to Section 6 hereof, the Escrow Agent will distribute
to the Company Stockholders on April 13, 2012 (the
Second Release Date
) the remaining
portion of the Escrow Fund, if any, on a pro rata basis in accordance with each Company
Stockholders ownership of Escrow Shares as described in
Schedule A
, unless on or prior to
such date the Escrow Agent has received one or more Claim Notices which have not been fully
resolved or satisfied in accordance with Section 6; in which case the remaining portion of the
Escrow Fund, if any, will be retained by the Escrow Agent in accordance with this Agreement until
such unresolved or unsatisfied Claim Notices are settled in accordance with Section 6.
(c) In all cases, the number of Escrow Shares to be distributed pursuant to this Section 7
shall be determined by Parent and the Stockholder Representative and such Escrow Shares shall only
be distributed upon Escrow Agents receipt of joint written instructions executed by Parent and the
Stockholder Representative.
8. Capital Changes.
The number of Escrow Shares to be released from escrow or disbursed to
Parent, as the case may be, in accordance with this Agreement shall be adjusted from time to time
to account for any stock dividends, stock splits, combinations or other similar recapitalizations
affecting Parent Common Stock subsequent to the Effective Time (each such change, a
Capital
Change
). In the event that a Capital Change occurs subsequent to the Effective Time and prior
to the termination of this Agreement pursuant to Section 11, Parent shall ensure that the number of
Escrow Shares to be released from escrow or disbursed to Parent, as the case may be, in accordance
with this Agreement takes into account the change in number of Escrow Shares that occurred as a
result of such Capital Change and is adjusted, where necessary, such that the number of Escrow
Shares released from escrow or disbursed to Parent, as the case may be, in accordance with this
Agreement is equal to that number of Escrow Shares that would be eligible for release or
disbursement, as the case may be, had such Capital Change been given effect immediately prior to
the Effective Time. In the event of a Capital Change after the Effective Time, Parent and the
Stockholder Representative will prepare a revised
Schedule A
making proportional
adjustments to the numbers of Escrow Shares thereon to appropriately reflect such Capital Change.
9. Fractional Escrow Shares.
No fractional Escrow Shares shall be disbursed to Parent or
distributed to the Company Stockholders pursuant to this Agreement. Instead, the number of Escrow
Shares to be disbursed or distributed shall be rounded to the nearest whole number.
10. Transfer of Escrow Shares.
No portion of the rights and interests of the Company
Stockholders in the Escrow Fund may be sold, assigned, pledged, distributed or otherwise
transferred, without the prior written consent of Parent.
6
11. Termination
. This Agreement shall terminate upon the earliest to occur of the following
events:
(a) all Escrow Shares have been either released or disbursed in accordance with Sections 6 and
7; or
(b) Parent and the Stockholder Representative agree in writing to terminate this Agreement, in
which case the Escrow Agent shall distribute the Escrow Shares in accordance with the joint written
instructions of Parent and the Stockholder Representative.
12. Responsibilities and Liability of Escrow Agent
.
(a)
Duties Limited
. The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein. The Escrow Agent may perform its duties through its agents and
affiliates. The Escrow Agents duties shall be determined only with reference to this Agreement and
applicable laws and it shall have no implied duties. The Escrow Agent shall not be bound by, deemed
to have knowledge of, or have any obligation to make inquiry into or consider, any term or
provision of any agreement between Parent, the Stockholder Representative, and/or any other third
party which may be referred to herein or as to which the escrow relationship created by this
Agreement relates.
(b)
Liability of Escrow Agent
. Except in cases of the Escrow Agents bad faith,
willful misconduct or gross negligence, the Escrow Agent shall be fully protected (i) in acting in
reliance upon any certificate, statement, request, notice, advice, instruction, direction, other
agreement or instrument or signature reasonably and in good faith believed by the Escrow Agent to
be genuine, (ii) in assuming that any person purporting to give the Escrow Agent any of the
foregoing in accordance with the provisions hereof, or in connection with either this Agreement or
the Escrow Agents duties hereunder, has been duly authorized to do so, and (iii) in acting or
refraining from acting in good faith when advised to act or refrain to act, as the case may be, by
any counsel retained by the Escrow Agent. The Escrow Agent shall not be liable for any mistake of
fact or law or any error of judgment, or for any act or omission, except as a result of its bad
faith, willful misconduct or gross negligence. The Escrow Agent shall not be responsible for any
loss incurred upon any investment made under circumstances not constituting bad faith, willful
misconduct or gross negligence.
Without limiting the generality of the foregoing, it is hereby agreed that in no event will
the Escrow Agent and its agents and affiliates be liable for any lost profits or other indirect,
special, incidental or consequential damages which the parties may incur or experience by reason of
having entered into or relied on this Agreement or arising out of or in connection with the Escrow
Agents performance of services hereunder, even if the Escrow Agent was advised or otherwise made
aware of the possibility of such damages; nor shall the Escrow Agent be liable for acts of God,
acts of war, breakdowns or malfunctions of machines or computers, interruptions or malfunctions of
communications or power supplies, labor difficulties, actions of
public authorities, or any other similar cause or catastrophe beyond the Escrow Agents
reasonable control.
In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder, or
shall receive any certificate, statement, request, notice, advice, instruction,
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direction or other
agreement or instrument from any other party with respect to the Escrow Fund which, in the Escrow
Agents reasonable and good faith opinion, is in conflict with any of the provisions of this
Agreement, or shall be advised that a dispute has arisen with respect to the Escrow Fund or any
part thereof, the Escrow Agent shall be entitled, without liability to any person, to refrain from
taking any action other than to keep safely the Escrow Fund until the Escrow Agent shall be
directed otherwise in accordance with Section 6(d) hereof. The Escrow Agent shall be under no duty
to institute or defend any legal proceedings, although the Escrow Agent may, in its discretion and
at the expense of Parent as provided in Sections 12(c) or 12(d) hereof, institute or defend such
proceedings.
(c)
Indemnification of Escrow Agent
. Parent agrees to indemnify the Escrow Agent and
its officers, directors, employees, agents, affiliates, successors and assigns for, and to hold it
harmless against, any and all claims, suits, actions, proceedings, investigations, judgments,
deficiencies, damages, settlements, liabilities and expenses (including reasonable legal fees and
expenses of attorneys chosen by the Escrow Agent) as and when incurred, arising out of or based
upon any act, omission, alleged act or alleged omission by the Escrow Agent or its officers,
directors, employees, agents, affiliates, successors and assigns or any other cause, in any case in
connection with the acceptance of, or performance or non-performance by the Escrow Agent of, any of
the Escrow Agents duties under this Agreement, except as a result of the Escrow Agents bad faith,
willful misconduct or gross negligence.
(d)
Authority to Interplead
. The parties hereto authorize the Escrow Agent, if the
Escrow Agent is threatened with litigation or is sued, to interplead all interested parties in any
court of competent jurisdiction and to deposit the Escrow Fund with the clerk of that court. In the
event of any dispute hereunder, the Escrow Agent shall be entitled to petition a court of competent
jurisdiction and shall perform any acts ordered by such court.
(e)
No Representations
. The Escrow Agent makes no representations as to the validity,
value, genuineness, or the collectibility of any security or other document or instrument held by
or delivered to the Escrow Agent by or on behalf of the parties hereto.
13. Removal and Resignation of Escrow Agent
.
(a)
Removal
. Parent and the Stockholder Representative acting together shall have the
right to terminate the appointment of the Escrow Agent at any time by giving no less than thirty
(30) calendar days prior written notice of such termination to the Escrow Agent, specifying the
date upon which such termination shall take effect. Thereafter, the Escrow Agent shall have no
further obligation hereunder except to hold the Escrow Fund as depositary. Parent and the
Stockholder Representative agree that they will jointly appoint a banking corporation, trust
company or other financial institution as successor Escrow Agent. The Escrow Agent shall refrain
from taking any action until it shall receive joint written instructions from Parent and the
Stockholder Representative designating the successor Escrow Agent. The Escrow Agent shall deliver
all of the Escrow Fund to such successor Escrow Agent in accordance with such
instructions and upon receipt of the Escrow Fund, the successor Escrow Agent shall be bound by
all of the provisions hereof.
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(b)
Resignation
. The Escrow Agent may resign and be discharged from its duties and
obligations hereunder at any time by giving no less than thirty (30) calendar days prior written
notice of such resignation to Parent and the Stockholder Representative, specifying the date when
such resignation will take effect. Thereafter, the Escrow Agent shall have no further obligation
hereunder except to hold the Escrow Fund as depository. In the event of such resignation, Parent
and the Stockholder Representative agree that they will jointly appoint a banking corporation,
trust company, or other financial institution as successor Escrow Agent within thirty (30) calendar
days of notice of such resignation. The Escrow Agent shall refrain from taking any action until it
shall receive joint written instructions from Parent and the Stockholder Representative designating
the successor Escrow Agent. The Escrow Agent shall deliver all of the Escrow Fund to such successor
Escrow Agent in accordance with such instructions and upon receipt of the Escrow Fund, the
successor Escrow Agent shall be bound by all of the provisions hereof.
14. General
.
(a)
Accounting
. Upon each release or disbursement of any of the Escrow Shares in the
Escrow Fund or the termination of this Agreement, the Escrow Agent shall render to Parent and the
Stockholder Representative an accounting in writing of the Escrow Fund and all distributions
therefrom.
(b)
Survival
. Notwithstanding anything herein to the contrary, the provisions of
Sections 12(b) and 12(c) hereof shall survive any resignation or removal of the Escrow Agent, and
any termination of this Agreement.
(c)
Escrow Agent Fees
. The Escrow Agent shall charge a one-time administrative fee of
$5,000, and Parent shall be solely liable for the payment of such fee. In addition, the Escrow
Agent shall be reimbursed by Parent for all reasonable out-of-pocket expenses incurred by the
Escrow Agent in the preparation, administration or performance of this Agreement.
(d)
Notices
. All notices and other communications hereunder shall be in writing and
shall be deemed given (i) on the date of delivery if delivered personally by commercial courier
service, federal express or otherwise or (ii) on the date of confirmation of receipt (or the first
business day following such receipt if the date is not a business day), of transmission, by
telecopier, or facsimile to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
If to Parent, to it at:
RXi Pharmaceuticals Corporation
60 Prescott Street
Worcester, MA 01605
Attn: Chief Executive Officer
Facsimile: 508-767-3862
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with separate copies thereof addressed to (which shall not constitute notice to Parent):
Fredrikson & Byron, P.A.
200 South Sixth Street
Suite 4000
Minneapolis, MN 55402
Attn: Christopher J. Melsha
Facsimile: 612-492-7077
If to the Stockholder Representative, to him at:
Robert E. Kennedy
9450 E. Larkspur Dr.
Scottsdale, AZ 85260
with separate copies thereof addressed to (which shall not constitute notice
to the Stockholder Representative):
Snell & Wilmer L.L.P.
One Arizona Center
400 East Van Buren St.
Phoenix, AZ 85004
Attn: Daniel M. Mahoney
Facsimile: 602-382-6070
If to the Escrow Agent, to it at:
Computershare Trust Company, N.A.
350 Indiana Street, Suite 750
Golden, CO 80401
Attn: John Wahl / Rose Stroud
Facsimile: 303-262-0608
(e)
Modifications; Waiver
. This Agreement may not be amended, altered or modified
without the express prior written consent of each of the parties hereto. No course of conduct shall
constitute a waiver of any terms or conditions of this Agreement, unless such waiver is specified
in writing, and then only to the extent so specified. A waiver of any of the terms and conditions
of this Agreement on one occasion shall not constitute a waiver of the other terms of this
Agreement, or of such terms and conditions on any other occasion.
(f)
Further Assurances
. If at any time the Escrow Agent shall consider or be advised
that any further agreements, assurances or other documents are reasonably necessary or desirable to
carry out the provisions hereof and the transactions contemplated hereby, the parties hereto shall
execute and deliver any and all such agreements or other documents, and do all things reasonably
necessary or appropriate to carry out fully the provisions hereof.
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(g)
Assignment
. This Agreement shall inure to the benefit of and be binding upon the
successors, heirs, personal representatives, and permitted assigns of the parties hereto. Neither
Parent nor the Stockholder Representative may assign this Agreement or any of its rights, interests
or obligations without the prior written approval of the other parties. This Agreement may not be
assigned by the Escrow Agent, except that upon prior written notice to Parent and the Stockholder
Representative, the Escrow Agent may assign this Agreement to an affiliated or successor trust
company or other qualified bank entity.
(h)
Section Headings
. The section headings contained in this Agreement are inserted
for purposes of convenience of reference only and shall not affect the meaning or interpretation
hereof.
(i)
Governing Law
. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its rules of conflict of laws. Each of
Parent, the Stockholder Representative and the Escrow Agent hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the courts of the State of Delaware and of the
United States of America located in the State of Delaware (the
Delaware Courts
) for any
litigation arising out of or relating to this Agreement and the transactions contemplated hereby
(and agrees not to commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Delaware Courts, and agrees not to
plead or claim in any Delaware Court that such litigation brought therein has been brought in any
inconvenient forum. Each of the parties hereto agrees, (a) to the extent such party is not
otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent
in the State of Delaware as such partys agent for acceptance of legal process, and (b) that
service of process may also be made on such party by prepaid certified mail with a proof of mailing
receipt validated by United States Postal Service constituting evidence of valid service. Service
made pursuant to (a) or (b) above shall have the same legal force and effect as if served upon such
party personally with the State of Delaware.
(j)
Counterparts
. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one and the same
instrument.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date
first written above.
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RXI PHARMACEUTICALS CORPORATION
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By:
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Name:
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Title:
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ROBERT E. KENNEDY,
as Stockholder Representative
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By:
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COMPUTERSHARE TRUST COMPANY, N.A., as Escrow
Agent
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By:
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Name:
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Title:
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