Report of Independent Auditors
To the Board of Directors of
Achieve Life Science,
Inc.
We have audited the accompanying consolidated financial statements of Achieve Life Science, Inc. and its subsidiaries (the Company), which
comprise the consolidated balance sheets as of December 31, 2016 and December 31, 2015, and the related consolidated statements of loss and comprehensive loss, stockholders equity, and cash flows and the related notes, which comprise a summary
of significant accounting policies and other explanatory information for the year ended December 31, 2016 and the period from May 12, 2015 (the date of inception) to December 31, 2015.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the
Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Achieve Life Science, Inc. and its subsidiaries as of December 31, 2016 and December 31, 2015, and the results of its operations and its cash flows for
the year ended December 31, 2016 and the period from May 12, 2015 (the date of inception) to December 31, 2015 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying consolidated
financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital and cash outflows from operating activities that raise
substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty. Our opinion is not modified with respect to this matter.
/s/ PricewaterhouseCoopers LLP
Vancouver, British Columbia
March 27, 2017
F-39
Achieve Life Science, Inc.
Consolidated Balance Sheets
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15
|
|
|
$
|
67
|
|
Prepaid expenses
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18
|
|
|
|
67
|
|
License agreement
[notes 3,4]
|
|
|
2,755
|
|
|
|
2,977
|
|
Goodwill
[note 4]
|
|
|
1,034
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,807
|
|
|
$
|
4,078
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
95
|
|
|
$
|
72
|
|
Accrued liabilities
[note 7]
|
|
|
1,121
|
|
|
|
452
|
|
Salaries payable
[note 7]
|
|
|
1,028
|
|
|
|
404
|
|
Stockholder loans with related parties
[note 7]
|
|
|
829
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,073
|
|
|
|
1,611
|
|
Deferred tax liability
[note 5]
|
|
|
124
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,197
|
|
|
|
2,238
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 30,000 shares authorized, 21,230 issued and outstanding at
December 31, 2016 and December 31, 2015, respectively
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
2,667
|
|
|
|
2,667
|
|
Accumulated deficit
|
|
|
(2,062
|
)
|
|
|
(828
|
)
|
Accumulated other comprehensive income
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
610
|
|
|
|
1,840
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,807
|
|
|
$
|
4,078
|
|
|
|
|
|
|
|
|
|
|
Subsequent events
[note 9]
|
|
|
|
|
|
|
|
|
Liquidity and Going Concern Uncertainty
[note 1]
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-40
Achieve Life Science, Inc.
Consolidated Statements of Loss and Comprehensive Loss
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
286
|
|
|
$
|
107
|
|
General and administrative
[Note 7]
|
|
|
1,428
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,714
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(24
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(1,738
|
)
|
|
|
(1,235
|
)
|
Recovery of deferred income taxes
[Note 5]
|
|
|
(504
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,234
|
)
|
|
$
|
(828
|
)
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
Net unrealized gain on foreign exchange
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(1,230
|
)
|
|
$
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-41
Achieve Life Science, Inc.
Consolidated Statements of Stockholders Equity
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Accumulated
Deficit
|
|
|
Total,
Stockholders
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Balance, May 12, 2015 (date of incorporation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
11,730
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Conversion of common stock held by Extab Corporation stockholders into common stock
[Note
6]
|
|
|
5,000
|
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
Conversion of note payable into common stock
[Note 6]
|
|
|
4,500
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(828
|
)
|
|
|
(828
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
21,230
|
|
|
|
|
|
|
|
2,667
|
|
|
|
1
|
|
|
|
(828
|
)
|
|
|
1,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,234
|
)
|
|
|
(1,234
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
21,230
|
|
|
$
|
|
|
|
$
|
2,667
|
|
|
$
|
5
|
|
|
$
|
(2,062
|
)
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-42
Achieve Life Science, Inc.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,234
|
)
|
|
$
|
(828
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization
[note 3]
|
|
|
223
|
|
|
|
140
|
|
Deferred income tax (recovery)
|
|
|
(504
|
)
|
|
|
(407
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(2
|
)
|
|
|
|
|
Accounts payable
|
|
|
22
|
|
|
|
57
|
|
Accrued liabilities
|
|
|
670
|
|
|
|
284
|
|
Salaries payable
|
|
|
623
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(202
|
)
|
|
|
(350
|
)
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of Extab Corporation common stock
[Note 4]
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(2,000
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Payments on loan
|
|
|
|
|
|
|
(272
|
)
|
Stockholder loans
[Note 7]
|
|
|
150
|
|
|
|
2,683
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
150
|
|
|
|
2,411
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(52
|
)
|
|
|
61
|
|
Cash and cash equivalents at beginning of year
|
|
|
67
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
15
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest expense accrued but not yet paid
|
|
$
|
26
|
|
|
$
|
11
|
|
See accompanying notes.
F-43
Achieve Life Science, Inc.
Notes to Consolidated Financial Statements
1.
|
NATURE OF BUSINESS AND BASIS OF PRESENTATION
|
Achieve Life Science, Inc. (referred to as
Achieve or the Company) was incorporated in the State of Delaware on May 12, 2015, or inception date. Achieve is a pharmaceutical company developing cytisine. Cytisine is a smoking cessation treatment that has been
approved and marketed in Central and Eastern Europe for more than 15 years. Since inception, Achieve has been primarily engaged in research and development, raising capital, building its management team and seeking additional patent approvals.
Basis of Presentation
The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the
United States of America, or U.S. GAAP.
The consolidated financial statements include the accounts of Achieve, and two wholly owned
subsidiaries Extab Corporation, or Extab, was incorporated in the State of Delaware on November 6, 2008 and Achieve Pharma U.K. Ltd., or Achieve Pharma, was incorporated in the United Kingdom, or U.K., on November 17, 2008. All
intercompany balances and transactions have been eliminated.
Liquidity and Going Concern Uncertainty
Achieve has historically experienced recurring losses from operations that have generated an accumulated deficit of $2.1 million through
December 31, 2016.
The accompanying financial statements have been prepared assuming Achieve will continue to operate as a going
concern, which contemplates the realization of assets and liabilities and commitments in the normal course of business.
During the year
ended December 31, 2016, Achieve incurred a net loss of $1.2 million and negative cash flows of $0.1 million. As of December 31, 2016, Achieve had a cash balance of $15,000, an accumulated deficit of $2.1 million, and a negative working
capital balance of $3.1 million.
Substantial doubt exists as to the ability of Achieve to continue as a going concern. Achieves
ability to continue as a going concern is uncertain and dependent on Achieves ability to consummate the pending merger agreement with OncoGenex Pharmaceuticals, Inc., or OncoGenex, announced on January 5, 2017 (Note 9), and/or obtain
additional financing from alternative sources. There is no assurance that Achieve will consummate the pending merger agreement with OncoGenex or obtain financing from other sources. Management has, thus far, financed the operations through
stockholder loans and debt financing (Note 7).
Management believes that if the OncoGenex merger does not occur, existing shareholders
have sufficient capital available to contribute to operate Achieve through December 31, 2017, and intends to raise additional financing from alternative sources.
The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be
necessary should Achieve be unable to continue as a going concern. Such adjustments could be material.
Significant Accounting Policies
Use of Estimates
The
preparation of consolidated financial statements in conformity with U.S GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes thereto. Actual results could
differ from these estimates. Estimates and assumptions principally relate to estimates of the fair value of Achieves intangible asset, taxes, contingent considerations, fair value, research and development accruals and business combination
estimates.
F-44
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid investments. Achieve considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Fair Value of Assets and Liabilities
The Company uses a three-level hierarchy, which prioritizes, within the measurement of fair value, the use of market-based information over
entity-specific information for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. Fair value focuses on an exit price and is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risk
associated with those financial instruments.
The three-level hierarchy for fair value measurements is defined as follows:
|
Level I:
|
Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
Level II:
|
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
|
|
Level III:
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
An assets or liabilitys categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement.
Intangible Assets
Achieves intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of
benefit. Achieve evaluates the carrying amount of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Accounting for Impairment of Long-Lived Assets
Achieve reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the assets carrying amount may
not be recoverable, and conducts the long-lived asset impairment analyses in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets.
ASC 360-10-15
requires Achieve to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of
other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the
amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
Goodwill
Goodwill
acquired in a business combination is assigned to the reporting unit that is expected to benefit from the combination as of the acquisition date. Goodwill is tested for impairment on an annual basis or, more frequently, if an event occurs or
circumstances change that would more likely than not reduce the fair value of the reporting unit.
F-45
Revenue Recognition
Achieve has not recorded any revenues since its inception. However, in the future, Achieve may enter into agreements under which Achieve could
be eligible to receive upfront payments for licenses or options to obtain licenses in the future, milestone payments that are generated from defined development events, as well as amounts for other research and development services under strategic
alliance and collaboration agreements. In accordance with the SECs Staff Accounting Bulletin Topic 13, revenue is recognized when all four of the following criteria are met: (i) persuasive evidence of an arrangement exists;
(ii) products have been delivered or services rendered; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured. Multiple element arrangements are examined to determine whether the deliverables
can be separated or must be accounted for as a single unit of accounting. A typical Achieve collaboration agreement would, for example, include a combination of upfront license fees, payments for research and development activities, milestone
payments and royalties that are evaluated to determine whether each deliverable under the agreement has value to the customer on a stand-alone basis and whether reliable evidence of fair value for the deliverable exists. Deliverables in an
arrangement that do not meet these separation criteria are treated as a single unit of accounting, generally applying applicable revenue recognition guidance for the final deliverable to the combined unit of accounting. Achieve will recognize
revenue from non-refundable upfront license fees over the term of performance under any future collaboration agreement. When the performance period is not specified, Achieve will estimate the performance period based upon provisions contained within
the agreement, such as the duration of the research or development term, the existence, or likelihood of achievement of development commitments and any other significant commitments. These advance payments are deferred and recorded as deferred
revenue upon receipt, pending recognition, and are classified as a short-term or long-term liability in the accompanying consolidated balance sheets. Expected performance periods are reviewed periodically and, if applicable, the amortization period
is adjusted which, Achieve may accelerate or decelerate revenue recognition. The timing of revenue recognition, specifically as it relates to the amortization of upfront license fees, is significantly influenced by Achieves estimates.
Research and Development Costs
Research and development costs are expensed as incurred and include and are expected to include compensation and related benefits, stock-based
compensation, license fees, facilities, and overhead costs. Achieve expects to make nonrefundable advance payments for goods and services that will be used in future research and development activities. These payments will be capitalized and
recorded as expense in the period that Achieve receives the goods or when the services are performed.
Achieve will record and pay upfront
and milestone payments to acquire contractual rights to licensed technology as research and development expenses when incurred if there is uncertainty in Achieve receiving future economic benefit from the acquired contractual rights. Achieve
considers future economic benefits from acquired contractual rights to licensed technology to be uncertain until such a drug candidate is approved by the FDA or when other significant risk factors are abated.
Achieve makes estimates of its accrued expenses as of each balance sheet date in Achieves consolidated financial statements based on
certain facts and circumstances at that time. Accrued expenses for pre-clinical studies and clinical trials are based on estimates of costs incurred for services provided by consultants, CROs, manufacturing organizations, and for other trial related
activities. Payments under agreements with external service providers will depend on a number of factors such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, Achieve will
obtain information from various sources and estimates level of effort or expense allocated to each period. Adjustments to Achieves research and development expenses may be necessary in future periods as its estimates change. As these
activities are expected to be material to Achieves overall financial statements, subsequent changes in estimates may result in a material change in its accruals. To date, Achieve has made no accrual for clinical trial or preclinical study
costs.
F-46
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred income tax assets and liabilities are recorded
based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. Deferred income taxes are classified as current or non-current, based on the classifications of the
related assets and liabilities giving rise to the temporary differences. A valuation allowance is provided against the deferred income tax assets when realization is not reasonably assured.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). In consolidating subsidiaries with a
foreign functional currency, unrealized foreign currency translation adjustments are recorded as a component of other comprehensive income. Achieve reports the components of comprehensive loss in the statement of stockholders equity.
Foreign Currency Translation
The reporting currency is the United States, or U.S., dollar. The functional currency of each entity is the US dollar with the exception of
Achieve Pharma, a wholly owned subsidiary located in the U.K. that has a functional currency of British Pounds. Expenses denominated in other than U.S. dollars are translated at average annual rates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09,
Revenue from
Contracts with Customers
, or ASU No. 2014-09, an updated standard on revenue recognition. ASU No. 2014-09 provides enhancements to the quality and consistency of how revenue is reported by companies while also improving comparability
in the financial statements of companies reporting using International Financial Reporting Standards or U.S. GAAP. The main purpose of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in
amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not
previously addressed comprehensively and improve guidance for multiple-element arrangements. In July 2015, the FASB voted to approve a one-year deferral of the effective date of ASU No. 2014-09, which will be effective for Achieve in the first
quarter of fiscal year 2018 and may be applied on a full retrospective or modified retrospective approach. Achieve is currently evaluating the impact of implementation and transition approach of ASU 2014 on its financial statements and related
disclosures.
In March 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations
, or ASU No. 2016-08. The purpose of ASU No. 2016-08 is to clarify the implementation of guidance on principal versus agent considerations. For public entities, the amendments in ASU No. 2016-08 are effective
for interim and annual reporting periods beginning after December 15, 2017. Achieve is currently evaluating the impact of ASU No. 2016-08 on its financial statements and related disclosures.
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
, or ASU No. 2015-17. ASU
No. 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU No. 2015-17 is effective for financial statements issued for fiscal years beginning after
December 15, 2016, and interim periods within those fiscal years. Achieve currently does not believe the impact of adopting ASU No. 2014-15 will have a material impact on its financial statements and related disclosures.
F-47
In January 2016, the FASB issued ASU No. 2016-01,
Recognition and Measurement of
Financial Assets and Financial Liabilities
, or ASU No. 2016-01. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of
equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate
the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected
to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the
balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the
entitys other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Achieve is currently evaluating the
impact of ASU No. 2016-01 on its financial statements and related disclosures.
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842)
, or ASU 2016-02, which supersedes FASB Accounting Standards Codification, or ASC, Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of
leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the
lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a
lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for
annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. Achieve is currently evaluating the impact of ASU 2016-02 on its financial statements and related disclosures.
In April 2016, the FASB issued ASU No. 2016-10,
Revenue from Contracts with Customer
, or ASU No. 2016-10. The new guidance is
an update to ASC 606 and provides clarity on: identifying performance obligations and licensing implementation. For public companies, ASU No. 2016-10 is effective for annual periods, including interim periods within those annual periods,
beginning after December 15, 2016. Achieve is currently evaluating the impact of ASU No. 2016-10 on its financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses: Measurement of Credit Losses on Financial
Instruments, or ASU 2016-13. ASU 2016-13 requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13
limits the amount of credit losses to be recognized for available-for- sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The
new standard will be effective for Achieve on January 1, 2020. Early adoption will be available on January 1, 2019. Achieve is currently evaluating the impact of ASU 2016-13 on its financial statements and related disclosures.
Recently Adopted Accounting Policies
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements-Going Concern
, or ASU No. 2014-15, which
defines managements responsibility to assess an entitys ability to continue as a going concern, and requires related footnote disclosures if there is substantial doubt about its ability to
F-48
continue as a going concern. ASU No. 2014-15 is effective for Achieve for the fiscal year ending December 31, 2016, with early adoption permitted. The adoption of this standard by
Achieve required additional disclosures regarding its ability to continue as a going concern (Note 1).
In March 2016, the FASB issued ASU
No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU No. 2016-09. The amendment is to simplify several aspects of the accounting for stock-based payment transactions
including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU No. 2016-09 are effective for interim and annual reporting periods
beginning after December 15, 2016. The adoption of this standard did not have a significant impact on Achieves financial position or results of operations.
All of Achieves intangible assets are subject to amortization
and are amortized using the straight-line method over their estimated useful life. Achieve acquired license and supply agreements upon the acquisition of Extab on May 18, 2015 (Note 4). The agreements were determined to have a fair value of
$3.1 million with an estimated useful life of 14 years (Note 4).
The components of intangible assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
License agreements
|
|
$
|
3,117
|
|
|
$
|
(362
|
)
|
|
$
|
2,755
|
|
|
$
|
3,117
|
|
|
$
|
(140
|
)
|
|
$
|
2,977
|
|
As of December 31, 2016 and 2015 we recorded license agreement amortization expense of $0.2 million and
$0.1 million, respectively. The following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2016 (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2017
|
|
$
|
223
|
|
2018
|
|
|
223
|
|
2019
|
|
|
223
|
|
2020
|
|
|
223
|
|
2021
|
|
|
223
|
|
Thereafter
|
|
|
1,640
|
|
|
|
|
|
|
Total
|
|
$
|
2,755
|
|
Achieve evaluates the carrying amount of intangible assets periodically by taking into account events or
circumstances that may warrant revised estimates of useful life or that indicate the asset may be impaired. Achieve conducted an impairment analysis for long lived assets for 2016 and 2015, including the license and supply agreements for the active
pharmaceutical ingredient cytisine, and concluded no impairment has occurred as of December 31, 2016 and 2015, respectively.
On May 14, 2015, Achieve entered into a Share Purchase Agreement with
Sopharma, AD, or Sopharma, a privately held pharmaceutical company located in Bulgaria, to acquire 75% of the outstanding shares of Extab, a privately held operating company incorporated in the State of Delaware. Extab is a pharmaceutical company
developing cytisine as a smoking cessation aid and which holds certain license and supply agreements for its distribution with Sopharma.
F-49
Pursuant to the Share Purchase Agreement, Achieve acquired a 75% controlling interest in Extab
from Sopharma for $2.0 million in cash and $2.0 million in a deferred payment, contingent on regulatory approval of cytisine by the Food and Drug Administration, or FDA, or the European Medicines Agency, or EMA. In addition, as part of and in
conjunction with the Share Purchase Agreement, Achieve amended Extabs license and supply agreements with Sopharma, extending their terms by five years and reducing the royalty rate payable by Achieve. Subsequent to the acquisition, Achieve
paid to Sopharma $0.3 million to retire the balance of Extabs outstanding loans with Sopharma.
The acquisition was accounted for
using the acquisition method under ASC 805 business combinations. Results of operations have been included in the financial statements from the date of acquisition May 18, 2015, the date Achieve assumed control of Extab. The fair value of the
business combination was determined using level 3 inputs.
The purchase price of Achieves 75% controlling interest in Extab was as
follows (in thousands):
|
|
|
|
|
|
|
Fair
Value
|
|
Cash consideration
|
|
$
|
2,000
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
Purchase price
|
|
$
|
2,000
|
|
|
|
|
|
|
As of the date of acquisition and for the subsequent periods ending December 31, 2016 and 2015, Achieve
assessed the likelihood of meeting the contingent event as unlikely and as a result have estimated its fair value at zero. Achieve considers the best indicator of the fair value of net assets acquired to be the $2.0 million cash consideration
paid to acquire Achieves 75% controlling interest plus the $0.7 million fair value attributable to the non-controlling interest, or NCI, calculated on a proportionate basis.
Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed
liabilities of Extab based on their estimated fair values as of the transaction closing date. The allocation of the purchase price based on the estimated fair values is as follows (in thousands):
|
|
|
|
|
|
|
Fair
Value
|
|
Cash
|
|
$
|
6
|
|
License agreements
|
|
|
3,117
|
|
Goodwill
|
|
|
1,034
|
|
Other current liabilities
|
|
|
(456
|
)
|
Deferred tax liability (Note 5)
|
|
|
(1,034
|
)
|
Non-controlling interest
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
$
|
2,000
|
|
|
|
|
|
|
Extabs license agreement expires May 26, 2029. As of the acquisition date, Achieve estimated its
useful life to be the same as the remaining 14 year contractual life. Achieve also elected to amortize intangible assets on a straight line basis over its useful life, since there is no pattern of successful economic benefits available at the time
to reliably determine a different amortization.
Transaction costs incurred by Achieve for the acquisition of Extab were $0.2 million.
Transaction costs were primarily fees for legal counsel and were recorded to general and administrative expense for the period ended December 31, 2015.
F-50
Subsequent to acquiring control of Extab, on June 22, 2015, Achieve entered into an
agreement with the NCI stockholder of Extab to convert their shares in Extab into shares of Achieves common stock at a conversion rate commensurate with retaining 25% interest in Achieve. As of September 30, 2015, all of the NCI had
converted their shares in Extab into shares of Achieves common stock resulting in elimination of the Extab non-controlling interest and Extab becoming a wholly-owned subsidiary of Achieve (Note 6).
For the years ended December 31, 2016 and 2015 Achieves net
losses before recovery for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
|
(1,732
|
)
|
|
|
(1,211
|
)
|
International
|
|
|
(6
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,738
|
)
|
|
|
(1,221
|
)
|
|
|
|
|
|
|
|
|
|
Federal, state, and international income tax provision (recovery) is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(504
|
)
|
|
|
(407
|
)
|
State
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Taxes
|
|
|
(504
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
Total Tax Expense
|
|
|
(504
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
The reconciliation of income tax attributable to operations computed at the statutory tax rate to income tax
expense is as follows. Achieve Pharma, a British corporation, is subject to British federal statutory tax rates for December 31, 2016 and 2015 of 20.0%, and 20.0%, respectively. Achieve, incorporated in Delaware, is subject to US Federal
Statutory rates of 34% for each of the two years presented.
As of December 31, 2016 and 2015, Achieve has non-capital loss
carryforwards of $0.3 million and $0.3 million, respectively, available to offset future taxable income in the U.K. and federal net operating loss carryforwards of $1.3 million and $0.7 million, respectively, to offset future taxable
income in the United States, or U.S.
F-51
Under Section 382 of the Internal Revenue Code of 1986, substantial changes in
Achieves ownership may limit the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income. Any such annual limitation may significantly reduce the utilization of the net operating losses
before they expire. A section 382 limitation study has not been undertaken. The results of any future study could indicate that the U.S. losses may be materially limited; however, the amount of such limitation cannot be reasonably quantified at this
time, but may be significant.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income taxes at statutory rates (at a rate of 34% for all periods presented)
|
|
|
(590
|
)
|
|
|
(415
|
)
|
|
|
|
|
|
|
|
|
|
Expenses not deducted for tax purposes
|
|
|
84
|
|
|
|
5
|
|
Rate differential on foreign earnings
|
|
|
1
|
|
|
|
1
|
|
Change in valuation allowance
|
|
|
9
|
|
|
|
2
|
|
Translation adjustment
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery)
|
|
|
(504
|
)
|
|
|
(407
|
)
|
The net operating losses for income tax purposes expire as follows (in thousands):
|
|
|
|
|
|
|
Net
Operating
Losses
|
|
2016 thru 2028
|
|
|
|
|
2029
|
|
|
9
|
|
2030
|
|
|
5
|
|
2031
|
|
|
15
|
|
2032
|
|
|
17
|
|
2033
|
|
|
2
|
|
2034
|
|
|
3
|
|
2035
|
|
|
651
|
|
2036
|
|
|
611
|
|
|
|
|
|
|
Total
|
|
|
1,313
|
|
Purchase Accounting resulting from the Stock Acquisition of Extab Corporation by the Company created a
deferred tax liability, or DTL, resulting from the increase in U.S. GAAP basis to a definite-lived intangible, with no corresponding tax basis increase. The result was an initial gross DTL of $3.1 million. Subsequent to the acquisition, the
Companys U.S. DTLs exceeded its U.S. deferred tax assets, or DTA, and no valuation allowance was recorded for the U.S. DTAs.
As the
definite-lived intangible is amortized annually, creating U.S. GAAP expense with no corresponding tax deduction, the size of the DTL decreases, creating deferred income tax recovery of $0.5 million in 2016, and $0.4 million in 2015.
The potential income tax benefits relating to our U.K. deferred tax assets have not been recognized in the accounts as their realization did
not meet the requirements of more likely than not under the liability method of tax allocation. Accordingly, a full valuation allowance has been recorded, and no deferred tax assets have been recognized at December 31, 2016 and
December 31, 2015
F-52
Significant components of our deferred tax assets as of December 31 are shown below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax basis in excess of book value of assets
|
|
|
|
|
|
|
|
|
Non-capital loss carryforwards
|
|
|
496
|
|
|
|
298
|
|
Research and development deductions and credits
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
363
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
859
|
|
|
|
440
|
|
Valuation allowance
|
|
|
(46
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
813
|
|
|
|
385
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(937
|
)
|
|
|
(1,012
|
)
|
Total deferred tax liabilities:
|
|
|
(937
|
)
|
|
|
(1,012
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets (liabilities)
|
|
|
(124
|
)
|
|
|
(627
|
)
|
|
|
|
|
|
|
|
|
|
Under ASC 740, the benefit of an uncertain tax position that is more likely than not of being sustained upon
audit by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of the benefit of an uncertain tax position may be recognized if the position has less than a 50% likelihood of
being sustained. A reconciliation of the unrecognized tax benefits of uncertain tax positions for the year ended December 31, 2016 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Balance at January 1
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions based on tax positions related to the current year
|
|
|
|
|
|
|
32
|
|
Additions based on tax positions related to prior years
|
|
|
29
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
|
207
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, unrecognized benefits of approximately $0.2 million have been recognized,
and have affected our effective tax rate, resulting in a current liability on the balance sheet. Achieves accounting policy is to treat interest and penalties relating to unrecognized tax benefits as a component of operating income. As of
December 31, 2016 and December 31, 2015, Achieve had $0.2 million and $0.2 million in accrued interest and penalties related to income taxes, respectively. We are subject to taxes in the U.K. and the U.S. until the applicable
statute of limitations expires. Tax audits by their very nature are often complex and can require several years to complete.
|
|
|
|
|
Tax Jurisdiction
|
|
Years Open to
Examination
|
|
United Kingdom
|
|
|
2009 to 2016
|
|
United States
|
|
|
2009 to 2016
|
|
30,000 authorized common voting share, par value of $0.01. As of
December 31, 2016 and 2015, Achieve had 21,230 shares issued and outstanding.
On May 18, 2015, Achieve issued a convertible
promissory note to a private lender, or Lender, in the principal amount of $2.3 million in exchange for cash. Interest is payable on the note at an annual rate of 3.5%, compounded annually. Two million dollars of the principal amount was converted
automatically to
F-53
4,500 of shares of Achieves common stock on September 30, 2015, immediately following the conversion of the 25% non-controlling interest in Extab into shares of Achieves common
stock. The remaining $0.3 million balance of the note after conversion matures one year from the issue date. Both principal and interest are payable on demand after the maturity date at the option of the Lender, accordingly it is classified as
current in these financial statements. As of December 31, 2016 Achieve had not received payment notice from the Lender, who is a related party (note 7).
On June 22, 2015, Achieve entered into an Exchange Agreement with the remaining 25% of Extabs stockholders, representing the NCI.
Each Extab stockholder pursuant to the Exchange agreement converted their shares of Extab into shares of Achieves common stock at an exchange ratio, such that each 0.075 share of Extab common stock converted into one share of Achieve
common stock. As of September 30, 2015, all the NCI stockholders converted their 375 shares of Extab into 5,000 shares of Achieves common stock. Pursuant to Achieves acquisition of Extab, Achieve allocated $0.7 million of non-cash
consideration representing the fair value of the NCI shares exchanged (Note 4).
7.
|
RELATED PARTY TRANSACTIONS
|
Achieve entered into a consulting agreement with Ricanto,
Ltd., or Ricanto, on September 17, 2015 to provide strategic consulting and advice concerning clinical development, regulatory matters and business planning. Richard Stewart and Anthony Clarke together own 100% of Ricanto. Richard Stewart is
Achieves chairman of the board, and a principal stockholder. Anthony Clarke is a board director, officer, and a principal stockholder of Achieve. For the year ended December 31, 2016 and the period ended December 31, 2015, Achieve
incurred consulting fees from Ricanto in the amount of $0.4 million and $0.2 million, respectively. As of December 31, 2016 and 2015, Achieve recorded amounts payable to Ricanto of $0.6 million and $0.2 million, respectively, and a
component of accrued liabilities on the financial statements.
Achieve borrowed $2.72 million on May 18, 2015, through a convertible
promissory note payable to a Lender of Achieve. The note matures and is payable upon demand one year from the date of the note. Interest accrues at a rate of 3.5%, annually. On September 30, 2015 the Lender converted $2.0 million in principal
into 4,500 shares of Achieve common stock, par value $0.01, and is now a principal owner of Achieve. As of December 31, 2016 and 2015, the outstanding principal balance, included in shareholder loans with related parties, was $0.7 million and
had accrued interest payable of $35,000 and $11,000, respectively.
During 2016 Achieve borrowed $0.2 million in total principal amount
through two notes payable dated April 20, 2016 and December 8, 2016 from Achieves Chairman of the Board, and a principal stockholder. The notes mature and are payable upon demand one year from the date of issuance. Interest accrues
at an annual rate of 3.5%. As of December 31, 2016 the outstanding principal, included in shareholder loans with related parties, was $0.2 million and had accrued interest payable of $3,000.
Achieve entered into an employment agreement on May 11, 2015 with one of its principal stockholders to serve as its Chief Executive
Officer. As of December 31, 2016, Achieve had not paid the salary of the agreed upon compensation. Salary otherwise payable for the years ended December 31, 2016 and 2015 was $0.7 million and $0.3 million, respectively.
Achieve entered into an employment agreement on August 17, 2015 with a member of management to serve as its Chief Financial Officer. As
of December 31, 2016 Achieve had not paid the salary of the agreed upon compensation. Salary otherwise payable for the years ended December 31, 2016 and 2015 was $0.3 million and $0.1 million, respectively.
F-54
8.
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COMMITMENTS AND CONTINGENCIES
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Sopharma License and Supply Agreements
In 2009, Achieve, through its subsidiary, Extab, entered into a license agreement, or the Sopharma License Agreement, and a supply agreement,
or the Sopharma Supply Agreement, with Sopharma. Pursuant to the Sopharma License Agreement, Achieve was granted access to all available data related to cytisine, as well as a granted patent in several European countries including Germany, France
and Italy plus the exclusive use of, and the right to sublicense, the trademark Tabex in all territoriesother than those mainly in Eastern Europe and parts of North Africa, where Sopharma or its affiliates and agents already market
Tabexin connection with the marketing, distribution and sale of products. Under the Sopharma License Agreement, Achieve agreed to pay a nonrefundable license fee. In addition, Achieve agreed to make certain royalty payments equal to a
mid-teens percentage of all net sales of Tabex branded products in the Achieve territory, including those sold by a third party pursuant to any sublicense which may be granted by Achieve. Achieve has agreed to cooperate with Sopharma in the defense
against any actual or threatened infringement claims with respect to Tabex. Sopharma has the right to terminate the Sopharma License Agreement upon the termination or expiration of the Sopharma Supply Agreement. The Sopharma License Agreement will
also terminate under customary termination provisions including Achieves bankruptcy or insolvency and material breach. A cross-license exists between Achieve and Sopharma whereby Achieve grants to Sopharma rights to any patents or patent
applications or other intellectual property rights filed by Achieve in Sopharma territories.
On May 14, 2015, Achieve and Sopharma
entered into an amendment to the Sopharma License Agreement. Among other things, the amendment to the Sopharma License Agreement reduced the royalty payments payable by Achieve to Sopharma from a percentage in the mid-teens to a percentage in the
mid-single digits and extended the term of the Sopharma License Agreement until May 26, 2029.
Pursuant to the Sopharma Supply
Agreement, Achieve will exclusively purchase all of its cytisine from Sopharma and Sopharma agrees to exclusively supply all such cytisine requested by Achieve. Each of Achieve and Sopharma may terminate the Sopharma Supply Agreement in the event of
the other partys material breach or bankruptcy or insolvency.
Share Purchase Agreement
On May 14, 2015, Achieve entered into a Share Purchase Agreement with Sopharma, to acquire 75% of the outstanding shares of Extab for $2.0
million in cash and $2.0 million in a deferred payment, contingent on regulatory approval of cytisine by the Food and Drug Administration, or FDA, or the European Medicines Agency, or EMA.
As of the date of acquisition and for the subsequent periods ending December 31, 2016 and 2015, with respect to the contingent payment of
$2.0 million, Achieve assessed the likelihood of meeting the contingent event as unlikely. As a result no contingent liability has been recognized as of December 31, 2016 and 2015.
University of Bristol License Agreement
In July 2016, Achieve entered into a license agreement with the University of Bristol, or the University of Bristol License Agreement. Under
the University of Bristol License Agreement, Achieve received exclusive and nonexclusive licenses from the University of Bristol to certain patent and technology rights resulting from research activities into cytisine and its derivatives.
In consideration of rights granted by the University of Bristol, Achieve agreed to pay certain license fees tied to specific clinical
development and commercialization milestones resulting from activities covered by University of Bristol patents. Additionally, if Achieve successfully commercializes any product candidate subject to the University of Bristol License Agreement,
Achieve is responsible for royalty payments in the
F-55
low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products. The University of
Bristols right to these royalty payments will expire as to the license agreement upon the expiration of the last patent claim subject to the University of Bristol License Agreement. Achieve may terminate the University of Bristol License
Agreement for convenience upon a specified number of days prior notice to the University of Bristol. The University of Bristol License Agreement will terminate under customary termination provisions including Achieves bankruptcy or
insolvency or its material breach of the agreement.
On January 5, 2017, Achieve and OncoGenex Pharmaceuticals, Inc.,
or OncoGenex, entered into the Merger Agreement, pursuant to which Ash Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of OncoGenex will merge with and into Achieve, or the First Merger, with Achieve becoming a wholly
owned subsidiary of OncoGenex and the surviving company of the First Merger, or the Initial Surviving Corporation. Promptly following the First Merger, the Initial Surviving Corporation will merge with and into Ash Acquisition Sub 2, Inc., or Merger
Sub 2, a Delaware corporation and a wholly owned subsidiary of OncoGenex, with Merger Sub 2 continuing as the surviving entity as a direct wholly owned subsidiary of OncoGenex. The two mergers taken together, are intended to qualify as a
reorganization within the meaning of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended. The surviving company is expected to be renamed Achieve Life Sciences, Inc. and is referred to herein as the combined
company. The Merger is expected to close mid-2017.
Subject to the terms and conditions of the Merger Agreement, at the closing of
the First Merger, each outstanding share of Achieve common stock will be converted into the right to receive approximately 4,242.8904 shares of OncoGenex common stock, subject to adjustment as provided in the Merger Agreement based on
increases or decreases in Achieves fully-diluted capitalization, as well as the payment of cash in lieu of fractional shares. Immediately following the effective time of the merger, OncoGenex equityholders are expected to own approximately 25%
of the outstanding capital stock of the combined company on a fully diluted basis, and the Achieve stockholders are expected to own approximately 75% of the outstanding capital stock of the combined company on a fully diluted basis.
Consummation of the merger is subject to certain closing conditions, including, among other things, approval by the stockholders of Achieve
and OncoGenex. The Merger Agreement contains certain termination rights for Achieve and OncoGenex, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party
a termination fee of $0.5 million. In addition, the Merger Agreement provides that if either party breaches certain covenants regarding alternative transactions to those contemplated by the Merger Agreement, the breaching party may be required to
pay the other party a termination fee of $1.0 million. In connection with certain terminations of the Merger Agreement, either party may be required to pay the other partys third party expenses up to $0.5 million.
At the effective time of the First Merger, OncoGenexs Board of Directors is expected to consist of seven members, four of whom will be
designated by Achieve and three of whom will be designated by OncoGenex. Achieve is expected to designate Richard Stewart, Anthony Clark and two other independent directors that have yet to be determined. OncoGenex is expected to designate Scott
Cormack, Stewart Parker and Martin Mattingly. Additionally, at the effective time of the First Merger, Rick Stewart, the current Chairman of Achieve, is expected to be the Chairman and Chief Executive Officer of the combined company; Anthony Clarke,
the current Chief Scientific Officer of Achieve, is expected to be the Chief Scientific Officer of the combined company; and John Bencich, Chief Financial Officer of OncoGenex and Cindy Jacobs, Chief Medical Officer of OncoGenex, are expected to
continue to serve the combined company in their respective roles.
F-56
In accordance with the terms of the Merger Agreement, (i) certain officers, directors and
stockholders of Achieve, who collectively hold approximately 78 percent of the outstanding shares of Achieve capital stock as of the close of business on January 4, 2017, have each entered into a support agreement with OncoGenex, or the
Achieve Support Agreements, and (ii) certain of OncoGenexs officers and directors, who collectively hold approximately 1.2 percent of the outstanding shares of OncoGenexs capital stock as of the close of business on
January 4, 2017, have each entered into a support agreement with Achieve, or the OncoGenex Support Agreements, and together with the Achieve Support Agreements, the Support Agreements. The Support Agreements include covenants as to the voting
of such shares in favor of approving the transactions contemplated by the Merger Agreement and against actions that could adversely affect the consummation of the Merger.
The Support Agreements will terminate upon the earlier of the consummation of the First Merger or the termination of the Merger Agreement by
its terms.
Concurrently and in connection with the execution of the Merger Agreement, (i) certain officers, directors and
stockholders of Achieve, who collectively hold approximately 78 percent of the outstanding shares of Achieve capital stock as of the close of business on January 4, 2017 and (ii) certain of OncoGenexs officers and directors, who
collectively hold approximately 1.2 percent of the outstanding shares of OncoGenexs capital stock as of the close of business on January 4, 2017, have each entered into lock-up agreements with OncoGenex, pursuant to which, subject to
certain exceptions, each stockholder will be subject to a 180-day, or the Lock-Up Period, lock-up on the sale of shares of OncoGenexs capital stock, which Lock-Up Period shall begin upon the consummation of the First Merger.
OncoGenex expects to issue contingent value rights, or each, a CVR and collectively, the CVRs, to OncoGenexs existing stockholders prior
to the completion of the First Merger. One CVR will be issued for each share of OncoGenexs common stock outstanding as of the record date for such issuance. Each CVR will be a non-transferable right to potentially receive certain
cash, equity or other consideration received by the combined company in the event the combined company receives any such consideration during the five-year period after consummation of the First Merger as a result of the achievement of certain
clinical milestones, regulatory milestones, sales-based milestones and/or up-front payment milestones relating to OncoGenexs product candidate apatorsen, or the Milestones, upon the terms and subject to the conditions set forth in a contingent
value rights agreement to be entered into between OncoGenex, Achieve and an as of yet unidentified third party, as rights agent, or the CVR Agreement. The aggregate consideration to be distributed to the holders of the CVRs, if any, will be
equal to 80% of the consideration received by the combined company as a result of the achievement of the Milestones less certain agreed to offsets, as determined pursuant to the CVR Agreement. Under the CVR Agreement, for a period of six months
beginning in February 2017, OncoGenex will use certain defined efforts to enter into an agreement with a third party regarding the development and/or commercialization of apatorsen. At the expiration of this six-month period, if a third party has
not entered into a term sheet for the development or commercialization of apatorsen, the combined company will no longer be contractually required to pursue an agreement regarding apatorsen and no consideration will be payable to the holders of
CVRs.
OncoGenex also entered into a letter agreement with Achieve, whereby OncoGenex would pay, on behalf of Achieve, for transactions
costs associated with the merger. In the event that the Merger Agreement is terminated and as a result of such termination OncoGenex is required to pay to Achieve one or more termination fees, the total amount of termination fees OncoGenex would owe
is reduced by the amount of the transaction costs OncoGenex would have paid on behalf of Achieve.
F-57
ANNEX A
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
by and
among:
ONCOGENEX PHARMACEUTICALS, INC.,
a Delaware corporation;
ASH
ACQUISITION SUB, INC.,
a Delaware corporation;
ASH ACQUISITION SUB 2, INC.,
a Delaware corporation; and
ACHIEVE LIFE SCIENCE, INC.
a Delaware corporation
Dated as
of January 5, 2017
Table of Contents
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Page
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Section 1.
Description of Transactions
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A-2
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1.1
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The First Merger
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A-2
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1.2
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The Second Merger
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A-2
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1.3
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Effects of the Mergers
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A-3
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1.4
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Closing; First Effective Time; Second Effective Time
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A-3
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1.5
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Certificate of Incorporation and Bylaws of the Initial Surviving Corporation
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A-3
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1.6
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Certificate of Incorporation and Bylaws of the Surviving Corporation
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A-3
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1.7
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Certificate of Incorporation and Bylaws of Arrow
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A-4
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1.8
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Directors and Officers
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A-4
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1.9
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Effect of the First Merger on the Capital Stock of the Company
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A-5
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1.10
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Effect of the Second Merger on the Capital Stock of the Initial Surviving Corporation
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A-6
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1.11
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Closing of the Companys Transfer Books
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A-6
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1.12
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Surrender of Certificates.
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A-6
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1.13
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Further Action
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A-8
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Section 2.
Representations and Warranties of the Company
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A-8
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2.1
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Due Organization; Subsidiaries; Etc
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A-8
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2.2
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Certificate of Incorporation; Bylaws; Charters and Codes of Conduct
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A-8
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2.3
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Authority; Binding Nature of Agreement
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A-9
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2.4
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Vote Required
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A-9
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2.5
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Non-Contravention; Consents
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A-9
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2.6
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Capitalization, Etc
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A-10
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2.7
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Financial Statements; Bank Accounts.
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A-11
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2.8
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Absence of Changes
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A-12
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2.9
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Absence of Undisclosed Liabilities
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A-13
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2.10
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Title to Assets
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A-13
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2.11
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Real Property; Leasehold
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A-13
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2.12
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Intellectual Property
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A-13
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2.13
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Agreements, Contracts and Commitments
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A-16
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2.14
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Compliance; Permits; Restrictions
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A-17
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2.15
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Legal Proceedings; Orders
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A-18
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2.16
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Tax Matters
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A-19
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2.17
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Employee and Labor Matters; Benefit Plans
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A-21
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2.18
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Environmental Matters
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A-23
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2.19
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Insurance
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A-23
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2.20
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No Financial Advisor
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A-24
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2.21
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Registration Statement
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A-24
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2.22
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Disclosure
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A-24
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Section 3.
Representations and Warranties of Arrow and Merger Subs
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A-24
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3.1
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Due Organization; Subsidiaries; Etc
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A-24
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3.2
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Certificate of Incorporation; Bylaws; Charters and Codes of Conduct
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A-25
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3.3
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Authority; Binding Nature of Agreement
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A-25
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3.4
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Vote Required
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A-25
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3.5
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Non-Contravention; Consents
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A-25
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3.6
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Capitalization, Etc
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A-26
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3.7
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SEC Filings; Financial Statements
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A-27
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3.8
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Absence of Changes
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A-28
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A-i
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Page
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3.9
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Absence of Undisclosed Liabilities
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A-30
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3.10
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Title to Assets
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A-30
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3.11
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Real Property; Leasehold
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A-30
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3.12
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Intellectual Property
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A-30
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3.13
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Agreements, Contracts and Commitments
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A-33
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3.14
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Compliance; Permits; Restrictions
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A-34
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3.15
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Legal Proceedings; Orders
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A-35
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3.16
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Tax Matters
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A-35
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3.17
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Employee and Labor Matters; Benefit Plans
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A-37
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3.18
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Environmental Matters
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A-40
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3.19
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Insurance
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A-40
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3.20
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Transactions with Affiliates
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A-41
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3.21
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No Financial Advisor
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A-41
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3.22
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Valid Issuance
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A-41
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3.23
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Disclosure
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A-41
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Section 4.
Certain Covenants of the Parties
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A-41
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4.1
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Operation of the Businesses
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A-41
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4.2
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Access and Investigation
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A-44
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4.3
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No Solicitation
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A-45
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4.4
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Notification of Certain Matters
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A-46
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Section 5.
Additional Agreements of the Parties
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A-46
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5.1
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Registration Statement
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A-46
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5.2
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Company Stockholder Written Consent
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A-47
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5.3
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Arrow Stockholders Meeting
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A-48
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5.4
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Regulatory Approvals
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A-48
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5.5
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SEC Filings
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A-49
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5.6
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Arrow Options
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A-49
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5.7
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Employee Benefits
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A-49
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5.8
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Indemnification of Officers and Directors
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A-49
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5.9
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Additional Agreements
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A-50
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5.10
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Disclosure
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A-51
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5.11
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Listing
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A-51
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5.12
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Tax Matters
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A-51
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5.13
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Legends
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A-52
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5.14
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Directors and Officers
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A-52
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5.15
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Director and Officer Matters
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A-53
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5.16
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CVR Distribution
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A-53
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5.17
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Shelf Registration
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A-53
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Section 6.
Conditions Precedent to Obligations of Each Party
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A-53
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6.1
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Effectiveness of Registration Statement
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A-53
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6.2
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No Restraints
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A-53
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6.3
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Stockholder Approval
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A-53
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6.4
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Listing
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A-53
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6.5
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Amendment of Certain Agreements
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A-53
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6.6
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No Governmental Proceedings Relating to Contemplated Transactions or Right to Operate Business
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A-53
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6.7
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Arrow Reverse Stock Split
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A-53
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A-ii
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Page
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Section 7.
Additional Conditions Precedent to Obligations of Arrow and Merger
Subs
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A-54
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7.1
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Accuracy of Representations
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A-54
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7.2
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Performance of Covenants
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A-54
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7.3
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[Intentionally omitted.]
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A-54
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7.4
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Agreements and Other Documents
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A-54
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7.5
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Lock-up Agreements
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A-54
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7.6
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CVR Agreement
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A-55
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7.7
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No Other Proceedings
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A-55
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7.8
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FIRPTA Certificate
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A-55
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7.9
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No Company Material Adverse Effect
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A-55
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7.10
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Closing Date Allocation Schedule
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A-55
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7.11
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Financial Certificate
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A-55
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7.12
|
|
Company Liabilities
|
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|
A-55
|
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|
|
Section 8.
Additional Conditions Precedent to Obligation of the
Company
|
|
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A-55
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8.1
|
|
Accuracy of Representations
|
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A-55
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8.2
|
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Performance of Covenants
|
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|
A-56
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8.3
|
|
Lock-up Agreements
|
|
|
A-56
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8.4
|
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No Other Proceedings
|
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A-56
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8.5
|
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Documents
|
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A-56
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8.6
|
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Arrow Releases
|
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A-57
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8.7
|
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No Arrow Material Adverse Effect
|
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A-57
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Section 9.
Termination
|
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A-57
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9.1
|
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Termination
|
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A-57
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9.2
|
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Effect of Termination
|
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A-58
|
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9.3
|
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Expenses; Termination Fees
|
|
|
A-58
|
|
|
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Section 10.
Miscellaneous Provisions
|
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|
A-60
|
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|
|
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10.1
|
|
Non-Survival of Representations and Warranties
|
|
|
A-60
|
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10.2
|
|
Amendment
|
|
|
A-60
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10.3
|
|
Waiver
|
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|
A-60
|
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10.4
|
|
Entire Agreement; Counterparts; Exchanges by Facsimile
|
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A-61
|
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10.5
|
|
Applicable Law; Jurisdiction
|
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A-61
|
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10.6
|
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Attorneys Fees
|
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A-61
|
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10.7
|
|
Assignability
|
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|
A-61
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10.8
|
|
Notices
|
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|
A-61
|
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10.9
|
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Cooperation
|
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|
A-62
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10.10
|
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Severability
|
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A-62
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10.11
|
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Other Remedies; Specific Performance
|
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A-62
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10.12
|
|
No Third Party Beneficiaries
|
|
|
A-63
|
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10.13
|
|
Construction
|
|
|
A-63
|
|
|
|
|
Schedules:
|
|
|
|
|
Schedule 5.14
|
|
Officers and Directors of Arrow
|
Schedule 7.5
|
|
Persons Executing Company Stockholder Support Agreements
|
Schedule 8.3
|
|
Persons Executing Arrow Stockholder Support Agreements
|
Schedule 8.6
|
|
Arrow Releases
|
Schedule A
|
|
List of Retained Employees and Consultants
|
Schedule B
|
|
Wind-Down Plan
|
A-iii
|
|
|
|
|
Exhibits:
|
|
|
|
|
Exhibit A
|
|
Definitions
|
Exhibit B
|
|
Form of Company Stockholder Support Agreement
|
Exhibit C
|
|
Form of Arrow Stockholder Support Agreement
|
Exhibit D
|
|
Form of Company Stockholder Written Consent
|
Exhibit E
|
|
Form of Lock-up Agreement
|
Exhibit F
|
|
Form of CVR Agreement
|
A-iv
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
T
HIS
A
GREEMENT
AND
P
LAN
OF
M
ERGER
AND
R
EORGANIZATION
(this
Agreement
) is made and entered into as of January 5, 2017, by and among
O
NCO
G
ENEX
P
HARMACEUTICALS
,
I
NC
.
, a Delaware corporation (
Arrow
),
A
SH
A
CQUISITION
S
UB
, I
NC
.
, a Delaware corporation (
Merger Sub 1
),
A
SH
A
CQUISITION
S
UB
2, I
NC
.
, a Delaware corporation (
Merger Sub 2
; together with Merger Sub 1,
Merger Subs
), and
A
CHIEVE
L
IFE
S
CIENCE
, I
NC
.
, a Delaware corporation (the
Company
). Certain capitalized terms used in this Agreement are defined in
Exhibit A
.
R
ECITALS
A. The respective Board of Directors of Arrow, Merger Sub 1, Merger Sub 2 and the Company have each determined that it
is advisable and in the best interests of their respective corporations and their respective stockholders for Arrow to acquire the Company pursuant to a plan and series of integrated transactions whereby (i) Merger Sub 1 shall merge with and into
the Company (the
First Merger
) with the Company continuing as the surviving corporation in the First Merger as a direct wholly owned subsidiary of Arrow (the
Initial Surviving Corporation
) and (ii)
promptly after the First Merger, the Initial Surviving Corporation shall merge with and into Merger Sub 2 (the
Second Merger
and, together with the First Merger, the
Mergers
) with Merger Sub 2
continuing as the surviving entity in the Second Merger as a direct wholly owned subsidiary of Arrow (the
Surviving Corporation
), upon the terms and subject to the conditions set forth herein.
B. For U.S. federal income tax purposes, the Parties intend that the First Merger and the Second Merger, taken
together, qualify as a reorganization within the meaning of Section 368(a)(2)(D) of the Code, (ii) the First Merger and the Second Merger, taken together, constitute an integrated plan described in Rev. Rul. 2001-46,
2001-2 C.B.
321, (iii) the First Merger and the Second Merger, taken together, qualify as a reorganization within the meaning of Section 368(a) of the Code (clauses (i)(iii), the
Intended Tax Treatment
) and (iv) this Agreement be a plan of reorganization within the meaning of Section 368 of the Code and within the meaning of Treasury Regulation 1.368-2(g).
C. The Arrow Board (i) has determined that the Mergers and the issuance of shares of Arrow Common Stock in connection
with the Mergers is fair to, advisable and in the best interests of Arrow and its stockholders, (ii) has approved this Agreement, the issuance of shares of Arrow Common Stock to the stockholders of the Company in connection with the Mergers, and the
other Contemplated Transactions and (iii) has determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholders of Arrow vote to approve this Agreement and the issuance of Arrow Common Stock in
the Mergers pursuant to the terms of this Agreement and thereby approve the Contemplated Transactions.
D. The
Merger Sub 1 Board (i) has determined that the First Merger is fair to, advisable, and in the best interests of Merger Sub 1 and its sole stockholder, (ii) has approved this Agreement, the First Merger, and the other Contemplated Transactions and
has declared this Agreement advisable and (iii) has determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the sole stockholder of Merger Sub 1 vote to adopt this Agreement and thereby approve the
Contemplated Transactions.
E. The Merger Sub 2 Board (i) has determined that the Second Merger is fair to,
advisable, and in the best interests of Merger Sub 2 and its sole stockholder, (ii) has approved this Agreement, the Second Merger, and the other Contemplated Transactions and has declared this Agreement advisable and (iii) has determined to
recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholder of Merger Sub 2 vote to adopt this Agreement and thereby approve the Contemplated Transactions.
F. The Company Board (i) has determined that the Mergers are fair to, advisable and in the best interests of the
Company and its stockholders, (ii) has approved this Agreement, the Mergers and the other Contemplated
Transactions and has declared this Agreement advisable and (iii) has determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholders of
the Company vote to adopt this Agreement and thereby approve the Contemplated Transactions.
G. It is expected that
the issuance of shares of Arrow Common Stock to the stockholders of the Company pursuant to the Mergers will result in a change of control of Arrow.
H. In order to induce Arrow to enter into this Agreement and cause the Mergers to be consummated, each share of Arrow
Common Stock outstanding immediately prior to the First Merger Effective Time (as defined below) shall receive, prior to the Closing, one contractual contingent value right per share of Arrow Common Stock (each, a
CVR
)
representing the right to receive contingent payments, if any, upon the achievement of certain milestones at the times and subject to the terms and conditions of the CVR agreement in substantially the form attached hereto as
Exhibit F
(the
CVR Agreement
).
I. In order to induce Arrow to enter into this Agreement and to cause the
Mergers to be consummated, the officers and directors of the Company and certain stockholders listed on Schedule 7.5 hereto are executing support agreements in favor of Arrow concurrently with the execution and delivery of this Agreement in
substantially the form attached hereto as
Exhibit B
(the
Company Stockholder Support Agreements
).
J. In order to induce the Company to enter into this Agreement and to cause the Mergers to be consummated, the
officers, directors and certain stockholders of Arrow listed on Schedule 8.3 hereto are executing support agreements in favor of the Company concurrently with the execution and delivery of this Agreement in substantially the form attached hereto as
Exhibit C
(the
Arrow Stockholder Support Agreements
).
K. In order to induce the
Company to enter into this Agreement and to cause the Mergers to be consummated, the persons listed on Schedules 7.5 and 8.3 hereto are executing a copy of a Lock-up Agreement, substantially in the form attached hereto as
Exhibit E
(the
Lock-up Agreement
), concurrently with the execution and delivery of this Agreement.
A
GREEMENT
The Parties, intending to be legally bound, agree as follows:
Section 1. D
ESCRIPTION
OF
T
RANSACTIONS
1.1
The First Merger.
Upon the terms and subject to the conditions of this Agreement, and in
accordance with the DGCL, at the First Merger Effective Time and as part of an integrated transaction and plan of merger with the Second Merger, the First Merger shall be consummated, whereby Merger Sub 1 shall be merged with and into the Company,
whereupon the separate corporate existence of Merger Sub 1 shall cease, and the Company shall continue its corporate existence as the Initial Surviving Corporation and shall continue to be governed by the laws of the State of Delaware pending
consummation of the Second Merger.
1.2
The Second Merger.
Promptly following the First Merger
Effective Time and upon the terms and subject to the conditions of this Agreement, and in accordance with the DGCL, at the Second Merger Effective Time (as defined below), the Second Merger shall be consummated, whereby the Initial Surviving
Corporation shall be merged with and into Merger Sub 2, whereupon the separate corporate existence of the Initial Surviving Corporation shall cease, and Merger Sub 2 shall continue its corporate existence as the surviving corporation in the Second
Merger. There shall be no condition to the completion of the Second Merger other than the completion of the First Merger.
A-2
1.3 Effects of the Mergers.
(a)
At the First Merger Effective Time, the First Merger shall have the effects set forth in this Agreement and
in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, from and after the First Merger Effective Time, the Company shall possess all properties, rights, privileges, powers and franchises of Merger Sub 1 and the
Company, and all of the Liabilities of the Company and Merger Sub 1 shall become the Liabilities of the Company as the Initial Surviving Corporation.
(b)
At the Second Merger Effective Time, the Second Merger shall have the effects set forth in this Agreement
and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, from and after the Second Merger Effective Time, Merger Sub 2 shall possess all properties, rights, privileges, powers and franchises of the Initial
Surviving Corporation and Merger Sub 2, and all of the Liabilities of the Initial Surviving Corporation and Merger Sub 2 shall become the Liabilities of Merger Sub 2 as the Surviving Corporation.
1.4
Closing; First Effective Time
; Second Effective Time
.
Unless this Agreement is
earlier terminated pursuant to the provisions of Section 9.1 of this Agreement, and subject to the satisfaction or waiver of the conditions set forth in Sections 6, 7 and 8 of this Agreement, the consummation of the Mergers (the
Closing
) shall take place at the offices of Fenwick & West LLP, 1191 2nd Avenue, 10th Floor, Seattle, Washington, as promptly as practicable (but in no event later than the second Business Day following the satisfaction
or waiver of the last to be satisfied or waived of the conditions set forth in Sections 6, 7 and 8, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of each of such
conditions), or at such other time, date and place as Arrow and the Company may mutually agree in writing. The date on which the Closing actually takes place is referred to as the
Closing Date
. Subject to the terms of
this Agreement, the Parties shall cause (i) the First Merger to be consummated by filing a certificate of merger (the
First Certificate of Merger
) with the Secretary of State of the State of Delaware at the Closing in
accordance with the relevant provisions of the DGCL (the time specified in the First Certificate of Merger being the
First Merger Effective Time
) and (ii) the Second Merger to be consummated by filing a certificate of
merger (the
Second Certificate of Merger
) with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL (the time specified in the Second Certificate of Merger being the
Second Merger Effective Time
). The Second Merger Effective Time will occur promptly following the First Merger Effective Time.
1.5
Certificate of Incorporation and Bylaws of the Initial Surviving Corporation
. At the First
Merger Effective Time, by virtue of the First Merger and without any action on the part of Merger Sub 1 or the Company, the certificate of incorporation of the Initial Surviving Corporation shall be amended and restated to read the same as the
certificate of incorporation of Merger Sub 1, as in effect immediately prior to the First Merger Effective Time, subject to Section 5.8 and to such other changes as are mutually agreeable to Arrow and the Company, except the references to Merger Sub
1s name shall be replaced by references to Achieve Life Science, Inc., until thereafter amended in accordance with the DGCL and such certificate of incorporation. As of the First Merger Effective Time, by virtue of the First Merger
and without any action on the part of Merger Sub 1 or the Company, the bylaws of the Initial Surviving Corporation shall be amended and restated to read the same as the bylaws of Merger Sub 1, as in effect immediately prior to the First Merger
Effective Time, subject to Section 5.8 and to such other changes as are mutually agreeable to Arrow and the Company, except the references to Merger Sub 1s name shall be replaced by references to Achieve Life Science, Inc., until
thereafter amended in accordance with the DGCL, the certificate of incorporation of the Initial Surviving Corporation and such bylaws.
1.6
Certificate of Incorporation and Bylaws of the Surviving Corporation
. At the Second Merger
Effective Time, by virtue of the Second Merger and without any action on the part of the Initial Surviving Corporation or Merger Sub 2, the certificate of incorporation of the Surviving Corporation shall be amended and restated to read the same as
the certificate of incorporation of Merger Sub 2, as in effect immediately prior to the Second Merger Effective Time, subject to Section 5.8 and to such other changes as are mutually agreeable to
A-3
Arrow and the Company, except the references to Merger Sub 2s name shall be replaced by references to Achieve Life Science, Inc., until thereafter amended in accordance with the
DGCL and such certificate of incorporation. As of the Second Merger Effective Time, by virtue of the Second Merger and without any action on the part of the Initial Surviving Corporation or Merger Sub 2, the bylaws of the Surviving Corporation shall
be amended and restated to read the same as the bylaws of Merger Sub 2, as in effect immediately prior to the Second Merger Effective Time, subject to Section 5.8 and to such other changes as are mutually agreeable to Arrow and the Company, except
the references to Merger Sub 2s name shall be replaced by references to Achieve Life Science, Inc., until thereafter amended in accordance with the DGCL, the certificate of incorporation of the Surviving Corporation and such
bylaws.
1.7
Certificate of Incorporation and Bylaws of Arrow
. At the Second Merger Effective
Time, the certificate of incorporation of Arrow shall be the certificate of incorporation of Arrow immediately prior to the Second Merger Effective Time, until thereafter amended as provided by the DGCL and such certificate of incorporation;
provided
,
however
, that at the Second Merger Effective Time, Arrow shall file an amendment to its certificate of incorporation to change the name of Arrow to Achieve Life Sciences, Inc. and to make such other changes as are
mutually agreeable to Arrow and the Company. At the Second Merger Effective Time, the bylaws of Arrow shall be the bylaws of Arrow as in effect immediately prior to the Second Merger Effective Time.
1.8
Directors and Officers
.
(a)
From and after the First Merger Effective Time, the officers of the Company at the First Merger Effective
Time shall be the officers of the Initial Surviving Corporation, until their respective successors are duly elected or appointed and qualified in accordance with the DGCL or their earlier death, incapacitation, retirement, resignation or removal.
From and after the First Merger Effective Time, the directors of the Company at the First Merger Effective Time shall be the directors of the Initial Surviving Corporation, until their respective successors are duly elected or appointed and
qualified in accordance with the DGCL or their earlier death, incapacitation, retirement, resignation or removal.
(b)
From and after the Second Merger Effective Time, the officers of the Initial Surviving Corporation at the
Second Merger Effective Time shall be the officers of the Surviving Corporation, until their respective successors are duly elected or appointed and qualified in accordance with DGCL or their earlier death, incapacitation, retirement, resignation or
removal. From and after the Second Merger Effective Time, the directors of the Initial Surviving Corporation at the Second Merger Effective Time shall be the directors of the Surviving Corporation, until their respective successors are duly elected
or appointed and qualified in accordance with the DGCL or their earlier death, incapacitation, retirement, resignation or removal.
(c)
From and after the First Merger Effective Time, the officers of Arrow at the First Merger Effective Time
shall be as set forth in Section 5.14, until their respective successors are duly elected or appointed and qualified in accordance with DGCL or their earlier death, incapacitation, retirement, resignation or removal. From and after the First Merger
Effective Time, the directors of Arrow at the First Merger Effective Time shall be the Selected Directors, until their respective successors are duly elected or appointed and qualified in accordance with the DGCL or their earlier death,
incapacitation, retirement, resignation or removal.
(d)
From and after the First Merger Effective Time, the
officers of OTI (as defined below) at the First Merger Effective Time shall be as determined by the Selected Directors until their respective successors are duly elected or appointed and qualified in accordance with DGCL or their earlier death,
incapacitation, retirement, resignation or removal. From and after the First Merger Effective Time, the directors of OTI at the First Merger Effective Time shall be as determined by the Selected Directors until their respective successors are duly
elected or appointed and qualified in accordance with the DGCL or their earlier death, incapacitation, retirement, resignation or removal.
A-4
1.9
Effect of the First Merger on the Capital Stock of the
Company
.
(a)
At the First Merger Effective Time, by virtue of the First Merger and without any further
action on the part of Arrow, Merger Sub 1, the Company or any stockholder of the Company or of Merger Sub 1:
(i)
any shares of Company Capital Stock held as treasury stock or held or owned by the Company or any
Subsidiary of the Company immediately prior to the First Merger Effective Time shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor; and
(ii)
subject to Section 1.9(c), each share of Company Capital Stock outstanding immediately prior to the First
Merger Effective Time (excluding shares to be canceled pursuant to Section 1.9(a)(i)) shall be converted solely into the right to receive a number of shares of Arrow Common Stock equal to the Exchange Ratio.
(b)
If any shares of Company Common Stock outstanding immediately prior to the First Merger Effective Time are
unvested or are subject to a repurchase option or the risk of forfeiture under any applicable restricted stock purchase agreement or other agreement with the Company, then the shares of Arrow Common Stock issued in exchange for such shares of
Company Common Stock will, to the same extent, be unvested and subject to the same repurchase option or risk of forfeiture, and the certificates representing such shares of Arrow Common Stock shall accordingly be marked with appropriate legends. The
Company shall take all actions that may be necessary to ensure that, from and after the First Merger Effective Time, Arrow is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or
other agreement.
(c)
No fractional shares of Arrow Common Stock shall be issued in connection with the
First Merger, and no certificates or scrip for any such fractional shares shall be issued. Any holder of Company Capital Stock who would otherwise be entitled to receive a fraction of a share of Arrow Common Stock (after aggregating all fractional
shares of Arrow Common Stock issuable to such holder) shall, in lieu of such fraction of a share and upon surrender by such holder of a letter of transmittal in accordance with Section 1.12 and accompanying documents as required therein, be paid in
cash the dollar amount (rounded up to the nearest whole cent), without interest, determined by multiplying such fraction by the Arrow Closing Price.
(d)
At the First Merger Effective Time, by virtue of the First Merger and without any action on the part of the
Company or Merger Sub 1, each share of Common Stock, $0.01 par value per share, of Merger Sub 1 (
Merger Sub 1 Common Stock
) issued and outstanding immediately prior to the First Merger Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Initial Surviving Corporation. Each stock certificate of Merger Sub 1 evidencing ownership of any Merger Sub 1 Common Stock shall, as of the First Merger
Effective Time, evidence ownership of such share of common stock of the Initial Surviving Corporation.
(e)
If, between the date of this Agreement and the Closing, the issued or outstanding shares of Company Capital
Stock or Arrow Common Stock shall have been changed into, or exchanged for, a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares
or other like change, the Exchange Ratio, to the extent necessary, shall be equitably adjusted to reflect such change to the extent necessary to provide the parties hereto the same economic effect as contemplated by this Agreement prior to such
stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares or other like change;
provided, however
, that nothing herein will be construed to permit the Company or Arrow to take any action with
respect to Company Capital Stock or Arrow Common Stock, respectively, that is prohibited or not expressly permitted by the terms of this Agreement.
(f)
Notwithstanding anything to the contrary contained herein, any Dissenting Shares shall not be converted into
the right to receive the applicable number of shares of Arrow Common Stock pursuant to Section 1.9(a)(ii), but shall instead be converted into the right to receive such consideration as may be determined to be
A-5
due with respect to any such Dissenting Shares pursuant to and subject to the requirements of the DGCL. Each holder of Dissenting Shares who, pursuant to the provisions of the DGCL becomes
entitled to payment thereunder for such shares shall receive payment therefor in accordance with the DGCL (but only after the value therefor shall have been agreed upon or finally determined pursuant to such provisions). If, after the First
Merger Effective Time, any Dissenting Shares shall lose their status as Dissenting Shares, then any such shares shall immediately be deemed to have converted at the First Merger Effective Time into the right to receive the applicable number of
shares of Arrow Common Stock pursuant to Section 1.9(a)(ii) in respect of such shares as if such shares never had been Dissenting Shares. The Company shall provide to Arrow prompt notice of any demands for appraisal or purchase received by the
Company, withdrawals of such demands and any other instruments related to such demands served pursuant to the DGCL and received by the Company. Arrow shall have the right to participate, at its own expense and not subject to reimbursement by the
Company, in all negotiations and proceedings with respect to such demands under the DGCL. The Company shall not, except with the prior written consent of Arrow (which consent shall not be unreasonably withheld, delayed or conditioned), or as
otherwise required under the DGCL voluntarily make any payment or offer to make any payment with respect to, or settle or offer to settle, any claim or demand in respect of any Dissenting Shares. The issuance of shares of Arrow Common Stock pursuant
to Section 1.9(a)(ii) (other than in respect of Dissenting Shares, which shall be treated as provided in this Section 1.9(f) and under the DGCL) shall not be affected by the exercise or potential exercise of appraisal rights or dissenters
rights under the DGCL by any holder of Company Capital Stock.
1.10
Effect of the Second Merger on the
Capital Stock of the Initial Surviving Corporation
. At the Second Merger Effective Time, by virtue of the Second Merger and without any action on the part of the Initial Surviving Corporation or Merger Sub 2, (a) each share of common stock,
par value $0.01 per share, of Merger Sub 2 issued and outstanding immediately prior to the Second Merger Effective Time shall remain outstanding as common stock, par value $0.01 per share, of the Surviving Corporation and (b) each share of common
stock, par value $0.01 per share, of the Initial Surviving Corporation shall be canceled and shall not be converted into shares of common stock, par value $0.01 per share, of the Surviving Corporation. Immediately after the completion of the Second
Merger, Arrow shall own all of the issued and outstanding common stock, par value $0.01 per share, of the Surviving Corporation.
1.11
Closing of the Company
s Transfer Books
. At the First Merger Effective
Time: (a) all shares of Company Capital Stock outstanding immediately prior to the First Merger Effective Time shall be treated in accordance with Section 1.9(a), and all holders of certificates representing shares of Company Capital Stock
that were outstanding immediately prior to the First Merger Effective Time shall cease to have any rights as stockholders of the Company and (b) the stock transfer books of the Company shall be closed with respect to all shares of Company Capital
Stock outstanding immediately prior to the First Merger Effective Time. No further transfer of any such shares of Company Capital Stock shall be made on such stock transfer books after the First Merger Effective Time. If, after the First Merger
Effective Time, a valid certificate previously representing any shares of Company Capital Stock, outstanding immediately prior to the First Merger Effective Time (a
Company Stock Certificate
) is presented to the
Exchange Agent or to the Surviving Corporation, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Sections 1.9 and 1.12.
1.12 Surrender of Certificates.
(a)
On or within five (5) Business Days of the Closing Date, Arrow and the Company shall agree upon and select a
reputable bank, transfer agent or trust company to act as exchange agent in the First Merger (the
Exchange Agent
). At the First Merger Effective Time, Arrow shall deposit with the Exchange Agent: (i) certificates
representing the shares of Arrow Common Stock issuable pursuant to Section 1.9(a) and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with Section 1.9(c). The shares of Arrow Common Stock and cash amounts so
deposited with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the
Exchange Fund
.
A-6
(b)
At or before the First Merger Effective Time, the Company will
deliver to Arrow a true, complete and accurate listing of all record holders of Company Capital Stock at the First Merger Effective Time, including the number and class of shares of Company Capital Stock held by such record holder, and the number of
shares of Arrow Common Stock such holder is entitled to receive pursuant to Section 1.9 (the
Company Allocation Schedule
). Promptly after the First Merger Effective Time, Arrow shall cause the Exchange Agent to mail to
the Persons who were record holders of Company Stock Certificates immediately prior to the First Merger Effective Time: (i) a letter of transmittal in customary form and containing such provisions as Arrow may reasonably specify (including a
provision confirming that delivery of Company Stock Certificates shall be effected, and risk of loss and title to Company Stock Certificates shall pass, only upon delivery of such Company Stock Certificates to the Exchange Agent) and (ii)
instructions for effecting the surrender of Company Stock Certificates in exchange for certificates representing Arrow Common Stock. Upon surrender of a Company Stock Certificate to the Exchange Agent for exchange, together with a duly executed
letter of transmittal and such other documents as may be reasonably required by the Exchange Agent or Arrow: (A) the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Arrow Common Stock that such holder has the right to receive pursuant to the provisions of Section 1.9(a) (and cash in lieu of any fractional share of Arrow Common Stock pursuant to the provisions of Section 1.9(c))
and (B) the Company Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this Section 1.12(b), each Company Stock Certificate shall be deemed, from and after the First Merger Effective Time, to represent only the
right to receive shares of Arrow Common Stock (and cash in lieu of any fractional share of Arrow Common Stock). If any Company Stock Certificate shall have been lost, stolen or destroyed, Arrow may, in its discretion and as a condition
precedent to the delivery of any shares of Arrow Common Stock, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an applicable affidavit with respect to such Company Stock Certificate and post a bond
indemnifying Arrow against any claim suffered by Arrow related to the lost, stolen or destroyed Company Stock Certificate or any Arrow Common Stock issued in exchange therefor as Arrow may reasonably request.
(c)
No dividends or other distributions declared or made with respect to Arrow Common Stock with a record date
after the First Merger Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Arrow Common Stock that such holder has the right to receive in the First Merger until such holder
surrenders such Company Stock Certificate or an affidavit of loss or destruction in lieu thereof in accordance with this Section 1.12 (at which time such holder shall be entitled, subject to the effect of applicable abandoned property, escheat or
similar laws, to receive all such dividends and distributions, without interest).
(d)
Any portion of the
Exchange Fund that remains undistributed to holders of Company Stock Certificates as of the date 12 months after the Closing Date shall be delivered to Arrow upon demand, and any holders of Company Stock Certificates who have not theretofore
surrendered their Company Stock Certificates in accordance with this Section 1.12 shall thereafter look only to Arrow for satisfaction of their claims for Arrow Common Stock, cash in lieu of fractional shares of Arrow Common Stock and any dividends
or distributions with respect to shares of Arrow Common Stock.
(e)
Each of the Exchange Agent, Arrow, the
Initial Surviving Corporation, and the Surviving Corporation shall be entitled to deduct and withhold from any consideration deliverable pursuant to this Agreement to any holder of any Company Capital Stock such amounts as are required to be
deducted or withheld from such consideration under the Code or under any other applicable Legal Requirement; provided, however, that prior to making any such deduction or withholding, the applicable withholding agent shall provide notice to the
affected recipient of the amounts subject to withholding and a reasonable opportunity for such recipient to provide forms or other evidence that would exempt such amounts from withholding tax. Such applicable withholding agent shall be entitled to
request any reasonably appropriate Tax forms, including Form W-9 (or the appropriate Form W-8, as applicable) from any recipient of payments hereunder. To the extent such amounts are so deducted or withheld, and remitted to the appropriate taxing
authority, such amounts shall be treated for all
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purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.
(f)
No party to this Agreement shall be liable to any holder of any Company Capital Stock or to any other Person
with respect to any shares of Arrow Common Stock (or dividends or distributions with respect thereto) or for any cash amounts delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar Legal
Requirement.
1.13
Further Action
. If, at any time after the First Merger Effective Time, any
further action is determined by the Initial Surviving Corporation to be necessary or desirable to carry out the purposes of this Agreement or to vest the Initial Surviving Corporation with full right, title and possession of and to all rights and
property of the Company, then the officers and directors of the Initial Surviving Corporation shall be fully authorized, and shall use their and its commercially reasonable efforts (in the name of the Company, in the name of Merger Sub 1, in the
name of the Initial Surviving Corporation and otherwise) to take such action. If, at any time after the Second Merger Effective Time, any further action is determined by the Surviving Corporation to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and property of the Initial Surviving Corporation, then the officers and directors of the Surviving Corporation shall be fully
authorized, and shall use their and its commercially reasonable efforts (in the name of the Initial Surviving Corporation and otherwise) to take such action.
Section 2. R
EPRESENTATIONS
AND
W
ARRANTIES
OF
THE
C
OMPANY
Subject to Section 10.13(h), except as set forth in set forth in the written disclosure schedule delivered by
the Company to Arrow (the
Company Disclosure Schedule
), the Company represents and warrants to Arrow and Merger Subs:
2.1 Due Organization; Subsidiaries; Etc.
(a)
Each of the Company and its Subsidiaries is a corporation or other legal entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all necessary power and authority: (i) to conduct its business in the manner in which its business is
currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used and (iii) to perform its obligations under all Contracts by which it is bound.
(b)
Each of the Company and its Subsidiaries is duly licensed or qualified to do business, and is in good
standing, under the laws of all jurisdictions where the nature of its business requires such licensing or qualification other than in jurisdictions where the failure to be so qualified individually or in the aggregate would not be reasonably
expected to have a Company Material Adverse Effect.
(c)
Part 2.1(c) of the Company Disclosure Schedule
identifies each Subsidiary of Company and indicates its jurisdiction of organization. Neither the Company nor any of the Entities identified in Part 2.1(c) of the Company Disclosure Schedule owns any capital stock of, or any equity interest of any
nature in, any other Entity, other than the Entities identified in Part 2.1(c) of the Company Disclosure Schedule. Neither the Company nor any of its Subsidiaries has agreed nor is obligated to make, nor is bound by any Contract under which it may
become obligated to make, any future investment in or capital contribution to any other Entity. Neither the Company nor any of its Subsidiaries has, at any time, been a general partner of, or has otherwise been liable for any of the debts or other
obligations of, any general partnership, limited partnership or other Entity.
2.2
Certificate of
Incorporation; Bylaws; Charters and Codes of Conduct
. The Company has made available to Arrow accurate and complete copies of the Organizational Documents of the Company and each of its Subsidiaries. Part 2.2 of the Company Disclosure
Schedule lists, and the Company has made available to Arrow, accurate and complete copies of: (a) the charters of all committees of the Company Board and (b) any
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code of conduct or similar policy adopted by the Company or by the Company Board, or any committee thereof. Neither the Company nor any of its Subsidiaries has taken any action in breach or
violation of any of the provisions of its Organizational Documents nor is in breach or violation of any of the material provisions of their respective Organizational Documents, except as would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
2.3
Authority; Binding Nature of
Agreement
.
The Company and each of its Subsidiaries have all necessary corporate power and authority to enter into and to perform its obligations under this Agreement (subject to, in the case of the First Merger, the Required Company
Stockholder Vote). The Company Board (at one or more meetings duly called and held and, as of the date of this Agreement, not subsequently rescinded or modified in any way), has as of the date of this Agreement: (a) determined that the
Mergers is fair to, advisable and in the best interests of the Company and its stockholders; (b) approved this Agreement, the Mergers and the Contemplated Transactions and has declared this Agreement advisable and (c) determined to recommend,
upon the terms and subject to the conditions of this Agreement, that the stockholders of the Company vote to adopt this Agreement and thereby approve the Contemplated Transactions. This Agreement has been duly executed and delivered by the Company
and assuming the due authorization, execution and delivery by Arrow, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. Prior to
the execution of the Company Stockholder Support Agreements, the Company Board approved the Company Stockholder Support Agreements and the transactions contemplated thereby.
2.4
Vote Required
.
The affirmative vote (or written consent) of the holders of a majority of
the shares of Company Common Stock outstanding on the record date and entitled to vote thereon, voting as a single class (the
Required Company Stockholder Vote
), is the only vote (or consent) of the holders of any class or
series of Company Capital Stock necessary to adopt or approve this Agreement and approve the First Merger and the matters set forth in Section 5.2(a).
2.5
Non-Contravention; Consents
.
Subject to obtaining the Required Company Stockholder Vote,
the filing of the First Certificate of Merger and the Second Certificate of Merger as required by the DGCL, neither (x) the execution, delivery or performance of this Agreement by the Company, nor (y) the consummation of the Mergers or any of the
Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):
(a)
contravene, conflict with or result in a violation of (i) any of the provisions of the Companys
Organizational Documents or (ii) any resolution adopted by the stockholders, the Company Board or any committee thereof;
(b)
contravene, conflict with or result in a material violation of, or to the Knowledge of the Company, give any
Governmental Body or other Person the right to challenge the Mergers or the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ, injunction, judgment or decree to which the Company
or its Subsidiaries, or any of the assets owned or used by the Company or its Subsidiaries, is subject except as would not be material to the Company, its Subsidiaries or their respective businesses;
(c)
contravene, conflict with or result in a material violation of any of the terms or requirements of, or give
any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or its Subsidiaries except as would not be material to the Company, its Subsidiaries or their
respective businesses;
(d)
contravene, conflict with or result in a material violation or breach of, or
result in a default under, any provision of any Company Material Contract, or to the Knowledge of the Company, give any Person the right to: (i) declare a default or exercise any remedy under any Company Material Contract; (ii) any material
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payment, rebate, chargeback, penalty or change in delivery schedule under any such Company Material Contract; (iii) accelerate the maturity or performance of any Company Material Contract; or
(iv) cancel, terminate or modify any term of any Company Material Contract, except, in the case of any breach, default, penalty or modification, which would not, individually or in the aggregate, have a Company Material Adverse Effect; or
(e)
result in the imposition or creation of any material Encumbrance upon or with respect to any asset owned or
used by the Company or its Subsidiaries (except for Permitted Encumbrances). Except for (i) the Required Company Stockholder Vote, (ii) the filing of the First Certificate of Merger with the Secretary of State of the State of Delaware pursuant to
the DGCL, (iii) any required filings under the HSR Act and any foreign antitrust Legal Requirement and (iv) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable
federal and state securities laws, neither the Company nor any of its Subsidiaries was, is, or will be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery
or performance of this Agreement, or (y) the consummation of the Mergers or any of the Contemplated Transactions. The Company Board has taken and will take all actions necessary to ensure that the restrictions applicable to business
combinations contained in Section 203 of the DGCL are, and will be, inapplicable to the execution, delivery and performance of this Agreement and the Company Stockholder Support Agreements and to the consummation of the Mergers and the Contemplated
Transactions. No other state takeover statute or similar Legal Requirement applies or purports to apply to the Mergers, this Agreement, the Company Stockholder Support Agreements or any of the other Contemplated Transactions.
2.6 Capitalization, Etc.
(a)
The authorized capital stock of the Company as of the date of this Agreement consists solely of 30,000
shares of Company Common Stock, par value $0.01 per share, of which 21,230 shares have been issued and are outstanding as of the date of this Agreement. The Company does not hold any shares of its capital stock in its treasury. All of the
outstanding shares of Company Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in Part 2.6(a) of the Company Disclosure Schedule, none of the outstanding shares of Company Common
Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar right and none of the outstanding shares of Company Common Stock is subject to any right of first refusal in favor of the Company.
Except as set forth in Part 2.6(a) there are no outstanding bonds, debentures, notes or other indebtedness of the Company having a right to vote on any matters on which the Company stockholders have a right to vote. Except as contemplated herein or
as set forth in Part 2.6(a) of the Company Disclosure Schedule, there is no Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or
similar right with respect to), any shares of Company Common Stock. The Company is not under any obligation, nor is it bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares
of Company Common Stock or other securities. Part 2.6(a) of the Company Disclosure Schedule accurately and completely lists all repurchase and forfeiture rights held by the Company with respect to shares of Company Common Stock and specifies each
holder of Company Common Stock, the date of purchase of such Company Common Stock, the number of shares of Company Common Stock subject to such repurchase rights, the purchase price paid by such holder, and the vesting schedule under which such
repurchase rights lapse.
(b)
The Company does not have, and has never had, any stock option plan or any
other plan, program, agreement or arrangement providing for any equity-based compensation for any Person.
(c)
There is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently
exercisable) to acquire any shares of the capital stock or other securities of the Company or any of its Subsidiaries; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company or any of its Subsidiaries; (iii) stockholder rights plan (or similar plan commonly referred to as a poison pill) or Contract under which the
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Company or any of its Subsidiaries is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities or (iv) condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of the Company or any of its Subsidiaries. There are no
outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect to the Company or any of its Subsidiaries.
(d)
All outstanding shares of Company Common Stock, options and other securities of the Company have been issued
and granted in material compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in applicable Contracts.
(e)
The Company has not declared, made or paid any dividends or distributions on any shares of Company Capital
Stock.
2.7 Financial Statements; Bank Accounts.
(a)
Part 2.7(a) of the Company Disclosure Schedule includes true and complete copies of (i) the Companys
unaudited consolidated balance sheets at December 31, 2014 and December 31, 2015, (ii) the Company Interim Balance Sheet, (iii) the Companys unaudited consolidated statements of income, cash flow and stockholders equity for the years
ended December 31, 2014 and December 31, 2015 and (iv) the Companys unaudited statements of income, cash flow and stockholders equity for the eleven months ended November 30, 2016 (collectively, the
Company
Financials
). The Company Financials (1) were prepared in accordance with United States generally accepted accounting principles (
GAAP
) (except as may be indicated in the footnotes to such Company
Financials and that unaudited financial statements may not have notes thereto and other presentation items that may be required by GAAP and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in
amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated and (2) fairly present, in all material respects, the financial condition and operating results of the Company and its consolidated Subsidiaries as
of the dates and for the periods indicated therein.
(b)
Each of the Company and its Subsidiaries maintains
accurate books and records reflecting their assets and liabilities.
(c)
Neither the Company nor any of its
Subsidiaries is a party to, nor does it have any commitment to become a party to, any off-balance sheet joint-venture, off-balance sheet partnership or any other off-balance sheet arrangements (as defined in Item 303(a) of Regulation
S-K).
(d)
Part 2.7(d) of the Company Disclosure Schedule provides accurate information with respect to each
account maintained by or for the benefit of the Company or any of its Subsidiaries at any bank or other financial institution, including the name of the bank or financial institution, the account number, the balance as of the date of this Agreement
and the names of all individuals authorized to draw on or make withdrawals from such accounts.
(e)
The
Company and its Subsidiaries have no existing accounts receivable.
(f)
Since May 12, 2015, there have been
no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of an executive officer of the Company, the Company Board or any committee thereof. Since
May 12, 2015, the Company has not identified (i) any significant deficiency or material weakness in the design or operation of the system of internal accounting controls utilized by the Company and its Subsidiaries that could reasonably be expected
to adversely affect the Companys or any of its Subsidiaries ability to initiate, authorize, record, process, or report external financial data such that there is more than a remote likelihood that a misstatement of
A-11
the financial statements that is more than inconsequential will not be prevented or detected, (ii) any fraud, whether or not material, that involves the Company, any of its Subsidiaries, the
Companys management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized by the Company and its Subsidiaries or (iii) any claim or allegation regarding any of the foregoing.
2.8
Absence of Changes
. Except as set forth on Part 2.8 of the Company Disclosure Schedule,
between September 30, 2016 and the date of this Agreement:
(a)
there has not been any Company Material
Adverse Effect or an event or development that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect;
(b)
there has not been any material loss, damage or destruction to, or any material interruption in the use of,
any of the assets or business of the Company or any of its Subsidiaries (whether or not covered by insurance);
(c)
the Company has not: (i) declared, accrued, set aside or paid any dividend or made any other
distribution in respect of any shares of capital stock; or (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities except for the repurchase or reacquisition of shares pursuant to the Companys rights
arising upon an individuals termination as an employee, director or consultant;
(d)
the Company has
not sold, issued or granted, or authorized the issuance of: (i) any capital stock or other security; or (ii) any instrument convertible into or exchangeable for any capital stock or other security;
(e)
there has been no amendment to any of the Organizational Documents of the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries has effected or been a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or
similar transaction;
(f)
neither the Company nor any of its Subsidiaries has formed any Subsidiary or
acquired any equity interest or other interest in any other Entity;
(g)
neither the Company nor any of its
Subsidiaries has: (i) lent money to any Person; (ii) incurred or guaranteed any indebtedness; (iii) issued or sold any debt securities or options, warrants, calls or other rights to acquire any debt securities; (iv) guaranteed any
debt securities of others; or (v) made any capital expenditure or commitment outside the Ordinary Course of Business;
(h)
neither the Company nor any of its Subsidiaries has changed any of its accounting methods, principles or
practices;
(i)
in each case for purposes of this clause (i), other than as required by law, neither the
Company nor any of its Subsidiaries has made, changed or revoked any material Tax election, filed any material amendment to any Tax Return, adopted or changed any accounting method in respect of Taxes, changed any annual Tax accounting period,
entered into any Tax allocation agreement, Tax sharing agreement or Tax indemnity agreement, other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers or landlords, entered into any closing agreement
with respect to any Tax, settled or compromised any claim, notice, audit report or assessment in respect of material Taxes, applied for or entered into any ruling from any Tax authority with respect to Taxes, surrendered any right to claim a
material Tax refund, or consented to any extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;
(j)
neither the Company nor any of its Subsidiaries has commenced or settled any Legal Proceeding;
(k)
neither the Company nor any of its Subsidiaries has entered into any material transaction outside the
Ordinary Course of Business;
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(l)
neither the Company nor any of its Subsidiaries has acquired
any material assets nor sold, leased or otherwise irrevocably disposed of any of its material assets or properties, nor has any Encumbrance been granted with respect to such assets or properties, except in the Ordinary Course of Business;
(m)
there has been no entry into, amendment or termination of any Company Material Contract;
(n)
there has been no (i) material change in pricing or royalties or other payments set or charged by the
Company or any of its Subsidiaries to its customers or licensees, (ii) agreement by the Company or any of its Subsidiaries to change pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to the
Company or any of its Subsidiaries or (iii) material change in pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to the Company or any of its Subsidiaries; and
(o)
neither the Company nor any of its Subsidiaries has negotiated, agreed or committed to take any of the
actions referred to in clauses (c) through (n) above (other than negotiations between the Parties to enter into this Agreement).
2.9
Absence of Undisclosed Liabilities
. As of the date hereof, neither the Company nor any of its
Subsidiaries has any Liability, individually or in the aggregate, except for: (a) Liabilities reflected on the face of the Company Interim Balance Sheet; (b) normal and recurring current Liabilities that have been incurred by the Company or its
Subsidiaries since the date of the Company Interim Balance Sheet in the Ordinary Course of Business and which are not in excess of $50,000 in the aggregate; (c) Liabilities for performance of obligations of the Company or any of its Subsidiaries
under Company Contracts; (d) Liabilities incurred in connection with this Agreement and (e) Liabilities listed in Part 2.9 of the Company Disclosure Schedule.
2.10
Title to Assets
. Each of the Company and its Subsidiaries owns, and has good and valid title
to, or, in the case of leased properties and assets, valid leasehold interests in, all tangible properties or assets and equipment used or held for use in its business or operations or purported to be owned by it, including: (a) all assets
reflected on the Company Interim Balance Sheet and (b) all other assets reflected in the books and records of the Company or any of its Subsidiaries as being owned by the Company or such Subsidiary. All of said assets are owned by the Company or any
of its Subsidiaries free and clear of any Encumbrances, except for any Permitted Encumbrances.
2.11
Real
Property; Leasehold
. Neither the Company nor any of its Subsidiaries owns or has ever owned any real property. The Company has made available to Arrow (i) an accurate and complete list of all real properties with respect to which the
Company directly or indirectly holds a valid leasehold interest as well as any other real estate that is in the possession of or leased by the Company and its Subsidiaries and (ii) copies of all leases under which any such real property is
possessed (the
Company
Real Estate Leases
). Part 2.11 of the Company Disclosure Schedule sets forth a complete and accurate list of all Company Real Estate Leases. Neither the Company nor any of its
Subsidiaries is in default under any of the Company Real Estate Leases, except where such defaults have not had and would not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect, and to the Knowledge
of the Company, there is no default by any of the lessors thereunder.
2.12
Intellectual Property
.
(a)
The Company, directly or through any of its Subsidiaries, owns, or has the right to use, and has the
right to bring actions for the infringement of, all Company IP Rights, except for any failure to own or has the right to use, or has the right to bring actions for, that would not reasonably be expected to have a Company Material Adverse Effect.
(b)
Part 2.12(b) of the Company Disclosure Schedule is a true and complete listing of all Company
Registered IP, setting forth in each case, as applicable, the jurisdictions in which such Company Registered IP
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has been issued and applications that have been filed, along with the respective application, registration or filing number or subsequent registration activity thereof. The Company and its
Subsidiaries solely own all right, title and interest in and to, or have the valid and enforceable right to use, each item of Company Registered IP, free and clear of any Encumbrances, except for Permitted Encumbrances.
(c)
Part 2.12(c) of the Company Disclosure Schedule identifies all material Company IP Rights Agreements
pursuant to which Company IP Rights are licensed to the Company or any of its Subsidiaries (other than (I) any non-customized software that (A) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use
software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Companys or any of its Subsidiaries products
or services, (II) any generally available (i.e., off the shelf) third party licenses of Intellectual Property, and (III) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials).
(d)
Part 2.12(d)(i) of the Company Disclosure Schedule identifies all material Company IP Rights Agreements
pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any material Company IP Rights. Except as identified in Part 2.12(d)(ii) of the
Company Disclosure Schedule, the Company is not bound by, and no Company IP Rights are subject to, any Company IP Rights Agreement containing any covenant or other provision that limits or restricts the ability of the Company or any of its
Subsidiaries to use, exploit, assert, or enforce any Company IP Rights anywhere in the world in each case as would materially limit the business of the Company as currently conducted or planned to be conducted.
(e)
To the Knowledge of the Company and its Subsidiaries, the Company or one of its Subsidiaries exclusively
owns all right, title, and interest to and in material Company IP Rights (other than Company IP Rights (i) exclusively or non-exclusively licensed to the Company or one of its Subsidiaries as identified in Part 2.12(c) of the Company Disclosure
Schedule and (ii) (I) any non-customized software that (A) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is
not incorporated into, or material to the development, manufacturing, or distribution of, any of the Companys or any of its Subsidiaries products or services, (II) any generally available (i.e., off the shelf) third party
licenses of Intellectual Property, and (III) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials) free and clear of any Encumbrances (other than Permitted Encumbrances). Without limiting
the generality of the foregoing:
(i)
Since May 12, 2015, each Person who is or was an employee or
contractor of the Company or any of its Subsidiaries and who is or was involved in the creation or development of any material Company IP Rights has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to the
Company or such Subsidiary and confidentiality provisions protecting trade secrets and confidential information of the Company and its Subsidiaries. To the Knowledge of the Company and its Subsidiaries, no current or former stockholder, officer,
director, or employee of the Company or any of its Subsidiaries has any claim, right (whether or not currently exercisable), or interest to or in any material Company IP Rights. To the Knowledge of the Company and its Subsidiaries, no employee of
the Company or any of its Subsidiaries is (a) bound by or otherwise subject to any Contract restricting him or her from performing his or her duties for the Company or such Subsidiary or (b) in breach of any Contract with any former employer or
other Person concerning material Company IP Rights or confidentiality provisions protecting trade secrets and confidential information comprising material Company IP Rights.
(ii)
No funding, facilities, or personnel of any Governmental Body were used to develop or create, in whole or
in part, any material Company IP Rights in which the Company or any of its Subsidiaries has an ownership interest.
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(iii)
The Company and each of its Subsidiaries has taken
reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all proprietary information that the Company or such Subsidiary holds, or purports to hold, as a Trade Secret.
(iv)
To the Knowledge of the Company and its Subsidiaries, the Company IP Rights constitute all Intellectual
Property material to and necessary for the Company and its Subsidiaries to conduct its business as currently conducted.
(f)
The Company has delivered, or made available to Arrow, a complete and accurate copy of all material Company
IP Rights Agreements. Neither the Company nor any of its Subsidiaries is a party to any Contract (A) pursuant to which the execution, delivery and performance of this Agreement and the consummation of the Contemplated Transactions will constitute a
material breach or (B) as a result of such execution, delivery and performance of this Agreement and the consummation of the Contemplated Transactions will cause the forfeiture or termination of or Encumbrance upon, or the grant of any license or
other right to, or give rise to a right of forfeiture or termination of or Encumbrance upon, any Company IP Rights or impair the right of the Company or the Surviving Corporation and its Subsidiaries to use, sell or license any Company IP Rights or
portion thereof except for the occurrence of any such breach, forfeiture, termination, Encumbrance, grant or impairment that would not, individually or in the aggregate, be reasonably expected to result in a Company Material Adverse Effect. With
respect to each of the Company IP Rights Agreements: (i) each such agreement is valid and binding on the Company or its Subsidiaries, as applicable, and in full force and effect; (ii) the Company has not received any written notice of
termination or cancellation under such agreement, or received any written notice of breach or default under such agreement, which breach has not been cured or waived and (iii) neither the Company nor its Subsidiaries, and to the Knowledge of the
Company, no other party to any such agreement, is in breach or default thereof in any material respect.
(g)
The Company and its Subsidiaries have no material Liability for violation of any Company IP Rights
Agreement, or, for infringement or misappropriation of any valid Intellectual Property right of any other party, which violation, infringement or misappropriation would reasonably be expected to have a Company Material Adverse Effect. To the
Knowledge of the Company and its Subsidiaries, (i) no third party is infringing upon, or violating any license or agreement with the Company or its Subsidiaries relating to any material Company IP Rights and (ii) there is no current or pending
challenge, claim or Legal Proceeding (including, but not limited to, opposition, interference or other proceeding in any patent or other government office) contesting the validity, ownership or right to use, sell, license or dispose of any material
Company IP Rights, nor has the Company or any of its Subsidiaries received any written notice asserting that any material Company IP Rights or the proposed use, sale, license or disposition thereof conflicts with or infringes or misappropriates or
will conflict with or infringe or misappropriate the rights of any other Person.
(h)
Each item of Company
Registered IP is and at all times has been filed and maintained in compliance with all applicable Legal Requirements and all filings, payments, and other actions required to be made or taken to maintain such item of Company Registered IP in full
force and effect have been made by the applicable deadline.
(
i
)
None of the goodwill
associated with or inherent in any Trademark (whether registered or unregistered) in which the Company or any of its Subsidiaries has or purports to have an ownership interest has been impaired as determined by the Company or any of its Subsidiaries
in accordance with GAAP.
(j)
Except as set forth in Part 2.12(j) of the Company Disclosure Schedule,
(i) neither the Company nor any of its Subsidiaries is bound by any Contract to indemnify, defend, hold harmless, or reimburse any other Person with respect to any Intellectual Property infringement, misappropriation, or similar claim and (ii)
neither the Company nor any of its Subsidiaries has ever assumed, or agreed to discharge or otherwise take responsibility for, any existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual
Property right, which assumption, agreement or responsibility remains in force as of the date of this Agreement.
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(k)
The Company is, and has at all times since May 12, 2015 been,
in material compliance with all Legal Requirements applicable to the Company regarding the protection, storage, use and disclosure of Personal Data collected and retained by the Company.
2.13
Agreements, Contracts and Commitments
. Part 2.13 of the Company Disclosure Schedule identifies
each Company Contract to which the Company is a party and to which the Company has any currently effective binding obligations or by which any of its assets are currently bound:
(a)
relating to any agreement of indemnification or guaranty not entered into in the Ordinary Course of Business
other than indemnification agreements between the Company and any of its officers or directors;
(b)
containing any covenant limiting the freedom of the Company, its Subsidiaries or the Surviving Corporation
to engage in any line of business or compete with any Person;
(c)
relating to capital expenditures and
involving obligations after the date of this Agreement in excess of $25,000 and not cancelable without penalty;
(d)
relating to the disposition or acquisition of material assets or any ownership interest in any Entity;
(e)
relating to any mortgages, indentures, loans, notes or credit agreements, security agreements or other
agreements or instruments relating to the borrowing of money or extension of credit in excess of $25,000 or creating any material Encumbrances with respect to any assets of the Company or any of its Subsidiaries or any loans or debt obligations with
officers or directors of the Company;
(f)
relating to (i) any distribution agreement currently in
force (identifying any that contain exclusivity provisions); (ii) any agreement currently in force for the conduct of research, pre-clinical or clinical studies regarding the products under development by the Company or its Subsidiaries; (iii) any
dealer, distributor, joint marketing, alliance, joint venture, cooperation, development or other agreement currently in force under which the Company or its Subsidiaries has continuing obligations to develop, market, or supply any product,
technology or service, or any agreement pursuant to which the Company or its Subsidiaries has continuing obligations to develop any Intellectual Property that will not be owned, in whole or in part, by the Company or such Subsidiary or (iv) any
Contract currently in force to license any third party to manufacture or produce any Company product, service or technology or any Contract currently in force to sell, distribute or commercialize any Company products or service except agreements
with distributors or sales representatives in the Ordinary Course of Business;
(g)
with any Person,
including any financial advisor, broker, finder, investment banker or other Person, providing advisory services to the Company in connection with the Contemplated Transactions;
(h)
with any manufacturer, vendor, or other Person for the supply of materials or performance of services by
such third party to Company in relation to the manufacture of the Companys products or Company Product Candidates;
(
i
)
that would reasonably be expected to have a material effect on the ability of the Company to
perform any of its material obligations under this Agreement, or to consummate any of the Contemplated Transactions;
(j)
(i) which involves payment or receipt by the Company or its Subsidiaries under any such agreement,
contract or commitment of $50,000 or more in the aggregate or obligations after the date of this Agreement in excess of $50,000 in the aggregate, or (ii) that is material to the business or operations of the Company and its Subsidiaries; or
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(k)
is a Company IP Right Agreement.
The Company has made available to Arrow accurate and complete copies of all Contracts to which the Company or its Subsidiaries is a party or
by which it is bound of the type described in clauses (a) through (k) above (any such Contract, a
Company Material Contract
), including all amendments thereto. There are no Company Material Contracts that are not in written
form. Except as set forth on Part 2.13 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has, nor to the Companys Knowledge, as of the date of this Agreement has any other party to a Company Material Contract,
breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under any Company Material Contract in such manner as would permit any other party to cancel or terminate any such Company Material Contract, or
would permit any other party to seek damages. As to the Company and its Subsidiaries, as of the date of this Agreement, each Company Material Contract is valid, binding, enforceable and in full force and effect, subject to the Enforceability
Exceptions. To the Knowledge of the Company, no Person is renegotiating any material amount paid or payable to the Company under any Company Material Contract or any other material term or provision of any Company Material Contract.
2.14 Compliance; Permits; Restrictions.
(a)
The Company and each of its Subsidiaries are, and since May 12, 2015 have been, in compliance in all
material respects with all material Legal Requirements. No investigation, claim, suit, proceeding, audit or other action by any Governmental Body or Governmental Authority is pending or, to the Knowledge of the Company, threatened against the
Company or any of its Subsidiaries, nor has any Governmental Body or Governmental Authority indicated to the Company in writing an intention to conduct the same. There is no agreement, judgment, injunction, order or decree binding upon the Company
or any of its Subsidiaries which (i) has or would reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company or any of its Subsidiaries, any acquisition of material property by the
Company or any of its Subsidiaries or the conduct of business by the Company or any of its Subsidiaries as currently conducted, (ii) would reasonably be expected to have an adverse effect on the Companys ability to comply with or perform any
covenant or obligation under this Agreement or (iii) would reasonably be expected to have the effect of preventing, materially delaying, making illegal or otherwise interfering with the Mergers or any of the Contemplated Transactions.
(b)
Neither the Company nor its Subsidiaries holds any Governmental Authorization in connection with the
operation of their businesses as currently conducted.
(c)
There are no proceedings pending or, to the
Knowledge of the Company, threatened with respect to an alleged violation by the Company or any of its Subsidiaries of the Federal Food, Drug, and Cosmetic Act (
FDCA
), Food and Drug Administration
(
FDA
) regulations adopted thereunder, the Controlled Substance Act or any other similar Legal Requirements promulgated by the FDA or other comparable Governmental Body, including the European Medicines Agency
(
EMA
), responsible for regulation of the development, clinical testing, manufacturing, sale, marketing, distribution and importation or exportation of drug products (
Drug Regulatory Agency
).
(d)
The Company and each of its Subsidiaries holds all required Governmental Authorizations issuable by any Drug
Regulatory Agency necessary for the conduct of the business of the Company or such Subsidiary as currently conducted, and development, clinical testing, manufacturing, marketing, distribution and importation or exportation, as currently conducted,
of any of its products or product candidates (the
Company Product Candidates
) (collectively, the
Company Regulatory Permits
) and no such Company Regulatory Permit has been (i) revoked, withdrawn,
suspended, canceled or terminated or (ii) modified in any materially adverse manner. The Company and each of its Subsidiaries has not received any written notice or other written communication from any Drug Regulatory Agency regarding any
revocation, withdrawal, suspension, cancellation, termination or material modification of any Company Regulatory Permit. Except for information regarding Cytisine contained in publicly available sources, the Company has made available to Arrow all
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information requested by Arrow in the Companys or its Subsidiaries possession or control relating to the Company Product Candidates in the territories in which the Company and its
Subsidiaries has the right to develop and otherwise commercialize such Company Product Candidates and the development, clinical testing, manufacturing, importation and exportation of the Company Product Candidates, including complete copies of the
following (to the extent there are any): (x) adverse event reports; clinical study reports and material study data; and inspection reports, notices of adverse findings, warning letters, filings and letters and other written correspondence to
and from any Drug Regulatory Agency; and meeting minutes with any Drug Regulatory Agency; and (y) similar reports, material study data, notices, letters, filings, correspondence and meeting minutes with any other Governmental Authority.
(e)
All clinical, pre-clinical and other studies and tests conducted by or on behalf of, or sponsored by, the
Company or its Subsidiaries with respect to their respective current products or product candidates, including the Company Product Candidates, were and, if still pending, are being conducted in all material respects in accordance with standard
medical and scientific research procedures and in compliance with the applicable regulations of the Drug Regulatory Agencies and other applicable Legal Requirements, including 21 C.F.R. Parts 50, 54, 56, 58 and 312. Since May 12, 2015, neither
the Company nor any of its Subsidiaries has received any written notices, correspondence, or other communications from any Drug Regulatory Agency requiring, or to the Knowledge of the Company, threatening to initiate, the termination or suspension
of any clinical studies conducted by or on behalf of, or sponsored by, the Company or any of its Subsidiaries or in which the Company or any of its Subsidiaries or their respective current products or product candidates, including the Company
Product Candidates, have participated.
(f)
Neither the Company nor any of its Subsidiaries is the subject
of any pending, or to the Knowledge of the Company or its Subsidiaries, threatened investigation in respect of its business or products by the FDA pursuant to its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal
Gratuities Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To the Knowledge of the Company or any of its Subsidiaries, neither the Company nor any of its Subsidiaries has committed any acts, made
any statement, or failed to make any statement, in each case in respect of its business or products that would violate the FDAs Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy, and any
amendments thereto. None of the Company, any of its Subsidiaries or any of their respective officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion under (i) 21 U.S.C.
Section 335a or (ii) any similar applicable Legal Requirement. To the Knowledge of the Company, no debarment or exclusionary claims, actions, proceedings or investigations in respect of their business or products are pending or threatened against
the Company, any of its Subsidiaries or any of their respective officers, employees or agents.
(g)
The
Company has filed with the FDA, EMA, any other Governmental Body, and any institutional review board or comparable body, all required notices, supplemental applications, and annual or other reports, including adverse experience reports, with respect
to each investigational new drug application or any comparable foreign regulatory application, related to the manufacture, testing, study, or sale of any of its products or product candidates, as applicable.
2.15
Legal Proceedings; Orders
.
(a)
There is no pending Legal Proceeding, and, to the Knowledge of the Company, no Person has threatened in
writing to commence any Legal Proceeding: (i) that involves the Company or any of its Subsidiaries, any Company Associate (in his or her capacity as such) or any of the material assets owned by the Company or its Subsidiaries or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Mergers or the Contemplated Transactions. With regard to any Legal Proceeding set forth on Part 2.15 of the Company
Disclosure Schedule, the Company has made available to Arrow or its counsel all pleadings and material written correspondence related to such Legal Proceeding (if any), and all insurance policies and material written correspondence with brokers and
insurers related to such Legal
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Proceedings. The Company has materially complied with the requirements of its insurance policy or policies to obtain coverage with respect to such Legal Proceeding (if any) under such insurance
policy or policies.
(b)
There is no order, writ, injunction, judgment or decree to which the Company or any
of its Subsidiaries, or any of the material assets owned or used by the Company or any of its Subsidiaries is subject. To the Knowledge of the Company, no officer or other Key Employee of the Company or any of its Subsidiaries is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the business of the Company or any of its Subsidiaries or to any material assets
owned or used by the Company or any of its Subsidiaries.
2.16
Tax Matters
.
(a)
Except as set forth on Part 2.16(a) of the Company Disclosure Schedule, the Company and each of its
Subsidiaries have timely filed all federal income Tax Returns and other material Tax Returns that they were required to file under applicable Legal Requirements. All such Tax Returns were true, correct and complete in all material respects and have
been prepared in material compliance with all applicable Legal Requirements.
(b)
Except as set forth on Part
2.16(b) of the Company Disclosure Schedule, all material Taxes due and owing by the Company or any of its Subsidiaries on or before the date hereof (whether or not shown on any Tax Return) have been paid. The unpaid Taxes (if any) of the Company and
any of its Subsidiaries will be reserved in accordance with GAAP. Since the date of the Company Interim Balance Sheet, neither the Company nor any of its Subsidiaries has incurred any material Liability for Taxes outside the Ordinary Course of
Business or otherwise inconsistent with past custom and practice.
(c)
The Company and each of its
Subsidiaries have withheld and paid all material Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.
(d)
There are no Encumbrances for a material amount of Taxes (other than Taxes not yet due and payable or Taxes
that are being contested in good faith and for which adequate reserves have been made on the Companys Unaudited Interim Balance Sheet in accordance with GAAP) upon any of the assets of the Company or any of its Subsidiaries.
(e)
No deficiencies for a material amount of Taxes with respect to the Company or any of its Subsidiaries have
been claimed, proposed or assessed by any Governmental Body in writing. There are no pending (or, based on written notice, threatened) audits, assessments or other actions for or relating to any liability in respect of a material amount of Taxes of
the Company or any of its Subsidiaries. No issues relating to Taxes of the Company or any of its Subsidiaries were raised by the relevant Tax authority in any completed audit or examination that would reasonably be expected to result in a material
amount of Taxes in a later taxable period. Except as set forth on Part 2.16(e) of the Company Disclosure Schedule, the Company has delivered or made available to Arrow complete and accurate copies of all federal income Tax and all other material Tax
Returns of the Company and each of its Subsidiaries (and predecessors of each) for all taxable years remaining open under the applicable statute of limitations, and complete and accurate copies of all examination reports and statements of
deficiencies assessed against or agreed to by the Company and each of its Subsidiaries (and predecessors of each), with respect to federal income Tax and all other material Taxes. Except as set forth on Part 2.16(e) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (or any of their predecessors) has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency, nor has
any request been made in writing for any such extension or waiver.
(f)
All material elections with respect
to Taxes affecting the Company or any of its Subsidiaries as of the date hereof, to the extent such elections are not shown on or in the Tax Returns that have been delivered or made available to Arrow, are set forth on Part 2.16(f) of the
Company Disclosure Schedule. Neither the Company nor any of its Subsidiaries has agreed, or is required, to make any adjustment under Section 481(a) of
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the Code by reason of a change in accounting method or otherwise or has elected at any time to be treated as an S corporation within the meaning of Sections 1361 or 1362 of the Code.
(g)
Neither the Company nor any of its Subsidiaries has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(h)
Neither the Company nor any of its Subsidiaries is a party to any Tax allocation, Tax sharing or similar
agreement (including indemnity arrangements), other than commercial contracts entered into in the Ordinary Course of Business.
(
i
)
Neither the Company nor any of its Subsidiaries has ever been a member of an affiliated group
filing a consolidated, combined or unitary Tax Return (other than a group the common parent of which is the Company) for federal, state, local or foreign Tax purposes. Neither the Company nor any of its Subsidiaries has any Liability for the Taxes
of any Person (other than the Company and any of its Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by Contract, or otherwise.
(j)
Neither the Company nor any of its Subsidiaries has distributed stock of another Person, or has had its
stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code (or any similar provision of state, local or foreign law).
(k)
Neither the Company nor any of its Subsidiaries will be required to include any item of income in, or
exclude any item of deduction from, taxable income for any period (or any portion thereof) ending after the Closing Date as a result of any (i) installment sale or other open transaction disposition made on or prior to the Closing Date, (ii)
agreement with any Tax authority (including any closing agreement described in Section 7121 of the Code or any similar provision of state, local or foreign law) made or entered into on or prior to the Closing Date, (iii) a change in method of
accounting occurring prior to the Closing Date, (iv) a prepaid amount received, or paid, prior to the Closing Date or (v) deferred gains arising prior to the Closing Date.
(l)
Except as set forth on Part 2.16(l) of the Company Disclosure Schedule to the Knowledge of the Company,
after reasonable inquiry, the Company does not own any interest in any controlled foreign corporation (as defined in Section 957 of the Code), passive foreign investment company (as defined in Section 1297 of the Code), or other entity the income of
which is required to be included in the income of the Company.
(m)
Neither the Company nor any of its
Subsidiaries is a partner for Tax purposes with respect to any joint venture, partnership, or, to the Knowledge of the Company, other arrangement or contract which is treated as a partnership for Tax purposes who receives or has previously received
a Schedule K-1 or a comparable form under foreign law.
(n)
Neither the Company nor any of its Subsidiaries
has entered into any transaction identified as a listed transaction for purposes of Treasury Regulations Sections 1.6011-4(b)(2) or 301.6111-2(b)(2).
(o)
Except as set forth on Part 2.16(o) of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has reported having a permanent establishment in any country other than the United States, as defined in any applicable Tax treaty between the United States and such other country.
(p)
Neither the Company nor any of its Subsidiaries has taken any action, or has any knowledge of any fact or
circumstance, that could reasonably be expected to prevent the transactions contemplated hereby, including the Mergers, from qualifying for the Intended Tax Treatment.
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2.17
Employee and Labor Matters; Benefit Plans
.
(a)
The employment of each of the Companys and any of its Subsidiaries employees is terminable by
the Company or the applicable Subsidiary at will (or otherwise in accordance with general principles of wrongful termination law) (except for employees of the Company located in a jurisdiction that does not recognize the at will
employment concept). The Company has made available to Arrow accurate and complete copies of all employee manuals and handbooks, disclosure materials, policy statements and other materials relating to the employment of Company Associates to the
extent currently effective and material.
(b)
To the Knowledge of the Company, no officer or Key Employee of
the Company or any of its Subsidiaries intends to terminate his or her employment with the Company or the applicable Subsidiary, nor has any such officer or Key Employee threatened or expressed in writing any intention to do so.
(c)
Neither the Company nor any of its Subsidiaries is a party to, bound by, nor has a duty to bargain under,
any collective bargaining agreement or other Contract with a labor organization representing any of its employees, and there are no labor organizations representing, purporting to represent or, to the Knowledge of the Company, seeking to represent
any employees of the Company or any of its Subsidiaries.
(d)
There has never been, nor has there been any
threat of, any strike, slowdown, work stoppage, lockout, job action, union, organizing activity, question concerning representation or any similar union activity or dispute, affecting the Company or any of its Subsidiaries.
(e)
To the Knowledge of the Company, neither the Company nor any of its Subsidiaries is or has been engaged in
any unfair labor practice within the meaning of the National Labor Relations Act. There is no Legal Proceeding, claim, labor dispute or grievance pending or, to the Knowledge of the Company, threatened or reasonably anticipated relating to any
employment contract, privacy right, labor dispute, wages and hours, leave of absence, plant closing notification, workers compensation policy, long-term disability policy, harassment, retaliation, immigration, employment statute or regulation,
safety or discrimination matter involving any Company Associate, including charges of unfair labor practices or discrimination complaints. Part 2.17(e) of the Company Disclosure Schedule lists all material written and all non-written employee
benefit plans (as defined in Section 3(3) of ERISA, whether or not subject to ERISA) and all material bonus, equity-based, incentive, deferred compensation, retirement or supplemental retirement, profit sharing, severance, golden parachute,
vacation, cafeteria, dependent care, medical care, employee assistance program, education or tuition assistance programs and other similar fringe or employee benefit plans, programs or arrangements, including any employment or executive compensation
or severance agreements, written or otherwise, which are currently in effect relating to any present or former employee or director of the Company or any of its Subsidiaries (or any trade or business (whether or not incorporated) which is a Company
Affiliate) or which is maintained by, administered or contributed to by, or required to be contributed to by, the Company, any of its Subsidiaries or any Company Affiliate, or under which the Company or any of its Subsidiaries or any Company
Affiliate has any current or may incur liability after the date hereof (each, a
Company Employee Plan
).
(f)
Each Company Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a
favorable determination with respect to such qualified status from the Internal Revenue Service. Nothing has occurred that would reasonably be expected to adversely affect the qualified status of any such Company Employee Plan or the exempt status
of any related trust.
(g)
Each Company Employee Plan has been maintained in compliance in all respects with
its terms and, both as to form and operation, with all applicable Legal Requirements, including the Code and ERISA.
(h)
Neither the Company nor any of its Subsidiaries has engaged in any transaction in violation of Sections 404
or 406 of ERISA or any prohibited transaction, as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA. Neither the Company nor any of its
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Subsidiaries has knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any Company Employee Plan subject to ERISA and neither the Company nor
any of its Subsidiaries has been assessed any civil penalty under Section 502(l) of ERISA. Neither the Company nor any of its Subsidiaries, or to the Knowledge of the Company, any of its agents or any fiduciary other than the Company, has been in
material breach of any contractual or fiduciary obligation with respect to the administration of the Company Employee Plans or trusts or other funding media related thereto.
(
i
)
No Company Employee Plan is subject to Title IV or Section 302 of ERISA or Section 412 of the
Code, and neither the Company nor any of its Subsidiaries or Company Affiliate has ever maintained, contributed to or partially or completely withdrawn from, or incurred any obligation or liability with respect to, any such plan. No Company Employee
Plan is a Multiemployer Plan, and neither the Company nor any of its Subsidiaries or Company Affiliate has ever contributed to or had an obligation to contribute, or incurred any liability in respect of a contribution, to any Multiemployer Plan. No
Company Employee Plan is a Multiple Employer Plan.
(j)
No Company Employee Plan provides for medical or
death benefits beyond termination of service or retirement, other than (i) pursuant to COBRA or an analogous state law requirement or (ii) death or retirement benefits under a Company Employee Plan qualified under Section 401(a) of the Code.
(k)
The Company and each of its Subsidiaries has complied, in all material respects, with all state and federal
laws applicable to employees, including but not limited to COBRA, FMLA, CFRA, HIPAA, the Womens Health and Cancer Rights Act of 1998, the Newborns and Mothers Health Protection Act of 1996, and any similar provisions of state
law applicable to its employees. To the extent required under HIPAA and the regulations issued thereunder, the Company and each of its Subsidiaries has, prior to the Closing Date, performed all material obligations under the medical privacy rules of
HIPAA (45 C.F.R. Parts 160 and 164), the electronic data interchange requirements of HIPAA (45 C.F.R. Parts 160 and 162), and the security requirements of HIPAA (45 C.F.R. Part 142). Neither the Company nor any of its Subsidiaries has any
unsatisfied obligations to any employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state law governing health care coverage or extension.
(l)
The Company and each of its Subsidiaries is in material compliance with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment, worker classification, tax withholding, prohibited discrimination, equal employment, fair employment practices, meal and
rest periods, immigration status, employee safety and health, wages (including overtime wages), compensation, and hours of work, and in each case, with respect to employees: (i) has withheld and reported all material amounts required by law or
by agreement to be withheld and reported with respect to wages, salaries and other payments to employees, (ii) is not liable for any arrears of wages, severance pay or any Taxes or any penalty for failure to comply with any of the foregoing and
(iii) is not liable for any material payment to any trust or other fund governed by or maintained by or on behalf of any governmental authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no actions, suits, claims or administrative matters pending, threatened or reasonably anticipated against the Company or
any of its Subsidiaries relating to any employee, employment agreement or Company Employee Plan. There are no pending or, to the Knowledge of the Company, threatened or reasonably anticipated claims or actions against the Company, any of its
Subsidiaries, any Company trustee or any trustee of any Subsidiary under any workers compensation policy or long-term disability policy. Neither the Company nor any Subsidiary thereof is party to a conciliation agreement, consent decree or
other agreement or order with any federal, state, or local agency or governmental authority with respect to employment practices. Part 2.17(l) of the Company Disclosure Schedule lists all liabilities of the Company or any of its Subsidiaries to any
of their respective employees that result from the termination by the Company or any of its Subsidiaries of such employees employment or provision of services, a change of control of the Company, or a combination thereof. Neither the Company
nor any of its Subsidiaries has any material liability with respect to any misclassification of: (a) any Person as an independent contractor rather than as an employee, (b) any employee leased from another employer or (c) any employee currently or
formerly classified as exempt from overtime wages. Neither the
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Company nor any of its Subsidiaries has taken any action which would constitute a plant closing or mass layoff within the meaning of the WARN Act or similar state or local
law, issued any notification of a plant closing or mass layoff required by the WARN Act or similar state or local law, or incurred any liability or obligation under WARN or any similar state or local law that remains unsatisfied. No terminations of
employees of the Company or any of its Subsidiaries prior to the Closing would trigger any notice or other obligations under the WARN Act or similar state or local law.
(m)
Part 2.17(m) of the Company Disclosure Schedule lists all liabilities of the Company or any of its
Subsidiaries to any employee, that result from the termination by the Company or any of its Subsidiaries of such employees employment or provision of services, a change of control of the Company, or a combination thereof. Neither the Company
nor any of its Subsidiaries has any material liability with respect to any misclassification of: (a) any Person as an independent contractor rather than as an employee, (b) any employee leased from another employer or (c) any employee currently or
formerly classified as exempt from overtime wages.
(n)
The Company has obtained a Form I-9 with respect to
all of its current and former employees for whom such a form is required by law. Every Person who requires a visa, employment pass or other required permit to work in the country in which he is employed has produced a current employment pass or such
other required permit to the Company and possesses all necessary permission to remain in such country and perform services in that country.
(o)
With respect to each Company Employee Plan, the Company has made available to Arrow a true and complete copy
of, to the extent applicable, (i) such Company Employee Plan, (ii) the most recent annual report (Form 5500) as filed with the Internal Revenue Service, if any (iii) each currently effective trust agreement related to such Company Employee Plan,
(iv) the most recent summary plan description for each Company Employee Plan for which such description is required, along with all summaries of material modifications, amendments, resolutions and all other material plan documentation related
thereto in the possession of the Company and (v) the most recent Internal Revenue Service determination or opinion letter or analogous ruling under foreign law issued with respect to any Company Employee Plan.
(p)
To the Knowledge of the Company, each nonqualified deferred compensation plan (as such term is
defined under Section 409A(d)(1) of the Code and the guidance thereunder) under which the Company makes, is obligated to make or promises to make, payments (each, a
Company 409A Plan
) complies in all material respects, in
both form and operation, with the requirements of Code Section 409A and the guidance thereunder. No payment to be made under any Company 409A Plan is, or to the Knowledge of the Company will be, subject to the penalties of Code Section 409A(a)(1).
(q)
All contributions or premiums required to be made by the Company or its Subsidiaries under the terms of
each Company Employee Plan, any collective bargaining agreement or by law have been made in a timely fashion in all material respects in accordance with applicable law and the terms of the Company Employee Plans and any applicable collective
bargaining agreement, and the Company does not have, and as of the Closing will not have, any actual or potential unfunded liabilities (other than liabilities accruing after Closing) with respect to any of the Company Employee Plans.
2.18
Environmental Matters
.
To the Knowledge of the Company, the Company and each of its
Subsidiaries has complied in all material respects with all applicable Environmental Laws, which compliance includes the possession by the Company of all permits and other Governmental Authorizations required under applicable Environmental Laws and
compliance with the terms and conditions thereof, except where such failure to comply would not reasonably be expected to have a Company Material Adverse Effect.
2.19
Insurance
.
(a)
Except as set forth on Part 2.19(a) of the Company Disclosure Schedule, the Company has made available to
Arrow accurate and complete copies of all material insurance policies relating to the business, assets,
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liabilities and operations of the Company and each of its Subsidiaries. Each of such insurance policies is in full force and effect and the Company and each of its Subsidiaries are in material
compliance with the terms thereof. Other than customary end of policy notifications from insurance carriers, since May 12, 2015, neither the Company nor any of its Subsidiaries has received any written notice regarding any actual or possible:
(i) cancellation or invalidation of any insurance policy; (ii) refusal or denial of any coverage, reservation of rights or rejection of any material claim under any insurance policy or (iii) material adjustment in the amount of the premiums
payable with respect to any insurance policy. There is no pending workers compensation or other claim under or based upon any insurance policy of the Company or any of its Subsidiaries.
(b)
The Company does not have existing policies (primary and excess) of directors and officers
liability insurance maintained by the Company and each of its Subsidiaries as of the date of this Agreement.
2.20
No Financial Advisor
.
No broker, finder or investment banker is entitled to any
brokerage fee, finders fee, opinion fee, success fee, transaction fee or other fee or commission in connection with the Mergers or the Contemplated Transactions based upon arrangements made by or on behalf of the Company or any of its
Subsidiaries.
2.21
Registration Statement
. The information supplied by the Company and each of
its Subsidiaries for inclusion in the Registration Statement (including any the Company Financials) will not, as of the date of the Registration Statement or as of the date such information is prepared or presented, (i) contain any statement that is
inaccurate or misleading with respect to any material facts or (ii) omit to state any material fact necessary in order to make such information, in the light of the circumstances under which such information will be provided, not false or
misleading.
2.22
Disclosure
. To the Knowledge of the Company, no representation or warranty
made by the Company in this Section 2, including the Company Disclosure Schedule, contains any untrue statement of a material fact or omits to state any material fact necessary to make any of them, in light of the circumstances under which they were
made, not misleading.
Section 3. R
EPRESENTATIONS
AND
W
ARRANTIES
OF
A
RROW
AND
M
ERGER
S
UBS
Subject to Section 10.13(h), except (i) as set
forth in the written disclosure schedule delivered by Arrow to the Company (the
Arrow Disclosure Schedule
) or (ii) as disclosed in the Arrow SEC Documents filed with the SEC prior to the date hereof and publicly available
on the SECs Electronic Data Gathering Analysis and Retrieval System (but (A) without giving effect to any amendment thereof filed with, or furnished to the SEC on or after the date hereof and (B) excluding any disclosures contained under the
heading Risk Factors and any disclosure of risks included in any forward-looking statements disclaimer or in any other section to the extent they are forward-looking statements or cautionary, predictive or forward-looking in
nature), Arrow and Merger Subs represent and warrant to the Company:
3.1 Due Organization; Subsidiaries; Etc.
(a)
Each of Arrow, OncoGenex Technologies Inc., a company incorporated under the federal laws of Canada
and wholly-owned Subsidiary of Arrow (
OTI
), and Merger Subs is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and
authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used and (iii) to perform its obligations under
all Contracts by which it is bound. Since the date of its incorporation, each of the Merger Subs has not engaged in any activities other than in connection with or as contemplated by this Agreement.
(b)
Arrow and OTI are licensed or qualified to do business, and are in good standing, under the laws of all
jurisdictions where the nature of their business requires such licensing or qualification other than in jurisdictions where the failure to be so qualified individually or in the aggregate would not be reasonably expected to have an Arrow Material
Adverse Effect.
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(c)
Arrow has no Subsidiaries, except for Merger Subs and OTI; and
Arrow does not own any capital stock of, or any equity interest of any nature in, any other Entity, other than Merger Subs and OTI. Arrow has not agreed nor is obligated to make, nor is bound by any Contract under which it may become obligated
to make, any future investment in or capital contribution to any other Entity. Arrow has not, at any time, been a general partner of, or has otherwise been liable for any of the debts or other obligations of, any general partnership, limited
partnership or other Entity.
3.2
Certificate of Incorporation; Bylaws; Charters and Codes of
Conduct
.
Arrow has made available to the Company accurate and complete copies of Organizational Documents of Arrow, Merger Subs and OTI, other than such documents that can be obtained on the SECs website at
www.sec.gov
.
Neither Arrow nor OTI have taken any action in breach or violation of any of the provisions of its Organizational Documents nor is in breach or violation of any of the material provisions of its Organizational Documents,
except as would not reasonably be expected to have, individually or in the aggregate, an Arrow Material Adverse Effect.
3.3
Authority; Binding Nature of Agreement
. Each of Arrow and Merger Subs has all necessary
corporate power and authority to enter into and to perform its obligations under this Agreement (subject to, in the case of the First Merger, the Required Arrow Stockholder Vote). The Arrow Board (at meetings duly called and held) has, as of
the date of this Agreement: (a) determined that the Mergers and the issuance of shares of Arrow Common Stock pursuant to the Mergers is fair to, advisable and in the best interests of Arrow and its stockholders; (b) approved this Agreement, the
issuance of shares of Arrow Common Stock to the stockholders of the Company pursuant to the Mergers and the other Contemplated Transactions and (c) determined to recommend, upon the terms and subject to the conditions of this Agreement, that the
stockholders of Arrow vote to approve the issuance of shares of Arrow Common Stock in the Mergers pursuant to the terms of this Agreement. The Merger Sub 1 Board (by unanimous written consent or at meetings duly called and held) has:
(x) determined that the First Merger is fair to, advisable and in the best interests of Merger Sub 1 and its sole stockholder; (y) approved this Agreement and the Contemplated Transactions and (z) determined to recommend, upon the terms
and subject to the conditions of this Agreement, that the stockholder of Merger Sub 1 vote to adopt this Agreement and thereby approve the Contemplated Transactions. The Merger Sub 2 Board (by unanimous written consent or at meetings duly called and
held) has: (x) determined that the Second Merger is fair to, advisable and in the best interests of Merger Sub 2 and its sole stockholder; (y) approved this Agreement and the Contemplated Transactions and (z) determined to recommend, upon
the terms and subject to the conditions of this Agreement, that the stockholder of Merger Sub 2 vote to adopt this Agreement and thereby approve the Contemplated Transactions. This Agreement has been duly executed and delivered by Arrow and Merger
Subs, and assuming the due authorization, execution and delivery by the Company constitutes the legal, valid and binding obligation of Arrow or Merger Subs (as applicable), enforceable against each of Arrow and Merger Subs in accordance with its
terms, subject to Enforceability Exceptions. Prior to the execution of the Arrow Stockholder Support Agreements, the Arrow Board approved the Arrow Stockholder Support Agreements and the transactions contemplated thereby.
3.4
Vote Required
. The affirmative vote of the holders of a majority of the shares of Arrow Common
Stock outstanding on the record date and entitled to vote thereon is the only vote of the holders of any class or series of Arrows capital stock necessary to approve the issuance of Arrow Common Stock in the Mergers (the
Required
Arrow Stockholder Vote
).
3.5
Non-Contravention; Consents
. Subject to compliance
with the HSR Act and any foreign antitrust Legal Requirement, obtaining the Required Arrow Stockholder Vote and the filing of the First Certificate of Merger and the Second Certificate of Merger, each as required by the DGCL, neither (x) the
execution, delivery or performance of this Agreement by Arrow or Merger Subs, nor (y) the consummation of the Merger or any of the other Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):
(a)
contravene, conflict with or result in a violation of (i) any of the provisions of the Organizational
Documents of Arrow, OTI, or Merger Subs or (ii) any resolution adopted by the stockholders, the Arrow Board or any committee thereof, or the Merger Subs;
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(b)
contravene, conflict with or result in a material violation of,
or to the Knowledge of Arrow, give any Governmental Body or other Person the right to challenge the Mergers or any of the other Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which Arrow or OTI or any of the assets owned or used by Arrow or OTI, is subject, except as would not be material to Arrow or OTI or its business;
(c)
contravene, conflict with or result in a material violation of any of the terms or requirements of, or give
any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Arrow, except as would not be material to Arrow or its business;
(d)
contravene, conflict with or result in a material violation or breach of, or result in a default under, any
provision of any Arrow Material Contract, or, to the Knowledge of Arrow, give any Person the right to: (i) declare a default or exercise any remedy under any Arrow Material Contract; (ii) any material payment, rebate, chargeback, penalty or
change in delivery schedule under any such Arrow Material Contract; (iii) accelerate the maturity or performance of any Arrow Material Contract; or (iv) cancel, terminate or modify any term of any Arrow Material Contract, except in the case of any
breach, default, penalty or modification, which would not, individually or in the aggregate, have an Arrow Material Adverse Effect; or
(e)
result in the imposition or creation of any Encumbrance upon or with respect to any material asset owned or
used by Arrow or OTI (except for Permitted Encumbrances).
Except for (i) any Consent set forth on Part 3.5 of the Arrow Disclosure Schedule under any
Arrow Contract, (ii) the approval of the Mergers and the issuance of shares of Arrow Common Stock in the Mergers, (iii) the filing of the First Certificate of Merger and the Second Certificate of Merger with the Secretary of State of the State
of Delaware pursuant to the DGCL, (iv) any required filings under the HSR Act and any foreign antitrust Legal Requirement , (v) the filing of the Registration Statement with the SEC in accordance with the Exchange Act and (vi) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, Arrow was not and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement or (y) the consummation of the Mergers or any of the other Contemplated Transactions. The Arrow Board, the Merger Sub 1 Board and the
Merger Sub 2 Board have taken and will take all actions necessary to ensure that the restrictions applicable to business combinations contained in Section 203 of the DGCL are, and will be, inapplicable to the execution, delivery and performance of
this Agreement and the Arrow Stockholder Support Agreements and to the consummation of the Mergers and the other Contemplated Transactions. No other state takeover statute or similar Legal Requirement applies or purports to apply to the Mergers,
this Agreement, the Arrow Stockholder Support Agreements or any of the other Contemplated Transactions.
3.6 Capitalization, Etc.
(a)
The authorized capital stock of Arrow consists of (i) 75,000,000 shares of Arrow Common Stock, par value
$0.001 per share, of which 30,020,294 shares have been issued and are outstanding as of September 30, 2016 (the
Capitalization Date
) and (ii) 5,000,000 shares of Preferred Stock, par value $0.001 per share, of which no
shares have been issued and are outstanding as of the Capitalization Date. Arrow holds 33,993 shares of its capital stock in its treasury. All of the outstanding shares of Arrow Common Stock have been duly authorized and validly issued, and are
fully paid and nonassessable. None of the outstanding shares of Arrow Common Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar right. None of the outstanding shares of Arrow Common
Stock is subject to any right of first refusal in favor of Arrow. Except as contemplated herein and except as set forth in Part 3.6(a) of the Arrow Disclosure Schedule, there is no Arrow Contract relating to the voting or registration of, or
restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Arrow Common Stock. Arrow is not under any obligation, nor is it bound by any Contract
pursuant
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to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Arrow Common Stock or other securities.
(b)
Except for the 2010 Performance Incentive Plan, the 2000 Stock Incentive Plan, the 2007 Performance
Incentive Plan and the OncoGenex Technologies Inc. Stock Option Plan (collectively, the
Arrow Stock Plans
), or except as set forth on Part 3.6(b) of the Arrow Disclosure Schedule, Arrow does not have any stock option plan
or any other plan, program, agreement or arrangement providing for any equity-based compensation for any Person.
(c)
Except for the outstanding Arrow Options or as set forth in Part 3.6(c) of the Arrow Disclosure Schedule,
there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of Arrow; (ii) outstanding security, instrument or obligation that
is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Arrow; (iii) stockholder rights plan (or similar plan commonly referred to as a poison pill) or Contract under which Arrow is or
may become obligated to sell or otherwise issue any shares of its capital stock or any other securities or (iv) condition or circumstance that is reasonably likely to give rise to or provide a basis for the assertion of a claim by any Person to the
effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of Arrow. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect
to Arrow.
(d)
All outstanding shares of Arrow Common Stock and options and other securities of Arrow have
been issued and granted in material compliance with (i) all applicable securities laws and other applicable Legal Requirements and (ii) all requirements set forth in applicable Contracts.
3.7
SEC Filings; Financial Statements
.
(a)
Arrow has delivered to the Company accurate and complete copies of all registration statements, proxy
statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents filed by Arrow with the SEC since January 1, 2015 (the
Arrow SEC Documents
), other than such documents that
can be obtained on the SECs website at
www.sec.gov
. Except as set forth on Part 3.7(a) of the Arrow Disclosure Schedule, all statements, reports, exhibits, schedules, forms and other documents, including amendments thereto, required to
have been filed by Arrow or its officers with the SEC have been so filed on a timely basis. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing),
each of the Arrow SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and, to Arrows Knowledge, as of the time they were filed, none of the Arrow SEC
Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not
misleading. The certifications and statements required by (i) Rule 13a-14 under the Exchange Act and (ii) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the Arrow SEC Documents (collectively, the
Certifications
) are accurate and complete and comply as to form and content with all applicable Legal Requirements. As used in this Section 3.7, the term file and variations thereof shall be broadly construed to
include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.
(b)
The financial statements (including any related notes and schedules) contained or incorporated by reference
in the Arrow SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such
financial statements or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments
that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated and (iii) fairly
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present, in all material respects, the financial position of Arrow as of the respective dates thereof and the results of operations and cash flows of Arrow for the periods covered thereby. Other
than as expressly disclosed in the Arrow SEC Documents filed prior to the date hereof, there has been no material change in Arrows accounting methods or principles that would be required to be disclosed in Arrows financial statements in
accordance with GAAP. The books of account and other financial records of Arrow and each of its Subsidiaries are true and complete in all material respects.
(c)
Arrow has established and maintains, adheres to and enforces a system of internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) which are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP,
including policies and procedures that (i) require the maintenance of records that in reasonable detail accurately and fairly reflect the material transactions and dispositions of the assets of Arrow and its Subsidiaries, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of Arrow and its Subsidiaries are being made only in accordance with appropriate
authorizations of management and the Arrow Board of Directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of Arrow and its Subsidiaries.
(d)
Neither Arrow nor any of its Subsidiaries is a party to, nor does it have any commitment to become a party
to, any off-balance sheet joint-venture, off-balance sheet partnership or any other off-balance sheet arrangements (as defined in Item 303(a) of Regulation S-K).
(e)
Arrows auditor has at all times since the date of enactment of the Sarbanes-Oxley Act been: (i) a
registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) to the knowledge of Arrow, independent with respect to Arrow within the meaning of Regulation S-X under the Exchange Act and (iii) to the
knowledge of Arrow, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder.
(f)
Arrow has not received any comment letter from the SEC or the staff thereof or any correspondence from
NASDAQ or the staff thereof relating to the delisting or maintenance of listing of the Arrow Common Stock on NASDAQ. Arrow has not received any unresolved comments in the Arrow SEC Documents.
(g)
Since January 1, 2013, there have been no formal internal investigations regarding financial reporting or
accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer, or general counsel of Arrow, the Arrow Board or any committee thereof, other than ordinary course
audits or reviews of accounting policies and practices or internal controls required by the Sarbanes-Oxley Act.
(h)
Arrow is in compliance and has been in compliance in all material respects with the applicable provisions of
the Sarbanes-Oxley Act and the applicable listing and governance rules and regulations of NASDAQ.
3.8
Absence of Changes.
Except as set forth on Part 3.8 of the Arrow Disclosure Schedule, between
September 30, 2016 and the date of this Agreement:
(a)
there has not been any Arrow Material Adverse Effect
or an event or development that would, individually or in the aggregate, reasonably be expected to have an Arrow Material Adverse Effect;
(b)
there has not been any material loss, damage or destruction to, or any material interruption in the use of,
any of the assets or business of Arrow or OTI (whether or not covered by insurance);
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(c)
Arrow has not: (i) declared, accrued, set aside or paid
any dividend or made any other distribution in respect of any shares of capital stock or (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities except for the repurchase or reacquisition of shares pursuant
to Arrows rights arising upon an individuals termination as an employee, director or consultant;
(d)
neither Arrow nor OTI has sold, issued or granted, or authorized the issuance of: (i) any capital stock
or other security (except for Arrow Common Stock issued upon the valid exercise of outstanding Arrow Options); (ii) any option, warrant or right to acquire any capital stock or any other security (except for Arrow Options identified in Part 3.6(b)
of the Arrow Disclosure Schedule) or (iii) any instrument convertible into or exchangeable for any capital stock or other security;
(e)
neither Arrow nor OTI has changed any of its accounting methods, principles or practices;
(f)
there has been no amendment to any of the Organizational Documents of Arrow or OTI, and neither Arrow nor
OTI has effected or been a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;
(g)
Arrow has not amended or waived any of its rights under, or exercised its discretion to permit the
acceleration of vesting under any provision of: (i) any of the Arrow Stock Plans; (ii) any Arrow Option or any Contract evidencing or relating to any Arrow Option; (iii) any restricted stock purchase agreement or (iv) any other Contract
evidencing or relating to any equity award (whether payable in cash or stock);
(h)
neither Arrow nor OTI
has formed any Subsidiary other than Merger Subs or acquired any equity interest or other interest in any other Entity;
(i)
neither Arrow nor OTI has: (i) lent money to any Person; (ii) incurred or guaranteed any indebtedness for
borrowed money; (iii) issued or sold any debt securities or options, warrants, calls or other rights to acquire any debt securities; (iv) guaranteed any debt securities of others; or (v) made any capital expenditure or commitment in excess of
$50,000;
(j)
Arrow has not, other than in the Ordinary Course of Business: (i) adopted, established or
entered into any Arrow Employee Plan; (ii) caused or permitted any Arrow Employee Plan to be amended other than as required by law or (iii) paid any bonus or made any profit-sharing or similar payment to, or increased the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its employees, directors or consultants;
(k)
in each case for purposes of this clause (k), other than as required by law, none of the Buyer Parties have
made, changed or revoked any material Tax election, filed any material amendment to any Tax Return, adopted or changed any accounting method in respect of Taxes, changed any annual Tax accounting period, entered into any Tax allocation agreement,
Tax sharing agreement or Tax indemnity agreement, other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers or landlords, entered into any closing agreement with respect to any Tax, settled or
compromised any claim, notice, audit report or assessment in respect of material Taxes, applied for or entered into any ruling from any Tax authority with respect to Taxes, surrendered any right to claim a material Tax refund, or consented to any
extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;
(l)
neither Arrow nor OTI has commenced or settled any Legal Proceeding;
(m)
neither Arrow nor OTI has acquired any material assets nor sold, leased or otherwise irrevocably disposed of
any of its material assets or properties, nor has any Encumbrance been granted with respect to such assets or properties, except in the Ordinary Course of Business consistent with past practices;
(n)
there has been no entry into, amendment or termination of any Arrow Material Contract;
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(o)
there has been no (i) material change in pricing or royalties
or other payments set or charged by Arrow or OTI to its customers or licensees, (ii) agreement by Arrow or OTI to change pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to Arrow or OTI, or
(iii) material change in pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to Arrow or OTI; and
(p)
neither Arrow nor OTI has negotiated, agreed or committed to take any of the actions referred to in
clauses(c) through (o) above (other than negotiations between the Parties to enter into this Agreement).
3.9
Absence of Undisclosed Liabilities
. As of the date hereof, neither Arrow nor any of its
Subsidiaries has any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any kind, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in the financial
statements in accordance with GAAP) (each a
Liability
), individually or in the aggregate, except for: (a) Liabilities reflected on the face of the Arrow Unaudited Interim Balance Sheet; (b) normal and recurring current
Liabilities that have been incurred by Arrow or its Subsidiaries since the date of the Arrow Unaudited Interim Balance Sheet in the Ordinary Course of Business and which are not in excess of $50,000 in the aggregate; (c) Liabilities for performance
of obligations of Arrow or any of its Subsidiaries under Arrow Contracts; (d) Liabilities incurred in connection with this Agreement; (e) Liabilities incurred in connection with the winding down of the business of Arrow and (e) Liabilities
listed in Part 3.9 of the Arrow Disclosure Schedule.
3.10
Title to Assets
. Arrow and OTI own,
and have good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all tangible properties or assets and equipment used or held for use in their business or operations or purported to be owned by them,
including: (a) all assets reflected on the Arrow Unaudited Interim Balance Sheet and (b) all other assets reflected in the books and records of Arrow and OTI as being owned by Arrow or OTI, as applicable. All of said assets are owned by
Arrow or OTI free and clear of any Encumbrances, except for any Permitted Encumbrances.
3.11
Real
Property; Leasehold
. Neither Arrow nor OTI own and have never owned any real property. Arrow has made available to the Company (a) an accurate and complete list of all real properties with respect to which Arrow and OTI directly or
indirectly holds a valid leasehold interest as well as any other real estate that is in the possession of or leased by Arrow and OTI and (b) copies of all leases under which any such real property is possessed (the
Arrow Real Estate
Leases
). Part 3.11 of the Arrow Disclosure Schedule sets forth a complete and accurate list of all Arrow Real Estate Leases. Neither Arrow nor OTI is in default under any of the Arrow Real Estate Leases, except where such defaults
have not had and would not be reasonably expected to have, individually or in the aggregate, an Arrow Material Adverse Effect, and to the Knowledge of Arrow, there is no default by any of the lessors thereunder.
3.12 Intellectual Property.
(a)
Arrow, directly or through any of its Subsidiaries, owns, or has the right to use, and has the right to
bring actions for the infringement of, all Arrow IP Rights, except for any failure to own or has the right to use, or has the right to bring actions for, that would not reasonably be expected to have an Arrow Material Adverse Effect.
(b)
Part 3.12(b) of the Arrow Disclosure Schedule is a true and complete listing of all Arrow Registered
IP, setting forth in each case, as applicable, the jurisdictions in which such Arrow Registered IP has been issued and applications that have been filed, along with the respective application, registration or filing number or subsequent registration
activity thereof. Arrow and its Subsidiaries solely own all right, title and interest in and to, or have the valid and enforceable right to use, each item of Arrow Registered IP free and clear of any Encumbrances, except for Permitted
Encumbrances.
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(c)
Part 3.12(c) of the Arrow Disclosure Schedule identifies all
Arrow IP Rights Agreements currently in force and material to the business of Arrow as currently conducted, pursuant to which Arrow IP Rights are licensed to Arrow or any of its Subsidiaries (other than (I) any non-customized software that (A) is so
licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development,
manufacturing, or distribution of, any of the Companys or any of its Subsidiaries products or services, (II) any generally available (i.e., off the shelf) third party licenses of Intellectual Property, and (III) any
Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials).
(d)
Part 3.12(d)(i) of the Arrow Disclosure Schedule identifies all Arrow IP Rights Agreements currently in
force and material to the business of Arrow as currently conducted, pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any material
Arrow IP Rights. Except as identified in Part 3.12(d)(ii) of the Arrow Disclosure Schedule, Arrow is not bound by, and no Arrow IP Rights are subject to, any Arrow IP Rights Agreement containing any covenant or other provision that limits or
restricts the ability of Arrow or any of its Subsidiaries to use, exploit, assert, or enforce any Arrow IP Rights anywhere in the world in each case as would materially limit the business of the Arrow as currently conducted or planned to be
conducted.
(e)
Except as identified in Part 3.12(f) of the Arrow Disclosure Schedule, to the Knowledge of
Arrow and its Subsidiaries, Arrow or one of its Subsidiaries exclusively owns all right, title, and interest to and in any material Arrow IP Rights (other than Arrow IP Rights (i) exclusively or non-exclusively licensed to Arrow or one of its
Subsidiaries, as identified in Part 3.12(c) of the Arrow Disclosure Schedule and (ii) (I) any non-customized software that (A) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and
other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of Arrows or any of its Subsidiaries products or services, (II) any
generally available (i.e., off the shelf) third party licenses of Intellectual Property, and (III) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials) free and clear of any
Encumbrances (other than Permitted Encumbrances). Without limiting the generality of the foregoing:
(i)
Each Person who is or was an employee or contractor of Arrow or any of its Subsidiaries and who is or was
involved in the creation or development of any material Arrow IP Rights has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to Arrow or such Subsidiary and confidentiality provisions protecting trade
secrets and confidential information of Arrow and its Subsidiaries. To the Knowledge of Arrow and its Subsidiaries, no current or former stockholder, officer, director, or employee of Arrow or any of its Subsidiaries has any claim, right (whether or
not currently exercisable), or interest to or in any material Arrow IP Rights. To the Knowledge of Arrow and its Subsidiaries, no employee of Arrow or any of its Subsidiaries is (a) bound by or otherwise subject to any Contract restricting him or
her from performing his or her duties for Arrow or such Subsidiary or (b) in breach of any Contract with any former employer or other Person concerning material Arrow IP Rights or confidentiality provisions protecting trade secrets and confidential
information comprising material Arrow IP Rights.
(ii)
No funding, facilities, or personnel of any
Governmental Body were used to develop or create, in whole or in part, any material Arrow IP Rights in which Arrow or any of its Subsidiaries has an ownership interest.
(iii)
Arrow and each of its Subsidiaries has taken reasonable steps to maintain the confidentiality of and
otherwise protect and enforce its rights in all proprietary information that Arrow or such Subsidiary holds, or purports to hold, as a Trade Secret.
(iv)
To the Knowledge of Arrow and its Subsidiaries, the Arrow IP Rights constitute all Intellectual Property
material to and necessary for Arrow and its Subsidiaries to conduct its business as currently conducted.
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(f)
Arrow has delivered, or made available to the Company, a
complete and accurate copy of all Arrow IP Rights Agreements currently in force and material to the business of Arrow as currently conducted. Neither Arrow nor its Subsidiaries is a party to any Contract (A) pursuant to which the execution, delivery
and performance of this Agreement and the consummation of the Contemplated Transactions will constitute a material breach, or (B) as a result of such execution, delivery and performance of this Agreement and the consummation of the Contemplated
Transactions will (i) cause the forfeiture or termination of or Encumbrance upon, or the grant of any license or other right to, or give rise to a right of forfeiture or termination of or Encumbrance upon, any Arrow IP Rights, or (ii) impair the
right of Arrow, any of its Subsidiaries, or the Surviving Corporation to use, sell, or license any Arrow IP Rights or portion thereof, except for the occurrence of any such breach, forfeiture, termination, Encumbrance, grant or impairment that would
not, individually or in the aggregate, be reasonably expected to result in an Arrow Material Adverse Effect. With respect to each of the Arrow IP Rights Agreements: (i) each such agreement is valid and binding on Arrow or its Subsidiaries, as
applicable, and in full force and effect; (ii) Arrow has not received any written notice of termination or cancellation under such agreement, or received any written notice of breach or default under such agreement, which breach has not been cured
or waived; and (iii) neither Arrow nor its Subsidiaries, and to the Knowledge of Arrow, no other party to any such agreement, is in breach or default thereof in any material respect.
(g)
Except as set forth on Part 3.12(g) of the Arrow Disclosure Schedule, Arrow and its Subsidiaries have no
material Liability for violation of any license or agreement between Arrow or its Subsidiaries and any third party or, to the Knowledge of Arrow, for infringement or misappropriation of any valid Intellectual Property right of any other party, which
violation, infringement or misappropriation would reasonably be expected to have an Arrow Material Adverse Effect. To the Knowledge of Arrow, (i) no third party is infringing upon, or violating any license or agreement with Arrow or its Subsidiaries
or relating to any material Arrow IP Rights and (ii) there is no current or pending challenge, claim or Legal Proceeding (including, but not limited to, opposition, interference or other proceeding in any patent or other government office)
contesting the validity, ownership or right to use, sell, license or dispose of any material Arrow IP Rights, nor has Arrow or its Subsidiaries received any written notice asserting that any material Arrow IP Rights or the proposed use, sale,
license or disposition thereof conflicts with or infringes or misappropriates or will conflict with or infringe or misappropriate the rights of any other Person.
(h)
Each item of Arrow Registered IP is and at all times has been filed and maintained in compliance with all
applicable Legal Requirements and all filings, payments, and other actions required to be made or taken to maintain such item of Arrow Registered IP in full force and effect have been made by the applicable deadline.
(i)
None of the goodwill associated with or inherent in any Trademark (whether registered or unregistered) in
which Arrow or its Subsidiaries has or purports to have an ownership interest has been impaired as determined by Arrow or any of its Subsidiaries in accordance with GAAP.
(j)
Except as may be set forth in Part 3.12(j) of the Arrow Disclosure Schedule (i) neither Arrow nor its
Subsidiaries is bound by any Contract (except for clinical trial agreements, material transfer agreements, confidentiality agreements and agreements related to clinical studies that are not material to the business of Arrow as currently conducted)
to indemnify, defend, hold harmless, or reimburse any other Person with respect to any Intellectual Property infringement, misappropriation, or similar claim, and (ii) neither Arrow nor its Subsidiaries has ever assumed, or agreed to discharge or
otherwise take responsibility for, any existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual Property right, which assumption, agreement or responsibility remains in force as of the
date of this Agreement.
(k)
Arrow and its Subsidiaries are, and have at all times since January 1, 2014
been, in material compliance with all Legal Requirements applicable to Arrow or its Subsidiaries regarding the protection, storage, use and disclosure of Personal Data collected by Arrow or its Subsidiaries.
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3.13
Agreements, Contracts and Commitments.
Part 3.13
of the Arrow Disclosure Schedule identifies each Arrow Contract to which Arrow is a party and to which Arrow has any currently effective binding obligations or by which any of its assets are currently bound:
(a)
relating to any agreement of indemnification or guaranty not entered into in the Ordinary Course of Business
other than indemnification agreements between Arrow and any of its officers or directors;
(b)
containing
any covenant limiting the freedom of Arrow or its Subsidiaries to engage in any line of business or compete with any Person;
(c)
relating to capital expenditures and involving obligations after the date of this Agreement in excess of
$50,000 and not cancelable without penalty;
(d)
relating to the disposition or acquisition of material
assets or any ownership interest in any Entity;
(e)
relating to any mortgages, indentures, loans, notes or
credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit in excess of $50,000 or creating any material Encumbrances with respect to any assets of Arrow or any of its
Subsidiaries or any loans or debt obligations with officers or directors of Arrow;
(f)
relating to
(i) any distribution agreement currently in force (identifying any that contain exclusivity provisions); (ii) any agreement currently in force for the conduct of research, pre-clinical or clinical studies regarding the products under
development by Arrow or its Subsidiaries; (iii) any dealer, distributor, joint marketing, alliance, joint venture, cooperation, development or other agreement currently in force under which Arrow or its Subsidiaries has continuing obligations to
develop, market, or supply any product, technology or service, or any agreement pursuant to which Arrow or its Subsidiaries has continuing obligations to develop any Intellectual Property that will not be owned, in whole or in part, by Arrow or such
Subsidiary; or (iv) any Contract currently in force to license any third party to manufacture or produce any Arrow product, service or technology or any Contract currently in force to sell, distribute or commercialize any Arrow products or
service except agreements with distributors or sales representatives in the Ordinary Course of Business; in each case of (i) (iv) above whereby such Contract is material to the business or operations of Arrow and its Subsidiaries as currently
conducted and involves payment or receipt by Arrow or its Subsidiaries under such Contract of $50,000 or more in the aggregate or obligations after the date of this Agreement in excess of $50,000 in the aggregate;
(g)
with any Person, including any financial advisor, broker, finder, investment banker or other Person,
providing advisory services to Arrow in connection with the Contemplated Transactions;
(h)
with any
manufacturer, vendor, or other Person for the supply of materials or performance of services by such third party to Arrow in relation to the manufacture of Arrows products, whereby such Contract is material to the business or operations of
Arrow and its Subsidiaries as currently conducted and involves payment or receipt by Arrow or its Subsidiaries under such Contract of $50,000 or more in the aggregate or obligations after the date of this Agreement in excess of $50,000 in the
aggregate; or
(i)
is a Contract pertaining to the Intellectual Property of Arrow or its Subsidiaries
whereby such Contract is material to the business or operations of Arrow and its Subsidiaries as currently conducted and involves payment or receipt by Arrow or its Subsidiaries under such Contract of $50,000 or more in the aggregate or obligations
after the date of this Agreement in excess of $50,000 in the aggregate.
Arrow has made available to the Company accurate and complete
copies of all Contracts to which Arrow or its Subsidiaries is a party or by which it is bound of the type described in clauses (a) through (i) above (any such Contract, an
Arrow Material Contract
), including all amendments
thereto. There are no Arrow Material Contracts that are not in written form. Except as set forth on Part 3.13 of the Arrow Disclosure
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Schedule, neither Arrow nor any of its Subsidiaries has, nor to Arrows Knowledge, as of the date of this Agreement has any other party to an Arrow Material Contract, breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted under any Arrow Material Contract in such manner as would permit any other party to cancel or terminate any such Arrow Material Contract, or would permit any other party
to seek damages. As to Arrow and its Subsidiaries, as of the date of this Agreement, each Arrow Material Contract is valid, binding, enforceable and in full force and effect, subject to the Enforceability Exceptions. To the Knowledge of Arrow, no
Person is renegotiating any material amount paid or payable to Arrow under any Arrow Material Contract or any other material term or provision of any Arrow Material Contract other than in the Ordinary Course of Business.
3.14
Compliance; Permits; Restrictions
.
(a)
Arrow and OTI are, and since January 1, 2013 have been in compliance in all material respects with all
material Legal Requirements. No investigation, claim, suit, proceeding, audit or other action by any Governmental Body or Governmental Authority is pending or, to the Knowledge of Arrow, threatened against Arrow or OTI, nor has any Governmental Body
or Governmental Authority indicated to Arrow or OTI in writing an intention to conduct the same. There is no agreement, judgment, injunction, order or decree binding upon Arrow or OTI which (i) has or would reasonably be expected to have the
effect of prohibiting or materially impairing any business practice of Arrow or OTI, any acquisition of material property by Arrow or OTI or the conduct of business by Arrow and any Subsidiary as currently conducted, (ii) would reasonably be
expected to have an adverse effect on Arrows ability to comply with or perform any covenant or obligation under this Agreement, or (iii) would reasonably be expected to have the effect of preventing, materially delaying, making illegal or
otherwise interfering with the Mergers or any of the Contemplated Transactions.
(b)
Each of Arrow, OTI, and
Merger Subs holds all Governmental Authorizations which are material to the operation of their businesses (collectively, the
Arrow Permits
) as currently conducted. Part 3.14(b) of the Arrow Disclosure Schedule identifies
each Arrow Permit. Each of Arrow, OTI, and Merger Subs is in material compliance with the terms of the Arrow Permits. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the Knowledge of
Arrow, threatened, which seeks to revoke, limit, suspend, or materially modify any Arrow Permit.
(c)
There
are no proceedings pending or, to the Knowledge of Arrow, threatened with respect to an alleged material violation by Arrow or OTI of the FDCA, FDA regulations adopted thereunder, or any other similar Legal Requirements promulgated by a Drug
Regulatory Agency.
(d)
Each of Arrow, OTI, and Merger Subs holds all required Governmental Authorizations
issuable by any Drug Regulatory Agency necessary for the conduct of the business of Arrow, OTI, and Merger Subs as currently conducted, and, as applicable, development, clinical testing, manufacturing, marketing, distribution and importation or
exportation, as currently conducted, of any of its products or product candidates (the
Arrow Product Candidates
) (the
Arrow Regulatory Permits
) and no such Arrow Regulatory Permit has been
(i) revoked, withdrawn, suspended, cancelled or terminated or (ii) modified in any materially adverse manner. Neither Arrow nor its Subsidiaries has received any written notice or other written communication from any Drug Regulatory Agency
regarding any revocation, withdrawal, suspension, cancellation, termination or material modification of any Arrow Regulatory Permit. Except for the information and files identified in Part 3.14(d) of the Arrow Disclosure Schedule, Arrow and OTI have
made available to the Company all information in its or its Subsidiaries possession or control relating to the Arrow Product Candidates and the development, clinical testing, manufacturing, importation and exportation of the Arrow Product
Candidates, including complete copies of the following (to the extent there are any): (x) adverse event reports; clinical study reports and material study data; and inspection reports, notices of adverse findings, warning letters, filings and
letters and other written correspondence to and from any Drug Regulatory Agency; and meeting minutes with any Drug Regulatory Agency; and (y) similar reports, material study data, notices, letters, filings, correspondence and meeting minutes with
any other Governmental Authority.
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(e)
All clinical, pre-clinical and other studies and tests
conducted by or on behalf of, or sponsored by, Arrow or OTI or in which Arrow, OTI, or their respective products or product candidates, have participated were conducted in all material respects in accordance with standard medical and scientific
research procedures and in compliance with the applicable regulations of the Drug Regulatory Agencies and other applicable Legal Requirements, including 21 C.F.R. Parts 50, 54, 56, 58 and 312.
(f)
Neither Arrow nor OTI is the subject of any pending, or to the Knowledge of Arrow, threatened investigation
in respect of its business or products by the FDA pursuant to its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto.
To the Knowledge of Arrow, neither Arrow nor OTI has committed any acts, made any statement, or failed to make any statement, in each case in respect of its business or products that would violate FDAs Fraud, Untrue Statements of
Material Facts, Bribery, and Illegal Gratuities Final Policy, and any amendments thereto. None of Arrow, any of its Subsidiaries, or any of their respective officers, employees or agents has been convicted of any crime or engaged in any
conduct that could result in a material debarment or exclusion under (i) 21 U.S.C. Section 335a or (ii) any similar applicable Legal Requirement. To the Knowledge of Arrow, no material debarment or exclusionary claims, actions, proceedings or
investigations in respect of their business or products are pending or threatened against Arrow, OTI, or any of their respective officers, employees or agents.
(g)
Other than in connection with the winding down of its operations, Arrow has filed with the FDA, EMA, any
other Governmental Body, and any institutional review board or comparable body, all required notices, supplemental applications, and annual or other reports, including adverse experience reports, with respect to each investigational new drug
application or any comparable foreign regulatory application, related to the manufacture, testing, study, or sale of any of its products or product candidates, as applicable.
3.15
Legal Proceedings; Orders
.
(a)
Except as set forth in Part 3.15 of the Arrow Disclosure Schedule, there is no pending Legal Proceeding,
and, to the Knowledge of Arrow, no Person has threatened in writing to commence any Legal Proceeding: (i) that involves Arrow, OTI, or any Arrow Associate (in his or her capacity as such) or any of the material assets owned by Arrow or OTI; or
(ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Mergers or any of the other Contemplated Transactions. With regard to any Legal Proceeding set forth on Part 3.15 of
the Arrow Disclosure Schedule, Arrow has made available to the Company or its counsel all pleadings and material written correspondence related to such Legal Proceeding (if any) and all insurance policies and material written correspondence with
brokers and insurers related to such Legal Proceedings (if any). Arrow has materially complied with the requirements of its insurance policy or policies to obtain coverage with respect to such Legal Proceeding under such insurance policy or
policies.
(b)
There is no order, writ, injunction, judgment or decree to which Arrow, OTI, or any of the
material assets owned or used by Arrow or OTI is subject. To the Knowledge of Arrow, no officer or other Key Employee of Arrow or OTI is subject to any order, writ, injunction, judgment or decree that prohibits such officer or other employee from
engaging in or continuing any conduct, activity or practice relating to the business of Arrow or OTI or to any material assets owned or used by Arrow or OTI.
3.16
Tax Matters
.
(a)
Each of the Buyer Parties have timely filed all federal income Tax Returns and other material Tax Returns
that they were required to file under applicable Legal Requirements. All such Tax Returns were true, correct and complete in all material respects and have been prepared in material compliance with all applicable Legal Requirements. None of the
Buyer Parties are currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where the Buyer Parties do not file Tax Returns that any of the Buyer
Parties are subject to taxation by that jurisdiction.
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(b)
All material Taxes due and owing by the Buyer Parties have on
or before the date hereof (whether or not shown on any Tax Return) have been paid. The unpaid Taxes of the Buyer Parties have been reserved for on the Arrow Unaudited Interim Balance Sheet in accordance with GAAP. Since the date of the Arrow
Unaudited Interim Balance Sheet, none of the Buyer Parties have incurred any material Liability for Taxes outside the Ordinary Course of Business or otherwise inconsistent with past custom and practice.
(c)
Each of the Buyer Parties have withheld and paid all material Taxes required to have been withheld and paid
in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.
(d)
There are no Encumbrances for a material amount of Taxes (other than Taxes not yet due and payable or Taxes
that are being contested in good faith and for which adequate reserves have been made in accordance with GAAP on Arrows Unaudited Interim Balance Sheet) upon any of the assets of the Buyer Parties.
(e)
No deficiencies for a material amount of Taxes with respect to any of the Buyer Parties have been claimed,
proposed or assessed by any Governmental Body in writing. There are no pending (or, based on written notice, threatened) audits, assessments or other actions for or relating to any liability in respect of a material amount of Taxes of the Buyer
Parties. No issues relating to Taxes of the Buyer Parties were raised by the relevant Tax authority in any completed audit or examination that would reasonably be expected to result in a material amount of Taxes in a later taxable period. Arrow has
delivered or made available to the Company complete and accurate copies of all federal income Tax and all other material Tax Returns of the Buyer Parties (and their predecessors) for all taxable years remaining open under the applicable statute of
limitations, and complete and accurate copies of all examination reports and statements of deficiencies assessed against or agreed to by the Buyer Parties (and their Subsidiaries and predecessors), with respect to federal income Tax and all other
material Taxes. None of the Buyer Parties (or any of their Subsidiaries or predecessors) have waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency, nor has
any request been made in writing for any such extension or waiver.
(f)
All material elections with respect
to Taxes affecting the Buyer Parties as of the date hereof, to the extent such elections are not shown on or in the Tax Returns that have been delivered or made available to the Company, are set forth on Part 3.16(f) of the Arrow Disclosure
Schedule. None of the Buyer Parties have agreed, or is required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise or have elected at any time to be treated as an S corporation within the
meaning of Sections 1361 or 1362 of the Code.
(g)
None of the Buyer Parties are a party to any Tax
allocation, Tax sharing or similar agreement (including indemnity arrangements), other than commercial contracts entered into in the Ordinary Course of Business.
(h)
None of the Buyer Parties have ever been a member of an affiliated group filing a consolidated, combined or
unitary Tax Return (other than a group the common parent of which is Arrow) for federal, state, local or foreign Tax purposes. None of the Buyer Parties have any Liability for the Taxes of any Person (other than the Buyer Parties) under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by Contract, or otherwise.
(i)
To the Knowledge of Arrow, after reasonable inquiry, none of the Buyer Parties owns any interest in any
controlled foreign corporation (as defined in Section 957 of the Code), passive foreign investment company (as defined in Section 1297 of the Code), or other entity the income of which is required to be included in the income of any of the Buyer
Parties.
(j)
None of the Buyer Parties have distributed stock of another Person, or has had its stock
distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code.
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(k)
None of the Buyer Parties is a partner for Tax purposes with
respect to any joint venture, partnership, or, to the Knowledge of the Buyer Parties, other arrangement or contract which is treated as a partnership for Tax purposes who receives or has previously received a Schedule K-1 or a comparable form under
foreign law.
(l)
None of the Buyer Parties will be required to include any item of income in, or exclude
any item of deduction from, taxable income for any period (or any portion thereof) ending after the Closing as a result of any (i) installment sale or other open transaction disposition made on or prior to the Closing Date, (ii) agreement with any
Tax authority (including any closing agreement described in Section 7121 of the Code or any similar provision of state, local or foreign law) made or entered into on or prior to the Closing Date, (iii) a change in method of accounting occurring
prior to the Closing Date, (iv) a prepaid amount received, or paid, prior to the Closing Date or (v) deferred gains arising prior to the Closing Date.
(m)
None of the Buyer Parties have entered into any transaction identified as a listed transaction
for purposes of Treasury Regulations Sections 1.6011-4(b)(2) or 301.6111-2(b)(2).
(n)
Except as set forth
in Part 3.16(n) of the Arrow Disclosure Schedule, none of the Buyer Parties has reported having a permanent establishment in any country other than the United States, as defined in any applicable Tax treaty between the United States and such other
country.
(o)
None of the Buyer Parties have taken any action, nor has any knowledge of any fact or
circumstance, that could reasonably be expected to prevent the transactions contemplated hereby, including the Mergers, from qualifying for the Intended Tax Treatment.
(p)
Merger Sub 1 and Merger Sub 2 are newly formed corporations with no material assets or liabilities and were
created for purposes of facilitating the acquisition of the Company.
3.17
Employee and Labor Matters;
Benefit Plans
.
(a)
The employment of each of Arrows and any of its Subsidiaries employees
is terminable by Arrow or the applicable Subsidiary at will (or otherwise in accordance with general principles of wrongful termination law) (except for employees of Arrow located in a jurisdiction that does not recognize the at will
employment concept). Arrow has made available to the Company accurate and complete copies of all employee manuals and handbooks, disclosure materials, policy statements and other materials relating to the employment of Arrow Associates to the
extent currently effective and material.
(b)
To the Knowledge of Arrow, no officer or Key Employee of Arrow
or any of its Subsidiaries intends to terminate his or her employment with Arrow or the applicable Subsidiary, nor, to the Knowledge of Arrow, has any such officer or Key Employee threatened or expressed in writing any intention to do so.
(c)
Neither Arrow nor any of its Subsidiaries is a party to, bound by, nor has a duty to bargain under, any
collective bargaining agreement or other Contract with a labor organization representing any of its employees, and there are no labor organizations representing, purporting to represent or, to the Knowledge of Arrow, seeking to represent any
employees of Arrow or any of its Subsidiaries.
(d)
There has never been, nor has there been any threat of,
any strike, slowdown, work stoppage, lockout, job action, union, organizing activity, question concerning representation or any similar union activity or dispute, affecting Arrow or any of its Subsidiaries.
(e)
To the Knowledge of Arrow, neither Arrow nor any of its Subsidiaries is or has been engaged in any unfair
labor practice within the meaning of the National Labor Relations Act. There is no Legal Proceeding, claim, labor dispute or grievance pending or, to the Knowledge of Arrow, threatened or reasonably anticipated
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relating to any employment contract, privacy right, labor dispute, wages and hours, leave of absence, plant closing notification, workers compensation policy, long-term disability policy,
harassment, retaliation, immigration, employment statute or regulation, safety or discrimination matter involving any Arrow Associate, including charges of unfair labor practices or discrimination complaints. Part 3.17(e) of the Arrow Disclosure
Schedule lists all material written and all non-written employee benefit plans (as defined in Section 3(3) of ERISA, whether or not subject to ERISA) and all material bonus, equity-based, incentive, deferred compensation, retirement or supplemental
retirement, profit sharing, severance, golden parachute, vacation, cafeteria, dependent care, medical care, employee assistance program, education or tuition assistance programs and other similar fringe or employee benefit plans, programs or
arrangements, including any employment or executive compensation or severance agreements, written or otherwise, which are currently in effect relating to any present or former employee or director of Arrow or any of its Subsidiaries (or any trade or
business (whether or not incorporated) which is an Arrow Affiliate) or which is maintained by, administered or contributed to by, or required to be contributed to by, the Company, any of its Subsidiaries or any Arrow Affiliate, or under which Arrow
or any of its Subsidiaries or any Arrow Affiliate has any current or may incur liability after the date hereof (each, an
Arrow Employee Plan
).
(f)
Each Arrow Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a
favorable determination with respect to such qualified status from the Internal Revenue Service. Nothing has occurred that would reasonably be expected to adversely affect the qualified status of any such Arrow Employee Plan or the exempt status of
any related trust.
(g)
Each Arrow Employee Plan has been maintained in compliance in all material respects
with its terms and, both as to form and operation, with all applicable Legal Requirements, including the Code and ERISA.
(h)
Neither Arrow nor any of its Subsidiaries has engaged in any transaction in violation of Sections 404
or 406 of ERISA or any prohibited transaction, as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA. Neither Arrow nor any of its Subsidiaries has knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any Arrow Employee Plan subject to ERISA and neither
Arrow nor any of its Subsidiaries has been assessed any civil penalty under Section 502(l) of ERISA. Neither Arrow nor any of its Subsidiaries, or to the Knowledge of Arrow, any of its agents or any fiduciary other than Arrow has been in material
breach of any contractual or fiduciary obligation with respect to the administration of the Arrow Employee Plans or trusts or other funding media related thereto.
(i)
No Arrow Employee Plan is subject to Title IV or Section 302 of ERISA or Section 412 of the Code, and
neither Arrow nor any of its Subsidiaries or Arrow Affiliate has ever maintained, contributed to or partially or completely withdrawn from, or incurred any obligation or liability with respect to, any such plan. No Arrow Employee Plan is a
Multiemployer Plan, and neither Arrow nor any of its Subsidiaries or Arrow Affiliate has ever contributed to or had an obligation to contribute, or incurred any liability in respect of a contribution, to any Multiemployer Plan. No Arrow Employee
Plan is a Multiple Employer Plan.
(j)
No Arrow Employee Plan (other than Arrows obligations to
reimburse or pay COBRA premiums or state equivalent benefits to current or former employees pursuant to an Arrow Employee Plan) provides for medical or death benefits beyond termination of service or retirement, other than (i) pursuant to COBRA or
an analogous state law requirement or (ii) death or retirement benefits under an Arrow Employee Plan qualified under Section 401(a) of the Code.
(k)
Arrow and each of its Subsidiaries has complied, in all material respects, with all state and federal laws
applicable to employees, including but not limited to COBRA, FMLA, CFRA, HIPAA, the Womens Health and Cancer Rights Act of 1998, the Newborns and Mothers Health Protection Act of 1996, and any similar provisions of state law
applicable to its employees. To the extent required under HIPAA and the
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regulations issued thereunder, Arrow and each of its Subsidiaries has, prior to the Closing Date, performed all material obligations under the medical privacy rules of HIPAA (45 C.F.R. Parts 160
and 164), the electronic data interchange requirements of HIPAA (45 C.F.R. Parts 160 and 162), and the security requirements of HIPAA (45 C.F.R. Part 142). Neither Arrow nor any of its Subsidiaries has any unsatisfied obligations to any
employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state law governing health care coverage or extension.
(l)
Arrow and each of its Subsidiaries is in material compliance with all applicable foreign, federal, state and
local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment, worker classification, tax withholding, prohibited discrimination, equal employment, fair employment practices, meal and rest periods,
immigration status, employee safety and health, wages (including overtime wages), compensation, and hours of work, and in each case, with respect to employees: (i) has, in all material respects, withheld and reported all amounts required by law or
by agreement to be withheld and reported with respect to wages, salaries and other payments to employees, (ii) is not liable for any material amount in respect of any arrears of wages, severance pay or any Taxes or any penalty for failure to comply
with any of the foregoing, and (iii) is not liable for any material payment to any trust or other fund governed by or maintained by or on behalf of any governmental authority, with respect to unemployment compensation benefits, social security or
other benefits or obligations for employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no actions, suits, claims or administrative matters pending, threatened or reasonably
anticipated against Arrow or any of its Subsidiaries relating to any employee, employment agreement or Arrow Employee Plan. There are no pending or, to the Knowledge of Arrow, threatened or reasonably anticipated claims or actions against Arrow, any
of its Subsidiaries, any Arrow trustee or any trustee of any Subsidiary under any workers compensation policy or long-term disability policy. Neither Arrow nor any Subsidiary thereof is party to a conciliation agreement, consent decree or
other agreement or order with any federal, state, or local agency or governmental authority with respect to employment practices. Neither Arrow nor any of its Subsidiaries has any material liability with respect to any misclassification of: (a) any
Person as an independent contractor rather than as an employee, (b) any employee leased from another employer, or (c) any employee currently or formerly classified as exempt from overtime wages. Neither Arrow nor any of its Subsidiaries has taken
any action which would constitute a plant closing or mass layoff within the meaning of the WARN Act or similar state or local law, issued any notification of a plant closing or mass layoff required by the WARN Act or similar
state or local law, or incurred any liability or obligation under WARN or any similar state or local law that remains unsatisfied. No terminations of employees of Arrow or any of its Subsidiaries prior to the Closing would trigger any notice or
other obligations under the WARN Act or similar state or local law.
(m)
Part 3.17(m) of the Arrow
Disclosure Schedule lists all liabilities of Arrow or any of its Subsidiaries to any employee, that result from the termination by Arrow or any of its Subsidiaries of such employees employment or provision of services, a change of control of
Arrow, or a combination thereof. Neither Arrow nor any of its Subsidiaries has any material liability with respect to any misclassification of: (a) any Person as an independent contractor rather than as an employee, (b) any employee leased from
another employer, or (c) any employee currently or formerly classified as exempt from overtime wages.
(n)
Arrow has obtained a Form I-9 with respect to all of its current and former employees for whom such a form
is required by law. Every Person who requires a visa, employment pass or other required permit to work in the country in which he is employed has produced a current employment pass or such other required permit to Arrow and possesses all necessary
permission to remain in such country and perform services in that country.
(o)
With respect to each Arrow
Employee Plan, Arrow has made available to the Company a true and complete copy of, to the extent applicable, (i) such Arrow Employee Plan, (ii) the most recent annual report (Form 5500) as filed with the Internal Revenue Service, if any (iii) each
currently effective trust agreement related to such Arrow Employee Plan, (iv) the most recent summary plan description for each Arrow Employee
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Plan for which such description is required, along with all summaries of material modifications, amendments, resolutions and all other material plan documentation related thereto in the
possession of Arrow, and (v) the most recent Internal Revenue Service determination or opinion letter or analogous ruling under foreign law issued with respect to any Arrow Employee Plan.
(p)
Except where non-compliance would not result in material liability, with respect to Arrow Options granted
pursuant to the Arrow Stock Plans, (i) each Arrow Option intended to qualify as an incentive stock option under Section 422 of the Code so qualifies, (ii) each grant of an Arrow Option was duly authorized no later than the date on which
the Grant Date by all necessary corporate action, including, as applicable, approval by the Arrow Board (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written
consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, and (iii) each Arrow Option grant was made in material compliance with the terms of the Arrow Stock Plans, the Exchange Act and
all other applicable laws and regulatory rules or requirements, including the rules of NASDAQ and any other exchange on which Arrow securities are traded.
(q)
To the Knowledge of Arrow, no Arrow Options, stock appreciation rights or other equity-based awards issued
or granted by Arrow are subject to the requirements of Code Section 409A. To the Knowledge of Arrow, each nonqualified deferred compensation plan (as such term is defined under Section 409A(d)(1) of the Code and the guidance
thereunder) under which Arrow makes, is obligated to make or promises to make, payments (each, a
409A Plan
) complies in all material respects, in both form and operation, with the requirements of Code Section 409A and the
guidance thereunder. No payment to be made under any 409A Plan is, or to the Knowledge of Arrow will be, subject to the penalties of Code Section 409A(a)(1).
(r)
No Arrow Employee Plan is a registered pension plan as that term is defined in subsection 248(1)
of the Tax Act.
(s)
All contributions or premiums required to be made by Arrow or its Subsidiaries under
the terms of each Arrow Employee Plan, any collective bargaining agreement or by law have been made in a timely fashion in all material respects in accordance with applicable law and the terms of the Arrow Employee Plans and any applicable
collective bargaining agreement, and Arrow does not have, and as of the Closing will not have, any actual or potential unfunded liabilities (other than liabilities accruing after Closing) with respect to any of the Arrow Employee Plans.
3.18
Environmental Matters
. To the Knowledge of Arrow, since January 1, 2013, Arrow and OTI have
complied in all material respects with all applicable Environmental Laws, which compliance includes the possession by Arrow or OTI, as applicable, of all permits and other Governmental Authorizations required under applicable Environmental Laws and
compliance with the terms and conditions thereof, except where such failure to comply would not reasonably be expected to have an Arrow Material Adverse Effect.
3.19
Insurance
.
(a)
Arrow has made available to the Company accurate and complete copies of all material insurance policies and
all material self-insurance programs and arrangements relating to the business, assets, liabilities and operations of Arrow, OTI, and Merger Subs. Each of such insurance policies is in full force and effect and Arrow, OTI, and Merger Subs are in
material compliance with the terms thereof. Other than customary end of policy notifications from insurance carriers, since January 1, 2013, neither Arrow nor any of its Subsidiaries has received any written notice regarding any actual or possible:
(i) cancellation or invalidation of any insurance policy; (ii) refusal or denial of any coverage, reservation of rights or rejection of any material claim under any insurance policy or (iii) material adjustment in the amount of the premiums payable
with respect to any insurance policy. There is no pending workers compensation or other claim under or based upon any insurance policy of Arrow or any of its Subsidiaries. All information provided to insurance carriers (in applications and
otherwise)
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on behalf of Arrow and each of its Subsidiaries is accurate and complete. Arrow and each of its Subsidiaries have provided timely written notice to the appropriate insurance carrier(s) of each
Legal Proceeding pending or threatened against Arrow or any of its Subsidiaries, and no such carrier has issued a denial of coverage or a reservation of rights with respect to any such Legal Proceeding, or informed Arrow or any of its Subsidiaries
of its intent to do so.
(b)
Arrow has made available to the Company accurate and complete copies of the
existing policies (primary and excess) of directors and officers liability insurance maintained by Arrow, OTI, and Merger Subs as of the date of this Agreement (the
Existing Arrow D&O Policies
). Part
3.19(b) of the Arrow Disclosure Schedule accurately sets forth the most recent annual premiums paid by Arrow and OTI with respect to the Existing Arrow D&O Policies.
3.20
Transactions with Affiliates
. Except as set forth in the Arrow SEC Documents filed prior to the
date of this Agreement, since the date of Arrows last proxy statement filed in 2016 with the SEC, no event has occurred that would be required to be reported by Arrow pursuant to Item 404 of Regulation S-K promulgated by the SEC.
3.21
No Financial Advisor
. Other than MTS Health Partners, LP, except as set forth on Part 3.19 of
the Arrow Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage fee, finders fee, opinion fee, success fee, transaction fee or other fee or commission in connection with the Mergers or any of the other
Contemplated Transactions based upon arrangements made by or on behalf of Arrow.
3.22
Valid
Issuance
. The Arrow Common Stock to be issued in the Mergers will, when issued in accordance with the provisions of this Agreement, be validly issued, fully paid and nonassessable.
3.23
Disclosure
. To the Knowledge of Arrow, no representation or warranty made by Arrow in this
Section 3, including the Arrow Disclosure Schedule, contains any untrue statement of a material fact or omits to state any material fact necessary to make any of them, in light of the circumstances under which they were made, not misleading.
Section 4. C
ERTAIN
C
OVENANTS
OF
THE
P
ARTIES
4.1
Operation of the Business
es
Pending the Mergers
.
(a)
Operation of Arrow
s Business.
Except as set forth on Part 4.1(a) of the
Arrow Disclosure Schedule or unless the Company shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the period commencing on the date of this Agreement and continuing until the
earlier to occur of the termination of this Agreement pursuant to Section 9 and the Second Merger Effective Time (the
Pre-Closing Period
): (i) each of Arrow and its Subsidiaries shall conduct its business and
operations: (A) in the Ordinary Course of Business and, as reasonably deemed appropriate by the Arrow Board and with a view towards winding down its operations and (B) in compliance with all applicable Legal Requirements and the requirements of
all Contracts that constitute Arrow Material Contracts; (ii) each of Arrow and its Subsidiaries shall operate in a manner consistent with the Wind-Down Plan; (iii) each of Arrow and its Subsidiaries shall continue to make regularly scheduled
payments on its existing debt when due and payable (and not make any prepayments), if any and (iv) each of Arrow and its Subsidiaries shall continue to pay outstanding accounts payable and other current Liabilities (including payroll) when due and
payable. Without limiting the foregoing and except (x) as expressly contemplated or permitted by this Agreement, (y) as set forth on Part 4.1(a) of the Arrow Disclosure Schedule or (z) with the prior written consent of the Company (which consent
shall not be unreasonably withheld, delayed or conditioned), at all times during the Pre-Closing Period, Arrow shall not, nor shall it cause or permit any of its Subsidiaries to, do any of the following:
(i)
declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of
its capital stock; or repurchase, redeem or otherwise reacquire any shares of its capital stock or other
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securities (except for shares of Arrow Common Stock from terminated employees, directors or consultants of Arrow);
(ii)
except for contractual commitments in place at the time of this Agreement as listed in
Part 4.1(a)(ii) of the Arrow Disclosure Schedule, sell, issue or grant, or authorize the issuance of: (A) any capital stock or other security (except for Arrow Common Stock issued upon the valid exercise of outstanding Arrow Options); (B)
any option, warrant or right to acquire any capital stock or any other security; or (C) any instrument convertible into or exchangeable for any capital stock or other security;
(iii)
amend any of its or its Subsidiaries Organizational Documents, or effect or be a party to any
merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split (other than the Arrow Reverse Stock Split) or similar transaction except as related to the Contemplated
Transactions;
(iv)
form any Subsidiary or acquire any equity interest or other interest in any other
Entity;
(v)
lend money to any Person; incur or guarantee any indebtedness for borrowed money; issue or
sell any debt securities or options, warrants, calls or other rights to acquire any debt securities; or guarantee any debt securities of others;
(vi)
(A) adopt, establish or enter into any Arrow Employee Plan; (B) cause or permit any Arrow Employee Plan to
be amended other than as required by law or in order to make amendments for the purposes of Section 409A of the Code; (C) other than in the Ordinary Course of Business, pay any bonus or make any profit-sharing or similar payment to, or increase the
amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its employees, officers, directors or consultants; or (D) increase the severance or change of control benefits offered to any current
or new employees, directors or consultants,
provided
,
that
, Arrow may pay those severance and retention payments owed under existing Arrow Employee Plans scheduled on Part 3.17(m) of the Arrow Disclosure Schedule to its current
employees in connection with their termination of employment;
(vii)
enter into any material transaction
outside the Ordinary Course of Business;
(viii)
acquire any material asset nor sell, lease or otherwise
irrevocably dispose of any of its assets or properties, or grant any Encumbrance with respect to such assets or properties, except as set forth in the Wind-Down Plan;
(ix)
in each case for purposes of this clause (ix), other than as required by law, make, change or revoke any
material Tax election; file any material amendment to any Tax Return; adopt or change any accounting method in respect of Taxes; change any annual Tax accounting period; enter into any Tax allocation agreement, Tax sharing agreement or Tax indemnity
agreement, other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers or landlords; enter into any closing agreement with respect to any Tax; settle or compromise any claim, notice, audit report or
assessment in respect of material Taxes; apply for or enter into any ruling from any Tax authority with respect to Taxes; surrender any right to claim a material Tax refund; or consent to any extension or waiver of the statute of limitations period
applicable to any material Tax claim or assessment;
(x)
enter into, amend or terminate any Arrow Material
Contract;
(xi)
(A) materially change pricing or royalties or other payments set or charged by Arrow or any
of its Subsidiaries to its customers or licensees, (B) agree to change pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to Arrow or any of its Subsidiaries, or (C) as of the date of this
Agreement, materially change pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to Arrow or any of its Subsidiaries;
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(xii)
enter into any Arrow Contract relating to, arising from, or
in connection with licensing, sub-licensing, or other similar arrangements concerning the Arrow IP Rights;
(xiii)
authorize any expenditures (other than Third Party Expenses in connection with the transactions
contemplated by this Agreement and the preparation, filing and mailing of the Proxy Statement/Prospectus and all matters reasonably related thereto) in excess of $10,000 individually or $25,000 in the aggregate outside the Ordinary Course of
Business except as set forth in the Wind-Down Plan;
(xiv)
execute or enter into any letter of intent or
any Arrow Contract contemplating or otherwise relating to any Apatorsen Transaction; or
(xv)
agree,
resolve or commit to do any of the foregoing.
Nothing contained in this Agreement shall give the Company, directly or indirectly, the
right to control or direct the operations of Arrow prior to the Second Merger Effective Time. Prior to the Second Merger Effective Time, Arrow shall exercise, consistent with the terms and conditions of this Agreement, complete unilateral control
and supervision over its business operations.
(b)
Operation of the Company
s
Business.
Except as set forth on Part 4.1(b) of the Company Disclosure Schedule or unless Arrow shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the Pre-Closing Period: (i)
each of the Company and its Subsidiaries shall conduct its business and operations: (A) in the Ordinary Course of Business and in accordance with past practices and (B) in compliance with all applicable Legal Requirements and the requirements
of all Contracts that constitute Company Material Contracts; and (ii) each of the Company and its Subsidiaries shall preserve intact its current business organization, use reasonable efforts to keep available the services of its current Key
Employees, officers and other employees and maintain its relations and goodwill with all suppliers, customers, landlords, creditors, licensors, licensees, employees and other Persons having business relationships with the Company or its
Subsidiaries; (iii) each of the Company and its Subsidiaries shall continue to make regularly scheduled payments on its existing debt when due and payable (and not make any prepayments), if any; and (iv) each of the Company and its Subsidiaries
shall continue to pay outstanding accounts payable and other current Liabilities (including payroll) when due and payable. Without limiting the foregoing and except (x) as expressly contemplated or permitted by this Agreement, (y) as set forth on
Part 4.1(b) of the Company Disclosure Schedule, or (z) with the prior written consent of Arrow (which consent shall not be unreasonably withheld, delayed or conditioned), at all times during the Pre-Closing Period, the Company shall not, nor shall
it cause or permit any of its Subsidiaries to, do any of the following:
(i)
declare, accrue, set aside or
pay any dividend or make any other distribution in respect of any shares of capital stock; or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities (except for shares of Company Common Stock from terminated
employees, directors or consultants of the Company);
(ii)
amend any of its or its Subsidiaries
Organizational Documents, or effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;
(iii)
sell, issue or grant, or authorize the issuance of, or make any commitments to do any of the foregoing,
other than as contemplated by the Contemplated Transactions: (i) any capital stock or other security; (ii) any option, warrant or right to acquire any capital stock or any other security; or (iii) any instrument convertible into or exchangeable
for any capital stock or other security;
(iv)
form any Subsidiary or acquire any equity interest or other
interest in any other Entity;
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(v)
lend money to any Person; incur or guarantee any indebtedness
for borrowed money; issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities; or guarantee any debt securities of others;
(vi)
(A) adopt, establish or enter into any Company Employee Plan; (B) cause or permit any Company Employee
Plan to be amended other than as required by law; (C) other than in the Ordinary Course of Business, pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers, employees, or consultants; or (D) increase the severance or change of control benefits offered to any current or new employees, directors or consultants;
(vii)
enter into any material transaction outside the Ordinary Course of Business;
(viii)
acquire any material asset nor sell, lease or otherwise irrevocably dispose of any of its assets or
properties, or grant any Encumbrance with respect to such assets or properties;
(ix)
in each case for
purposes of this clause (ix), other than as required by law, make, change or revoke any material Tax election; file any material amendment to any Tax Return; adopt or change any accounting method in respect of Taxes; change any annual Tax accounting
period; enter into any Tax allocation agreement, Tax sharing agreement or Tax indemnity agreement, other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers or landlords; enter into any closing agreement
with respect to any Tax; settle or compromise any claim, notice, audit report or assessment in respect of material Taxes; apply for or enter into any ruling from any Tax authority with respect to Taxes; surrender any right to claim a material Tax
refund; or consent to any extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;
(x)
except as contemplated by Section 6.5 of this Agreement, enter into, amend or terminate any Company
Material Contract;
(xi)
(A) materially change pricing or royalties or other payments set or charged by the
Company or any of its Subsidiaries to its customers or licensees, (B) agree to change pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to the Company or any of its Subsidiaries, or (C) as of
the date of this Agreement, materially change pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to the Company or any of its Subsidiaries;
(xii)
enter into any Company Contract relating to, arising from, or in connection with licensing,
sub-licensing, or other similar arrangements concerning the Company IP Rights;
(xiii)
authorize any
expenditures (other than Company Transaction Expenses or Third Party Expenses in connection with the preparation, filing and mailing of the Proxy Statement/Prospectus and all matters reasonably related thereto) in excess of $10,000 individually or
$25,000 in the aggregate outside the Ordinary Course of Business; or
(xiv)
agree, resolve or commit to do
any of the foregoing.
Nothing contained in this Agreement shall give Arrow, directly or indirectly, the right to control or direct the
operations of the Company prior to the Second Merger Effective Time. Prior to the Second Merger Effective Time, the Company shall exercise, consistent with the terms and conditions of this Agreement, complete unilateral control and supervision over
its business operations.
4.2
Access and Investigation
. Subject to the terms of the
Confidentiality Agreement which the Parties agree will continue in full force following the date of this Agreement, during the Pre-Closing Period, upon
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reasonable notice each Party shall, and shall use commercially reasonable efforts to cause such Partys Representatives to: (a) provide the other Party and such other Partys
Representatives with reasonable access during normal business hours to such Partys Representatives, personnel and assets and to all existing books, records, Tax Returns, work papers and other documents and information relating to such Party
and its Subsidiaries; (b) provide the other Party and such other Partys Representatives with such copies of the existing books, records, Tax Returns, work papers, product data, and other documents and information relating to such Party and its
Subsidiaries, and with such additional financial, operating and other data and information regarding such Party and its Subsidiaries as the other Party may reasonably request and (c) permit the other Partys officers and other employees to
meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers and managers of such Party responsible for such Partys financial statements and the internal controls of such Party to discuss
such matters as the other Party may deem necessary or appropriate in order to enable the other Party to satisfy its obligations under the Sarbanes-Oxley Act and the rules and regulations relating thereto. Any investigation conducted by either Arrow
or the Company pursuant to this Section 4.2 shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the other Party. Any access granted by either Arrow or the Company shall be subject to its reasonable
security measures and insurance requirements and shall not include the right to perform invasive testing. Notwithstanding the foregoing, any Party may restrict the foregoing access to the extent that any Legal Requirement applicable to such Party
requires such Party to restrict or prohibit access to any such properties or information.
4.3
No
Solicitation
.
(a)
Each of Arrow and the Company agrees that, during the Pre-Closing Period, neither it
nor any of its Subsidiaries shall, nor shall it or any of its Subsidiaries authorize any of Representatives to, directly or indirectly: (i) solicit, initiate, encourage, induce or facilitate any Acquisition Proposal; (ii) furnish any
information regarding such Party to any Person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry; (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal or Acquisition
Inquiry; (iv) approve, endorse or recommend any Acquisition Proposal (subject to Sections 5.2 and 5.3); (v) execute or enter into any letter of intent or any Contract contemplating or otherwise relating to any Acquisition Transaction; or (vi)
grant any waiver or release under any confidentiality, standstill or similar agreement (other than to the other Party);
provided
,
however
, that, notwithstanding anything contained in this Section 4.3(a), (x) prior to the adoption and
approval of this Agreement by the Required Company Stockholder Vote, the Company and its Subsidiaries and Representatives may and (y) prior to the adoption and approval of this Agreement by the Required Arrow Stockholder Vote, Arrow and its
Representatives may, furnish information regarding such Party and its Subsidiaries to, and enter into discussions or negotiations with, any Person in response to a bona fide written Acquisition Proposal by such Person that did not result from a
breach of this Section 4.3, which such Partys board of directors determines in good faith, after consultation with such Partys financial advisor, and outside legal counsel, constitutes, or is reasonably likely to result in, a Superior
Offer (and is not withdrawn) if: (A) at least one Business Day prior to furnishing any such nonpublic information to, or entering into discussions with, such Person, such Party gives the other Party written notice of the identity of such
Person and of such Partys intention to furnish nonpublic information to, or enter into discussions with, such Person; (B) such Party receives from such Person an executed confidentiality agreement containing provisions (including nondisclosure
provisions, use restrictions, non-solicitation and no hire provisions) at least as favorable to such Party as those contained in the Confidentiality Agreement and (C) substantially contemporaneously with furnishing any such nonpublic
information to such Person, such Party furnishes such nonpublic information to the other Party (to the extent such information has not been previously furnished by such Party to the other Party). Without limiting the generality of the
foregoing, each Party acknowledges and agrees that, in the event any Representative of such Party (whether or not such Representative is purporting to act on behalf of such Party) takes any action that, if taken by such Party, would constitute a
breach of this Section 4.3 by such Party, the taking of such action by such Representative shall be deemed to constitute a breach of this Section 4.3 by such Party for purposes of this Agreement.
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(b)
If any Party or any Representative of such Party receives an
Acquisition Proposal or Acquisition Inquiry at any time during the Pre-Closing Period, then such Party shall promptly (and in no event later than one Business Day after such Party becomes aware of such Acquisition Proposal or Acquisition Inquiry)
advise the other Party orally and in writing of such Acquisition Proposal or Acquisition Inquiry (including the identity of the Person making or submitting such Acquisition Proposal or Acquisition Inquiry, and the terms thereof). Such Party
shall keep the other Party reasonably informed with respect to the status and terms of any such Acquisition Proposal or Acquisition Inquiry and any material modification or proposed material modification thereto. In addition to the foregoing, each
Party shall provide the other Party with at least one Business Days written notice of a meeting of its board of directors (or any committee thereof) at which its board of directors (or any committee thereof) is reasonably expected to consider
an Acquisition Proposal or Acquisition Inquiry it has received.
(c)
Each Party shall immediately cease and
cause to be terminated any existing discussions, negotiations and communications with any Person that relate to any Acquisition Proposal or Acquisition Inquiry as of the date of this Agreement and request the destruction or return of any nonpublic
information provided to such Person.
4.4
Notification of Certain Matters
. During the
Pre-Closing Period, each of the Company, on the one hand, and Arrow, on the other hand, shall promptly notify the other (and, if in writing, furnish copies of) if any of the following occurs: (a) any notice or other communication from any
Person alleging that the Consent of such Person is or may be required in connection with any of the Contemplated Transactions; (b) any Legal Proceeding against, relating to, involving or otherwise affecting such Party or its Subsidiaries is
commenced, or, to the Knowledge of such Party, threatened against such Party or, to the Knowledge of such Party, any director, officer or Key Employee of such Party; (c) such Party becoming aware of any inaccuracy in any representation or warranty
made by such Party in this Agreement or (d) any failure of such Party to comply with any covenant or obligation of such Party; in each case that could reasonably be expected to make the timely satisfaction of any of the conditions set forth in
Sections 6, 7 or 8, as applicable, impossible or materially less likely. No notification given to a Party pursuant to this Section 4.4 shall change, limit or otherwise affect any of the representations, warranties, covenants or obligations of the
Party providing such notification or any of such Partys Subsidiaries contained in this Agreement or the Company Disclosure Schedule or Arrow Disclosure Schedule for purposes of Section 8.1 or Section 7.1, as appropriate.
Section 5. A
DDITIONAL
A
GREEMENTS
OF
THE
P
ARTIES
5.1
Registration Statement
.
(a)
As promptly as practicable after the date of this Agreement, the Parties shall prepare and Arrow shall cause
to be filed with the SEC the Proxy Statement/Prospectus and Arrow, with cooperation by the Company, shall prepare and cause to be filed with the SEC the Registration Statement, in which the Proxy Statement/Prospectus will be included as a
prospectus. Arrow covenants and agrees that the Proxy Statement/Prospectus, including any pro forma financial statements included therein, and the letter to stockholders, notice of meeting and form of proxy included therewith, will not contain any
untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Notwithstanding
the foregoing, Arrow makes no covenant, representation or warranty with respect to statements made in the Proxy Statement/Prospectus (and the letter to stockholders, notice of meeting and form of proxy included therewith), if any, based on
information provided by the Company for inclusion therein. Each of the Parties shall use commercially reasonable efforts to cause the Registration Statement and the Proxy Statement/Prospectus to comply with the applicable rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or its staff and to have the Registration Statement declared effective under the Securities Act as promptly as practicable after it is filed with the SEC. Each of the
Parties shall use commercially reasonable efforts to cause the Proxy Statement/Prospectus to be mailed to Arrows stockholders as promptly as practicable after the Registration Statement is declared effective under the Securities Act. Each
Party shall promptly furnish to the other Party all
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information concerning such Party and such Partys Subsidiaries and such Partys stockholders that may be required or reasonably requested in connection with any action contemplated by
this Section 5.1. If Arrow, Merger Subs or the Company become aware of any event or information that, pursuant to the Securities Act or the Exchange Act, should be disclosed in an amendment or supplement to the Registration Statement or Proxy
Statement/Prospectus, as the case may be, then such Party shall promptly inform the other Parties and shall cooperate with such other Parties in filing such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the Arrow stockholders.
(b)
Prior to the Second Merger Effective Time, Arrow shall use
commercially reasonable efforts to obtain all regulatory approvals needed to ensure that the Arrow Common Stock to be issued in the Mergers (to the extent required) shall be registered or qualified or exempt from registration or qualification under
the securities law of every jurisdiction of the United States in which any registered holder of Company Capital Stock has an address of record on the record date for determining the stockholders entitled to notice of and to vote pursuant to this
Agreement;
provided
,
however
, that Arrow shall not be required: (i) to qualify to do business as a foreign corporation in any jurisdiction in which it is not now qualified; or (ii) to file a general consent to service of process
in any jurisdiction.
(c)
The Company shall reasonably cooperate with Arrow and provide, and require its
Representatives to provide, Arrow and its Representatives, with all true, correct and complete information regarding the Company or its Subsidiaries that is required by law to be included in the Registration Statement or reasonably requested from
the Company to be included in the Registration Statement. Without limiting the foregoing, the Company will use commercially reasonable efforts to cause to be delivered to Arrow a letter of the Companys independent accounting firm, dated no
more than two Business Days before the date on which the Registration Statement becomes effective (and reasonably satisfactory in form and substance to Arrow), that is customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Registration Statement.
5.2
Company Stockholder Written Consent
.
(a)
Promptly after the date hereof (and in any no event later than 24 hours from the effectiveness of the
Registration Statement), the Company shall obtain the approval by written consent, in the form attached hereto as
Exhibit D
, from Company stockholders sufficient for the Required Company Stockholder Vote in lieu of a meeting pursuant to
Section 228 of the DGCL, for purposes of (i) adopting this Agreement and approving the Contemplated Transactions and (ii) acknowledging that the approval given thereby is irrevocable (the
Company Stockholder Written
Consent
).
(b)
The Company agrees that, subject to Section 5.2(c): (i) the Company Board
shall recommend that the Companys stockholders vote to adopt and approve this Agreement and the Contemplated Transactions and shall use commercially reasonable efforts to solicit such approval within the time set forth in Section 5.2(a) (the
recommendation of the Company Board that the Companys stockholders vote to adopt and approve this Agreement being referred to as the
Company Board Recommendation
) and (ii) the Company Board Recommendation shall not be
withdrawn or modified in a manner adverse to Arrow, and no resolution by the Company Board or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Arrow shall be adopted or proposed.
(c)
Notwithstanding anything to the contrary contained in Section 5.2(b), at any time prior to adoption of this
Agreement by the Required Company Stockholder Vote, the Company Board may withhold, amend, withdraw or modify the Company Board Recommendation in a manner adverse to Arrow if, but only if the Company Board determined in good faith, based on such
matters as it deems relevant following consultation with its outside legal counsel, that the failure to withdraw, withhold, amend, or modify such recommendation would be inconsistent with its fiduciary duties under applicable Legal Requirements;
provided
that Arrow receives written notice from the Company confirming that the Company Board has determined to change its
A-47
recommendation at least two Business Days in advance of the Company Board Recommendation being so withdrawn, withheld, amended or modified in a manner adverse to Arrow.
5.3
Arrow Stockholders Meeting
.
(a)
Arrow shall use commercially reasonable efforts to take all action necessary under applicable Legal
Requirements to call, give notice of and hold a meeting of the holders of Arrow Common Stock to vote on the issuance of Arrow Common Stock in the First Merger (such meeting, the
Arrow Stockholders
Meeting
). The Arrow Stockholders Meeting shall be held as promptly as practicable after the Registration Statement is declared effective under the Securities Act. Arrow shall take reasonable measures to ensure that all
proxies solicited in connection with the Arrow Stockholders Meeting are solicited in compliance with all applicable Legal Requirements.
(b)
Arrow agrees that, subject to Section 5.3(c): (i) the Arrow Board shall recommend that the holders of
Arrow Common Stock vote to approve the issuance of Arrow Common Stock in the First Merger; (ii) the Arrow Board shall recommend that the holders of Arrow Common Stock vote to approve a proposal to effectuate the Arrow Reverse Stock Split; (iii)
the Proxy Statement/Prospectus shall include a statement that the Arrow Board recommends that Arrows stockholders vote to approve the issuance of Arrow Common Stock in the First Merger (the recommendation of the Arrow Board that Arrows
stockholders vote to approve the issuance of Arrow Common Stock in the First Merger and the Arrow Reverse Stock Split being referred to as the
Arrow Board Recommendation
) and (vi) the Arrow Board Recommendation shall not be
withdrawn or modified in a manner adverse to the Company, and no resolution by the Arrow Board or any committee thereof to withdraw or modify the Arrow Board Recommendation in a manner adverse to the Company shall be adopted or proposed.
(c)
Notwithstanding anything to the contrary contained in Section 5.3(b), at any time prior to the approval of
the issuance of Arrow Common Stock in the First Merger by the stockholders of Arrow by the Required Arrow Stockholder Vote, the Arrow Board may withhold, amend, withdraw or modify the Arrow Board Recommendation in a manner adverse to the Company if,
but only if the Arrow Board determines in good faith, based on such matters as it deems relevant following consultation with its outside legal counsel, that, in connection with an Acquisition Proposal, the failure to withhold, amend, withdraw or
modify such recommendation would be inconsistent with its fiduciary duties under applicable Legal Requirements;
provided
that the Company receives written notice from Arrow confirming that the Arrow Board has determined to change its
recommendation at least two Business Days in advance of the Arrow Board Recommendation being withdrawn, withheld, amended or modified in a manner adverse to the Company.
(d)
Nothing contained in this Agreement shall prohibit the Arrow Board from taking and disclosing to the Arrow
Stockholders a position contemplated by Rule 14e-2(a), Rule 14d-9, Item 1012 of Regulation M-A or otherwise complying with the provisions of Rule 14d-9 or Item 1012 under the Exchange Act; provided, however, that none of the following shall be
deemed to be a Change of Arrow Board Recommendation: (i) a stop, look and listen or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act, (ii) an express rejection of any applicable Acquisition Proposal
and/or (iii) an express reaffirmation of the Arrow Board Recommendation.
5.4
Regulatory
Approvals
. Each Party shall use commercially reasonable efforts to file or otherwise submit, as soon as practicable after the date of this Agreement, all applications, notices, reports and other documents reasonably required to be filed by
such Party with or otherwise submitted by such Party to any Governmental Body with respect to the Mergers and the other Contemplated Transactions, and to submit promptly any additional information requested by any such Governmental Body. Without
limiting the generality of the foregoing, the Parties shall, promptly after the date of this Agreement, prepare and file (a) the notification and report forms required to be filed under the HSR Act and (b) any notification or other document required
to be filed in connection with the Mergers under any applicable foreign Legal Requirement relating to antitrust or
A-48
competition matters. The Company and Arrow shall respond as promptly as is practicable to respond in compliance with: (i) any inquiries or requests received from the Federal Trade Commission
or the Department of Justice for additional information or documentation and (ii) any inquiries or requests received from any state attorney general, foreign antitrust or competition authority or other Governmental Body in connection with antitrust
or competition matters.
5.5
SEC Filings
. Arrow shall continue to prepare and file with the SEC
its quarterly reports on Form 10-Q, its annual report on Form 10-K and any reports on Form 8-K on a timely basis.
5.6
Arrow Options
. Prior to the Closing, the Arrow Board shall have adopted appropriate resolutions
and taken all other actions necessary and appropriate to provide that each unexpired and unexercised Arrow Option, whether vested or unvested, shall continue in accordance with its terms without amendment, cancellation or retirement.
5.7
Employee Benefits
. Arrow and the Company shall cause Arrow to comply with terms of any
employment, severance, retention, change of control, or similar agreement specified on Part 3.17(c) of the Arrow Disclosure Schedule as being applicable to this Section 5.7, subject to the provisions of such agreements, including the maintenance of
COBRA insurance for Arrows former officers and employees. In addition to the foregoing, the Company and Arrow shall use reasonable best efforts and take any action reasonably necessary to mitigate and/or minimize the impact of the tax
consequences of Section 280G of the Code (including under all employment, severance and termination agreements, other compensation arrangements and benefit plans) on any individual that is regarded as a disqualified individual with
respect to Arrow or the Company, as the case may be, (as such term is defined in proposed Treasury Regulation Section 1.280G-1).
5.8
Indemnification of Officers and Directors
.
(a)
From the First Merger Effective Time through the sixth anniversary of the date on which the First Merger
Effective Time occurs, each of Arrow and the Surviving Corporation shall indemnify and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Second Merger Effective Time, (i) a director
or officer of Arrow, OTI, the Company or its Subsidiaries, respectively or (ii) a covered person under an existing Arrow agreement which provides for similar indemnification obligations (collectively, the
D&O Indemnified
Parties
), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys fees and disbursements, incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that the D&O Indemnified Party is or was a director or officer of Arrow, OTI, the Company or its Subsidiaries, or was otherwise
providing services to Arrow, OTI, the Company or its Subsidiaries, whether asserted or claimed prior to, at or after the First Merger Effective Time, to the fullest extent permitted under the DGCL for directors or officers of Delaware corporations.
Each D&O Indemnified Party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Arrow and the Surviving Corporation, jointly and severally, upon receipt by
Arrow or the Surviving Corporation from the D&O Indemnified Party of a request therefor; provided that any person to whom expenses are advanced provides an undertaking, to the extent then required by the DGCL to repay such advances if it is
ultimately determined that such person is not entitled to indemnification.
(b)
The certificate of
incorporation and bylaws of each of Arrow, the Initial Surviving Corporation and the Surviving Corporation shall contain, and Arrow shall cause the certificate of incorporation and bylaws of the Initial Surviving Corporation and the Surviving
Corporation to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of the D&O Indemnified Parties than are presently set forth in the certificate of incorporation and bylaws of Arrow
and the Company, as applicable, which provisions shall not be amended, modified or repealed for a period of six years time from the First Merger Effective Time in a manner that would adversely affect the rights thereunder of the D&O
Indemnified Parties.
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(c)
The Company shall purchase an insurance policy, with an
effective date as of the Closing, which maintains in effect for six years from the Closing the current directors and officers liability insurance policies maintained by the Company (provided that Arrow may substitute therefor policies of
at least the same coverage containing terms and conditions that are not materially less favorable).
(d)
Arrow shall maintain directors and officers liability insurance policies, with an effective date
as of the Closing, on commercially available terms and conditions and with coverage limits customary for U.S. public companies similarly situated to Arrow.
(e)
In addition, Arrow shall purchase, prior to the Closing Date, following consultation with, and subject to
the approval of, the Company (such approval not to be unreasonably withheld), a six-year prepaid tail policy for the non-cancellable extension of the directors and officers liability coverage of Arrows existing
directors and officers insurance policies and Arrows existing fiduciary liability insurance policies, in each case, for a claims reporting or discovery period of at least six years from and after the Closing with respect to any
claim related to any period of time at or prior to the Closing with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under Arrows existing policies as of the date of this Agreement
with respect to any actual or alleged error, misstatement, misleading statement, act, omission, neglect, breach of duty or any matter claimed against a director or officer Arrow by reason of him or her serving in such capacity that existed or
occurred at or prior to the Closing (including in connection with this Agreement or the transactions or actions contemplated hereby or in connection with Arrows initial public offering of shares of Arrow Common Stock).
(f)
Arrow shall pay all expenses, including reasonable attorneys fees, that may be incurred by the persons
referred to in this Section 5.8 in connection with their enforcement of their rights provided in this Section 5.8.
(g)
The provisions of this Section 5.8 are intended to be in addition to the rights otherwise available to the
D&O Indemnified Parties by law, charter, statute, bylaw or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the D&O Indemnified Parties, their heirs and their representatives.
(h)
In the event Arrow, the Initial Surviving Corporation or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties
and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Arrow, the Initial Surviving Corporation or the Surviving Corporation, as the case may be, shall succeed to the obligations
set forth in this Section 5.8. Arrow shall cause the Initial Surviving Corporation or the Surviving Corporation to perform all of the obligations of the Initial Surviving Corporation or the Surviving Corporation under this Section 5.8.
5.9
Additional Agreements
.
(a)
Subject to Section 5.9(b), the Parties shall use commercially reasonable efforts to cause to be taken all
actions necessary to consummate the Mergers and make effective the other Contemplated Transactions. Without limiting the generality of the foregoing, but subject to Section 5.9(b), each Party to this Agreement: (i) shall make all filings and
other submissions (if any) and give all notices (if any) required to be made and given by such Party in connection with the Mergers and the other Contemplated Transactions; (ii) shall use commercially reasonable efforts to obtain each Consent (if
any) reasonably required to be obtained (pursuant to any applicable Legal Requirement or Contract, or otherwise) by such Party in connection with the Mergers or any of the other Contemplated Transactions or for such Contract to remain in full force
and effect; (iii) shall use commercially reasonable efforts to lift any injunction prohibiting, or any other legal bar to, the Mergers or any of the other Contemplated Transactions and (iv) shall use commercially reasonable efforts to satisfy the
conditions precedent to the consummation of this Agreement.
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(b)
Notwithstanding anything to the contrary contained in this
Agreement, no Party shall have any obligation under this Agreement: (i) to dispose of or transfer or cause any of its Subsidiaries to dispose of or transfer any assets; (ii) to discontinue or cause any of its Subsidiaries to discontinue
offering any product or service; (iii) to license or otherwise make available, or cause any of its Subsidiaries to license or otherwise make available to any Person any Intellectual Property; (iv) to hold separate or cause any of its Subsidiaries to
hold separate any assets or operations (either before or after the Closing Date); (v) to make or cause any of its Subsidiaries to make any commitment (to any Governmental Body or otherwise) regarding its future operations or (vi) to contest any
Legal Proceeding or any order, writ, injunction or decree relating to the Mergers or any of the other Contemplated Transactions if such Party determines in good faith that contesting such Legal Proceeding or order, writ, injunction or decree might
not be advisable.
5.10
Disclosure
. Without limiting any of either Partys obligations
under the Confidentiality Agreement, each Party shall not, and shall not permit any of its Subsidiaries or any Representative of such Party to, issue any press release or make any disclosure (to any customers or employees of such Party, to the
public or otherwise) regarding the Mergers or any of the other Contemplated Transactions unless: (a) the other Party shall have approved such press release or disclosure in writing (such approval not to be unreasonable conditioned, withheld or
delayed) or (b) such Party shall have determined in good faith, upon the advice of outside legal counsel, that such disclosure is required by applicable Legal Requirements and, to the extent practicable, before such press release or disclosure is
issued or made, such Party advises the other Party of, and consults with the other Party regarding, the text of such press release or disclosure;
provided
,
however
, that each of the Company and Arrow may make any public statement in
response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are consistent with previous press releases, public disclosures or public
statements made by the Company or Arrow in compliance with this Section 5.10.
5.11
Listing
. Arrow shall use its reasonable best efforts to maintain its existing listing on
NASDAQ, to obtain approval of the listing of the combined company on NASDAQ and to cause the shares of Arrow Common Stock being issued in the Mergers to be approved for listing (subject to notice of issuance) on NASDAQ at or prior to the First
Merger Effective Time. Arrow shall notify and provide copies of (if applicable) to the Company, within 48 hours of receipt, any notice from NASDAQ with respect to a potential, proposed, or actual delisting or suspension of the Arrow Common Stock on
NASDAQ. Arrow shall (a) respond as promptly as is practicable to any inquiries, hearings or requests received from NASDAQ for additional information or documentation in connection with maintaining the listing of the Arrow Common Stock on NASDAQ
and all other related matters and (b) provide copies of all such documents from NASDAQ or prepared and submitted to NASDAQ by Arrow to the Company under clause (a).
5.12
Tax Matters
.
(a)
The Parties shall use their respective reasonable best efforts to cause the First Merger, taken together
with the Second Merger, to qualify, and agree not to, and not to permit or cause any affiliate or any Subsidiary to, take any actions or cause any action to be taken which would reasonably be expected to prevent the First Merger, taken together with
the Second Merger, from qualifying, for the Intended Tax Treatment, including considering and negotiating in good faith such amendments to this Agreement as may reasonably be required in order to obtain such qualification (it being understood that
no Party shall be required to agree to any such amendment). The Parties shall report the Mergers and the other transactions contemplated by this Agreement, including for U.S. federal income Tax purposes, in a manner consistent with such
qualification. No Party shall take any action, or allow any affiliate to take any action, that would reasonably be expected to prevent any of the foregoing.
(b)
If there is a determination within the meaning of Section 1313(a) of the Code that the First Merger, taken
together with the Second Merger, does not qualify as a reorganization described in Section 368(a) of the Code, then the parties to this Agreement intend that, for federal income tax purposes that the First Merger
A-51
was a qualified stock purchase within the meaning of Section 338 of the Code and the Second Merger qualified as a liquidation described in Section 332 of the Code.
(c)
The Buyer Parties covenant that none of the Buyer Parties nor any of their affiliates or a related
person (as defined for purposes of Treasury Regulations Section 1.368-1(e)(4)) with respect to the Buyer Parties (a
Related Tax Person
), nor any entity or arrangement that is treated as a partnership for federal
income tax purposes and in which the Buyer Parties or a Related Tax Person is treated for federal income tax purposes as owning a direct or indirect interest, will, in connection with any of the transactions provided for herein (as determined for
purposes of Treasury Regulations Section 1.368-1(e)), redeem or otherwise acquire any of the shares of Arrow Common Stock transferred in connection with such transactions if such action would cause the First Merger taken together with the Second
Merger to fail to qualify as a reorganization described in Section 368(a) of the Code. This Section 5.12(c) does not restrict, and may not be construed as restricting, any actions of the Buyer Parties or any Related Tax Person that are undertaken at
least 24 months after the Closing; provided, however, that such Buyer Parties or Related Tax Person does not enter into a plan or enter into a binding commitment to take such action within 24 months of the Closing Date.
(d)
This Agreement is intended to constitute, and the Parties hereby adopt this Agreement as, a plan of
reorganization within the meaning Treasury Regulation Sections 1.368-2(g) and 1.368-3(a). The Parties shall treat and shall not take any tax reporting position inconsistent with the treatment of the Mergers as a reorganization within the
meaning of Section 368(a) of the Code for U.S. federal, state and other relevant Tax purposes, unless otherwise required pursuant to a determination within the meaning of Section 1313(a) of the Code.
(e)
All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any
penalties and interest) imposed on the Company stockholders in connection with the transfer of such stockholders Company Capital Stock pursuant to this Agreement (collectively,
Transfer Taxes
) shall be paid by
the Companys stockholders when due, and such stockholders will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, and, if required by any Legal Requirements. The
Companys stockholders shall provide Arrow with (i) evidence reasonably satisfactory to Arrow that such Transfer Taxes have been paid by such stockholders and (ii) a clearance certificate or similar documents which may be required by any Tax
authority to relieve Arrow of any obligation to withhold any portion of the payments to the Companys stockholders pursuant to this Agreement.
5.13
Legends
. Arrow shall be entitled to place appropriate legends on the certificates evidencing
any shares of Arrow Common Stock to be received in the Mergers by equityholders of the Company who may be considered affiliates of Arrow for purposes of Rules 144 and 145 under the Securities Act reflecting the restrictions set forth in
Rules 144 and 145 and to issue appropriate stop transfer instructions to the transfer agent for Arrow Common Stock.
5.14
Directors and Officers
. Arrow shall take all action necessary to cause the persons identified
on Schedule 5.14 to be appointed as executive officers of Arrow as set forth in Schedule 5.14, effective upon the Closing. Additionally, effective as of the Closing, Arrow shall take all action necessary to cause (i) the number of members of the
Arrow Board to be fixed at seven (7) directors, (ii) three (3) individuals identified by Arrow (who are set forth on Schedule 5.14), two (2) of whom are to be independent under the applicable SEC rules and the criteria established by NASDAQ and who
are reasonably acceptable to the Company, to be appointed to the Arrow Board, and (iii) four (4) individuals identified by the Company (two (2) of whom are set forth on Schedule 5.14) and two (2) of whom are to be independent under the
applicable SEC rules and the criteria established by NASDAQ and who are reasonably acceptable to Arrow, to be appointed to the Arrow Board (the directors appointed pursuant to this Section 5.14 are referred to as the
Selected
Directors
). Arrow shall take all action necessary to obtain the resignations of the directors of Arrow other than the Selected Directors, such resignations to be effective as of the Closing.
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5.15
Director and Officer Matters
. Prior to the First
Merger Effective Time, Arrow shall take all such steps as may be required to cause any acquisitions of Arrow Common Stock resulting from the Mergers by each individual who will become subject to the reporting requirements of Section 16(a) of the
Exchange Act with respect to Arrow to be exempt under Rule 16b-3 under the Exchange Act.
5.16
CVR
Distribution
. Prior to the First Merger Effective Time, Arrow shall take all such steps as may be required to distribute the CVRs.
5.17
Shelf Registration
. Arrow shall use its reasonable best efforts to maintain the effectiveness
of its existing shelf registration statement on Form S-3, File No. 333-207670, through the Closing.
Section
6. C
ONDITIONS
P
RECEDENT
TO
O
BLIGATIONS
OF
E
ACH
P
ARTY
The obligations of each Party to effect the Mergers and otherwise consummate the transactions to be consummated at the Closing are subject to
the satisfaction or, to the extent permitted by applicable law, the written waiver by each of the Parties, at or prior to the Closing, of each of the following conditions:
6.1
Effectiveness of Registration Statement
. The Registration Statement shall have become effective
in accordance with the provisions of the Securities Act, and shall not be subject to any stop order or proceeding (or threatened proceeding by the SEC) seeking a stop order with respect to the Registration Statement.
6.2
No Restraints
. No temporary restraining order, preliminary or permanent injunction or other
order preventing the consummation of the Mergers shall have been issued by any court of competent jurisdiction or other Governmental Body of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement which has the
effect of making the consummation of the Mergers illegal.
6.3
Stockholder Approval
. This
Agreement, the Mergers and the other transactions contemplated by this Agreement shall have been duly adopted and approved by the Required Company Stockholder Vote, and the issuance of the Arrow Common Stock in the Mergers and the Mergers shall have
been duly approved by the Required Arrow Stockholder Vote.
6.4
Listing
. The existing shares of
Arrow Common Stock shall have been continually listed on NASDAQ as of and from the date of this Agreement through the Closing Date, the approval of the listing of the additional shares of Arrow Common Stock on NASDAQ shall have been obtained and the
shares of Arrow Common Stock to be issued in the Mergers shall be approved for listing (subject to official notice of issuance) on NASDAQ as of the Second Merger Effective Time.
6.5
Amendment of Certain Agreements
. The agreements set forth on Schedule 6.5 shall have been
amended to the reasonable satisfaction of the Parties in the manner set forth on Schedule 6.5.
6.6
No
Governmental Proceedings Relating to Contemplated Transactions or Right to Operate Business
. There shall not be any Legal Proceeding pending, or overtly threatened in writing by an official of a Governmental Body in which such Governmental
Body indicates that it intends to conduct any Legal Proceeding or take any other action: (a) challenging or seeking to restrain or prohibit the consummation of the Mergers; (b) relating to the Mergers and seeking to obtain from Arrow,
Merger Subs or the Company any damages or other relief that may be material to Arrow or the Company; (c) that would materially and adversely affect the right or ability of Arrow or the Company to own the assets or operate the business of Arrow or
the Company; or (d) seeking to compel Arrow, the Company or any of its Subsidiary to dispose of or hold separate any material assets as a result of the Mergers.
6.7
Arrow Reverse Stock Split
. The Arrow Reverse Stock Split shall have been completed to the
reasonable satisfaction of the Company.
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Section 7. A
DDITIONAL
C
ONDITIONS
P
RECEDENT
TO
O
BLIGATIONS
OF
A
RROW
AND
M
ERGER
S
UBS
The obligations of Arrow and Merger Subs to effect the Mergers and otherwise consummate the transactions to be consummated at the Closing are
subject to the satisfaction or the written waiver by Arrow, at or prior to the Closing, of each of the following conditions:
7.1
Accuracy of Representations
. The Company Fundamental Representations shall have been true and
correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are
specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date). Each of the Company IP Representations shall have been true and correct in all material respects (without
giving effect to any references therein to any Company Material Adverse Effect or other materiality qualifications) on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such Company IP
Representations are specifically made as of a particular date, in which case such Company IP Representations shall have been true and correct in all material respects as of such date). The Company Capitalization Representations shall have been
true and correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date, except, in each case, for such inaccuracies which are
de
minimis
, individually or in the aggregate and except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of
such date. The representations and warranties of the Company contained in this Agreement (other than the Company Fundamental Representations, the Company IP Representations, and the Company Capitalization Representations) shall have been true and
correct as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on the Closing Date except (A) in each case, or in the aggregate, where the failure to be true and correct
would not reasonably be expected to have a Company Material Adverse Effect (without giving effect to any references therein to any Company Material Adverse Effect or other materiality qualifications), or (B) for those representations and warranties
which address matters only as of a particular date (which representations shall have been true and correct, subject to the qualifications as set forth in the preceding clause (A), as of such particular date). For the sake of clarity, it is
understood that, for purposes of determining the accuracy of the representations and warranties of the Company, any update of or modification to the Company Disclosure Schedule made or purported to have been made after the date of this Agreement
shall be disregarded.
7.2
Performance of Covenants
. The Company shall have performed in all
material respects all of its obligations and complied in all material respects with all of its agreements and covenants to be performed or complied with by it under this Agreement at or prior to the Second Merger Effective Time.
7.3 [Intentionally omitted.]
7.4
Agreements and Other Documents
. Arrow shall have received the following agreements and other
documents, each of which shall be in full force and effect:
(a)
a certificate executed by the Chief
Executive Officer of the Company confirming that the conditions set forth in Sections 7.1 and 7.2 have been duly satisfied; and
(b)
certificates of good standing (or equivalent documentation) of the Company in its jurisdiction of
organization and the various foreign jurisdictions in which it is qualified, and certified charter documents.
7.5
Lock-up Agreements
. Arrow shall have received a copy of a Lock-up Agreement, substantially in
the form attached hereto as
Exhibit E
(the
Lock-up Agreement
) duly executed by each of the Persons listed on Schedule 7.5 hereto, each of which shall be in full force and effect.
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7.6
CVR Agreement
. Arrow shall have received a copy of
the CVR Agreement duly executed by the Company and the Rights Agent (as defined therein), which shall be in full force and effect.
7.7
No Other Proceedings
. There shall not be pending any Legal Proceeding in which, in the
reasonable judgment of Arrow, would result in an outcome that is material and adverse to Arrow, the Company, or the Surviving Corporation, which Legal Proceeding: (a) challenges or seeks to restrain or prohibit the consummation of the Mergers
or any of the other Contemplated Transactions; (b) relates to the Mergers or any of the other Contemplated Transactions and seeks to obtain from Arrow, the Company, or the Surviving Corporation, any damages or other relief that may be material to
Arrow, the Company, or the Surviving Corporation, as applicable; or (c) would materially and adversely affect the right or ability of Arrow to own the assets or operate the business of the Company.
7.8
FIRPTA Certificate
. Arrow shall have received from the Company a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation Section 1.897-2(h) and in form and substance reasonably acceptable to Arrow along with written authorization for Arrow to deliver such notice form to the Internal Revenue
Service on behalf of the Company upon the Closing.
7.9
No Company Material Adverse
Effect
. Since the date of this Agreement, there shall not have occurred any Company Material Adverse Effect that is continuing.
7.10
Closing Date Allocation Schedule
. Arrow shall have received from the Company the Company
Allocation Schedule which will be accurate and complete in all respects as of the Closing with respect to the number of Company Shares owned by each holder of Company Capital Stock and the number of shares of Arrow Common Stock to be issued to such
holder pursuant to the terms of this Agreement upon the Closing.
7.11
Financial
Certificate
. Arrow shall have received from the Company the Closing Financial Certificate, which will be accurate and complete in all respects as of the Closing.
7.12
Company Liabilities
. The liabilities of the Company, other than Company Transaction Expenses,
as set forth on the Closing Financial Certificate shall not be more than $1,200,000, which liabilities may be fully discharged in connection with the First Merger Effective Time without prior consent of or notice to the applicable creditor, and
without any pre-payment penalty or other similar payment.
Section 8. A
DDITIONAL
C
ONDITIONS
P
RECEDENT
TO
O
BLIGATION
OF
THE
C
OMPANY
The
obligations of the Company to effect the Mergers and otherwise consummate the transactions to be consummated at the Closing are subject to the satisfaction or the written wavier by the Company, at or prior to the Closing, of each of the following
conditions:
8.1
Accuracy of Representations
. Each of the Arrow Fundamental Representations shall
have been true and correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such representations and
warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date). Each of the Arrow IP Representations shall have been true and correct in all material
respects (without giving effect to any references therein to any Arrow Material Adverse Effect or other materiality qualifications) on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent
such Arrow IP Representations are specifically made as of a particular date, in which case such Arrow IP Representations shall have been true and correct in all material respects as of such date). The Arrow Capitalization Representations shall
have been true and correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date, except, in each case, for such inaccuracies
which are
de minimis
, individually or in the aggregate and except to the extent such representations and warranties are specifically made as of a particular
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date, in which case such representations and warranties shall be true and correct as of such date. The representations and warranties of Arrow and Merger Subs contained in this Agreement (other
than the Arrow Fundamental Representations, the Arrow IP Representations, and the Arrow Capitalization Representations) shall have been true and correct as of the date of this Agreement and shall be true and correct on and as of the Closing Date
with the same force and effect as if made on the Closing Date except (A) in each case, or in the aggregate, where the failure to be true and correct would not reasonably be expected to have an Arrow Material Adverse Effect (without giving effect to
any references therein to any Arrow Material Adverse Effect or other materiality qualifications), or (B) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and
correct, subject to the qualifications as set forth in the preceding clause (A), as of such particular date). For the sake of clarity, it is understood that, for purposes of determining the accuracy of the representations and warranties of
Arrow, any update of or modification to the Arrow Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded.
8.2
Performance of Covenants
. Arrow and Merger Subs shall have performed in all material respects
all of their obligations and complied in all material respects with all of their agreements and covenants to be performed or complied with by each of them under this Agreement at or prior to the Second Merger Effective Time.
8.3
Lock-up Agreements
. The Company shall have received a copy of a Lock-up Agreement duly executed
by each of the Persons listed on Schedule 8.3 hereto, each of which shall be in full force and effect.
8.4
No Other Proceedings
. There shall not be pending any Legal Proceeding relating to the Mergers or
any of the other Contemplated Transactions which, in the reasonable judgment of the Company, would result in an outcome that is material and adverse to the Company, the Surviving Corporation or Arrow which Legal Proceeding: (a) challenges or seeks
to restrain or prohibit the consummation of the Mergers or any of the other Contemplated Transactions; (b) seeks to obtain from Arrow, the Surviving Corporation, or the Company, any damages or other relief that would reasonably be likely to be
material to the Surviving Corporation, the Company, or Arrow, as applicable; or (c) would materially and adversely affect the right or ability of Arrow to own the assets or operate the business of the Company following the Closing (any,
Material Litigation
);
provided
,
however
, that Material Litigation shall not include any suit, claim, request for relief or proceeding brought by any current or former shareholder of Arrow, either on their own
behalf, on behalf of a class or derivatively, for breach of fiduciary duty, or state or federal securities or disclosures laws, relating to the Mergers or the Contemplated Transactions.
8.5
Documents
. The Company shall have received the following documents, each of which shall be in
full force and effect:
(a)
a certificate executed by the Chief Executive Officer and Chief Financial
Officer of Arrow confirming that the conditions set forth in Sections 8.1 and 8.2 have been duly satisfied;
(b)
certificates of good standing of each of Arrow and Merger Subs in its jurisdiction of organization and the
various foreign jurisdictions in which it is qualified, certified charter documents, certificates as to the incumbency of officers and the adoption of resolutions of its board of directors (or sole member, as applicable) authorizing the execution of
this Agreement and the consummation of the Contemplated Transactions to be performed by Arrow and Merger Subs hereunder;
(c)
written resignations in forms satisfactory to the Company, dated as of the Closing Date and effective as of
the Closing executed by the officers and directors of Arrow who are not to continue as officers or directors of Arrow pursuant to Section 5.14 hereof; and
(d)
general releases in forms reasonably satisfactory to the Company, effective as of the Closing executed by
the officers and directors of Arrow who are not to continue as officers or directors of Arrow pursuant to Section 5.14 hereof.
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8.6
Arrow Releases
. Arrow for the benefit of itself and its
Subsidiaries, including the Surviving Corporation, shall have received general releases in a form reasonably acceptable to Arrow and the Company from each of the individuals listed on Schedule 8.6 from any further rights to receive any compensation
or other benefits or other form of payment under any written or oral agreement or arrangement, other than as expressly set forth on Part 8.6 of the Arrow Disclosure Schedule.
8.7
No Arrow Material Adverse Effect
. Since the date of this Agreement, there shall not have
occurred any Arrow Material Adverse Effect that is continuing.
Section 9. T
ERMINATION
9.1
Termination
. This Agreement may be terminated prior to the First Merger Effective Time (whether
before or after adoption of this Agreement by the Companys stockholders and whether before or after approval of the Mergers and issuance of Arrow Common Stock in the Mergers by Arrows stockholders, unless otherwise specified below):
(a)
by mutual written consent of Arrow and the Company duly authorized by the Boards of Directors of Arrow and
the Company;
(b)
by either Arrow or the Company if the Mergers shall not have been consummated by July 31,
2017;
provided
,
however
, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to the Company, on the one hand, or to Arrow or Merger Subs, on the other hand, if such Partys action or failure
to act has been a principal cause of the failure of the Mergers to occur on or before such date and such action or failure to act constitutes a breach of this Agreement,
provided
,
further
,
however
, that, in the event that the
waiting period under the HSR Act has not expired, or a request for additional information has been made by any Governmental Authority, or in the event that the SEC has not declared effective under the Securities Act the Registration Statement by
such date, then either the Company or Arrow shall be entitled to extend the date for termination of this Agreement pursuant to this Section 9.1(b) for an additional 60 days;
(c)
by either Arrow or the Company if a court of competent jurisdiction or other Governmental Body shall have
issued a final and nonappealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Mergers;
(d)
by Arrow if the Required Company Stockholder Vote shall not have been obtained within 24 hours of the
effectiveness of the Registration Statement;
provided
,
however
, that once the Required Company Stockholder Vote has been obtained, Arrow may not terminate this Agreement pursuant to this Section 9.1(d);
(e)
by either Arrow or the Company if (i) the Arrow Stockholders Meeting (including any adjournments and
postponements thereof) shall have been held and completed and Arrows stockholders shall have taken a final vote on the Mergers and the issuance of shares of Arrow Common Stock in the Mergers and (ii) the Mergers or the issuance of Arrow Common
Stock in the Mergers shall not have been approved at the Arrow Stockholders Meeting (and shall not have been approved at any adjournment or postponement thereof) by the Required Arrow Stockholder Vote;
provided
,
however
, that the
right to terminate this Agreement under this Section 9.1(e) shall not be available to Arrow where the failure to obtain the Required Arrow Stockholder Vote shall have been caused by the action or failure to act of Arrow and such action or failure to
act constitutes a material breach by Arrow of this Agreement;
(f)
by the Company (at any time prior to the
approval of the Mergers and the issuance of Arrow Common Stock in the Mergers by the Required Arrow Stockholder Vote) if an Arrow Triggering Event shall have occurred;
(g)
by Arrow (at any time prior to the adoption of this Agreement and the approval of the Mergers by the
Required Company Stockholder Vote) if a Company Triggering Event shall have occurred;
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(h)
by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Arrow or Merger Subs set forth in this Agreement, or if any representation or warranty of Arrow or Merger Subs shall have become inaccurate, in either case such that the conditions set forth in Section 8.1 or
Section 8.2 would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become inaccurate
provided
that if such inaccuracy in Arrows, Merger Sub 1s, or Merger Sub 2s
representations and warranties or breach by Arrow or Merger Subs is curable by Arrow or Merger Subs, respectively, then this Agreement shall not terminate pursuant to this Section 9.1(h) as a result of such particular breach or inaccuracy until the
earlier of (i) the expiration of a 30 day period commencing upon delivery of written notice from Arrow or Merger Subs to the Company of such breach or inaccuracy and (ii) Arrow or Merger Subs (as applicable) ceasing to exercise commercially
reasonable efforts to cure such breach (it being understood that this Agreement shall not terminate pursuant to this Section 9.1(h) as a result of such particular breach or inaccuracy if such breach by Arrow or Merger Subs is cured prior to such
termination becoming effective);
provided
,
however
, that, for the sake of clarity, it being understood that breaches of any of the covenants set forth in Section 4.3(a) (a
Section 4.3(a) Breach
) by Arrow
shall not be curable; or
(
i
)
by Arrow, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company shall have become inaccurate, in either case such that the conditions set forth in Section 7.1 or Section 7.2 would not
be satisfied as of the time of such breach or as of the time such representation or warranty shall have become inaccurate
provided
that if such inaccuracy in the Companys representations and warranties or breach by the Company is
curable by the Company then this Agreement shall not terminate pursuant to this Section 9.1(i) as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30 day period commencing upon delivery of written notice
from the Company to Arrow of such breach or inaccuracy and (ii) the Company ceasing to exercise commercially reasonable efforts to cure such breach (it being understood that this Agreement shall not terminate pursuant to this Section 9.1(i) as a
result of such particular breach or inaccuracy if such breach by the Company is cured prior to such termination becoming effective);
provided
,
however
, that, for the sake of clarity, it being understood that a Section 4.3(a) Breach by
the Company shall not be curable.
The Party desiring to terminate this Agreement pursuant to this Section 9.1 (other than pursuant to
Section 9.1(a) or pursuant to a Section 4.3(a) Breach) shall give a notice of such termination to the other Party specifying the provisions hereof pursuant to which such termination is made and the basis therefor described in reasonable detail.
9.2
Effect of Termination
. In the event of the termination of this Agreement as provided in
Section 9.1, this Agreement shall be of no further force or effect;
provided
,
however
, that (i) this Section 9.2, Section 9.3, and Section 10 shall survive the termination of this Agreement and shall remain in full force and effect,
and (ii) the termination of this Agreement shall not relieve any Party for its fraud or from any liability for any willful and material breach of any representation, warranty, covenant, obligation or other provision contained in this Agreement.
9.3
Expenses; Termination Fees
.
(a)
Except as set forth in this Section 9.3, all fees and expenses incurred in connection with this Agreement
and the Contemplated Transactions shall be paid by the Party incurring such expenses, whether or not the Mergers is consummated;
provided
,
however
, subject to the terms and conditions of that certain letter agreement between Arrow and
the Company dated November 23, 2016 (the
Reimbursement Letter
), Arrow shall be responsible for the Expense Reimbursement, which shall be paid by Arrow by wire transfer of same-day funds within ten Business Days following
delivery to Arrow, its Affiliates or its Representatives of an invoice by the Company or its Representatives setting forth the amounts to be reimbursed in accordance with the terms of the Reimbursement Letter;
provided
,
further
, that
Arrow shall pay all fees and expenses, including attorneys and accountants fees and expenses, incurred in relation to the filings by the Parties under any filing requirement under the HSR Act, any foreign antitrust Legal Requirement, and
under the rules and regulations of NASDAQ,
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including, such fees and expenses incurred in relation to the printing and filing with the SEC of the Registration Statement (including any financial statements and exhibits) and any amendments
or supplements thereto and paid to a financial printer or the SEC, applicable to this Agreement and the Contemplated Transactions. The payment of the Expense Reimbursement shall not relieve Arrow of any obligation to pay any termination fees (if
applicable) or Third Party Expenses pursuant to this Section 9.3 (if applicable), each of which, for the sake of clarity, are separate obligations and are not subject to the cap set forth in the Reimbursement Letter.
(b)
(i) If this Agreement is terminated by Arrow or the Company pursuant to Section 9.1(e) or by the Company
pursuant to Section 9.1(f), and (A) at any time before the Arrow Stockholders Meeting an Acquisition Proposal with respect to Arrow shall have been publicly announced, disclosed or otherwise communicated to the Arrow Board (and shall not have
been withdrawn) and (B) in the event this Agreement is terminated pursuant Section 9.1(e), within 12 months after the date of such termination, Arrow enters into a definitive agreement with respect to a Subsequent Transaction or consummates a
Subsequent Transaction, then Arrow shall pay to the Company, within ten Business Days after termination (or, if applicable, concurrent with entry into a definitive agreement or the consummation of a transaction), a nonrefundable fee in an amount
equal to $500,000, in addition to any amount payable to the Company pursuant to Section 9.3(c);
(ii) If this
Agreement is terminated by Arrow pursuant to Section 9.1(d) or (g), then the Company shall pay to Arrow, within ten Business Days after termination (or, if applicable, concurrent with entry into a definitive agreement or the consummation of a
transaction), a nonrefundable fee in an amount equal to $500,000 in addition to any amount payable to Arrow pursuant to Sections 9.3(c);
(iii) If this Agreement is terminated by Arrow due to a Section 4.3(a) Breach by the Company, then the Company shall
pay to Arrow within ten Business Days of the termination, a non-refundable amount equal to $1,000,000, in addition to any amount payable to Arrow pursuant to Section 9.3(c); or
(iv) If this Agreement is terminated by the Company due to a Section 4.3(a) Breach by Arrow, then Arrow shall pay to
the Company within ten Business Days of the termination, a non-refundable amount equal to $1,000,000, in addition to any amount payable to the Company pursuant to Section 9.3(c).
(c)
(i) If this Agreement is terminated by Arrow pursuant to Sections 9.1(d), (g), or (i), the Company shall
reimburse Arrow for all reasonable fees and expenses incurred by the Company in connection with this Agreement and the transactions contemplated hereby (such expenses, collectively, the
Third Party Expenses
) incurred by
Arrow up to a maximum of $500,000, by wire transfer of same-day funds within ten Business Days following the date on which Arrow submits to the Company true and correct copies of reasonable documentation supporting such Third Party Expenses;
provided
,
however
, that such Third Party Expenses shall not include any amounts for a financial advisor to Arrow except for reasonably documented out-of-pocket expenses otherwise reimbursable by Arrow to such financial advisor pursuant
to the terms of Arrows engagement letter or similar arrangement with such financial advisor.
(ii) If this
Agreement is terminated by the Company pursuant to Section 9.1(f) or (h), then Arrow shall reimburse the Company for all Third Party Expenses incurred by the Company up to a maximum of $500,000 (which amount includes the Expense Reimbursement),
by wire transfer of same-day funds within ten Business Days following the date on which the Company submits to Arrow true and correct copies of reasonable documentation supporting such Third Party Expenses;
provided
,
however
, that such
Third Party Expenses shall not include any amounts for a financial advisor to the Company except for reasonably documented out-of-pocket expenses otherwise reimbursable by the Company to such financial advisor pursuant to the terms of the
Companys engagement letter or similar arrangement with such financial advisor.
(d)
If either Party
fails to pay when due any amount payable by such Party under Section 9.3(b) or (c), then (i) such Party shall reimburse the other Party for reasonable costs and expenses (including reasonable fees and disbursements of counsel) incurred in connection
with the collection of such overdue amount and the
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enforcement by the other Party of its rights under this Section 9.3, and (ii) such Party shall pay to the other Party interest on such overdue amount (for the period commencing as of the date
such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to the other Party in full) at a rate per annum equal to the prime rate (as announced by Bank of America or any successor
thereto) in effect on the date such overdue amount was originally required to be paid.
(e)
The Parties
agree that the payment of the fees and expenses set forth in this Section 9.3, subject to Section 9.2, shall be the sole and exclusive remedy of each Party following a termination of this Agreement under the circumstances described in this Section
9.3, it being understood that in no event shall either Arrow or the Company be required to pay fees or damages payable pursuant to this Section 9.3 on more than one occasion. Subject to Section 9.2, the payment of the fees and expenses set forth in
this Section 9.3 and Section 10.11, each of the Parties and their respective affiliates (as that term is used in Rule 145 under the Securities Act) shall have no liability, shall not be entitled to bring or maintain any other claim, action or
proceeding against the other, shall be precluded from any other remedy against the other, at law or in equity or otherwise, and shall not seek to obtain any recovery, judgment or damages of any kind against the other (or any partner, member,
stockholder, director, officer, employee, Subsidiary, affiliate, agent or other representative of such Party) in connection with or arising out of the termination of this Agreement, any breach by any Party giving rise to such termination or the
failure of the Mergers and the other Contemplated Transactions to be consummated. Each of the Parties acknowledges that (i) the agreements contained in this Section 9.3 are an integral part of the Contemplated Transactions, (ii) without these
agreements, the Parties would not enter into this Agreement and (iii) any amount payable pursuant to this Section 9.3 is not a penalty, but rather is liquidated damages in a reasonable amount that will compensate the Parties in the circumstances in
which such amount is payable.
Section 10. M
ISCELLANEOUS
P
ROVISIONS
10.1
Non-Survival of Representations and Warranties
. The representations and warranties of the
Company, Arrow and Merger Subs contained in this Agreement or any certificate or instrument delivered pursuant to this Agreement shall terminate at the First Merger Effective Time, and only the covenants that by their terms survive the First Merger
Effective Time and this Section 10 shall survive the First Merger Effective Time.
10.2
Amendment
. This Agreement may be amended with the approval of the respective boards of
directors of the Company, Merger Subs and Arrow at any time (whether before or after the adoption and approval of this Agreement by the Companys stockholders or before or after the approval of issuance of shares of Arrow Common Stock in the
First Merger by Arrows stockholders);
provided
,
however
, that after any such adoption and approval of this Agreement by a Partys stockholders, no amendment shall be made which by law requires further approval of the
stockholders of such Party without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Company, Merger Subs and Arrow.
10.3
Waiver
.
(a)
No failure on the part of any Party to exercise any power, right, privilege or remedy under this Agreement,
and no delay on the part of any Party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.
(b)
No Party shall be deemed to have waived any claim arising out of this Agreement, or any power, right,
privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Party; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is given.
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10.4
Entire Agreement; Counterparts; Exchanges by
Facsimile
. This Agreement and the other agreements referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the Parties with respect
to the subject matter hereof and thereof;
provided
,
however
, that the Confidentiality Agreement shall not be superseded and shall remain in full force and effect in accordance with its terms. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by all Parties by facsimile or electronic transmission
in .PDF format shall be sufficient to bind the Parties to the terms and conditions of this Agreement.
10.5
Applicable Law; Jurisdiction
. 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 laws. In any action or proceeding between any of the Parties arising out of or relating to this Agreement or any
of the Contemplated Transactions, each of the Parties: (a) irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware or to the extent such court does not have
subject matter jurisdiction, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware, (b) agrees that all claims in respect of such action or proceeding shall be heard and determined exclusively
in accordance with clause (a) of this Section 10.5, (c) waives any objection to laying venue in any such action or proceeding in such courts, (d) agrees that such court will be deemed to be a convenient forum, and (e) irrevocably waives the right to
trial by jury.
10.6
Attorneys Fees
. In any action at law or suit in equity to enforce
this Agreement or the rights of any of the Parties, the prevailing Party in such action or suit (as determined by a court of competent jurisdiction) shall be entitled to receive a reasonable sum for its attorneys fees and all other reasonable
costs and expenses incurred in such action or suit.
10.7
Assignability
. This Agreement shall be
binding upon, and shall be enforceable by and inure solely to the benefit of, the Parties and their respective successors and assigns;
provided
,
however
, that neither this Agreement nor any of a Partys rights or obligations
hereunder may be assigned or delegated by such Party without the prior written consent of the other Party, and any attempted assignment or delegation of this Agreement or any of such rights or obligations by such Party without the other Partys
prior written consent shall be void and of no effect.
10.8
Notices
. Any notice or other
communication required or permitted to be delivered to any Party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered by hand, by registered mail, by courier or express delivery service,
email to the address set forth below or by facsimile to the address or facsimile telephone number set forth beneath the name of such Party below (or to such other address, email address or facsimile telephone number as such Party shall have
specified in a written notice given to the other Parties):
if to Arrow or Merger Subs:
OncoGenex Pharmaceuticals, Inc.
19820 North Creek Parkway, Suite 201
Bothell, WA 98011
Telephone: (425) 686-1500
Attention: Chief Executive Officer
Email:
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with a copy to (which shall not constitute notice):
Fenwick & West LLP
1191 2nd
Avenue, 10th Floor
Seattle, Washington 98101
Telephone: (206) 389-4510
Fax: (206) 389-4511
Attention: Alan Smith
Email: acsmith@fenwick.com
if
to the Company:
Achieve Life Science, Inc.
30 Sunnyside Avenue
Mill Valley,
California 94941
Telephone: (415) 670-9050
Attention: Chief Executive Officer
Email:
with a copy to (which
shall not constitute notice):
Paul Hastings LLP
1117 S. California Avenue
Palo
Alto, California 94304
Telephone: (650) 320-1830
Fax: (650) 320-1930
Attention: Rob R. Carlson
Email: robcarlson@paulhastings.com
10.9
Cooperation
. Each Party agrees to cooperate fully with the other Party and to execute and
deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other Party to evidence or reflect the Contemplated Transactions and to carry out the intent and purposes
of this Agreement.
10.10
Severability
. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation
or in any other jurisdiction. If a final judgment of a court of competent jurisdiction declares that any term or provision of this Agreement is invalid or unenforceable, the Parties agree that the court making such determination shall have the power
to limit such term or provision, to delete specific words or phrases or to replace such term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the original intent of the Parties with regards to
the invalid or unenforceable term or provision, and this Agreement shall be valid and enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the Parties agree to negotiate in good faith
to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.
10.11
Other Remedies; Specific Performance
. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise
of any other remedy. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions
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to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity, and each of the Parties waives any bond, surety or other security that might be required of any other Party with respect thereto.
10.12
No Third Party Beneficiaries
. Nothing in this Agreement, express or implied, is intended to or
shall confer upon any Person (other than the Parties and the D&O Indemnified Parties to the extent of their respective rights pursuant to Section 5.8) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
10.13
Construction
.
(a)
For purposes of this Agreement, whenever the context requires: the singular number shall include the
plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.
(b)
The Parties agree that any rule of construction to the effect that ambiguities are to be resolved against
the drafting Party shall not be applied in the construction or interpretation of this Agreement.
(c)
As
used in this Agreement, the words include and including, and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words without limitation.
(d)
The use of the word or shall not be exclusive.
(e)
Except as otherwise indicated, all references in this Agreement to Sections,
Exhibits and Schedules are intended to refer to Sections of this Agreement and Exhibits and Schedules to this Agreement, respectively.
(f)
Any reference to legislation or to any provision of any legislation shall include any modification,
amendment, re-enactment thereof, any legislative provision substituted therefore and all rules, regulations, and statutory instruments issued or related to such legislations.
(g)
The bold-faced headings contained in this Agreement are for convenience of reference only, shall not be
deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
(h)
The Parties agree that the Company Disclosure Schedule or Arrow Disclosure Schedule shall be arranged in
parts and subparts corresponding to the numbered and lettered sections and subsections contained in Section 2 or Section 3, respectively. The disclosures in any part or subpart of the Company Disclosure Schedule or the Arrow Disclosure Schedule
shall qualify other sections and subsections in Section 2 or Section 3, respectively, to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections and subsections.
(i)
Reference to any agreement, document or instrument means such agreement, document or instrument, as well as
all addenda, exhibits, schedules or amendments thereto, in each case as amended, modified or restated and in effect from time to time in accordance with the terms thereof.
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I
N
W
ITNESS
W
HEREOF
,
the Parties have caused this Agreement to be executed as of the date first above written.
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O
NCO
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ENEX
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HARMACEUTICALS
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NC
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By:
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/s/ Scott Cormack
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Name:
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Scott Cormack
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Title:
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President and Chief Executive Officer
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SH
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CQUISITION
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By:
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/s/ Scott Cormack
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Name:
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Scott Cormack
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Title:
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Chief Executive Officer
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SH
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CQUISITION
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UB
2, I
NC
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By:
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/s/ Scott Cormack
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Name:
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Scott Cormack
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Title:
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Chief Executive Officer
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A
CHIEVE
L
IFE
S
CIENCE
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NC
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By:
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/s/ Richard Stewart
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Name:
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Richard Stewart
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Title:
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Chairman
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[S
IGNATURE
P
AGE
TO
A
GREEMENT
AND
P
LAN
OF
M
ERGER
AND
R
EORGANIZATION
]
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E
XHIBIT
A
C
ERTAIN
D
EFINITIONS
a) For purposes of the Agreement (including this Exhibit A):
Acquisition Inquiry
shall mean, with respect to a Party, an inquiry, indication of interest or request for
information (other than an inquiry, indication of interest or request for information made or submitted by the Company, on the one hand or Arrow, on the other hand, to the other Party) that could reasonably be expected to lead to an Acquisition
Proposal with such Party.
Acquisition Proposal
shall mean, with respect to a Party, any offer or proposal,
whether written or oral (other than an offer or proposal made or submitted by or on behalf of the Company or any of its affiliates (as that term is used in Rule 145 under the Securities Act), on the one hand, or by or on behalf of Arrow
or any of its affiliates (as that term is used in Rule 145 under the Securities Act), on the other hand, to the other Party) contemplating or otherwise relating to any Acquisition Transaction with such Party.
Acquisition Transaction
shall mean any transaction or series of transactions involving:
(
a
) any merger, consolidation, amalgamation, share exchange, business combination, issuance of
securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (i) in which a Party is a constituent corporation; (ii) in which a Person or group (as defined in
the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of a Party or
any of its Subsidiaries or (iii) in which a Party or any of its Subsidiaries issues securities representing more than 15% of the outstanding securities of any class of voting securities of such Party or any of its Subsidiaries;
(
b
) any sale, lease, exchange, transfer, license, acquisition or disposition of any business or
businesses or assets that constitute or account for 15% or more of the consolidated book value or the fair market value of the assets of a Party and its Subsidiaries, taken as a whole; or
(
c
) any liquidation or dissolution of a Party.
Notwithstanding the foregoing, with respect to Arrow, in no event shall a term sheet for a Partnering Agreement (as such term is defined in the CVR Agreement)
or a Partnering Agreement (each, an
Apatorsen Transaction
) be deemed an Acquisition Transaction.
Agreement
shall mean the Agreement and Plan of Merger and Reorganization to which this Exhibit A is attached, as it
may be amended from time to time.
Arrow Affiliate
shall mean any Person that is (or at any relevant time was)
under common control with Arrow within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.
Arrow Associate
shall mean any current or former employee, independent contractor, officer or director of Arrow or
any Arrow Affiliate.
Arrow Board
shall mean the board of directors of Arrow.
Arrow Capitalization Representations
shall mean the representations and warranties of Arrow and Merger Subs set
forth in the first sentence of Section 3.6(a) and Section 3.6(d).
Arrow Closing Price
means the volume weighted
average trading price of a share of Arrow Common Stock on NASDAQ for the five trading days ending the trading day immediately prior to the date upon which the First Merger becomes effective.
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Arrow Common Stock
shall mean the Common Stock, $0.001 par value per
share, of Arrow.
Arrow Contract
shall mean any Contract: (a) to which Arrow or OTI is a party; (b) by
which Arrow, OTI or any Arrow IP Rights or any other asset of Arrow or OTI is or may become bound or under which Arrow or OTI has, or may become subject to, any obligation; or (c) under which Arrow or OTI has or may acquire any right or interest.
Arrow Fundamental Representations
shall mean the representations and warranties of Arrow and Merger Subs set
forth in Sections 3.1(a), 3.1(b), 3.3, 3.4, and 3.21.
Arrow IP Representations
shall mean the representations
and warranties of Arrow and Merger Subs set forth in Section 3.12.
Arrow IP Rights
shall mean all Intellectual
Property owned, licensed, or controlled by Arrow or its Subsidiaries that is necessary or used in the business of Arrow and its Subsidiaries as presently conducted.
Arrow IP Rights Agreement
shall mean any instrument or agreement governing, related or pertaining to any
Intellectual Property owned, licensed, or controlled by Arrow or its Subsidiaries.
Arrow Material Adverse
Effect
shall mean any Effect that, considered together with all other Effects that had occurred prior to the date of determination of the occurrence of the Arrow Material Adverse Effect, has or would reasonably be expected to have a
material adverse effect on: the business, financial condition, assets, liabilities or results of operations of Arrow, OTI and Merger Subs, taken as a whole;
provided
,
however
, that none of the following shall be taken into account in
determining whether there has been an Arrow Material Adverse Effect: (a) the existence of actual litigation itself (but for the avoidance of doubt, not the facts or circumstances underlying such litigation), arising from allegations of a breach of a
fiduciary duty relating to this Agreement, (b) the termination, sublease or assignment of Arrows facility lease, or failure to do the foregoing, (c) any Effect resulting from the announcement or pendency of the Mergers or the Contemplated
Transactions, (d) any change in the stock price or trading volume of Arrow (provided that, subject to the provisions of this definition, the underlying causes of such changes or failures may be considered in determining whether there has been or
would reasonably be expected to be an Arrow Material Adverse Effect), (e) any act or threat of terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation or armed hostilities
or terrorist activities anywhere in the world or any governmental or other response or reaction to any of the foregoing, (f) any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the
interpretation thereof, or (g) any Effect in general economic or political conditions or in the industries in which Arrow operates (but only, in each case, to the extent such changes do not, individually or in the aggregate, have a disproportionate
impact on Arrow, taken as a whole, relative to other Persons in similar businesses).
Arrow Options
shall mean
options or other rights to purchase shares of Arrow Common Stock issued by Arrow.
Arrow Registered IP
shall
mean all Arrow IP Rights that are registered, filed or issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights and registered trademarks and all applications for any of the foregoing.
Arrow Reverse Stock Split
shall mean a reverse stock split of Arrow Common Stock not to exceed a combination of 10
for 1 that the Arrow Board (in consultation with the Company Board) determines is necessary or advisable in order for the Arrow Common Stock to satisfy one or more of the requirements for qualifying the Arrow Common Stock for quotation on NASDAQ and
in compliance with the terms of this Agreement, the Mergers and the Contemplated Transactions.
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Arrow Triggering Event
shall be deemed to have occurred if: (a) Arrow
shall have failed to include in the Registration Statement the Arrow Board Recommendation; (b) the Arrow Board shall have approved, endorsed or recommended any Acquisition Proposal; (c) Arrow shall have entered into any letter of intent or
similar document or any Contract relating to any Acquisition Proposal (other than a confidentiality agreement permitted pursuant to Section 4.3); or (d) Arrow or any director or officer of Arrow shall have willfully and intentionally breached the
provisions set forth in Section 4.3 of the Agreement.
Arrow Unaudited Interim Balance Sheet
shall mean the
unaudited balance sheet of Arrow as of September 30, 2016, included in Arrows Report on Form 10-Q for the fiscal quarter ended September 30, 2016, as filed with the SEC.
Business Day
shall mean any day other than a day on which banks in the State of New York or the State of California
are authorized or obligated to be closed.
Buyer Parties
means Arrow, OTI, Merger Sub 1, and Merger Sub 2.
Closing Financial Certificate
shall mean a certificate executed by the chief executive officer of the Company dated
as of the Closing Date, certifying, as of the Closing, the Companys balance sheet prepared in accordance with GAAP.
COBRA
means the Consolidated Omnibus Budget Reconciliation Act of 1985, as set forth in Section 4980B of the Code
and Part 6 of Title I of ERISA.
Code
shall mean the Internal Revenue Code of 1986.
Company Affiliate
shall mean any Person that is (or at any relevant time was) under common control with the Company
within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.
Company
Associate
shall mean any current or former employee, independent contractor, officer or director of the Company or any Company Affiliate.
Company Board
shall mean the board of directors of the Company.
Company Capital Stock
shall mean the Company Common Stock.
Company Capitalization Representations
shall mean the representations and warranties of the Company set forth in the
first sentence of Section 2.6(a), and Section 2.6(d).
Company Common Stock
shall mean the Common Stock, $0.01
par value per share, of the Company.
Company Contract
shall mean any Contract: (a) to which the Company or
any of its Subsidiaries is a Party; (b) by which the Company or any of its Subsidiaries or any Company IP Rights or any other asset of the Company or its Subsidiaries is or may become bound or under which the Company or any of its Subsidiaries has,
or may become subject to, any obligation; or (c) under which the Company or any of its Subsidiaries has or may acquire any right or interest.
Company Equity Awards
shall mean options or other rights to purchase shares of Company Capital Stock issued by the
Company.
Company Fully-Diluted Shares
shall mean the total number of issued Company Shares as of the date
hereof plus the total number of shares of Company Common Stock issuable upon the exercise of all issued and outstanding Company Equity Awards as of the date hereof.
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Company Fundamental Representations
shall mean the representations and
warranties of the Company set forth in Sections 2.1(a), 2.1(b), 2.3, 2.4, and 2.20.
Company Interim Balance
Sheet
shall mean the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as of March 31, 2016 provided to Arrow prior to the date of this Agreement.
Company IP Representations
shall mean the representations and warranties of the Company set forth in Section 2.12.
Company IP Rights
shall mean all Intellectual Property owned, licensed, or controlled by the Company or its
Subsidiaries that is necessary or used in the business of the Company and its Subsidiaries as presently conducted.
Company IP
Rights Agreement
shall mean any instrument or agreement governing, related or pertaining to any the Company IP Rights.
Company Material Adverse Effect
shall mean any Effect that, considered together with all other Effects that had
occurred prior to the date of determination of the occurrence of a Company Material Adverse Effect, has or would reasonably be expected to have a material adverse effect on the business, financial condition, assets, liabilities or results of
operations of the Company and its Subsidiaries taken as a whole;
provided
,
however
, that none of the following shall be taken into account in determining whether there has been a Company Material Adverse Effect: (a) any rejection
by a Governmental Body of a registration or filing by the Company relating to the Company IP Rights; (b) any Effect resulting from the announcement or pendency of the Mergers or the Contemplated Transactions; (c) any act or threat of terrorism or
war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation or armed hostilities or terrorist activities anywhere in the world or any governmental or other response or reaction to any of
the foregoing; (d) any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof; or (e) any Effect in general economic or political conditions or in the industries in which
the Company operates.
Company Registered IP
shall mean all Company IP Rights that are registered, filed or
issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights and registered trademarks and all applications for any of the foregoing.
Company Transaction Expenses
shall mean the sum of (i) the cash cost of any unpaid change of control payments or
severance payments that are or become due to any employee of the Company in connection with the consummation of the Contemplated Transactions, (ii) the cash cost of any accrued and unpaid retention payments due to any employee of the Company as of
the Closing Date and (iii) any remaining unpaid fees and expenses as of such date for which the Company is liable incurred by the Company in connection with this Agreement and the Contemplated Transactions or otherwise.
Company Triggering Event
shall be deemed to have occurred if: (a) the Company shall have failed to include in
the Information Statement the Company Board Recommendation; (b) the Company Board shall have approved, endorsed or recommended any Acquisition Proposal; (c) the Company shall have entered into any letter of intent or similar document or any Contract
relating to any Acquisition Proposal (other than a confidentiality agreement permitted pursuant to Section 4.3); or (d) the Company or any director or officer agent of the Company shall have willfully and intentionally breached the provisions set
forth in Section 4.3 of the Agreement.
Confidentiality Agreement
shall mean the Confidentiality Agreement dated
February 19, 2016, between the Company and Arrow.
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Consent
shall mean any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
Contemplated Transactions
shall mean the
Mergers and the other transactions and actions contemplated by the Agreement.
Contract
shall, with respect to
any Person, mean any written agreement, contract, subcontract, lease (whether real or personal property), mortgage, understanding, arrangement, instrument, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature to which such Person is a party or by which such Person or any of its assets are bound or affected under applicable law.
DGCL
shall mean the General Corporation Law of the State of Delaware.
Dissenting Shares
means any shares of Company Capital Stock that are issued and outstanding immediately prior to the
First Merger Effective Time and in respect of which appraisal or dissenters rights shall have been perfected, and not waived, withdrawn or lost, in accordance with the DGCL, in connection with the First Merger.
Effect
shall mean any effect, change, event, circumstance, or development.
Encumbrance
shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim,
infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).
Enforceability Exceptions
means the (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
Entity
shall mean any corporation (including any non-profit corporation), partnership (including any general
partnership, limited partnership or limited liability partnership), joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association,
organization or entity, and each of its successors.
Environmental Law
means any federal, state, local or
foreign Legal Requirement relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.
ERISA
shall mean the Employee Retirement Income Security Act of 1974, as amended.
Exchange Act
shall mean the Securities Exchange Act of 1934, as amended.
Exchange Ratio
shall mean 4,242.8904;
provided
, that, to the extent (i) the total Company Fully-Diluted
Shares as of the First Effective Time (expressed on an as-converted to Company Common Stock basis) is greater or less than the Company Fully-Diluted Shares as of the date hereof or (ii) the total number of issued and outstanding shares of Arrow
Common Stock (the
Arrow Outstanding Shares
) as of the First Effective Time is greater or less than the Arrow Outstanding Shares as of the date hereof, the Exchange Ratio shall be decreased or
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increased, as applicable, such that, immediately following the Effective Time, (a) 25% of the outstanding shares of Common Stock of Arrow shall be held by the Persons who were holders of Arrow
Common Stock immediately prior to the First Effective Time and (b) 75% of the outstanding shares of Common Stock of Arrow shall be held by the Persons who were holders of Company Common Stock immediately prior to the First Effective Time.
Expense Reimbursement
shall mean any reimbursement to the Company and its Affiliates pursuant to the Reimbursement
Letter.
Governmental Authority
means any court or tribunal, governmental, quasi-governmental or regulatory
body, administrative agency or bureau, commission or authority or other body exercising similar powers or authority.
Governmental Authorization
shall mean any: (a) permit, license, certificate, franchise, permission,
variance, exceptions, orders, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under
any Contract with any Governmental Body.
Governmental Body
shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-Governmental Authority of any nature (including any
governmental division, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal, and for the avoidance of doubt, any Taxing authority); or (d)
self-regulatory organization (including NASDAQ).
Hazardous Materials
shall mean any pollutant, chemical,
substance and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable chemical, or chemical compound, or hazardous substance, material or waste, whether solid, liquid or gas, that is subject to regulation, control or
remediation under any Environmental Law, including without limitation, crude oil or any fraction thereof, and petroleum products or by-products.
HSR Act
shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Information Statement
shall mean the information statement to be sent to the Companys stockholders in
connection with the approval of this Agreement and the Mergers.
Intellectual Property
shall mean all
intellectual property and other similar proprietary rights in any jurisdiction, whether registered or not, including such rights in and to: (a) United States, foreign and international patents (including all reissues, divisions, provisionals,
continuations, continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, including provisional applications, statutory invention registrations, invention disclosures and inventions, and other
patent rights, (b) trademarks, service marks, trade names, business names, brand names, trade dress, logos and other source identifiers together with all goodwill associated therewith, including registrations and applications for registration and
renewals thereof (collectively,
Trademarks
), (c) copyrights, works of authorship (whether or not copyrightable), designs, design registrations, database rights, including registrations and applications for registration and
renewals thereof, and (d) trade secrets and trade secret rights arising under common law, state law, federal law or laws of foreign countries, in each case to the extent any such trade secrets derive economic value (actual or potential) from not
being generally known to other persons who can obtain economic value from its disclosure or use (collectively,
Trade Secrets
).
Key Employee
shall mean, with respect to the Company or Arrow, an executive officer or any employee that reports
directly to the board of directors or Chief Executive Officer or Chief Operating Officer.
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Knowledge
means, with respect to an individual, that such individual is
actually aware of the relevant fact or such individual would reasonably be expected to know such fact in the ordinary course of the performance of the individuals employee or professional responsibility or following reasonable investigation of
the subject matter presented. Any Person that is an Entity shall have Knowledge if any officer of such Person as of the date such knowledge is imputed has Knowledge of such fact or other matter.
Legal Proceeding
shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or
arbitration panel.
Legal Requirement
shall mean any federal, state, foreign, material local or municipal or
other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body (or under the authority of NASDAQ or the Financial Industry Regulatory Authority).
Merger Sub 1
Board
shall mean the board of directors of Merger Sub 1.
Merger Sub 2 Board
shall mean the board
of directors of Merger Sub 2.
Multiemployer Plan
shall mean (a) a multiemployer plan, as defined in
Section 3(37) or 4001(a)(3) of ERISA, or (b) a plan which if maintained or administered in or otherwise subject to the laws of the United States would be described in paragraph (a).
Multiple Employer Plan
shall mean (a) a multiple employer plan within the meaning of Section 413(c) of
the Code or Section 3(40) of ERISA, or (b) a plan which if maintained or administered in or otherwise subject to the laws of the United States would be described in paragraph (a).
NASDAQ
shall mean The NASDAQ Capital Market.
Ordinary Course of Business
shall mean, in the case of each of the Company and Arrow, such actions taken in the
ordinary course of its normal operations and consistent with its past practices;
provided
, in the case of Arrow, Ordinary Course of Business shall also include any actions set forth in the Wind-Down Plan.
Organizational Documents
means, with respect to any Person (other than an individual), (a) the certificate or
articles of association or incorporation or organization or limited partnership or limited liability company, and any joint venture, limited liability company, operating or partnership agreement and other similar documents adopted or filed in
connection with the creation, formation or organization of such Person and (b) all by-laws, regulations and similar documents or agreements relating to the organization or governance of such Person, in each case, as amended or supplemented.
Party
or
Parties
shall mean the Company, Merger Sub 1, Merger Sub 2, OTI and Arrow.
Permitted Encumbrance
shall mean: (a) any liens for current Taxes not yet due and payable or for Taxes that are
being contested in good faith and for which adequate reserves have been made on the Company Interim Balance Sheet or the Arrow Unaudited Interim Balance Sheet, as applicable; (b) minor liens that have arisen in the Ordinary Course of Business and
that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of the Company or any of its Subsidiaries or Arrow, as applicable.
Person
shall mean any individual, Entity or Governmental Body.
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Personal Data
shall mean (a) a natural persons name, street
address, telephone number, e-mail address, photograph, Social Security number or tax identification number, drivers license number, passport number, credit card number, bank information uniquely associated with such natural person, or customer
or account number, biometric identifiers (including without limitation video or photographic images, fingerprints, and voice biometric data relating to individuals), health-related information or data uniquely associated with such natural person, or
any other piece of information that allows the location of, identification of, or contact with a specific natural person; (b) any other information if such information is defined as personal data, personally identifiable
information, individually identifiable health information, or personal information under any applicable Legal Requirement; and (c) any information that is uniquely associated, directly or indirectly (by, for example,
records linked via unique keys), with any of the foregoing.
Proxy Statement
shall mean the proxy statement to
be sent to Arrows stockholders in connection with the Arrow Stockholders Meeting.
Registration
Statement
shall mean the registration statement on Form S-4 (or any other applicable form under the Securities Act to register Arrow Common Stock) to be filed with the SEC by Arrow registering the public offering and sale of Arrow
Common Stock to some or all holders of Company Capital Stock in the First Merger, as such registration statement may be amended prior to the time it is declared effective by the SEC.
Representatives
shall mean directors, officers, employees, agents, attorneys, accountants, investment bankers,
advisors and representatives.
Sarbanes-Oxley Act
shall mean the Sarbanes-Oxley Act of 2002.
SEC
shall mean the United States Securities and Exchange Commission.
Securities Act
shall mean the Securities Act of 1933, as amended.
Subsequent Transaction
shall mean any Acquisition Transaction that results or would result in any third party
beneficially owning securities of a Party representing more than 50% of the voting power of the outstanding securities of a Party or owning or exclusively licensing tangible or intangible assets representing more than 50% of the fair market value of
the assets of a Party and its Subsidiaries, taken as a whole.
An entity shall be deemed to be a
Subsidiary
of
another Person if such Person directly or indirectly owns or purports to own, beneficially or of record, (a) an amount of voting securities of other interests in such entity that is sufficient to enable such Person to elect at least a majority of
the members of such entitys board of directors or other governing body, or (b) at least 50% of the outstanding equity, voting, beneficial or financial interests in such Entity.
Superior Offer
shall mean an unsolicited bona fide written offer by a third party to enter into (i) a merger,
consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction as a result of which either (A) the
Partys stockholders prior to such transaction in the aggregate cease to own at least 50% of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof) or (B) in which a Person or
group (as defined in the Exchange Act and the rules promulgated thereunder) directly or indirectly acquires beneficial or record ownership of securities representing 50% or more of the Partys capital stock or (ii) a sale, lease,
exchange transfer, license, acquisition or disposition of any business or other disposition of at least 50% of the assets of the Party or its Subsidiaries, taken as a whole, in a single transaction or a series of related transactions that: (a)
was not obtained or made as a direct or indirect result of a breach of (or in violation of) this Agreement; and (b) is on terms and conditions that the Arrow Board or the Company Board, as applicable, determines in good faith, after obtaining and
taking into account such matters that it deems relevant following consultation with its outside legal counsel and financial advisor, if any: (x) is
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reasonably likely to be more favorable, from a financial point of view, to Arrows stockholders or the Companys stockholders, as applicable, than the terms of the Mergers; and (y) is
reasonably capable of being consummated;
provided
,
however
, that any such offer shall not be deemed to be a Superior Offer if any financing required to consummate the transaction contemplated by such offer is not committed
and is not reasonably capable of being obtained by such third party, or if the consummation of such transaction is contingent on any such financing being obtained.
Tax
shall mean any federal, state, local, foreign or other tax, including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, surtax, estimated tax, unemployment tax, national health insurance tax, escheat, environmental, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax, payroll tax, customs duty, alternative or add-on minimum or other tax of any kind whatsoever, and including any fine, penalty, addition to tax or interest, whether disputed or not.
Tax Act
shall mean the
Income Tax Act
(Canada), as amended or supplemented from time to time.
Tax Return
shall mean any return (including any information return), report, statement, declaration, estimate,
schedule, notice, notification, form, election, certificate or other document or information, and any amendment or supplement to any of the foregoing, filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.
Treasury Regulations
shall mean the United States Treasury regulations promulgated under the Code.
Wind-Down Plan
shall mean the written plan set forth on
Schedule B
, for the wind-down of certain operations
of Arrow and its Subsidiaries.
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b)
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Each of the following terms is defined in the Section set forth opposite such term:
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Term
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Section
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409A Plan
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3.17(q)
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Agreement
|
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Exhibit A
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Acquisition Inquiry
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Exhibit A
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Acquisition Proposal
|
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Exhibit A
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Acquisition Transaction
|
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Exhibit A
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Apatorsen Transaction
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Exhibit A
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Arrow
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Preamble
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Arrow Affiliate
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Exhibit A
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Arrow Associate
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Exhibit A
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Arrow Board
|
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Exhibit A
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Arrow Board Recommendation
|
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5.3(b)
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Arrow Capitalization Representations
|
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Exhibit A
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Arrow Closing Price
|
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Exhibit A
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Arrow Common Stock
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Exhibit A
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Arrow Contract
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Exhibit A
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Arrow Disclosure Schedule
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3
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Arrow Employee Plan
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3.17(e)
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Arrow Fundamental Representations
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Exhibit A
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Arrow IP Representations
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Exhibit A
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Arrow IP Rights
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Exhibit A
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Arrow IP Rights Agreement
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Exhibit A
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Arrow Material Adverse Effect
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Exhibit A
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Term
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Section
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Arrow Material Contract
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3.13
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Arrow Options
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Exhibit A
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Arrow Permits
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3.14(b)
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Arrow Product Candidates
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3.14(d)
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Arrow Real Estate Leases
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3.11
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Arrow Registered IP
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Arrow Regulatory Permits
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3.14(d)
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Arrow Reverse Stock Split
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Exhibit A
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Arrow SEC Documents
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3.7(a)
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Arrow Stock Plans
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3.6(b)
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Arrow Stockholders Meeting
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5.3(a)
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Arrow Stockholder Support Agreements
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Recitals
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Arrow Triggering Event
|
|
Exhibit A
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Arrow Unaudited Interim Balance Sheet
|
|
Exhibit A
|
Business Day
|
|
Exhibit A
|
Buyer Parties
|
|
Exhibit A
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Capitalization Date
|
|
3.6(a)
|
Certifications
|
|
3.7(a)
|
Closing
|
|
1.4
|
Closing Date
|
|
1.4
|
COBRA
|
|
Exhibit A
|
Code
|
|
Exhibit A
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Company
|
|
Preamble
|
Company 409A Plan
|
|
2.17(p)
|
Company Affiliate
|
|
Exhibit A
|
Company Allocation Schedule
|
|
1.12(b)
|
Company Associate
|
|
Exhibit A
|
Company Board
|
|
Exhibit A
|
Company Board Recommendation
|
|
5.2(b)
|
Company Capital Stock
|
|
Exhibit A
|
Company Capitalization Representations
|
|
Exhibit A
|
Company Common Stock
|
|
Exhibit A
|
Company Contract
|
|
Exhibit A
|
Company Disclosure Schedule
|
|
2
|
Company Employee Plan
|
|
2.17(e)
|
Company Equity Awards
|
|
Exhibit A
|
Company Financials
|
|
2.7(a)
|
Company Fully-Diluted Shares
|
|
Exhibit A
|
Company Fundamental Representations
|
|
Exhibit A
|
Company Interim Balance Sheet
|
|
Exhibit A
|
Company IP Representations
|
|
Exhibit A
|
Company IP Rights
|
|
Exhibit A
|
Company IP Rights Agreement
|
|
Exhibit A
|
Company Material Adverse Effect
|
|
Exhibit A
|
Company Material Contract
|
|
2.13
|
Company Permits
|
|
2.14(b)
|
Company Product Candidates
|
|
2.14(d)
|
Company Real Estate Leases
|
|
2.11
|
Company Registered IP
|
|
Exhibit A
|
Company Regulatory Permits
|
|
2.14(d)
|
Company Stock Certificate
|
|
1.11
|
A-74
|
|
|
Term
|
|
Section
|
Company Stockholder Support Agreements
|
|
Recitals
|
Company Stockholder Written Consent
|
|
5.2(a)
|
Company Transaction Expenses
|
|
Exhibit A
|
Company Triggering Event
|
|
Exhibit A
|
Confidentiality Agreement
|
|
Exhibit A
|
Consent
|
|
Exhibit A
|
Contemplated Transactions
|
|
Exhibit A
|
Contract
|
|
Exhibit A
|
CVR Agreement
|
|
Recitals
|
D&O Indemnified Parties
|
|
5.8(a)
|
Dissenting Shares
|
|
Exhibit A
|
DGCL
|
|
Exhibit A
|
Drug Regulatory Agency
|
|
2.14(c)
|
Effect
|
|
Exhibit A
|
EMA
|
|
2.14(c)
|
Encumbrance
|
|
Exhibit A
|
Enforceability Exceptions
|
|
Exhibit A
|
Entity
|
|
Exhibit A
|
Environmental Law
|
|
Exhibit A
|
ERISA
|
|
Exhibit A
|
Exchange Act
|
|
Exhibit A
|
Exchange Agent
|
|
1.12(a)
|
Exchange Fund
|
|
1.12(a)
|
Exchange Ratio
|
|
Exhibit A
|
Existing Company D&O Policies
|
|
2.19(b)
|
Existing Arrow D&O Policies
|
|
3.19(b)
|
Expense Reimbursement
|
|
Exhibit A
|
FDA
|
|
2.14(c)
|
FDCA
|
|
2.14(c)
|
First Certificate of Merger
|
|
1.4
|
First Merger
|
|
Recitals
|
First Merger Effective Time
|
|
1.4
|
GAAP
|
|
2.7(a)
|
Governmental Authority
|
|
Exhibit A
|
Governmental Authorization
|
|
Exhibit A
|
Governmental Body
|
|
Exhibit A
|
Hazardous Materials
|
|
Exhibit A
|
HSR Act
|
|
Exhibit A
|
Information Statement
|
|
Exhibit A
|
Initial Surviving Corporation
|
|
Recitals
|
Intellectual Property
|
|
Exhibit A
|
Intended Tax Treatment
|
|
Recitals
|
Key Employee
|
|
Exhibit A
|
Knowledge
|
|
Exhibit A
|
Legal Proceeding
|
|
Exhibit A
|
Legal Requirement
|
|
Exhibit A
|
Liability
|
|
3.9
|
Lock-up Agreement
|
|
7.5
|
Material Litigation
|
|
8.4
|
Merger Sub 1
|
|
Preamble
|
Merger Sub 1 Board
|
|
Exhibit A
|
A-75
|
|
|
Term
|
|
Section
|
Merger Sub 1 Common Stock
|
|
1.9(d)
|
Merger Sub 2
|
|
Preamble
|
Merger Sub 2 Board
|
|
Exhibit A
|
Merger Subs
|
|
Preamble
|
Mergers
|
|
Recitals
|
Multiemployer Plan
|
|
Exhibit A
|
Multiple Employer Plan
|
|
Exhibit A
|
NASDAQ
|
|
Exhibit A
|
Ordinary Course of Business
|
|
Exhibit A
|
Organizational Documents
|
|
Exhibit A
|
OTI
|
|
3.1(a)
|
Parties
|
|
Exhibit A
|
Party
|
|
Exhibit A
|
Permitted Encumbrance
|
|
Exhibit A
|
Person
|
|
Exhibit A
|
Personal Data
|
|
Exhibit A
|
Pre-Closing Period
|
|
4.1(a)
|
Proxy Statement
|
|
Exhibit A
|
Registration Statement
|
|
Exhibit A
|
Reimbursement Letter
|
|
9.3(a)
|
Related Tax Person
|
|
5.12(c)
|
Representatives
|
|
Exhibit A
|
Required Company Stockholder Vote
|
|
2.4
|
Required Arrow Stockholder Vote
|
|
3.4
|
Sarbanes-Oxley Act
|
|
Exhibit A
|
SEC
|
|
Exhibit A
|
Second Certificate of Merger
|
|
1.4
|
Second Merger
|
|
Recitals
|
Second Merger Effective Time
|
|
1.4
|
Section 4.3(a) Breach
|
|
9.1(h)
|
Securities Act
|
|
Exhibit A
|
Selected Directors
|
|
5.14
|
Subsequent Transaction
|
|
Exhibit A
|
Subsidiary
|
|
Exhibit A
|
Superior Offer
|
|
Exhibit A
|
Surviving Corporation
|
|
Recitals
|
Tax
|
|
Exhibit A
|
Tax Act
|
|
Exhibit A
|
Tax Return
|
|
Exhibit A
|
Third Party Expenses
|
|
9.3(c)
|
Transfer Taxes
|
|
5.12(e)
|
Treasury Regulations
|
|
Exhibit A
|
Wind-Down Plan
|
|
Exhibit A
|
A-76
ANNEX B
FORM OF CERTIFICATE OF AMENDMENT OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
ONCOGENEX PHARMACEUTICALS, INC.
OncoGenex Pharmaceuticals, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the
Corporation
), DOES HEREBY CERTIFY:
FIRST: The name of the corporation is OncoGenex Pharmaceuticals, Inc. The
Corporations original Certificate of Incorporation was filed with the Secretary of State of Delaware on March 22, 1995 under the name Sonus Pharmaceuticals, Inc.
SECOND: The Amendment of the Second Amended and Restated Certificate of Incorporation of the Corporation in the form set forth in the
following resolution has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware by the directors and stockholders of the Corporation:
RESOLVED, the Second Amended and Restated Certificate of Incorporation as presently in effect be, and the same hereby is,
amended to add the following two paragraphs to precede the first paragraph of Exhibit A, Article IV of the Second Amended and Restated Certificate of Incorporation of the Corporation:
Contingent and effective upon the filing of this Certificate of Amendment to the Second Amended Restated Certificate of Incorporation
(the Certificate of Amendment), each [ ] ([ ]) shares of the Corporations Common Stock,
par value $0.001 per share (the Common Stock), issued and outstanding prior to the effective time shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one
(1) share of Common Stock, par value $0.001 per share, of the Corporation (the Reverse Split). No fractional share shall be issued in connection with the foregoing combination of the shares pursuant to the Reverse Split. The
Corporation will pay in cash the fair value of such fractional shares, without interest and as determined in good faith by the Board of Directors of the Corporation when those entitled to receive such fractional shares are determined.
The Reverse Split shall occur automatically without any further action by the holders of Common Stock, and whether or not the certificates
representing such shares have been surrendered to the Corporation; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable as a result of the Reverse Split unless the
existing certificates evidencing the applicable shares of stock prior to the Reverse Split are either delivered to the Corporation, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed, and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.
THIRD: The Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation so adopted reads in full as set forth
above and is hereby incorporated herein by this reference. All other provisions of the Amended and Restated Certificate of Incorporation remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its Chief Executive Officer this day
of , 2017.
|
|
|
ONCOGENEX PHARMACEUTICALS, INC.
|
|
|
By:
|
|
|
|
|
Scott Cormack, Chief Executive Officer
|
B-1
ANNEX C
FORM OF CERTIFICATE OF AMENDMENT OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
ONCOGENEX PHARMACEUTICALS, INC.
OncoGenex
Pharmaceuticals, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the
Corporation
), DOES HEREBY CERTIFY:
FIRST: The name of the corporation is OncoGenex Pharmaceuticals, Inc. The Corporations original Certificate of Incorporation was filed
with the Secretary of State of Delaware on March 22, 1995 under the name Sonus Pharmaceuticals, Inc.
SECOND: The Amendment of the
Second Amended and Restated Certificate of Incorporation of the Corporation in the form set forth in the following resolution has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware by the directors and stockholders of the Corporation:
RESOLVED, that Exhibit A, Article I of the Second
Amended and Restated Certificate of Incorporation as presently in effect be, and the same hereby is, amended and restated to read in its entirety as follows:
The name of this corporation is Achieve Life Sciences, Inc.
THIRD: The Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation so adopted reads in full as set forth
above and is hereby incorporated herein by this reference. All other provisions of the Second Amended and Restated Certificate of Incorporation remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its Chief Executive Officer this day
of , 2017.
|
|
|
ONCOGENEX PHARMACEUTICALS, INC.
|
|
|
By:
|
|
|
|
|
Richard Stewart, Chief Executive Officer
|
C-1
ANNEX D
OPINION LETTER OF MTS SECURITIES, LLC
MTS SECURITIES, LLC
January 5, 2017
Board of Directors
OncoGenex Pharmaceuticals, Inc.
19820 North Creek Parkway
Bothell, Washington 98011
Members of the Board of Directors:
We
understand that OncoGenex Pharmaceuticals, Inc., a Delaware corporation (the Company), proposes to enter into an Agreement and Plan of Merger and Reorganization, expected to be dated as of January 5, 2017 (the Merger
Agreement), by and among the Company, Ash Acquisition Sub, Inc., a Delaware corporation (Merger Sub 1), Ash Acquisition Sub 2, Inc., a Delaware corporation (Merger Sub 2), and Achieve Life Science, Inc., a Delaware
corporation (the Target), which provides, among other things: (i) for the merger of Merger Sub 1 with and into the Target (the First Merger), with the Target continuing as a direct, wholly owned subsidiary of the Company
(the Initial Surviving Corporation); and (ii) promptly following the First Merger, the merger of the Initial Surviving Corporation with and into Merger Sub 2 (the Second Merger and together with the First Merger, the
Mergers) with Merger Sub 2 continuing as the surviving entity in the Second Merger as a direct wholly owned subsidiary of the Company. As a result of the First Merger, each outstanding share of the Targets common stock, par value
$0.01 per share, shall be converted solely into the right to receive a number of shares of common stock of the Company, par value $0.001 per share (the Company Common Stock) equal to the Exchange Ratio. We also understand that the
Exchange Ratio will be subject to adjustment as provided in the Merger Agreement based on increases or decreases in the number of Company Fully-Diluted Shares (the Exchange Ratio Adjustment). The terms and conditions of the Mergers are
more fully set forth in the Merger Agreement and capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Merger Agreement.
You have requested our opinion as to the fairness, from a financial point of view, of the Exchange Ratio to the Company.
In the course of performing our review and analyses for rendering the opinion set forth below, we have:
|
i.
|
reviewed the financial terms of a draft copy of the Merger Agreement as of January 4, 2017, which was the most recent draft available to us (the Draft Merger Agreement);
|
|
ii.
|
reviewed certain publicly available business and financial information concerning the Company and the industries in which it operates;
|
|
iii.
|
reviewed certain internal financial analyses and forecasts of the Company and the Target prepared by and provided to us by the management of the Company relating to each of the Companys and the Targets
business, including certain benefits to be realized as a result of the Mergers (the Projections), and utilized per instruction of the Company;
|
|
iv.
|
conducted discussions with members of senior management and representatives of the Company and the Target concerning the matters described in clauses (ii)-(iii) above, the other strategic alternatives
considered or pursued by the Company since August 16, 2016, the likelihood of the Company being able to enter into partnership arrangements or obtain financing to the extent necessary to finance the Companys strategic plan, and certain
other matters we believed necessary or appropriate to our inquiry;
|
|
v.
|
compared the financial and operating performance of the Target with publicly available information concerning other publicly-traded companies, including certain publicly traded securities of such other companies, that
we deemed relevant;
|
D-1
Board of Directors
OncoGenex Pharmaceuticals, Inc.
January 5, 2017
Page
2
|
vi.
|
reviewed and analyzed, based on the Projections, the projected cash flows to be generated by the Target to determine the present value of the Targets discounted cash flows; and
|
|
vii.
|
performed such other financial studies, analyses and investigations and considered such other information as we deemed appropriate for the purposes of the opinion set forth below.
|
In arriving at the opinion set forth below, we have assumed and relied upon, without assuming liability or responsibility for independent
verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information that was publicly available or was provided to, discussed with or reviewed by us. We are not legal, regulatory, tax or
financial reporting experts and have relied, with your consent, on the assessments made by advisors to the Company with respect to such issues. We have not conducted any independent verification of the Projections. Without limiting the generality of
the foregoing, with respect to the Projections, we have assumed, with your consent, and based upon discussions with the Companys management, that they have been reasonably prepared in good faith, that the Projections are the best currently
available estimates and judgments of the management of the Company of the future results of operations and financial performance of the Company and the Target. We express no view as to the Projections or the assumptions on which they are based.
In arriving at the opinion set forth below, we have made no analysis of, and express no opinion as to, the adequacy of the reserves of
the Company or the Target and have relied upon information supplied to us by the Company as to such adequacy. In addition, we have not made any independent evaluations or appraisals of the assets or liabilities (including any contingent derivatives
or off-balance-sheet assets or liabilities) of the Company or the Target or any of their respective subsidiaries, and we have not been furnished with any such evaluations or appraisals, nor have we evaluated the solvency of the Company, the Target
or any other entity under any state or federal law relating to bankruptcy, insolvency or similar matters. We have assumed that there has been no material change in the assets, financial condition, business or prospects of the Company since the date
of the most recent relevant financial statements made available to us. Without limiting the generality of the foregoing, we have undertaken no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted
claims or other contingent liabilities, to which the Company, the Target or any of their respective affiliates is a party or may be subject, and at the direction of the Company and with its consent, our opinion makes no assumption concerning, and
therefore does not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. We have also assumed that neither the Company nor the Target is party to any material pending transaction that has not been disclosed
to us, including without limitation any financing, recapitalization, acquisition or merger, divestiture or spin-off, other than the Mergers.
We have assumed that the representations and warranties of each party contained in the Merger Agreement and in all other related documents and
instruments that are referred to therein are and will be true and correct as of the date or the dates made or deemed made, that each party thereto will fully and timely perform all of the covenants and agreements required to be performed by it under
the Merger Agreement and any other agreement contemplated thereby, that the Mergers will be consummated pursuant to the terms of the Merger Agreement without amendments thereto, and that all conditions to the consummation of the Mergers will be
satisfied without waiver thereof. We have assumed that the final form of the Merger Agreement will be in all material respects identical to the Draft Merger Agreement. We have, with your consent, further assumed that the Exchange Ratio Adjustment
will not result in any adjustment to the Exchange Ratio that is material to our analysis. We have also assumed that any governmental, regulatory and other consents and approvals contemplated in connection with the Mergers will be obtained and that,
in the course of obtaining any of those consents, no restrictions will be imposed or waivers made that would have an adverse effect on the Company or the contemplated benefits of the Mergers.
D-2
Board of Directors
OncoGenex Pharmaceuticals, Inc.
January 5, 2017
Page
3
Our opinion set forth below is necessarily based on economic, market, financial and other
conditions as they exist, and on the information made available to us, as of the date of this letter. We have not considered any potential legislative or regulatory changes currently being considered by the United States Congress, the Securities and
Exchange Commission (the SEC), or any other governmental or regulatory bodies, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the SEC or the Financial Accounting Standards Board.
It should be understood that, although subsequent developments may affect the conclusion reached in such opinion, we do not have any obligation to update, revise or reaffirm the opinion set forth below. Our opinion set forth below addresses solely
the fairness, from a financial point of view, of the Exchange Ratio to the Company and does not address any other terms in the Merger Agreement, or any other agreement contemplated by the Merger Agreement or relating to the Mergers or any other
aspect or implication of the Mergers, including without limitation, the form or structure of the Mergers or the fairness of the Mergers or the Exchange Ratio to the holders of Company Common Stock or of any other securities or creditors or any other
constituency of the Company. Our opinion does not address the Companys underlying business decision to proceed with the Mergers or the relative merits of the Mergers compared to other alternatives available to the Company. We express no
opinion as to the prices or ranges of prices at which shares of securities of any person, including the Company, will trade at any time, including following the announcement or consummation of the Mergers. We have not been requested to opine as to,
and our opinion does not in any manner address, the amount or nature of compensation to any of the officers, directors or employees of any party to the Mergers, or any class of such persons relative to the compensation to be paid to the security
holders of the Target in connection with the Mergers or with respect to the fairness of any such compensation.
It is understood that this
letter is provided to the Board of Directors of the Company for your information in connection with your consideration of the Mergers and may not be used for any other purpose or disclosed, referred to, or communicated (in whole or in part) to any
third party for any purpose whatsoever without our prior written consent, except that a copy of this letter may be included in its entirety in any filing the Company is required to make with the SEC in connection with the Mergers if such inclusion
is required by applicable law. The opinion set forth below does not constitute a recommendation to the Board of Directors or any stockholder of the Company or the Target as to how to vote on or to take any other action in connection with the
Mergers.
As part of our investment banking services, we are regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, and for other purposes. We have acted as the Companys financial advisor in connection with the Mergers and will receive a fee for our services, a significant portion of which is contingent upon consummation of
the Mergers. In addition, the Company has agreed to reimburse our expenses and indemnify us for certain liabilities that may arise out of our engagement. We will also receive an additional fee for rendering the opinion set forth below. In the two
years prior to the date hereof, we or our affiliates have provided financial advisory and financing services for the Company and have received customary fees of $100,000 in connection with such services. We or such affiliates may also seek to
provide such services to the Company and the Target and/or certain of their respective affiliates in the future and expect to receive fees for the rendering of these services.
The opinion set forth below was reviewed and approved by a fairness committee of MTS Securities, LLC.
Based upon and subject to the foregoing, it is our opinion as of the date hereof that the Exchange Ratio is fair, from a financial point of
view, to the Company.
Very truly yours,
/s/ MTS
SECURITIES, LLC
MTS SECURITIES, LLC
D-3
ANNEX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
§262 Appraisal rights
.
(a)
Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date
of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the stockholders shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word
stockholder means a holder of record of stock in a corporation; the words stock and share mean and include what is ordinarily meant by those words; and the words depository receipt mean a receipt or
other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title and, subject to paragraph (b)(3) of this section, § 251(h) of this title), § 252, § 254, § 255,
§ 256, § 257, § 258, § 263 or § 264 of this title:
(1) Provided, however, that, except as expressly provided in
§ 363(b) of this title, no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders
entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were either: (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in
§ 251(f) of this title.
(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available
for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of
this section; or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing paragraphs (b)(2)a., b. and c. of this section.
(3) In the event all of the stock of a
subsidiary Delaware corporation party to a merger effected under § 251(h), § 253 or § 267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(4) In the event of an amendment to a corporations certificate of incorporation contemplated by
§ 363(a) of this title, appraisal rights shall be available as contemplated by § 363(b) of this title, and the
E-1
procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as practicable, with the word amendment substituted
for the words merger or consolidation, and the word corporation substituted for the words constituent corporation and/or surviving or resulting corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a provision, the provisions of this section, including those set forth in subsections (d), (e), and (g) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with §
255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholders shares shall
deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholders shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholders shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228, § 251(h), § 253, or § 267 of this title, then either a
constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy
of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice or, in the case of a merger approved pursuant to § 251(h) of this
title, within the later of the consummation of the offer contemplated by § 251(h) of this title and 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such
holders shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holders shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of
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the first notice or, in the case of a merger approved pursuant to § 251(h) of this title, later than the later of the consummation of the offer contemplated by § 251(h) of this title
and 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holders shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on
the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing
a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who
has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days
after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholders written request for such a statement is received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such
stock held either in a voting trust or by a nominee on behalf of such person may, in such persons own name, file a petition or request from the corporation the statement described in this subsection.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have
become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. If immediately before the merger or consolidation the shares of the class
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or series of stock of the constituent corporation as to which appraisal rights are available were listed on a national securities exchange, the Court shall dismiss the proceedings as to all
holders of such shares who are otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the
consideration provided in the merger or consolidation for such total number of shares exceeds $1 million, or (3) the merger was approved pursuant to § 253 or § 267 of this title.
(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the
rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its
discretion determines otherwise for good cause shown, and except as provided in this subsection, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the
Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings,
the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the
fair value of the shares as determined by the Court, and (2) interest theretofore accrued, unless paid at that time. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted such stockholders certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined
that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Courts decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by
the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholders demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not
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affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholders demand for appraisal and to accept
the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.
(
l
) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted
had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
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ANNEX F
CONTINGENT VALUE RIGHTS AGREEMENT
THIS CONTINGENT VALUE RIGHTS AGREEMENT
, dated as of
[
●
]
, (this Agreement), is
entered into by and among OncoGenex Pharmaceuticals, Inc., a Delaware corporation (Arrow), Achieve Life Science, Inc., a Delaware corporation (the Company), and [●], a [●], as Rights Agent.
RECITALS
WHEREAS
,
Arrow, Ash Acquisition Sub, Inc., Inc., a Delaware corporation (Merger Sub 1), Ash Acquisition Sub 2, Inc., a Delaware corporation (Merger Sub 2; and together with Merger Sub 1, Merger Subs), and the Company have
entered into an Agreement and Plan of Merger and Reorganization, dated as of January 5, 2017 (the Merger Agreement), which contemplates, among other things, (i) the merger of Merger Sub 1 with and into the Company (the First
Merger) with the Company continuing as the initial surviving corporation (the Initial Surviving Corporation) and promptly following the First Merger, the Initial Surviving Corporation shall merge with and into Merger Sub 2 (the
Second Merger; together with the First Merger, the Mergers) with Merger Sub 2 continuing as the surviving corporation and as a wholly owned subsidiary of Arrow; and (ii) the current stockholders of the Company shall become
the majority stockholders of Arrow. After the completion of the Mergers, Arrow shall, among other things, change its name to Achieve Life Science, Inc. (referred to herein as Achieve) and the Company will be a wholly owned
subsidiary of Achieve.
NOW, THEREFORE
, in consideration of the foregoing and the consummation of the transactions referred to
above, Arrow, the Company and Rights Agent agree, for the equal and proportionate benefit of all Holders, as follows:
ARTICLE I
DEFINITIONS; CERTAIN RULES OF CONSTRUCTION
Section 1.1
Definitions
. As used in this Agreement, the following terms will have the following meanings:
Achieve Common Stock means the common stock, par value $0.001, of Achieve (or any successor entity).
Acting Holders means, at the time of determination, Holders of not less than a majority of the outstanding CVRs as set forth in the
CVR Register.
Affiliate means as to any Person, any other Person that, directly or indirectly, controls, or is controlled by,
or is under common control with, such Person. For this purpose, control (including, with its correlative meanings, controlled by and under common control with) shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise.
Assignee means (a) in Achieves sole discretion and without the consent of any other party, any controlled Affiliate of
Achieve, but only for so long as it remains a controlled Affiliate of Achieve, or (b) with the prior written consent of the Acting Holders, any other Person.
Board of Directors means the board of directors of Achieve.
Board Resolution means a resolution certified by a duly authorized officer of Achieve to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification, and delivered to the Rights Agent.
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Business Day means any day other than a Saturday, Sunday or a day on which banking
institutions in Sunnyvale, California and New York, New York are authorized or obligated by law or executive order to remain closed.
Clinical Milestone means the completion of a human clinical trial of the Product designed to support Regulatory Approval.
Code shall mean the Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder.
CVRs means the rights of Holders to receive 80% of the CVR Payment Amount; provided, however, that Achieve may elect to make the
CVR Payment with cash or shares of Achieve Common Stock, and that any shares of Achieve Common Stock issued in satisfaction of Achieves obligations under this Agreement shall have a value equal to the volume weighted average price of Achieve
Common Stock for the ten trading days immediately preceding the issuance of such Achieve Common Stock. Such Achieve Common Stock shall be freely tradable upon receipt.
CVR Payment means the amount of the payment to be made to the Holders from the CVR Payment Amount.
CVR Payment Amount means the cash, equity or any other consideration received by Achieve or an Affiliate of Achieve (or which
Achieve or an Affiliate of Achieve has a right to receive), whether directly or indirectly, pursuant to a Partnering Agreement if any Milestone is achieved during the CVR Term. It is hereby acknowledged and agreed by all Holders that any CVR Payment
that may become payable hereunder shall be net of (and Achieve shall have the full power and authority to set off against any CVR Payment Amount) the sum of (a) any liabilities required to be reflected in the financial statements in accordance with
GAAP incurred by Achieve under any Partnering Agreement, whether incurred directly by Achieve or an Affiliate or pursuant to indemnification obligations of Achieve or an Affiliate under any Partnering Agreement, and (b) any out-of-pocket fees or
expenses (including reasonable attorneys fees and expenses) incurred by or on behalf of Achieve or an Affiliate or for which Achieve or an Affiliate is responsible, in connection with any litigation or threatened litigation or any
investigation by a Governmental Body, in connection with any Product (Third Party Expenses). All Third Party Expenses shall be determined by Achieve and true and correct copies of reasonable documentation supporting such Third Party
Expenses shall be included in any Payment Triggering Event Certificate.
CVR Register means a register maintained by the Rights
Agent.
CVR Term means a period of time beginning with the closing of the Merger and ending on the five year anniversary of
this Agreement.
Delaware Courts means the Chancery Court of the State of Delaware and any state appellate court therefrom or,
if (but only if) such court lacks subject matter jurisdiction, the United States District Court sitting in New Castle County in the State of Delaware and any appellate court therefrom.
Diligent Efforts on the part of Achieve means that (a) Achieve promptly assigns responsibility for the negotiation of a Term Sheet
or Partnering Agreement to the following individuals: [●] and [●] (provided, if one or more of such individuals terminate as employees, consultants, or contractors of Achieve, the Board of Directors shall, as soon as reasonably
practicable, appoint a replacement for such terminated individual), and such individuals carry out their responsibilities in a reasonably diligent manner; and (b) Achieve management and Board of Directors regularly monitor the progress of such
individuals and promptly evaluate any proposed Term Sheet or Partnering Agreement. Nothing in this Agreement shall be deemed to require Achieve to approve any Term Sheet or Partnering Agreement if the Board of Directors determines that any such
approval would not be in the best interests of Achieve stockholders or would otherwise violate any fiduciary duties of the Board of Directors.
Entity means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any company
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limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.
EMA means the European Medicines Agency, or any successor agency.
EU means the European Union.
FDA means the United States Food and Drug Administration, or any successor agency.
Governmental Body means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature including any governmental division, department, agency, commission, instrumentality,
official, ministry, fund, foundation, center, organization, unit, body or Entity and any court, arbitrator or other tribunal.
Holder means a Person in whose name a CVR is registered in the CVR Register at the applicable time.
Milestone means any Clinical Milestone, Regulatory Approval, Sales-Based Milestone and/or Up-Front Milestone.
Officers Certificate means a certificate signed by an authorized officer of Achieve, in his or her capacity as such an
authorized officer, and delivered to the Rights Agent.
OTI means OncoGenex Technologies Inc., a company incorporated under the
federal laws of Canada.
Partnering Agreement means a partnering arrangement, collaboration agreement, license or sublicense
agreement, asset sale, stock sale (including the sale of the capital stock of OTI) or similar arrangement by which the rights to develop, manufacture and/or commercialize the Product is granted, licensed, assigned or otherwise conveyed (including by
operation of law) to a third party for which Achieve is entitled to receive payments from such third party in connection with the achievement of one or more Milestones.
Payment Triggering Event means the achievement of any Milestone.
Permitted Transfer means: a transfer of CVRs (a) upon death of a Holder by will or intestacy; (b) pursuant to a court order or (c)
by operation of law (including by consolidation or merger) or without consideration in connection with the dissolution, liquidation or termination of any corporation, limited liability company, partnership or other entity.
Person means any individual, Entity or Governmental Body.
Product means any pharmaceutical product or combination of co-administered pharmaceutical products that contain(s) an antisense
inhibitor designed to inhibit hsp27 as an active pharmaceutical ingredient, alone or in combination with one or more additional active pharmaceutical ingredients and including all formulations and line extensions thereof.
Regulatory Approval means the approval (whether full, accelerated, conditional or otherwise) from the FDA, the EMA or similar
agency for the development or commercialization of the Product in the United States, the EU or any EU member country (and/or the United Kingdom) in accordance with applicable Law.
Rights Agent means the Rights Agent named in the first paragraph of this Agreement, until a successor Rights Agent will have become
such pursuant to the applicable provisions of this Agreement, and thereafter Rights Agent will mean such successor Rights Agent.
Sales-Based Milestone means any milestone (not including on-going royalty payments measured by the amount of sales of the Product)
related to the commercialization of the Product, including first commercial sale in any country, so long as such first commercial sale occurs during the CVR Term.
Tax shall mean any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax,
estimated tax, unemployment tax, national health insurance tax, excise tax, premium, alternative or minimum tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property
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tax, business tax, escheat or unclaimed property, withholding tax or payroll tax), levy, assessment, tariff, impost, imposition, duty (including any customs duty) or other tax or similar charge
of any kind whatsoever, including any charge or amount (including any fine, penalty, interest or other additions thereto) related thereto, imposed, assessed or collected by or under the authority of any Governmental Body, including as a result of
being or having been a member of an affiliated, consolidated, controlled, fiscal, combined, unitary or aggregate group or being a transferee of or successor to any Person or as a result of any express obligation to assume such Taxes or to indemnify
any other Person.
Up-Front Milestone shall mean an up-front payment with no additional milestone payments for clinical or
regulatory approvals or sales-based royalties pursuant to an asset sale, stock sale (including the sale of the capital stock of OTI), or similar transaction, by which the rights to develop, manufacture and/or commercialize the Product is sold
(including by operation of law) to a third party.
Section 1.2
Rules of Construction
. Except as otherwise explicitly specified to the contrary, (a)
references to a Section means a Section of this Agreement unless another agreement is specified, (b) the word including (in its various forms) means including without limitation, (c) references to a particular statute or
regulation include all rules and regulations thereunder and any successor statute, rules or regulation, in each case as amended or otherwise modified from time to time, (d) words in the singular or plural form include the plural and singular form,
respectively, (e) references to a particular Person include such Persons successors and assigns to the extent not prohibited by this Agreement or by applicable law, (f) reference to any agreement, document or instrument means such agreement,
document or instrument, as well as all addenda, exhibits, schedules or amendments thereto, in each case, as amended, modified or restated and in effect from time to time in accordance with the terms thereof, (g) Section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement, and (h) all references to dollars or
$ refer to United States dollars.
ARTICLE II
CONTINGENT VALUE RIGHTS
Section 2.1
CVRs
. The CVRs represent the rights of Holders (granted to the initial Holders in connection with the Merger Agreement) to receive contingent payments pursuant to this Agreement.
Section 2.2
Nontransferable
. The CVRs may 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. Any attempted sale, assignment, transfer, pledge, encumbrance or disposition of CVRs, in whole or in part, in violation of this Section 2.2 shall be void
ab initio
and of no effect.
Section 2.3
No Certificate; Registration; Registration of Transfer; Change of Address
.
(a) The CVRs will not be evidenced by a certificate or other instrument.
(b) The Rights Agent will keep and maintain the CVR Register.
(c) Subject to the restrictions 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 of transfer in form reasonably satisfactory to the Rights Agent pursuant to its guidelines, duly executed by the Holder thereof, the Holders attorney-in-fact duly authorized in writing, the Holders
personal representative duly authorized in writing or the Holders survivor (with written documentation evidencing such Persons status as the Holders survivor), and setting forth in reasonable detail the circumstances relating to
the transfer. Upon receipt of such written notice, the Rights Agent will, subject to its reasonable determination that the transfer instrument is in proper form and the transfer constitutes a Permitted Transfer and otherwise complies with the other
terms and conditions of this Agreement (including the provisions of Section 2.2), register the transfer of the CVRs in
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the CVR Register. Achieve and the Rights Agent may require payment of a sum sufficient to cover any stamp or other Tax or Governmental Body charge that is imposed in connection with any such
registration of transfer. The Rights Agent shall have no duty or obligation to take any action under any section of this Agreement that requires the payment by a Holder of a CVR of applicable Taxes or charges unless and until the Rights Agent is
satisfied that all such Taxes or charges have been paid. All duly transferred CVRs registered in the CVR Register will be the valid obligations of Achieve and will entitle the transferee to the same benefits and rights under this Agreement as those
held immediately prior to the transfer by the transferor. No transfer of a CVR will be valid until registered in the CVR Register in accordance with this Agreement.
(d) 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. Upon receipt of such written notice, the Rights Agent will promptly record the change of address in the CVR Register.
Section 2.4
Payment Procedures; Notices
.
(a) For each Payment Triggering Event during the CVR Term, Achieve shall deliver to the Rights Agent (i) a written notice indicating that
a Payment Triggering Event has occurred and that Achieve or an Affiliate of Achieve has received payment under the Partnering Agreement (the Payment Triggering Event Notice) and an Officers Certificate certifying the date of the
Payment Triggering Event and that the Holders are entitled to receive the applicable CVR Payment (the Payment Triggering Event Certificate), (ii) any letter of instruction reasonably required by the Rights Agent and (iii) the payment
required by Section 4.2.
(b) The Rights Agent will promptly, and in any event within ten (10) Business Days of receipt of a Payment
Triggering Event Notice, send each Holder at its registered address a copy of such Payment Triggering Event Notice as well as any letter of instruction reasonably required by the Rights Agent and pay the applicable CVR Payment Amount to each of the
Holders to the address of each Holder as reflected in the CVR Register as of the close of business on the date of the Payment Triggering Event Notice or, if the CVR Payment Amount is not deposited concurrently with the delivery of the Payment
Triggering Event Notice, within one Business Day of the Rights Agent receipt of the CVR Payment Amount.
(c) Achieve or its Affiliate shall
be entitled to deduct and withhold, or cause the Rights Agent to deduct and withhold, from any CVR Payment Amount or any other amounts otherwise payable pursuant to this Agreement such amounts as may be required to be deducted and withheld therefrom
under applicable Tax law, as may reasonably be determined by Achieve, its Affiliates or the Rights Agent. Prior to making any such Tax withholdings or causing any such Tax withholdings to be made with respect to any Holder, Achieve shall instruct
the Rights Agent to solicit IRS Form W-9s or W-8s, or any other appropriate forms or information, from Holders in order to provide a reasonable opportunity for the Holder to timely provide any necessary Tax forms (including an IRS Form W-9 or an
applicable IRS Form W-8) in order to avoid or reduce such withholding, and such CVR Payment may be reasonably delayed in order to gather such necessary Tax forms. Achieve, its Affiliates and the Rights Agent may assume all such forms in its
possession or provided by any Holder are valid under applicable law until subsequently notified by such Holder. Achieve or its Affiliate shall, or shall cause the Rights Agent to, take all action that may be necessary to ensure that any amounts
withheld in respect of Taxes are promptly remitted to the appropriate Governmental Body. To the extent any amounts are so deducted and withheld and properly remitted to the appropriate Governmental Body, such amounts shall be treated for all
purposes of this Agreement as having been paid to the person in respect of whom such deduction and withholding was made, and as required by applicable law, Achieve shall deliver (or shall cause the Rights Agent to deliver) to the person to whom such
amounts would otherwise have been paid an original IRS Form 1099 or other reasonably acceptable evidence of such withholding.
(d) Any
portion of any CVR Payment Amount that remains undistributed to a Holder twelve (12) months after the date of the delivery of the applicable Payment Triggering Event Notice will be delivered by the Rights Agent to Achieve, upon demand, and any
Holder will thereafter look only to Achieve for payment of such CVR Payment Amount, without interest and subject to Section 2.4(e).
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(e) Neither Achieve nor the Rights Agent will be liable to any person in respect of any CVR
Payment Amount delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If, despite Achieves and/or the Rights Agents commercially reasonable efforts to deliver a CVR Payment Amount to the
applicable Holder, such CVR Payment Amount has not been paid prior to twelve (12) months after receipt of the CVR Payment Amount by the Rights Agent (or immediately prior to such earlier date on which such CVR Payment Amount would otherwise escheat
to or become the property of any Governmental Body), any such CVR Payment Amount will, to the extent permitted by applicable law, become the property of Achieve, free and clear of all claims or interest of any person previously entitled thereto. In
addition to and not in limitation of any other indemnity obligation herein, Achieve agrees to indemnify and hold harmless Rights Agent with respect to any liability, penalty, cost or expense Rights Agent may incur or be subject to in connection with
transferring such property to Achieve.
Section 2.5
No Voting, Dividends or Interest; No Equity or Ownership Interest in Achieve
.
(a) The CVRs will not have any voting or dividend rights, and interest will not accrue on any amounts payable on the CVRs to any Holder.
(b) The CVRs will not represent any equity or ownership interest in Achieve, any constituent company to the Merger or any of their respective
Affiliates (for the sake of clarity, it being understood that if Achieve elects to issue shares of common stock of Achieve to satisfy its payment obligations under this Agreement, such shares of common stock of Achieve shall represent equity and
ownership interests in Achieve).
(c) It is hereby acknowledged and agreed that the CVRs and the possibility of any payment hereunder
with respect thereto are highly speculative, and it is highly possible that Holders will not receive any payments under this Agreement or in connection with the CVRs. It is highly possible that no Milestone will occur prior to the expiration of the
CVR Term and accordingly it is highly possible that there will not be any Milestone that may be the subject of a CVR Payment Amount. It is acknowledged and agreed that this Section 2.5(c) is an essential and material term of this Agreement.
Section 2.6
Ability to Abandon CVR
. A Holder may at any time, at such Holders option, abandon all of such Holders remaining rights in a CVR
by transferring such CVR to Achieve without consideration therefor. Nothing in this Agreement shall prohibit Achieve or any of its Affiliates from offering to acquire or acquiring any CVRs for consideration from the Holders, in private transactions
or otherwise, in its sole discretion. Any CVRs acquired by Achieve or any of its Affiliates shall be automatically deemed extinguished and no longer outstanding for purposes of the definition of Acting Holders and Article V and Section 6.3
hereunder.
ARTICLE III
THE RIGHTS AGENT
Section 3.1
Certain
Duties and Responsibilities
. The Rights Agent is hereby appointed, authorized and empowered to act on behalf of the Holders, and to execute, deliver and receive all agreements, documents, instruments and consents on behalf of and as agent for
each Holder at any time in connection with, and that may be necessary or appropriate to accomplish the intent and implement the provisions of this Agreement, including without limitation for purposes of (a) confirming the satisfaction of
Achieves obligations under this Agreement, including receiving and reviewing any Payment Triggering Event Certificate and (b) determining matters with respect to the amounts to be paid to the Holders pursuant to this Agreement. The Rights
Agent will not have any liability for any actions taken or not taken in connection with this Agreement, except to the extent of its willful or intentional misconduct, bad faith or gross negligence.
Section 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 will be read into
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this Agreement against the Rights Agent. The Rights Agent may not assign any of its obligations under this agreement. In addition:
(a) the Rights Agent may rely and will be protected and held harmless by the proper party or parties in acting or refraining from acting upon
any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) whenever the Rights Agent will deem it reasonably necessary that a matter be proved or established by Achieve prior to taking,
suffering or omitting any action hereunder, the Rights Agent may rely upon an Officers Certificate, which such Officers Certificate shall be, if signed by the party or parties required to consent to such action, shall be full
authorization and protection to the Rights Agent, and the Rights Agent shall, in the absence of bad faith, gross negligence or willful or intentional misconduct on its part, incur no liability and be held harmless by Achieve for or in respect of any
action taken, suffered or omitted to be taken by it under the provisions of this Agreement in reliance upon such Officers Certificate;
(c) the Rights Agent may engage and consult with counsel of its selection and the written advice of such counsel or any opinion of counsel will
be full and complete authorization and protection to the Rights Agent with respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in reliance thereon;
(d) the permissive rights of the Rights Agent to do things enumerated in this Agreement will not be construed as a duty;
(e) the Rights Agent will not be required to give any note or surety in respect of the execution of such powers or otherwise in respect of the
premises;
(f) the Rights Agent shall not be liable for or by reason of, and shall be held harmless by Achieve with respect to, any of the
statements of fact or recitals contained in this Agreement or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by Achieve only;
(g) except as otherwise set forth in this Agreement, the Rights Agent will have no liability and shall be held harmless by Achieve in respect
of the validity of this Agreement or the execution and delivery hereof (except the due execution and delivery hereof by the Rights Agent and the enforceability of this Agreement against the Rights Agent assuming the due execution and delivery hereof
by the other parties hereto); nor shall it be responsible for any breach by Achieve or any other party to this Agreement of any covenant or condition contained in this Agreement;
(h) Achieve agrees to indemnify Rights Agent for, and hold Rights Agent harmless against, any loss, liability, claim, demands, suits or expense
arising out of or in connection with Rights Agents duties under this Agreement, including the reasonable costs and expenses of defending Rights Agent against any claims, charges, demands, suits or loss, unless such loss has been finally
determined by a court of competent jurisdiction to be a result of Rights Agents gross negligence, bad faith or willful or intentional misconduct;
(i) Achieve agrees (1) to pay the fees and expenses of the Rights Agent in connection with this Agreement as agreed upon in writing by the
Rights Agent and Achieve on or prior to the date hereof and (2) to reimburse the Rights Agent for all Taxes and Governmental Body charges, reasonable and documented out-of-pocket expenses incurred, and paid out of its own separate funds, by the
Rights Agent in the execution of this Agreement (other than Taxes imposed on or measured by the Rights Agents net income and franchise or similar Taxes imposed on it (in lieu of net income Taxes)). The Rights Agent will also be entitled to
reimbursement from Achieve for all reasonable, necessary and documented out-of-pocket expenses paid or incurred by it in connection with the administration by the Rights Agent of its duties hereunder; and
(j) 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 its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to
it.
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Section 3.3
Resignation and Removal; Appointment of Successor
.
(a) Rights Agent may resign at any time by giving written notice thereof to Achieve specifying a date when such resignation will take effect,
which notice will be sent at least sixty (60) days prior to the date so specified but in no event will such resignation become effective until a successor Rights Agent has been appointed. Achieve has the right to remove Rights Agent at any time by a
Board Resolution specifying a date when such removal will take effect but no such removal will become effective until a successor Rights Agent has been appointed. Notice of such removal will be given by Achieve to Rights Agent, which notice will be
sent at least thirty (30) days prior to the date so specified.
(b) If the Rights Agent provides notice of its intent to resign, is removed
pursuant to Section 3.3(a) or becomes incapable of acting, Achieve will, as soon as is commercially reasonably possible, appoint a qualified successor Rights Agent reasonably satisfactory to the Acting Holders who, unless otherwise consented to in
writing by the Acting Holders, shall be a stock transfer agent of national reputation or the corporate trust department of a commercial bank. The successor Rights Agent so appointed will, upon its acceptance of such appointment in accordance with
this Section 3.3(b), become the successor Rights Agent.
(c) Achieve will 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 to the Holders as their names and addresses appear in the CVR Register. Each notice will include the name and address of the successor
Rights Agent. If Achieve fails to send such notice within ten (10) Business Days after acceptance of appointment by a successor Rights Agent in accordance with Section 3.4, the successor Rights Agent will cause the notice to be mailed at the
reasonable expense of Achieve.
Section 3.4
Acceptance of Appointment by Successor
. Every successor Rights Agent appointed pursuant to Section
3.3(b) hereunder will execute, acknowledge and deliver to Achieve 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, will become vested with all the rights, powers, trusts and duties of the retiring Rights Agent. On request of Achieve or the successor Rights Agent, the retiring Rights Agent will execute and deliver an instrument transferring to the
successor Rights Agent all the rights, powers and trusts of the retiring Rights Agent.
ARTICLE IV
COVENANTS
Section 4.1
List of
Holders
. Achieve will furnish or cause to be furnished to the Rights Agent, in such form as Achieve receives from Achieves transfer agent (or other agent performing similar services for Achieve), the names and addresses of the Holders
within thirty (30) Business Days of the Effective Time.
Section 4.2
Payment of CVR Payment Amounts
. For each Payment Triggering Event achieved in
accordance with this Agreement, Achieve will, as promptly as practicable following the delivery of any Payment Triggering Event Notice to the Rights Agent, deposit with the Rights Agent, for payment to the Holders in accordance with Section 2.4, the
aggregate amount of cash, securities or other consideration necessary to pay the CVR Payment Amount set forth in such Payment Triggering Event Notice to each Holder.
Section 4.3
Books and Records
. Achieve shall, and shall cause its Affiliates to, keep records in sufficient detail to enable the Holders to determine
whether any of the Milestones are achieved and any amounts payable hereunder.
Section 4.4
Diligence Obligation
.
(a) For a period of 6 months after the first to occur of (i) the presentation of the final data from the Borealis-2 clinical trial by Arrow at
the February 2017 Genitourinary Cancers Symposium or (ii) February 28, 2017
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(the Diligence Period), Arrow and Achieve shall use Diligent Efforts to enter into a term sheet for a Partnering Agreement (such term sheet, whether or not binding, Term
Sheet). The obligations of Arrow and Achieve to use Diligent Efforts shall expire upon the termination of the earlier of (a) the expiration of the Diligence Period without execution of a Term Sheet, or (b) the execution of a Partnering
Agreement.
(b) If a Term Sheet is entered into prior to the expiration of the Diligence Period, Arrow and Achieve shall use Diligent
Efforts to enter into a Partnering Agreement pursuant to the terms of such Term Sheet. If a Term Sheet is not entered into prior to the expiration of the Diligence Period, no payments shall be made pursuant to Article II hereto.
Section 4.5.
License Agreements
. During the Diligence Period, Achieve shall not terminate the UBC or Ionis license agreements related to
apatorsen. Ash shall use commercially reasonable efforts to maintain the UBC and Ionis license agreements in good standing and shall comply with the terms of such agreements.
ARTICLE V
AMENDMENTS
Section 5.1
Amendments without Consent of Holders
.
(a) Without the consent of any Holders or the Rights Agent, Achieve, when authorized by a Board Resolution, at any time and from time to time,
may enter into one or more amendments hereto, for any of the following purposes:
(i) to evidence the succession of another Person to
Achieve and the assumption by any such successor of the covenants of Achieve herein as provided in Section 6.3;
(ii) to add to the
covenants of Achieve such further covenants, restrictions, conditions or provisions as Achieve and the Rights Agent will consider to be for the protection of the Holders; provided that, in each case, such provisions do not adversely affect the
interests of the Holders;
(iii) to cure any ambiguity, to correct or supplement any provision herein that may be defective or inconsistent
with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Agreement; provided that, in each case, such provisions do not adversely affect the interests of the Holders;
(iv) as may be necessary or appropriate to ensure that the CVRs are not subject to registration under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder;
(v) to evidence the succession
of another Person as a successor Rights Agent and the assumption by any such successor of the covenants and obligations of the Rights Agent herein in accordance with Sections 3.3 and 3.4; or
(vi) any other amendments hereto for the purpose of adding, eliminating or changing any provisions of this Agreement, unless such addition,
elimination or change is adverse to the interests of the Holders.
(b) Without the consent of any Holders, Achieve, when authorized by a
Board Resolution, and the Rights Agent, in the Rights Agents sole and absolute discretion, at any time and from time to time, may enter into one or more amendments hereto, to reduce the number of CVRs, in the event any Holder agrees to
renounce such Holders rights under this Agreement in accordance with Section 6.4.
(c) Promptly after the execution by Achieve and
the Rights Agent of any amendment pursuant to the provisions of this Section 5.1, Achieve will mail (or cause the Rights Agent to mail) a notice thereof by first class mail to the Holders at their addresses as they appear on the CVR Register,
setting forth such amendment.
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Section 5.2
Amendments with Consent of Holders
.
(a) Subject to Section 5.1 (which amendments pursuant to Section 5.1 may be made without the consent of the Holders), with the consent of the
Acting Holders, whether evidenced in writing or taken at a meeting of the Holders, Achieve, when authorized by a Board Resolution, and the Rights Agent may enter into one or more amendments hereto for the purpose of adding, eliminating or changing
any provisions of this Agreement, even if such addition, elimination or change is materially adverse to the interest of the Holders.
(b)
Promptly after the execution by Achieve and the Rights Agent of any amendment pursuant to the provisions of this Section 5.2, Achieve will mail (or cause the Rights Agent to mail) a notice thereof by first class mail to the Holders at their
addresses as they appear on the CVR Register, setting forth such amendment.
Section 5.3
Execution of Amendments
. In executing any amendment
permitted by this Article V, the Rights Agent will be entitled to receive, and will be fully protected in relying upon, a statement by Achieve stating that the execution of such amendment is authorized or permitted by this Agreement. The Rights
Agent may, but is not obligated to, enter into any such amendment that affects the Rights Agents own rights, privileges, covenants or duties under this Agreement or otherwise.
Section 5.4
Effect of Amendments
. Upon the execution of any amendment under this Article V, this Agreement will be modified in accordance therewith,
such amendment will form a part of this Agreement for all purposes and every Holder will be bound thereby.
ARTICLE VI
OTHER PROVISIONS OF GENERAL APPLICATION
Section 6.1
Notices to Rights Agent and Achieve
. Any notice or other communication required or permitted hereunder shall be in writing and shall be
deemed given when delivered in person, by overnight courier, by facsimile transmission (with receipt confirmed by telephone or by automatic transmission report) or by electronic mail, or two (2) Business Days after being sent by registered or
certified mail (postage prepaid, return receipt requested), as follows:
If to the Rights Agent, to it at:
[●]
With a copy to:
[●]
If to Achieve, to
it at:
Achieve Life Science, Inc.
30 Sunnyside Avenue
Mill
Valley, California 94941
Attention: Rick Stewart
Email:
with a copy to:
Paul Hastings LLP
1117 S.
California Avenue
Palo Alto, California 94304
Telephone: (650) 320-1830
Fax: (650) 320-1930
Attention: Rob R. Carlson
Email:
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The Rights Agent or Achieve may specify a different address or facsimile number by giving notice in accordance
with this Section 6.1.
Section 6.2
Notice to Holders
. Where this Agreement provides for notice to Holders, such notice will be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at the Holders address as it appears in the CVR Register, not later than the latest date, and not
earlier than the earliest date, if any, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder will
affect the sufficiency of such notice with respect to other Holders.
Section 6.3
Achieve Successors and Assigns
. Achieve may assign any or all of
its rights, interests and obligations hereunder to an Assignee, in each case provided that the Assignee agrees to assume and be bound by all of the terms of this Agreement. Any Assignee may thereafter assign any or all of its rights, interests and
obligations hereunder in the same manner as Achieve pursuant to the prior sentence. In connection with any assignment to an Assignee described in clause (a) above in this Section 6.3, Achieve (and the other assignor) shall agree to remain liable for
the performance by each Assignee (and such other assignor, if applicable) of all obligations of Achieve hereunder, with such Assignee substituted for Achieve under this Agreement. This Agreement will be binding upon, inure to the benefit of and be
enforceable by Achieves successors and each Assignee. Each of Achieves successors and Assignees shall expressly assume by an instrument supplemental hereto, executed and delivered to the Rights Agent, the due and punctual payment of the
CVRs and the due and punctual performance and observance of all of the covenants and obligations of this Agreement to be performed or observed by Achieve. The Rights Agent may not assign this Agreement without Achieves written consent. Any
attempted assignment of this Agreement or any such rights in violation of this Section 6.3 shall be void and of no effect.
Section 6.4
Benefits of
Agreement
. Nothing in this Agreement, express or implied, will give to any Person (other than the Rights Agent, Achieve, Achieves successors and Assignees, the Holders and the Holders successors and assigns pursuant to a Permitted
Transfer) 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 foregoing. The rights of Holders and
their successors and assigns pursuant to Permitted Transfers are limited to those expressly provided in this Agreement and the Merger Agreement. Notwithstanding anything to the contrary contained herein, any Holder or Holders successor or
assign pursuant to a Permitted Transfer may agree to renounce, in whole or in part, its rights under this Agreement by written notice to the Rights Agent and Achieve, which notice, if given, shall be irrevocable.
Section 6.5
Governing Law; Jurisdiction; Waiver of Jury Trial
.
(a) This Agreement, the CVRs and all actions arising under or in connection therewith 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 thereof.
(b) Each of the parties hereto (i) irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Delaware
Courts; and (ii) consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which such party is to receive notice in accordance with Section 6.1. Each of the parties irrevocably and
unconditionally (1) agrees not to commence any such action or proceeding except in the Delaware Courts, (2) agrees that any claim in respect of any such action or proceeding may be heard and determined in the Delaware Courts, (3) waives, to the
fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the jurisdiction or laying of venue of any such action or proceeding in the Delaware Courts and (4) waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or proceeding in the Delaware Courts.
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(c) EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING BETWEEN THE PARTIES (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE), INCLUDING ANY COUNTERCLAIM, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE MERGERS CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF. EACH PARTY HERETO (A) MAKES THIS WAIVER VOLUNTARILY AND (B) ACKNOWLEDGES THAT SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS CONTAINED IN THIS
SECTION 6.5(C).
Section 6.6
Severability
. If any provision of this Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or
unenforceable. The parties further agree to replace such invalid or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid
or unenforceable provision.