Item
1.01. Entry Into a Material Definitive Agreement
Asset
Purchase Agreement
On
January 6, 2017, ProPhase Labs, Inc., a Delaware corporation (the “Company”), entered into an Asset Purchase Agreement
(the “Purchase Agreement”) with a wholly owned subsidiary of Mylan N.V. (“Mylan”).
Pursuant
to the terms and subject to the conditions set forth in the Purchase Agreement, the Company agreed to sell to Mylan substantially
all of the Company’s assets related to its Cold-EEZE
®
cold remedy brand and product line for $50,000,000
(the “Asset Sale”).
Following
the Asset Sale, the Company will retain ownership of its manufacturing facility and manufacturing business in Lebanon, Pennsylvania,
and its headquarters in Doylestown, Pennsylvania, as well as its dietary supplements product lines which are currently under development.
The Company, through its Pharmaloz subsidiary, will enter into a manufacturing and supply agreement with Mylan.
The
closing of the proposed Asset Sale, which is currently expected to occur in the first quarter of 2017, is subject to the approval
of the Company’s stockholders and other customary closing conditions. The Purchase Agreement contains customary representations,
warranties and covenants, including customary non-solicitation, non-competition and confidentiality covenants. The Purchase Agreement
also includes customary provisions restricting the Company, and its officers’, directors’ and employees’ ability
to engage in discussions with any third party regarding alternative sales.
The
foregoing description of the Purchase Agreement is a summary only, does not purport to be complete and is subject to, and qualified
in its entirety by reference, to the Purchase Agreement, a copy of which will be filed with the Company’s definitive proxy
statement to be filed in connection with the Asset Sale and is incorporated herein by reference. The Purchase Agreement contains
representations and warranties made by the parties as of specific dates and solely for their benefit. The representations and
warranties reflect negotiations between the parties and are not intended as statements of fact to be relied upon by the Company’s
stockholders or any other person or entity other than the parties to the Purchase Agreement and, in certain cases, represent allocation
decisions among the parties and are modified or qualified by correspondence or confidential disclosures made between the parties
in connection with the negotiation of the Purchase Agreement (which disclosures are not reflected in the Purchase Agreement itself,
may not be true as of any date other than the date made, or may apply standards of materiality in a way that is different from
what may be viewed as material by stockholders). Accordingly, the representations and warranties may not describe the actual state
of affairs at the date they were made or at any other time, and stockholders should not rely on them as statements of fact. Moreover,
information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement.
Voting
Agreement
On
January 6, 2017, in connection with the execution of the Purchase Agreement, the Company and Mylan and each of the directors and
Robert V. Cuddihy, Jr. (solely in their capacity as stockholders of the Company) entered into a Voting Agreement (collectively,
the “Voting Agreements”). The shares subject to the Voting Agreements represent approximately 24.1% of the outstanding
common stock of the Company. The Voting Agreements generally require that the stockholders party thereto (i) vote all of their
shares of the Company’s voting stock in favor of the Purchase Agreement and all transactions contemplated by the Purchase
Agreement; (ii) vote against any alternative transaction or third party proposal; (iii) not transfer their shares or deposit (or
permit the deposit of) any of their shares in a voting trust or grant an proxy or enter into any voting agreement or similar agreement
in contravention of the obligations of the stockholders under the Voting Agreement; (iv) not take any action that would constitute
a violation of the non-solicitation provisions of the Purchase Agreement if taken by the Company, with the limitations and exceptions
of such provisions contemplated thereby that are applicable to the Company or its board of directors being similarly applicable
to the stockholders. The Voting Agreements terminate upon the first to occur of (x) the termination of the Purchase Agreement,
or (y) such date and time as transaction becomes effective in accordance with the terms and provisions of the Purchase Agreement.
The
foregoing is a summary of the terms of the Voting Agreements. Such summary does not purport to be complete and is qualified in
its entirety by reference to the Voting Agreement, which is attached as Exhibit 4.1 hereto and is incorporated
herein by reference.
Rights
Agreement First Amendment
On
January 5, 2017, prior to the execution of the Purchase Agreement, the board of directors of the Company approved an amendment
(the “Amendment to Rights Agreement”)
to the Amended and Restated Rights Agreement (the “Rights Agreement”). The Amendment to Rights Agreement was executed
on January 6, 2017, immediately prior to the execution of the Purchase Agreement.
The
Amendment to Rights Agreement renders the Rights Agreement inapplicable to the Purchase Agreement, the Voting Agreement and the
transactions contemplated thereby. Specifically, the Amendment to Rights Agreement, among other matters, provides that none of
(i) the approval, execution, delivery, performance or public announcement of the Purchase Agreement (including any amendments,
modifications or supplements thereto), (ii) the consummation of the Asset Sale and any other transactions contemplated by the
Purchase Agreement, or (iii) the execution, delivery or performance of the Voting Agreements described above will result in Mylan
or any of their respective Affiliates or Associates (as such terms are defined in the Rights Agreement) being deemed an “Acquiring
Person.”
In
addition, the definition of “Beneficial Owner” under the Rights Agreement was revised such that it no longer includes
beneficial ownership of securities that may result from the execution, delivery or performance of the Voting Agreements.
Further,
Section 13(i) of the Rights Agreement will not apply to the Asset Sale or as a result of execution, delivery or performance of
the Voting Agreements, and will not apply to Mylan as an “other Person,” provided that neither individual becomes
an “Acquiring Person” (as such term is defined in the Rights Agreement).
The
foregoing is a summary of the terms of the Amendment to Rights Agreement. Such summary does not purport to be complete and is
qualified in its entirety by reference to the Amendment to Rights Agreement, which is attached as Exhibit 4.2 hereto and is incorporated
herein by reference.
ADDITIONAL
INFORMATION AND WHERE TO FIND IT
IN
CONNECTION WITH THE PROPOSED TRANSACTION, THE COMPANY WILL FILE WITH THE SECURITIES EXCHANGE COMMISSION (“SEC”) A
DEFINITIVE PROXY STATEMENT TO BE USED TO SOLICIT STOCKHOLDERS’ APPROVAL OF THE TRANSACTION. THE PROPOSED TRANSACTION AND
APPROVAL OF THE ASSET SALE WILL BE SUBMITTED TO THE COMPANY’S STOCKHOLDERS FOR THEIR CONSIDERATION. STOCKHOLDERS ARE URGED
TO READ THE DEFINITIVE PROXY STATEMENT REGARDING THE TRANSACTION WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED
WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. STOCKHOLDERS
WILL BE ABLE TO OBTAIN A FREE COPY OF THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS, AS WELL AS OTHER FILINGS CONTAINING INFORMATION
ABOUT THE COMPANY, WITHOUT CHARGE, AT THE SEC’S WEBSITE (HTTP://WWW.SEC.GOV). INVESTORS MAY OBTAIN ADDITIONAL INFORMATION
REGARDING THE INTEREST OF SUCH PARTICIPANTS BY READING THE PROXY STATEMENT REGARDING THE ASSET SALE WHEN IT BECOMES AVAILABLE.
THIS COMMUNICATION DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR A SOLICITATION
OF ANY VOTE OR APPROVAL.
The
Company, its board of directors, executive officers and employees and certain other persons may be deemed to be participants in
the solicitation of proxies from the Company’s stockholders in connection with the approval of the transaction.
FORWARD-LOOKING
STATEMENTS
Except
for the historical matters contained herein, statements contained in this current report on Form 8-K are “forward looking”
statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including,
without limitation, statements regarding the closing of the Asset Sale. These forward-looking statements are subject to risks
and uncertainties which may make actual results differ materially from those expressed or implied in the forward-looking statement,
including, without limitations, the Company’s ability to satisfy the closing conditions set forth in the Purchase Agreement,
including the receipt of the requisite stockholder approval. Any forward-looking statements relating to the proposed Asset Sale
are based on the Company’s current expectations, assumptions, estimates and projections. The Company assumes no obligation
to update any such forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting
such forward-looking statements.