CALDERWOOD & HARKNESS LLP Attorneys at Law
555 South Hope Street, Suite 4400 Los Angeles, California 90071 Telephone: (213) 555-8200 Facsimile: (213) 555-8201 www.calderwoodharkness.com
August 6, 2023
VIA EMAIL AND Sundial Data Systems
Philip Aldridge Senior Vice President Apex Mutual Insurance Company 175 Water Street, 22nd Floor New York, NY 10038
Re: Representations and Warranties Insurance Policy No. RWI-2023-07182 — Binding Confirmation
Asset Purchase Agreement dated May 11, 2023, by and between Genome Dx Therapeutics Inc. ("Seller" or "GDT") and Meridian Precision Diagnostics, Inc. ("Buyer" or "Meridian"), for the purchase and sale of the OncuPath™ companion diagnostics assay line (the "Transaction")
C&H Matter No. 1013-00006&A-4471
Dear Mr. Aldridge:
This firm represents Genome Dx Therapeutics Inc. ("Seller" or "GDT") in connection with the above-referenced Transaction. I am the Responsible Partner on this engagement, and I write on behalf of the Seller to confirm the binding of the buyer-side representations and warranties insurance policy, Policy No. RWI-2023-07182 (the "Policy"), issued by Apex Mutual Insurance Company ("Apex Mutual"), which is to become effective as of the closing of the Transaction (the "Closing"). The Closing is currently anticipated to occur on or about August 8, 2023 (the "Closing Date"). As the Closing Date is imminent, we respectfully request Apex Mutual's prompt attention to the confirmations and deliverables described in this letter.
1. Transaction Summary
The Transaction is structured as an asset purchase and is governed by that certain Asset Purchase Agreement dated May 11, 2023 (the "APA"), by and between the Seller and the Buyer. A fully executed copy of the APA is enclosed with this letter for your reference.
The Seller is Genome Dx Therapeutics Inc., a corporation organized and existing under the laws of the State of Delaware, with its principal executive offices located at 10250 Science Center Drive, Suite 600, San Diego, California 92121. GDT is a life sciences company engaged in the development, manufacture, and commercialization of precision diagnostic products, including next-generation companion diagnostics assays used in oncology clinical trial design and patient stratification.
The Buyer is Meridian Precision Diagnostics, Inc., a corporation organized and existing under the laws of the State of Delaware, with its principal executive offices located at 400 TW Alexander Drive, Research Triangle Park, North Carolina 27709. Meridian is a diversified diagnostics platform company focused on the acquisition and integration of companion diagnostics and molecular testing assets.
Pursuant to the APA, the Buyer is acquiring from the Seller all assets, intellectual property (including patents, patent applications, trade secrets, know-how, and proprietary data), contracts, inventory, equipment, regulatory filings and approvals, and goodwill exclusively related to the Seller's OncuPath™ companion diagnostics assay line (collectively, the "OncuPath Business"). The OncuPath Business comprises GDT's proprietary line of tissue-based companion diagnostics assays designed for use with targeted oncology therapeutics, including associated laboratory protocols, clinical validation data, customer relationships, and ongoing supply agreements.
The total consideration for the Transaction (the "Total Consideration") is One Hundred Forty Million Dollars ($140,000,000), comprising: (a) One Hundred Twenty-Six Million Dollars ($126,000,000) payable in cash at the Closing; and (b) up to Fourteen Million Dollars ($14,000,000) in clinical-milestone earnout payments, which are payable upon the achievement of certain specified development and regulatory milestones as set forth in Article III of the APA. The APA is governed by, and is to be construed in accordance with, the laws of the State of Delaware, without giving effect to any principles of conflicts of law.
2. Policy Terms Confirmation
We respectfully request that Apex Mutual confirm, in writing, that Policy No. RWI-2023-07182 is bound and will become effective as of the Closing Date, which is currently anticipated to be August 8, 2023. In particular, we request confirmation of the following key terms of the Policy, which reflect the terms negotiated during the underwriting process and as set forth in the most recent draft of the Policy binder circulated by Apex Mutual on July 28, 2023:
Named Insured. The Named Insured under the Policy is Meridian Precision Diagnostics, Inc. The Policy is a buyer-side representations and warranties insurance policy, providing coverage to the Buyer for losses arising from breaches of the Seller's representations and warranties as set forth in the APA.
Policy Limit. The aggregate policy limit of liability is Twenty-Eight Million Dollars ($28,000,000), which is equal to twenty percent (20%) of the Total Consideration of $140,000,000. This policy limit is aligned with, and matches, the indemnification cap applicable to the Seller's indemnification obligations under Article IX of the APA.
Retention. The Policy retention is One Million Four Hundred Thousand Dollars ($1,400,000), which is equal to one percent (1%) of the Total Consideration. The retention is aligned with the aggregate deductible basket set forth in Section 9.04(a) of the APA's indemnification provisions. The basket is structured as a "tipping basket," meaning that once the aggregate amount of indemnifiable losses exceeds the $1,400,000 threshold, the Buyer is entitled to recover from dollar one of losses, rather than only the amount in excess of the basket.
Covered Representations and Warranties. The Policy covers all representations and warranties of the Seller as set forth in Article IV of the APA, subject in all cases to the terms, conditions, limitations, and exclusions contained in the Policy. The representations and warranties covered include, without limitation, representations concerning the Seller's organization and authority, title to assets, intellectual property, regulatory compliance, financial statements, material contracts, tax matters, environmental compliance, employee matters, and absence of undisclosed liabilities, among others.
Survival Period Alignment. The survival periods under the Policy are aligned with the survival periods set forth in Section 9.01 of the APA, as follows:
(a) General Representations: The general representations and warranties of the Seller survive for a period of eighteen (18) months following the Closing Date, expiring on February 8, 2025. Claims with respect to breaches of the general representations must be made prior to such expiration date.
(b) Fundamental Representations: The Fundamental Representations (as defined in the APA, and including representations and warranties relating to organization and good standing, authorization, capitalization, title to assets, brokers' fees, and tax matters) survive for a period of sixty (60) months following the Closing Date, expiring on August 8, 2028. Claims with respect to breaches of the Fundamental Representations must be made prior to such expiration date.
Known-Matters Exclusions. The Policy contains exclusions for known matters, as set forth in the Policy's exclusion schedule. Specifically, the Policy excludes coverage for any matters that were actually known to the Buyer's deal team as of the date of binding and that were disclosed in the Disclosure Schedules delivered by the Seller to the Buyer in connection with the execution of the APA, dated May 11, 2023. A copy of the Disclosure Schedules is enclosed with this letter.
We ask that Apex Mutual confirm, by return correspondence, that the foregoing terms accurately reflect the terms of the Policy as it will be bound and issued. If there are any discrepancies between the terms described above and the final Policy as Apex Mutual intends to issue it, we request that such discrepancies be brought to our attention immediately so that they may be addressed prior to the Closing.
3. Premium Payment Arrangements
The total premium for the Policy is Eight Hundred Forty Thousand Dollars ($840,000), calculated as three percent (3%) of the $28,000,000 aggregate policy limit of liability. Pursuant to Section 7.15 of the APA, the premium is to be shared equally between the Seller and the Buyer. The premium allocation is as follows:
(a) Seller's Share: Four Hundred Twenty Thousand Dollars ($420,000), representing fifty percent (50%) of the total premium, to be borne by Genome Dx Therapeutics Inc.
(b) Buyer's Share: Four Hundred Twenty Thousand Dollars ($420,000), representing fifty percent (50%) of the total premium, to be borne by Meridian Precision Diagnostics, Inc.
With respect to payment mechanics, the parties have agreed that each party's respective share of the premium will be remitted by wire transfer to Apex Mutual at or prior to the Closing. Specifically:
(i) The Seller's share of $420,000 is to be remitted by wire transfer from Genome Dx Therapeutics Inc. to Apex Mutual on or before the Closing Date.
(ii) The Buyer's share of $420,000 is to be remitted by wire transfer from Meridian Precision Diagnostics, Inc. to Apex Mutual on or before the Closing Date.
We request that Apex Mutual provide wire transfer instructions for the payment of the premium at your earliest convenience, to the extent such instructions have not already been furnished. We note that the premium payments are reflected as separate line items on the draft Closing Funds Flow Memorandum (a copy of which is enclosed herewith), which coordinates all wire transfers to be executed on the Closing Date. In order to ensure that all closing-date wires are scheduled and executed accurately and in a timely manner, we ask that Apex Mutual verify the accuracy of the wire instructions included in the Closing Funds Flow Memorandum and confirm, if possible, by no later than the close of business on August 7, 2023.
We further request Apex Mutual's confirmation that the Policy will be deemed bound and effective as of the Closing Date upon Apex Mutual's receipt of the aggregate premium of $840,000 in accordance with the foregoing payment arrangements. If there are any additional conditions to binding, including the execution of any supplemental documentation or the delivery of any additional underwriting materials, we ask that such conditions be communicated to us without delay.
4. Interplay with APA Indemnification Provisions
For Apex Mutual's reference, and in order to provide a complete picture of the indemnification framework within which the Policy operates, we set forth below a brief summary of the key indemnification provisions of the APA as they relate to the Policy:
Indemnification Cap. The Seller's aggregate indemnification obligations under the APA for breaches of general representations and warranties are capped at Twenty-Eight Million Dollars ($28,000,000), which is equal to twenty percent (20%) of the Total Consideration. This cap is co-extensive with the aggregate policy limit under the Policy.
Basket. The APA contains an aggregate deductible basket of One Million Four Hundred Thousand Dollars ($1,400,000), which is equal to one percent (1%) of the Total Consideration. The basket is structured as a "tipping basket": the Buyer may not recover for indemnifiable losses until the aggregate amount of such losses exceeds $1,400,000, at which point the Buyer is entitled to recover the full amount of losses from dollar one (i.e., the basket amount is not a true deductible). The Policy retention of $1,400,000 is aligned with this basket, ensuring that the Buyer's recovery path is coordinated between the contractual indemnity and the insurance coverage, and that there is no gap between the basket and the retention.
De Minimis Threshold. Individual claims for indemnifiable losses are subject to a de minimis threshold of Seventy-Five Thousand Dollars ($75,000) per claim. Losses attributable to any individual claim that does not meet or exceed this threshold are disregarded for purposes of calculating whether the aggregate basket has been exceeded.
Escrow. To secure the Seller's indemnification obligations under the APA, Fourteen Million Dollars ($14,000,000) of the Closing cash consideration is to be deposited at Closing into a segregated escrow account maintained at Ashgrove Equity Partners Escrow Services, Inc. (Account No. 8841-7023-5500) (the "Escrow Account"). The terms of the escrow are governed by a separate Escrow Agreement among the Seller, the Buyer, and Ashgrove Equity Partners Escrow Services, Inc., executed concurrently with the APA. The escrow funds are to be released in accordance with the following schedule:
(a) Fifty percent (50%) of the remaining balance of the Escrow Account shall be released to the Seller twelve (12) months after the Closing Date (i.e., on or about August 8, 2024), net of any amounts subject to pending or unresolved indemnification claims.
(b) The remaining balance of the Escrow Account shall be released to the Seller upon the expiration of the eighteen (18)-month survival period for general representations and warranties (i.e., on or about February 8, 2025), net of any amounts subject to pending or unresolved indemnification claims as of such date.
Fundamental Representations. The Fundamental Representations are not subject to either the indemnification cap or the basket, provided, however, that the Seller's aggregate liability for all claims under the APA, including claims with respect to the Fundamental Representations, shall not in any event exceed the Total Consideration of $140,000,000.
The foregoing summary is intended solely for informational purposes in connection with Apex Mutual's administration of the Policy and does not constitute an amendment, modification, or interpretation of the APA or the Policy. The full text of the APA's indemnification provisions is set forth in Article IX of the enclosed APA.
5. Closing Deliverables and Coordination
In connection with the binding and effectiveness of the Policy, we respectfully request that Apex Mutual provide the following deliverables at or prior to the Closing:
(a) A binder or binding confirmation letter, executed by an authorized representative of Apex Mutual, confirming that the Policy is bound and that coverage will be effective as of the Closing Date. To the extent practicable, we request that the binding confirmation be delivered no later than the close of business on August 7, 2023, so that it may be included among the closing deliverables for the Transaction.
(b) A copy of the final executed Policy, in form and substance consistent with the terms described in Section 2 of this letter, for inclusion in the Seller's closing files. While we understand that the final executed Policy may not be available until shortly after the Closing Date, we request that Apex Mutual endeavor to deliver the final Policy within ten (10) business days of the Closing.
We also wish to note that counsel for the Buyer in this Transaction is Whitfield Sayer & Gregg LLP, with Jonathan Whitfield serving as Lead Partner. Mr. Whitfield's contact information is as follows:
Jonathan Whitfield Whitfield Sayer & Gregg LLP 200 South Tryon Street, Suite 2800 Charlotte, NC 28202
As the Policy is a buyer-side policy with Meridian as the Named Insured, the Buyer's counsel may coordinate directly with Apex Mutual regarding certain aspects of policy administration, claims procedures, and ongoing compliance matters. Notwithstanding the foregoing, the Seller requests that it be provided with copies of all binding documentation, the final executed Policy, and any endorsements or amendments thereto, given the Seller's interest in the Policy as a co-payor of the premium and as a party whose representations and warranties are the subject of the insured coverage.
Finally, we ask that Apex Mutual promptly communicate to Calderwood & Harkness LLP any proposed changes to the Policy terms, endorsements, exclusions, or conditions that may arise prior to binding. Given the proximity of the Closing Date and the need for all parties to have certainty regarding the scope and terms of coverage, it is essential that any modifications be reviewed and approved by both the Seller and the Buyer before the Policy is bound.
6. Contact Information
All communications regarding this matter, including delivery of the binding confirmation, the final executed Policy, wire transfer instructions, and any other correspondence related to Policy No. RWI-2023-07182, should be directed to the following:
James Prentice, Partner Calderwood & Harkness LLP 555 South Hope Street, Suite 4400 Los Angeles, CA 90071 Telephone: (213) 555-8210
Email: jprentice@calderwoodharkness.com
With a copy to:
Tiffany Rosenthal, Associate Calderwood & Harkness LLP 555 South Hope Street, Suite 4400 Los Angeles, CA 90071 Telephone: (213) 555-8247
Email: trosenthal@calderwoodharkness.com
For any matters requiring direct client communication, the appropriate contact at Genome Dx Therapeutics Inc. is:
Rebecca Chiang, General Counsel Genome Dx Therapeutics Inc. 10250 Science Center Drive, Suite 600 San Diego, CA 92121 Telephone: (858) 555-3400
Email: rchiang@genomedx.com
We appreciate Apex Mutual's diligent work throughout the underwriting process and your willingness to accommodate the expedited timeline necessitated by the Transaction's closing schedule. The parties have worked cooperatively to finalize the terms of the Policy, and we are grateful for the responsiveness of your underwriting team in addressing the diligence requests and coverage questions that arose during the placement process.
The Seller stands ready to close the Transaction on August 8, 2023, and we respectfully request Apex Mutual's prompt confirmation of binding at your earliest convenience. If you have any questions regarding this letter or require any additional information in connection with the binding of the Policy, please do not hesitate to contact me directly at (213) 555-8210.
Thank you for your continued cooperation and attention to this matter.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
James Prentice Partner 555 South Hope Street, Suite 4400 Los Angeles, CA 90071 Telephone: (213) 555-8210
Email: jprentice@calderwoodharkness.com
cc: (via email)
Rebecca Chiang, General Counsel, Genome Dx Therapeutics Inc. Martin Kowalski, Chief Financial Officer, Genome Dx Therapeutics Inc. Sandra Tung, Billing Partner, Calderwood & Harkness LLP Tiffany Rosenthal, Lead Associate, Calderwood & Harkness LLP Jonathan Whitfield, Whitfield Sayer & Gregg LLP (Buyer's Counsel)
Enclosures:
1. Asset Purchase Agreement (Execution Version), dated May 11, 2023, by and between Genome Dx Therapeutics Inc. and Meridian Precision Diagnostics, Inc.
2. Disclosure Schedules to the Asset Purchase Agreement, dated May 11, 2023
3. Draft Closing Funds Flow Memorandum (reflecting R&W insurance premium wire instructions)