CONFIDENTIAL — DRAFT — FOR DISCUSSION PURPOSES ONLY — SUBJECT TO FURTHER REVIEW AND REVISION
ASSET PURCHASE AGREEMENT
by and between
GENOME DX THERAPEUTICS INC.
and
MERIDIAN PRECISION DIAGNOSTICS, INC.
Dated as of [●], 2023
Initial Draft Circulated: March 20, 2023
Prepared by: Calderwood & Harkness LLP 555 South Hope Street, Suite 4400 Los Angeles, California 90071
Attention: James Prentice
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of [●], 2023 (the "Signing Date"), by and between:
GENOME DX THERAPEUTICS INC., a Delaware corporation, with its principal offices located at 10250 Science Center Drive, Suite 600, San Diego, California 92121 ("Seller"); and
MERIDIAN PRECISION DIAGNOSTICS, INC., a Delaware corporation, with its principal offices located at 2400 Meridian Parkway, Suite 300, Durham, North Carolina 27713 ("Buyer").
Seller and Buyer are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Seller is engaged in, among other things, the business of developing, manufacturing, and commercializing companion diagnostics assays under the OncuPath™ brand (the "OncuPath Business" or the "Business"), including the OncuPath™, OncuPath-HER3™, and OncuPath-GENOMARK™ product lines;
WHEREAS, Seller's parent and majority equity holder is Pinnacle Biosciences Partners Fund III, L.P., a Delaware limited partnership ("Pinnacle"), which holds approximately 68.4% of the outstanding common stock of Seller;
WHEREAS, Seller desires to sell, convey, assign, transfer, and deliver to Buyer, and Buyer desires to purchase and acquire from Seller, substantially all of the assets used in or related to the OncuPath Business, upon the terms and subject to the conditions set forth herein;
WHEREAS, Buyer intends to continue the operation of the OncuPath Business following the Closing (as defined herein) and to pursue the further development and commercialization of the OncuPath product lines; and
WHEREAS, concurrently with the execution of this Agreement, and as a condition to and inducement of each Party's willingness to enter into this Agreement, the Parties desire to set forth the terms and conditions governing the purchase and sale of the Purchased Assets (as defined herein), the assumption of certain liabilities, the payment of the purchase price, and the other transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" has the meaning set forth in the Preamble.
"Assumed Contracts" means those contracts, agreements, purchase orders, customer agreements, supplier agreements, and other arrangements listed on Schedule 1.1(a) related to the OncuPath Business, including the Vantage License.
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Basket Amount" means $1,400,000, being one percent (1%) of the Total Consideration.
"Business" or "OncuPath Business" means the business of developing, manufacturing, marketing, distributing, and commercializing companion diagnostics assays under the OncuPath™ brand family, including the OncuPath™, OncuPath-HER3™, and OncuPath-GENOMARK™ product lines, together with all ancillary operations and services directly related thereto.
"Business Day" means any day other than a Saturday, Sunday, or any day on which banking institutions located in New York, New York, or San Diego, California are authorized or required by Law to close.
"Buyer" means Meridian Precision Diagnostics, Inc., a Delaware corporation.
"Buyer Indemnified Parties" has the meaning set forth in Section 9.2.
"Carlsbad Facility" means the facility located at 925 Industrial Court, Carlsbad, California 92010.
"Change of Control" means, with respect to any Person, (a) a merger, consolidation, or similar transaction involving such Person in which the equity holders of such Person immediately prior to such transaction do not own, directly or indirectly, more than fifty percent (50%) of the voting power of the surviving entity, (b) the sale or transfer of all or substantially all of the assets of such Person to a third party, or (c) any transaction or series of related transactions pursuant to which any Person or group of related Persons acquires, directly or indirectly, beneficial ownership of more than fifty percent (50%) of the outstanding voting securities of such Person.
"Claim" has the meaning set forth in Section 9.6(a).
"Claim Notice" has the meaning set forth in Section 9.6(a).
"CLIA" means the Clinical Laboratory Improvement Amendments of 1988, as amended, and all rules and regulations promulgated thereunder.
"Closing" has the meaning set forth in Section 3.1.
"Closing Cash Payment" means $126,000,000, subject to adjustment pursuant to Section 2.5.
"Closing Date" has the meaning set forth in Section 3.1.
"CMS" means the Centers for Medicare & Medicaid Services of the United States Department of Health and Human Services.
"Commercially Reasonable Efforts" means efforts and resources consistent with those that a similarly situated company in the companion diagnostics industry would devote to a product or asset of similar market potential, profit potential, and strategic value, taking into account relevant scientific, technical, regulatory, commercial, and competitive factors, and other relevant factors, including the availability and allocation of resources, anticipated profitability, regulatory environment, intellectual property considerations, and all other relevant factors affecting the cost, risk, and timing of development and commercialization.
"Confidential Information" means all information that is not generally available to the public and that has been or may hereafter be obtained by either Party from the other Party in connection with this Agreement or the transactions contemplated hereby, including financial data, business plans, forecasts, customer lists, technical information, trade secrets, proprietary data, and all other information of a confidential or proprietary nature.
"De Minimis Amount" means $75,000.
"Disclosure Schedules" means the schedules delivered by Seller pursuant to Article IV hereof, as the same may be updated and supplemented from time to time prior to the Closing in accordance with this Agreement.
"Earnout" has the meaning set forth in Section 2.7.
"Earnout Milestone 1" means FDA clearance or approval of the OncuPath-HER3™ assay as a companion diagnostic for any FDA-approved therapeutic, on or before the date that is twenty-four (24) months after the Closing Date.
"Earnout Milestone 2" means CMS issuance of a unique HCPCS code for OncuPath-HER3™ (or any successor assay thereto) and the receipt of the first Medicare reimbursement payment for such coded assay, on or before the date that is thirty-six (36) months after the Closing Date.
"Earnout Payments" has the meaning set forth in Section 2.7(a).
"Earnout Period" means the period commencing on the Closing Date and ending on the date that is thirty-six (36) months following the Closing Date.
"Encumbrance" means any lien, pledge, charge, claim, mortgage, deed of trust, security interest, encumbrance, option, right of first refusal, right of first offer, preemptive right, restriction on transfer, easement, covenant, condition, or any other restriction or limitation of any nature whatsoever.
"Environmental Law" means any Law relating to pollution, protection of the environment, natural resources, human health (as it relates to exposure to Hazardous Materials), or the manufacture, generation, handling, transport, use, treatment, storage, disposal, release, or threatened release of Hazardous Materials, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, and their state and local counterparts.
"Escrow Agent" means Ashgrove Equity Partners Escrow Services, Inc.
"Escrow Agreement" has the meaning set forth in Section 2.6(a), and is in the form attached hereto as Exhibit B.
"Escrow Amount" means $14,000,000, being ten percent (10%) of the Total Consideration.
"Escrow Account" means Account No. 8841-7023-5500 at Ashgrove Equity Partners Escrow Services, Inc.
"Estimated NWC" has the meaning set forth in Section 2.5(a).
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.4.
"FDA" means the United States Food and Drug Administration.
"Final NWC" has the meaning set forth in Section 2.5(d).
"FIRPTA Certificate" has the meaning set forth in Section 3.2(a)(vi).
"Fundamental Representations" has the meaning set forth in Section 9.1(b).
"GAAP" means United States Generally Accepted Accounting Principles, as in effect from time to time, applied on a consistent basis.
"Governmental Authority" means any federal, state, local, municipal, foreign, or other governmental or quasi-governmental authority or instrumentality of any nature, including any governmental agency, branch, department, commission, board, bureau, court, tribunal, or other entity or body exercising executive, legislative, judicial, regulatory, administrative, or taxing authority, and any self-regulatory organization.
"Hazardous Materials" means any substance, material, or waste that is regulated or classified as hazardous, toxic, radioactive, or as a pollutant or contaminant under any Environmental Law, including petroleum products, asbestos, and polychlorinated biphenyls.
"HCPCS" means the Healthcare Common Procedure Coding System, as administered by CMS.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnification Cap" means $28,000,000, being twenty percent (20%) of the Total Consideration.
"Indemnified Party" means the Party seeking indemnification under Article IX.
"Indemnifying Party" means the Party from whom indemnification is sought under Article IX.
"intellectual Property" or "IP" means all intellectual property rights of any kind or nature, including (a) patents, patent applications, patent disclosures, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, and extensions thereof; (b) trademarks, service marks, trade names, trade dress, logos, brand names, and all registrations and applications for registration thereof, together with the goodwill associated therewith; (c) copyrights, copyright registrations, and applications for copyright registration; (d) trade secrets, know-how, inventions, processes, procedures, formulas, methods, techniques, algorithms, software, databases, data compilations, and confidential business information; (e) domain names and internet addresses; and (f) all other intellectual property or proprietary rights recognized under the Laws of any jurisdiction.
"IRC" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
"Knowledge of Seller" or "to the Knowledge of Seller" means the actual knowledge, after due inquiry, of each of the following individuals: Dr. Helena Vasquez (Chief Executive Officer), Martin Kowalski (Chief Financial Officer), Rebecca Chiang (General Counsel), Dr. Lara Okonkwo (Vice President, OncuPath R&D), Samuel Briggs (Director, OncuPath Commercial Operations), and Yuki Tanabe (Head of Regulatory Affairs, OncuPath). For purposes of this definition, "due inquiry" means such investigation and review as a prudent person holding the same position would reasonably be expected to undertake in the ordinary course of his or her duties.
"Law" means any statute, law, ordinance, regulation, rule, code, order, judgment, decree, injunction, governmental directive, or other requirement enacted, issued, promulgated, enforced, or entered by any Governmental Authority, including common law.
"Liability" means any liability, obligation, commitment, claim, demand, assessment, judgment, loss, damage, cost, or expense of any kind or nature, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due.
"Litigation" means any action, suit, proceeding, investigation, arbitration, mediation, claim, complaint, charge, grievance, or hearing by or before any Governmental Authority or arbitral tribunal.
"Losses" means any and all losses, damages, liabilities, obligations, claims, demands, judgments, settlements, fines, penalties, assessments, costs, and expenses (including reasonable attorneys' fees, accountants' fees, expert witness fees, and other costs of investigation and defense), net of any applicable insurance recoveries, Tax benefits, and indemnification payments received from third parties.
"Material Adverse Effect" means any event, change, effect, circumstance, occurrence, condition, development, or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, assets, results of operations, or financial condition of the OncuPath Business, taken as a whole, or (b) the ability of Seller to consummate the transactions contemplated hereby; provided, however, that none of the following, either alone or in combination, shall be deemed to constitute, or shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) changes in general economic or business conditions affecting the United States economy generally; (ii) changes or conditions affecting the companion diagnostics industry generally, to the extent not disproportionately affecting the OncuPath Business relative to other participants in such industry; (iii) changes in applicable Law or GAAP or the interpretation thereof; (iv) changes resulting from the announcement or pendency of the transactions contemplated by this Agreement; (v) changes resulting from acts of war, terrorism, sabotage, natural disasters, pandemics, epidemics, or other force majeure events; (vi) changes resulting from any action taken or omitted to be taken by Seller at the written request or with the prior written consent of Buyer; or (vii) changes in financial, banking, or securities markets generally, including any disruption thereof and any decline in the price of any security or any market index.
"Milestone 1 Deadline" has the meaning set forth in Section 2.7(a)(i).
"Milestone 2 Deadline" has the meaning set forth in Section 2.7(a)(ii).
"Net Working Capital" or "NWC" means, as of any date of determination, the current assets of the OncuPath Business minus the current liabilities of the OncuPath Business, in each case determined in accordance with GAAP and the NWC Methodologies set forth on Exhibit A.
"NWC Collar" means an amount equal to plus or minus $350,000 (±$350,000).
"NWC Methodologies" means the methodologies, principles, policies, practices, and procedures set forth on Exhibit A for the calculation of Net Working Capital.
"Offered Employees" has the meaning set forth in Section 6.6(a).
"OncuPath IP" has the meaning set forth in Section 2.1(c).
"Ordinary Course of Business" means the ordinary and usual course of the normal day-to-day operations of the OncuPath Business, consistent with past custom and practice (including with respect to quantity, frequency, and dollar amount).
"Outside Date" means October 31, 2023.
"Permits" means all permits, licenses, registrations, certifications, clearances, approvals, authorizations, franchises, variances, exemptions, orders, and similar rights and privileges issued by any Governmental Authority.
"Permitted Encumbrances" means (a) liens for Taxes, assessments, and other governmental charges not yet due and payable or being contested in good faith by appropriate proceedings for which adequate reserves have been established; (b) mechanics', carriers', workers', repairers', materialmen's, and similar statutory liens arising or incurred in the Ordinary Course of Business; (c) zoning, building, and other similar restrictions that do not materially impair the use of the applicable property; and (d) such other Encumbrances as are set forth on Schedule 4.4.
"Person" means any natural person, corporation, limited liability company, partnership, joint venture, trust, association, estate, unincorporated organization, Governmental Authority, or any other entity or organization.
"Pinnacle" has the meaning set forth in the Recitals.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending on or before the Closing Date.
"Purchase Price Allocation" has the meaning set forth in Section 2.8.
"Purchased Assets" has the meaning set forth in Section 2.1.
"R&W Insurance Policy" has the meaning set forth in Section 6.12(a).
"Regulatory Approvals" means all approvals, clearances, authorizations, registrations, certifications, permits, and licenses from any Governmental Authority (including the FDA, CMS, and any state health agency) necessary for the lawful conduct of the OncuPath Business.
"Representatives" means, with respect to any Person, such Person's officers, directors, managers, employees, agents, attorneys, accountants, advisors, consultants, financing sources, and other authorized representatives.
"Retained Business" means Seller's GenoStrat™ liquid biopsy platform and all other businesses of Seller that do not constitute the OncuPath Business.
"Seller" means Genome Dx Therapeutics Inc., a Delaware corporation.
"Seller Indemnified Parties" has the meaning set forth in Section 9.3.
"Survival Period" has the meaning set forth in Section 9.1(a).
"Target NWC" means $6,800,000.
"Tax" or "Taxes" means any and all taxes, levies, fees, imposts, duties, assessments, charges, or withholdings of any nature, including federal, state, local, foreign, or other income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee, or other tax, together with all interest, penalties, fines, and additions to tax imposed with respect thereto.
"Total Consideration" means $140,000,000.
"Towne Centre Facility" means the facility located at 4820 Towne Centre Drive, Suite 200, San Diego, California 92121.
"Transfer Taxes" has the meaning set forth in Section 6.7(b).
"Transferred Employees" has the meaning set forth in Section 6.6(b).
"Transition Services Agreement" or "TSA" means the Transition Services Agreement between Seller and Buyer in the form attached hereto as Exhibit G.
"Treasury Regulations" means the regulations promulgated under the IRC by the United States Department of the Treasury.
"Vantage License" means that certain License Agreement, dated September 12, 2019, between Seller and Vantage Molecular Sciences, Inc., as amended, supplemented, or otherwise modified from time to time, pursuant to which Seller holds an exclusive license for probe-labeling technology used in the OncuPath assays.
"WARN Act" means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar state or local law.
Section 1.2 — Interpretation
For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(b) The words "herein," "hereof," "hereby," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement.
(c) References to any Article, Section, Exhibit, or Schedule shall refer to the corresponding Article, Section, Exhibit, or Schedule of or to this Agreement, unless the context indicates otherwise.
(d) References to any agreement or contract shall mean such agreement or contract as amended, modified, supplemented, or restated from time to time, unless otherwise specified.
(e) References to any Person shall include such Person's successors and permitted assigns.
(f) References to any Law shall be deemed to refer to such Law as amended from time to time and to any rules, regulations, and guidance promulgated thereunder.
(g) The use of any gender shall include all genders, and the use of the singular shall include the plural, and vice versa.
(h) The headings and captions in this Agreement are inserted for convenience of reference only and shall not be considered a part of or affect the construction or interpretation of this Agreement.
(i) Unless otherwise specified, all references to dollar amounts or "$" shall refer to United States dollars.
(j) The Exhibits and Schedules attached hereto are incorporated herein by reference and made a part of this Agreement as if fully set forth herein.
(k) No provision of this Agreement shall be interpreted in favor of, or against, either Party by reason of the extent to which such Party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft of this Agreement or such provision.
(l) The terms "days" shall refer to calendar days unless the term "Business Days" is used.
ARTICLE II — PURCHASE AND SALE OF ASSETS; CONSIDERATION
Section 2.1 — Purchased Assets
At the Closing, upon the terms and subject to the conditions of this Agreement, Seller shall sell, convey, assign, transfer, and deliver to Buyer, and Buyer shall purchase and acquire from Seller, free and clear of all Encumbrances (other than Permitted Encumbrances), all of Seller's right, title, and interest in, to, and under the following assets, properties, and rights (collectively, the "Purchased Assets"):
(a) Tangible Personal Property. All equipment, machinery, instruments, laboratory apparatus, furniture, fixtures, office equipment, computer hardware, supplies, inventory (including raw materials, work-in-process, and finished goods), and other tangible personal property owned by Seller and used exclusively or primarily in the OncuPath Business, wherever located, including all such assets located at the Towne Centre Facility and the Carlsbad Facility, as more particularly described on Schedule 2.1(a).
(b) Assumed Contracts. All contracts, agreements, purchase orders, customer agreements, supplier agreements, distribution agreements, license agreements (including the Vantage License, subject to obtaining the requisite consent to assignment from Vantage Molecular Sciences, Inc.), service agreements, and other arrangements listed on Schedule 2.1(b), together with all rights, privileges, and benefits of Seller arising thereunder.
(c) OncuPath IP. All intellectual Property owned by Seller and used exclusively or primarily in the OncuPath Business (collectively, the "OncuPath IP"), including:
(i) fourteen (14) issued United States patents listed on Schedule 2.1(c)(i);
(ii) seven (7) pending United States patent applications listed on Schedule 2.1(c)(ii);
(iii) registered trademarks: OncuPath™ (USPTO Registration No. 5,847,321), OncuPath-HER3™ (USPTO Registration No. 6,412,088), and OncuPath-GENOMARK™ (USPTO Registration No. 6,118,754), together with all associated goodwill;
(iv) all trade secrets, know-how, proprietary processes, formulas, methods, techniques, algorithms, databases, data compilations, and other proprietary information related to OncuPath assay technology, including standard operating procedures, assay validation data, and manufacturing protocols;
(v) all copyrights, copyright registrations, and applications for copyright registration related to the OncuPath Business, including product manuals, technical publications, marketing materials, and software code;
(vi) all domain names and internet addresses related to the OncuPath Business, including oncupath.com and related domains; and
(vii) all other intellectual Property rights exclusively related to the OncuPath Business.
(d) Regulatory Assets. All FDA clearances, approvals, submissions, and related regulatory files pertaining to the OncuPath Business, including (i) 510(k) clearances K201847, K193215, and K210562; (ii) the pending OncuPath-HER3™ premarket approval supplement (P230014, submitted to the FDA on January 30, 2023); (iii) the CLIA certificate of accreditation (CLIA ID: 05D2178493) for the Towne Centre Facility reference laboratory; and (iv) all regulatory correspondence, meeting minutes, adverse event reports, complaint files, and other regulatory files maintained by or on behalf of Seller in connection with the OncuPath Business.
(e) Real Property Interests. Seller's interest as tenant under the lease for the Towne Centre Facility (subject to obtaining the consent of Towne Centre Properties LLC as landlord) and Seller's interest as subtenant under the sublease for the Carlsbad Facility (sublease expiring December 31, 2025), in each case together with all improvements, fixtures, and appurtenances thereto.
(f) Books and Records. All books, records, files, data, documentation, manuals, reports, studies, correspondence, and other recorded information exclusively related to the OncuPath Business, including financial records, accounting records, quality system records, manufacturing records, research and development records, clinical data, customer records, and supplier records; provided, however, that Seller shall be entitled to retain copies of such books and records to the extent necessary for Tax, legal, regulatory, or compliance purposes.
(g) Customer and Supplier Relationships. All customer lists, customer and supplier relationships, vendor lists, distribution networks, marketing materials, promotional materials, and goodwill associated with the OncuPath Business.
(h) Claims and Prepaid Items. All claims, causes of action, choses in action, rights of recovery, rights of set-off, and rights of recoupment of Seller exclusively related to the OncuPath Business arising from and after the Closing, together with all deposits, prepaid expenses, prepaid items, and advance payments exclusively related to the OncuPath Business arising from and after the Closing.
(i) Goodwill. All goodwill of Seller associated with the OncuPath Business, including the going-concern value thereof.
Section 2.2 — Excluded Assets
Notwithstanding anything in Section 2.1 to the contrary, the following assets shall be excluded from the Purchased Assets and shall be retained by Seller (collectively, the "Excluded Assets"):
(a) The GenoStrat™ liquid biopsy platform and all assets, properties, rights, and interests of Seller related to the Retained Business, including all intellectual property, regulatory filings, contracts, equipment, inventory, and personnel exclusively related thereto.
(b) All cash and cash equivalents of Seller, including bank accounts, certificates of deposit, money market accounts, and marketable securities held at the corporate level.
(c) All Tax refunds, credits, overpayments, and prepayments of Taxes attributable to Pre-Closing Tax Periods, and all rights to receive any of the foregoing.
(d) Seller's corporate name, "Genome Dx Therapeutics" and "GDT" trademarks and trade names, and all trademarks, service marks, trade names, and domain names of Seller that are not within the OncuPath brand family, including all goodwill associated therewith.
(e) All rights of Seller under this Agreement, including any rights arising from or relating to the performance or enforcement of this Agreement or any Exhibit, Schedule, or ancillary agreement hereto.
(f) All personnel records and files relating to employees of Seller who are not Transferred Employees, subject to applicable Law regarding the transfer of employee records.
(g) All insurance policies of Seller and all rights thereunder, including all claims, refunds, and proceeds therefrom, other than the R&W Insurance Policy.
(h) All other assets listed on Schedule 2.2, including all assets, properties, and rights specifically identified therein as Excluded Assets.
(i) The minute books, stock ledgers, corporate seal, and organizational documents of Seller.
(j) All rights of Seller under confidentiality or non-disclosure agreements entered into in connection with the process leading to this Agreement.
Section 2.3 — Assumed Liabilities
At the Closing, Buyer shall assume and agree to pay, perform, and discharge when due only the following Liabilities of Seller (collectively, the "Assumed Liabilities"):
(a) All trade payables and accounts payable of the OncuPath Business that are incurred in the Ordinary Course of Business from and after the Closing Date.
(b) All obligations and liabilities under the Assumed Contracts, to the extent such obligations and liabilities arise from and after the Closing Date and do not arise from any breach, default, or violation thereof by Seller prior to the Closing Date.
(c) All product warranty claims, product liability claims, and product return obligations for OncuPath assays shipped from and after the Closing Date, to the extent arising out of products manufactured, sold, or distributed by Buyer from and after the Closing Date.
(d) All other Liabilities specifically identified on Schedule 2.3 as Assumed Liabilities.
(e) All Liabilities arising out of the ownership, use, or operation of the Purchased Assets from and after the Closing Date, other than Excluded Liabilities.
Section 2.4 — Excluded Liabilities
Buyer shall not assume, and Seller shall retain and be solely responsible for the payment, performance, and discharge of, all Liabilities of Seller other than the Assumed Liabilities (collectively, the "Excluded Liabilities"), including the following:
(a) All Liabilities of Seller arising out of the ownership, use, or operation of the Purchased Assets or the conduct of the OncuPath Business prior to the Closing Date, including all trade payables, accounts payable, accrued expenses, and other current liabilities of the OncuPath Business incurred prior to the Closing Date.
(b) Any Litigation pending or threatened as of the Closing Date against Seller or relating to the OncuPath Business, including any Litigation identified on Schedule 4.10.
(c) All employee benefit obligations, pension liabilities, retiree medical obligations, deferred compensation obligations, severance obligations, and other employment-related liabilities for employees of Seller who are not Transferred Employees, and all such obligations for Transferred Employees arising prior to the Closing Date.
(d) All Environmental Liabilities at Seller's facilities that are not conveyed to Buyer, and all Environmental Liabilities arising out of conditions existing at the Towne Centre Facility or the Carlsbad Facility prior to the Closing Date.
(e) All Taxes of Seller for Pre-Closing Tax Periods, and all Taxes attributable to the Purchased Assets or the OncuPath Business for Pre-Closing Tax Periods.
(f) Any Liabilities arising out of or relating to the Excluded Assets.
(g) Any indebtedness for borrowed money of Seller, including all bank debt, notes payable, lines of credit, and related interest, fees, premiums, penalties, and other amounts payable in respect thereof.
(h) Any intercompany Liabilities of Seller, including any payables, receivables, or other amounts owing between Seller and any of its Affiliates.
(i) Any product warranty claims, product liability claims, and product return obligations for OncuPath assays shipped prior to the Closing Date.
Section 2.5 — Net Working Capital Adjustment
(a) Estimated Closing NWC. At least three (3) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer a written statement setting forth Seller's good-faith estimate of the Net Working Capital of the OncuPath Business as of the Closing Date (the "Estimated NWC"), prepared in accordance with GAAP and the NWC Methodologies set forth on Exhibit A. The Estimated NWC statement shall include reasonable supporting detail and work papers. Seller shall provide Buyer and its Representatives with reasonable access to Seller's books, records, and accounting personnel during normal business hours to assist in the review of the Estimated NWC.
(b) Target NWC. The Parties agree that the target Net Working Capital of the OncuPath Business is $6,800,000 (the "Target NWC"). The Target NWC has been determined based on the historical Net Working Capital of the OncuPath Business and the NWC Methodologies set forth on Exhibit A.
(c) Closing Adjustment. The Closing Cash Payment shall be adjusted as follows:
(i) If the Estimated NWC exceeds the Target NWC by more than the NWC Collar (i.e., if the Estimated NWC exceeds $7,150,000), the Closing Cash Payment shall be increased on a dollar-for-dollar basis by the amount by which the Estimated NWC exceeds $7,150,000;
(ii) If the Target NWC exceeds the Estimated NWC by more than the NWC Collar (i.e., if the Estimated NWC is less than $6,450,000), the Closing Cash Payment shall be decreased on a dollar-for-dollar basis by the amount by which $6,450,000 exceeds the Estimated NWC; and
(iii) If the difference between the Estimated NWC and the Target NWC is within the NWC Collar (i.e., the Estimated NWC is between $6,450,000 and $7,150,000, inclusive), no adjustment shall be made to the Closing Cash Payment at the Closing.
(d) Final Closing Balance Sheet. Within ninety (90) days following the Closing Date, Seller shall cause Haverford & Lane LLP, as Seller's independent accounting firm, to prepare and deliver to Buyer a final closing balance sheet of the OncuPath Business as of the Closing Date, together with a written statement setting forth the final Net Working Capital (the "Final NWC"), in each case prepared in accordance with GAAP and the NWC Methodologies set forth on Exhibit A. The Final NWC statement shall include reasonable supporting detail and work papers. Assuming a Closing Date of August 8, 2023, such delivery deadline would be on or about November 6, 2023.
(e) Dispute Resolution. Buyer shall have thirty (30) days after receipt of the Final NWC statement and the final closing balance sheet to review the same and to deliver to Seller a written notice of objection (a "NWC Objection Notice") setting forth in reasonable detail each item disputed and the basis for such dispute. If Buyer does not deliver a NWC Objection Notice within such thirty (30)-day period, the Final NWC as set forth in Seller's statement shall be deemed final, conclusive, and binding upon the Parties. If Buyer timely delivers a NWC Objection Notice, the Parties shall negotiate in good faith to resolve the disputed items for a period of fifteen (15) days following Seller's receipt of such NWC Objection Notice. If the Parties are unable to resolve all disputed items within such fifteen (15)-day period, the remaining disputed items shall be submitted for resolution to an independent accounting firm of national reputation mutually agreed upon by the Parties (the "Independent Accounting Firm"), and if the Parties cannot agree on such firm within five (5) Business Days, each Party shall select one nationally recognized accounting firm, and such two firms shall jointly select a third nationally recognized accounting firm to serve as the Independent Accounting Firm. The Independent Accounting Firm shall act as an expert, not as an arbitrator, and shall determine only those items that remain in dispute, and its determination with respect to each disputed item shall not be outside the range of values proposed by the Parties. The determination of the Independent Accounting Firm shall be final, conclusive, and binding upon the Parties, absent manifest error. The fees and expenses of the Independent Accounting Firm shall be allocated between the Parties in inverse proportion to the relative success of each Party's positions as determined by the Independent Accounting Firm.
(f) True-Up Payment. Within five (5) Business Days following the final determination of the Final NWC (whether by agreement of the Parties, deemed acceptance, or determination by the Independent Accounting Firm):
(i) If the Final NWC exceeds the Target NWC by more than the NWC Collar (i.e., the Final NWC exceeds $7,150,000), Buyer shall pay to Seller, by wire transfer of immediately available funds, the amount by which such excess over $7,150,000 exceeds any preliminary upward adjustment already made to the Closing Cash Payment pursuant to Section 2.5(c)(i);
(ii) If the Target NWC exceeds the Final NWC by more than the NWC Collar (i.e., the Final NWC is less than $6,450,000), Seller shall pay to Buyer, by wire transfer of immediately available funds, the amount by which such shortfall below $6,450,000 exceeds any preliminary downward adjustment already made to the Closing Cash Payment pursuant to Section 2.5(c)(ii); and
(iii) In each case, the true-up payment shall be calculated net of amounts already adjusted at Closing, such that the aggregate adjustment reflects the difference between the Closing adjustment based on the Estimated NWC and the adjustment that would have been made had the Final NWC been used at the Closing.
Section 2.6 — Escrow
(a) Deposit. At the Closing, Buyer shall deposit the Escrow Amount of $14,000,000, representing ten percent (10%) of the Total Consideration, into a segregated escrow account at Ashgrove Equity Partners Escrow Services, Inc. (Account No. 8841-7023-5500) (the "Escrow Account") pursuant to the terms and conditions of the Escrow Agreement among Seller, Buyer, and the Escrow Agent, substantially in the form attached hereto as Exhibit B (the "Escrow Agreement"). The Escrow Amount shall be invested in accordance with the investment instructions set forth in the Escrow Agreement, and all interest and investment earnings thereon shall be held in escrow and distributed in accordance with the Escrow Agreement.
(b) Security for Indemnification. The Escrow Amount shall serve as security for Seller's indemnification obligations under Article IX of this Agreement. The Escrow Agent shall hold and disburse the Escrow Amount in accordance with the terms of the Escrow Agreement and the applicable provisions of this Agreement.
(c) Release Schedule. Subject to the terms and conditions of the Escrow Agreement:
(i) First Release. On the date that is twelve (12) months after the Closing Date, the Escrow Agent shall release to Seller an amount equal to fifty percent (50%) of the then-remaining balance of the Escrow Amount (including any interest and investment earnings thereon), less the aggregate amount of all then-pending and unresolved indemnification claims asserted by any Buyer Indemnified Party pursuant to Article IX (or such lesser amount as may be necessary to reserve for such pending claims, as determined in accordance with the Escrow Agreement); and
(ii) Final Release. Upon the expiration of the Survival Period (eighteen (18) months after the Closing Date), the Escrow Agent shall release to Seller the entire remaining balance of the Escrow Amount (including any interest and investment earnings thereon), less the aggregate amount of all then-pending and unresolved indemnification claims asserted by any Buyer Indemnified Party pursuant to Article IX (or such lesser amount as may be necessary to reserve for such pending claims, as determined in accordance with the Escrow Agreement). Any amounts retained in escrow with respect to pending claims shall be released promptly following the resolution of such claims in accordance with the Escrow Agreement.
(d) Escrow Agent Fees. All fees, costs, and expenses of the Escrow Agent shall be borne equally by Seller and Buyer, with each Party paying one-half (50%) of such fees, costs, and expenses.
Section 2.7 — Earnout
(a) Earnout Payments. In addition to the Closing Cash Payment and the Escrow Amount, Buyer shall pay to Seller additional consideration of up to $14,000,000 in the aggregate (collectively, the "Earnout Payments") upon the achievement of the following milestones during the Earnout Period:
(i) Milestone 1. $8,000,000, payable by wire transfer of immediately available funds within thirty (30) days following the achievement of Earnout Milestone 1 (i.e., FDA clearance or approval of the OncuPath-HER3™ assay as a companion diagnostic for any FDA-approved therapeutic), on or before the date that is twenty-four (24) months after the Closing Date (the "Milestone 1 Deadline"). For purposes of this Section 2.7(a)(i), "FDA clearance or approval" shall mean the issuance by the FDA of a final clearance letter under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, approval of a premarket approval application or supplement thereto, or a de novo classification order, in each case with respect to the OncuPath-HER3™ assay as a companion diagnostic.