ASSET PURCHASE AGREEMENT
by and between
GENOME DX THERAPEUTICS INC.
as Seller,
and
MERIDIAN PRECISION DIAGNOSTICS, INC.
as Buyer
Dated as of May 11, 2023
Right-click to update Table of Contents
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of May 11, 2023 (the "Execution Date"), by and between Genome Dx Therapeutics Inc., a Delaware corporation ("Seller"), with its principal offices located at 10250 Science Center Drive, Suite 600, San Diego, California 92121, and Meridian Precision Diagnostics, Inc., a Delaware corporation ("Buyer"), with its principal offices located at 2400 Meridian Parkway, Suite 300, Durham, North Carolina 27713. Seller and Buyer are each referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Seller is engaged in, among other things, the development, manufacture, and commercialization of the OncuPath™ companion diagnostics assay line (as more fully described herein, the "Business" or the "OncuPath Business");
WHEREAS, Seller's parent equity sponsor is Pinnacle Biosciences Partners Fund III, L.P., a Delaware limited partnership, which holds approximately 68.4% of the outstanding shares of Seller's common stock;
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, on the terms and subject to the conditions set forth herein;
WHEREAS, the Parties previously executed a non-binding Letter of Intent dated February 24, 2023 (the "LOI"), setting forth the principal terms upon which the Parties proposed to consummate the transactions contemplated hereby;
WHEREAS, Buyer intends to finance a portion of the purchase price through a senior secured term loan facility from Summit National Bank, N.A. in the aggregate principal amount of $95,000,000; and
WHEREAS, Buyer has obtained a buyer-side representations and warranties insurance policy from Apex Mutual Insurance Company (Policy No. RWI-2023-07182) to provide coverage with respect to certain of Seller's representations and warranties hereunder.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual representations, warranties, covenants, and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used but not defined in this Article I shall have the meanings ascribed to them elsewhere in this Agreement.
"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" 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" means this Asset Purchase Agreement, including all Exhibits and Schedules hereto, as it may be amended or modified from time to time in accordance with the terms hereof.
"Ancillary Agreements" means the Bill of Sale, the Assignment and Assumption Agreement, the IP Assignment Agreement, the Escrow Agreement, the Earnout Agreement, the Transition Services Agreement, the Non-Competition Agreement, and each other agreement, document, instrument, or certificate contemplated by this Agreement to be executed and delivered in connection with the transactions contemplated hereby.
"Assumed Contracts" means those Contracts listed on Schedule 1.1(a) that are to be assumed by Buyer at the Closing.
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Basket Amount" means One Million Four Hundred Thousand Dollars ($1,400,000).
"Bill of Sale" means the Bill of Sale in the form attached hereto as Exhibit A.
"Business" or "OncuPath Business" means Seller's companion diagnostics assay line operated under the OncuPath™ brand, including all research, development, manufacturing, marketing, distribution, commercialization, and regulatory activities related thereto.
"Business Day" means any day other than a Saturday, Sunday, or any day on which commercial banks in San Diego, California or Durham, North Carolina are authorized or required by applicable Law to be closed.
"Business Employees" means the eighty-three (83) employees of Seller who are primarily engaged in the OncuPath Business, as listed on Schedule 4.12(a).
"Buyer" means Meridian Precision Diagnostics, Inc., a Delaware corporation.
"Buyer's Counsel" means Whitfield Sayer & Gregg LLP, with offices at 200 South Tryon Street, Suite 2800, Charlotte, North Carolina 28202.
"Carlsbad Facility" means the premises located at 925 Industrial Court, Carlsbad, California 92010, which are subleased by Seller and used in connection with the OncuPath Business.
"CLIA" means the Clinical Laboratory Improvement Amendments of 1988, as amended, and the rules and regulations promulgated thereunder.
"CLIA Certificate" means the CLIA certificate of accreditation issued to Seller's laboratory at 4820 Towne Centre Drive, Suite 200, San Diego, California 92121, bearing CLIA ID: 05D2178493.
"Closing" has the meaning set forth in Section 3.1.
"Closing Cash Payment" means One Hundred Twenty-Six Million Dollars ($126,000,000), payable in accordance with Section 2.5(a)(i).
"Closing Date" has the meaning set forth in Section 3.1.
"CMS" means the Centers for Medicare & Medicaid Services.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the rules and regulations promulgated thereunder.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
"Confidentiality Agreement" means that certain Mutual Confidentiality and Non-Disclosure Agreement, dated as of January 2023, by and between Seller and Buyer.
"Contract" means any legally binding agreement, contract, subcontract, lease, sublease, license, sublicense, purchase order, sales order, commitment, arrangement, or understanding, whether written or oral.
"De Minimis Amount" means Seventy-Five Thousand Dollars ($75,000).
"Disclosure Schedules" means the disclosure schedules delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement.
"Earnout" has the meaning set forth in Section 2.7.
"Earnout Agreement" means the Earnout Agreement in the form attached hereto as Exhibit D.
"Earnout Milestone 1" means FDA clearance or approval of OncuPath-HER3™ (or any successor assay thereto) as a companion diagnostic for any FDA-approved therapeutic product, achieved on or before August 8, 2025 (the date that is twenty-four (24) months following the Closing Date).
"Earnout Milestone 2" means the issuance by CMS of a unique HCPCS code for OncuPath-HER3™ (or any successor assay thereto) and the receipt by Buyer (or any of its Affiliates) of the first Medicare reimbursement payment for such assay, each achieved on or before August 8, 2026 (the date that is thirty-six (36) months following the Closing Date).
"Earnout Period" means the period beginning on the Closing Date and ending on the date that is thirty-six (36) months following the Closing Date.
"Encumbrance" means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, equity, trust, equitable interest, claim, preference, right of possession, lease, tenancy, license, encroachment, covenant, infringement, interference, order, proxy, option, right of first refusal, preemptive right, community property interest, legend, defect, impediment, exception, reservation, limitation, impairment, imperfection of title, condition, 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).
"Environmental Laws" means all applicable federal, state, and local laws, statutes, ordinances, regulations, rules, and orders relating to pollution, the protection of the environment, human health and safety (as it relates to exposure to Hazardous Materials), or the generation, handling, storage, treatment, transport, release, disposal, or cleanup of Hazardous Materials, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), and the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
"Escrow Account" means Account No. 8841-7023-5500 established at Ashgrove Equity Partners Escrow Services, Inc. for the purpose of holding the Escrow Amount in accordance with the Escrow Agreement.
"Escrow Agent" means Ashgrove Equity Partners Escrow Services, Inc.
"Escrow Agreement" means the Escrow Agreement in the form attached hereto as Exhibit C, to be entered into among Seller, Buyer, and the Escrow Agent at the Closing.
"Escrow Amount" means Fourteen Million Dollars ($14,000,000), which shall be deposited into the Escrow Account at the Closing.
"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.
"Fundamental Representations" has the meaning set forth in Section 9.1.
"GAAP" means generally accepted accounting principles as in effect in the United States, applied on a consistent basis.
"Governmental Authority" means any federal, state, local, or foreign government or political subdivision thereof, or any agency, department, commission, board, bureau, court, tribunal, or other instrumentality thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing, or other governmental or quasi-governmental authority.
"Hazardous Materials" means any pollutant, contaminant, waste, chemical, substance, material, compound, or mixture regulated under Environmental Laws, including petroleum and petroleum products, asbestos-containing materials, polychlorinated biphenyls, and radioactive materials.
"HCPCS" means the Healthcare Common Procedure Coding System maintained 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 Twenty-Eight Million Dollars ($28,000,000).
"Intellectual Property" means all intellectual property and industrial property rights of any kind, 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 dress, trade names, logos, corporate names, Internet domain names, and registrations and applications for registration thereof, together with all goodwill associated therewith, (c) copyrights and copyrightable works, and registrations and applications for registration thereof, (d) trade secrets, know-how, inventions (whether or not patentable), discoveries, improvements, technology, business and technical information, databases, data collections, and confidential information, and (e) software, including source code, object code, firmware, development tools, files, records, and data.
"IP Assignment Agreement" means the intellectual Property Assignment Agreement in the form attached hereto as Exhibit G.
"IRS" means the Internal Revenue Service of the United States.
"Knowledge of Seller" or "to the Knowledge of Seller" or "Seller's Knowledge" means the actual knowledge of 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), in each case after reasonable inquiry of their respective direct reports.
"Law" means any federal, state, local, municipal, or foreign law, statute, ordinance, regulation, rule, code, order, judgment, injunction, decree, permit, or other requirement enacted, issued, promulgated, enforced, or entered by any Governmental Authority.
"Leased Real Property" means (a) the premises located at 4820 Towne Centre Drive, Suite 200, San Diego, California 92121 (leased from Towne Centre Properties LLC) and (b) the Carlsbad Facility located at 925 Industrial Court, Carlsbad, California 92010 (subleased), as more fully described on Schedule 4.13.
"Lien" means any Encumbrance.
"Losses" means any and all losses, damages, liabilities, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind or nature, including reasonable attorneys' fees and expenses, court costs, and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers.
"Material Adverse Effect" means any event, circumstance, development, change, occurrence, condition, or effect that, individually or in the aggregate, has had, or would reasonably be expected to have, a material adverse effect on (a) the business, results of operations, financial condition, or assets 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, individually or in the aggregate, shall be deemed to constitute, or shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) general economic or political conditions or conditions generally affecting the industries in which the OncuPath Business operates, (ii) any changes in financial or securities markets in general, (iii) any changes in applicable Laws or accounting rules or principles (including GAAP) or the enforcement or interpretation thereof, (iv) any changes resulting from the announcement, pendency, or completion of the transactions contemplated by this Agreement, including losses or threatened losses of employees, customers, suppliers, distributors, or other business relationships, (v) any natural disaster, act of God, epidemic, pandemic, or outbreak of hostilities, acts of war, sabotage, terrorism, or military actions, (vi) any failure by the OncuPath Business to meet any internal or published projections, forecasts, or estimates (provided that the underlying causes thereof may be taken into account), or (vii) any changes requested or required by Buyer; provided, further, that any event, circumstance, development, change, occurrence, condition, or effect referred to in clauses (i), (ii), (iii), or (v) above may be taken into account in determining whether a Material Adverse Effect has occurred to the extent such event, circumstance, development, change, occurrence, condition, or effect has a disproportionate impact on the OncuPath Business relative to other participants in the industries in which the OncuPath Business operates.
"Net Working Capital" or "NWC" has the meaning set forth in Section 2.6.
"Non-Competition Agreement" means the Non-Competition and Non-Solicitation Agreement in the form attached hereto as Exhibit F, to be entered into by Seller at the Closing.
"Outside Date" means October 1, 2023.
"Owned IP" means all intellectual Property owned by Seller and used exclusively in the OncuPath Business.
"Permitted Liens" means (a) statutory Liens for current Taxes not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (b) mechanics', carriers', workers', repairers', and similar statutory Liens arising or incurred in the ordinary course of business for amounts that are not yet due and payable, (c) zoning, entitlement, conservation, and other land use and environmental regulations by Governmental Authorities that do not materially interfere with the current use of the applicable property, (d) Liens arising under workers' compensation, unemployment insurance, social security, retirement, and similar legislation, and (e) such other imperfections of title, conditions, easements, encumbrances, and restrictions as do not, individually or in the aggregate, materially impair the continued use, occupancy, or operation of the assets to which they relate in the conduct of the OncuPath Business as currently conducted.
"Person" means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, Governmental Authority, or other entity.
"PMA Supplement" means the premarket approval supplement submitted to the FDA under PMA No. P230014, submitted on January 30, 2023, for the OncuPath-HER3™ assay.
"Pre-Closing Tax Period" means any taxable period ending on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing Date.
"Purchase Price" means One Hundred Forty Million Dollars ($140,000,000) in the aggregate (comprised of the Closing Cash Payment and the Earnout), as more fully described in Section 2.5.
"Purchased Assets" has the meaning set forth in Section 2.1.
"R&W Insurance Policy" means that certain buyer-side representations and warranties insurance policy issued by Apex Mutual Insurance Company, Policy No. RWI-2023-07182, with a policy limit of Twenty-Eight Million Dollars ($28,000,000) and a retention of One Million Four Hundred Thousand Dollars ($1,400,000), as in effect on the date hereof and as may be amended in accordance with Section 6.12.
"Seller" means Genome Dx Therapeutics Inc., a Delaware corporation.
"Seller's Counsel" means Calderwood & Harkness LLP, with offices at 555 South Hope Street, Suite 4400, Los Angeles, California 90071.
"Straddle Period" means any taxable period that begins on or before and ends after the Closing Date.
"Survival Period" means the period of eighteen (18) months following the Closing Date.
"Target NWC" means Six Million Eight Hundred Thousand Dollars ($6,800,000).
"Tax" or "Taxes" means any and all federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other taxes of any kind whatsoever, including any interest, penalty, or addition thereto.
"Tax Return" means any return, declaration, report, claim for refund, information return, or statement relating to Taxes, including any schedule or attachment thereto, and any amendment thereof.
"Total Consideration" means One Hundred Forty Million Dollars ($140,000,000).
"Transfer Taxes" means all transfer, documentary, sales, use, stamp, registration, value added, and other similar Taxes and fees (including any penalties and interest) incurred in connection with the transactions contemplated by this Agreement.
"Transferred Employees" means those Business Employees who accept Buyer's offers of employment and commence employment with Buyer on or as of the Closing Date, as contemplated by Section 6.5.
"Transition Services Agreement" or "TSA" means the Transition Services Agreement in the form attached hereto as Exhibit E, to be entered into by Seller and Buyer at the Closing.
"Vantage License" means that certain License Agreement dated September 12, 2019, by and between Vantage Molecular Sciences, Inc. and Seller, pursuant to which Seller holds a license to certain probe-labeling technology used in the OncuPath Business.
"WARN Act" means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar state or local "plant closing" or "mass layoff" Laws.
ARTICLE II — PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
Section 2.1 — Purchased Assets
At the Closing, upon the terms and subject to the conditions set forth in 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 Liens (other than Permitted Liens), all of Seller's right, title, and interest in, to, and under all of the following assets, properties, and rights used exclusively or primarily in the OncuPath Business (collectively, the "Purchased Assets"):
(a) Tangible Personal Property. All tangible personal property, equipment, laboratory instruments (including, without limitation, sequencing instruments, thermocyclers, liquid-handling platforms, fluorescence microscopes, spectrophotometers, and related automated systems), furniture, fixtures, tools, spare parts, supplies, and other tangible assets owned by Seller and used exclusively or primarily in the OncuPath Business, as more fully described on Schedule 2.1(a);
(b) Inventory. All inventory of the OncuPath Business, including finished goods, raw materials, work-in-progress, packaging materials, labeling, reagents, assay kits, samples, reference materials, and supplies, wherever located;
(c) intellectual Property. All intellectual Property owned by Seller and used exclusively or primarily in the OncuPath Business, including:
(i) fourteen (14) issued United States patents and seven (7) pending United States patent applications, as listed on Schedule 2.1(c)(i);
(ii) registered trademarks, including: OncuPath™ (USPTO Reg. No. 5,847,321), OncuPath-HER3™ (USPTO Reg. No. 6,412,088), and OncuPath-GENOMARK™ (USPTO Reg. No. 6,118,754), as listed on Schedule 2.1(c)(ii), together with all goodwill associated therewith;
(iii) all trade secrets, know-how, laboratory protocols, standard operating procedures, proprietary data, clinical and analytical validation data, algorithms, biomarker panels, assay formulations, manufacturing processes, quality control methodologies, and other confidential business information exclusively related to the OncuPath Business; and
(iv) all copyrights in works of authorship, including product literature, technical manuals, training materials, and software, exclusively related to the OncuPath Business;
(d) Vantage License. All of Seller's rights, title, and interest in, to, and under the Vantage License (that certain License Agreement dated September 12, 2019, by and between Vantage Molecular Sciences, Inc. and Seller, pursuant to which Seller holds a license to certain probe-labeling technology used in the OncuPath Business), subject to the consent of Vantage Molecular Sciences, Inc. to such assignment;
(e) Assumed Contracts. All of Seller's rights, title, and interest in, to, and under the Assumed Contracts listed on Schedule 2.1(e), including all rights to receive goods, services, payments, and other consideration thereunder;
(f) Regulatory Assets. All of Seller's rights, title, and interest in and to the following regulatory assets, to the extent transferable under applicable Law:
(i) three (3) FDA-cleared 510(k) assays: K201847, K193215, and K210562;
(ii) the pending PMA supplement for OncuPath-HER3™ (PMA No. P230014, submitted to the FDA on January 30, 2023);
(iii) the CLIA certificate of accreditation (CLIA ID: 05D2178493) for the clinical laboratory located at 4820 Towne Centre Drive, Suite 200, San Diego, California 92121;
(iv) all FDA establishment registrations and device listings relating to the OncuPath Business;
(v) all correspondence, submissions, filings, reports, and communications with the FDA, CMS, and other Governmental Authorities relating to the OncuPath Business; and
(vi) all clinical data, analytical data, validation studies, and regulatory files related to the foregoing;
(g) Real Property Interests. All of Seller's rights, title, and interest in and under the leases and subleases for the Leased Real Property, consisting of (i) the lease for premises at 4820 Towne Centre Drive, Suite 200, San Diego, California 92121 (leased from Towne Centre Properties LLC) and (ii) the sublease for premises at 925 Industrial Court, Carlsbad, California 92010 (sublease expiring December 31, 2025);
(h) Customer and Supplier Information. All customer lists, customer files, customer purchase histories, supplier lists, supplier files, vendor information, distributor records, pricing information, marketing data, market research, and commercial records of the OncuPath Business;
(i) Books and Records. All books, records, files, invoices, correspondence, product specifications, quality system records, batch records, device history records, complaint files, engineering change orders, drawings, manuals, and documentation exclusively related to the OncuPath Business; provided, however, that Seller shall have the right to retain copies of such books and records to the extent reasonably necessary for Tax, legal, regulatory, or compliance purposes;
(j) Goodwill. All goodwill of the OncuPath Business, including the goodwill associated with the OncuPath™ brand and the Purchased Assets;
(k) Claims and Rights. All claims, causes of action, choses in action, rights of recovery, rights of set-off, and rights of recoupment relating to, arising from, or associated with the Purchased Assets or the OncuPath Business, whether known or unknown, contingent or otherwise, including any such rights arising under warranties, representations, or guarantees made by suppliers, manufacturers, contractors, or other third parties in connection with the Purchased Assets.
Section 2.2 — Excluded Assets
Notwithstanding anything to the contrary in Section 2.1 or elsewhere in this Agreement, the following assets (collectively, the "Excluded Assets") are expressly excluded from the Purchased Assets and shall be retained by Seller:
(a) Seller's GenoStrat™ liquid biopsy platform and all other retained businesses, product lines, and divisions of Seller (including, for the avoidance of doubt, Genome Dx Therapeutics Inc.'s businesses, operations, assets, and properties not constituting part of the OncuPath Business), and all assets exclusively associated therewith;
(b) all corporate-level cash, cash equivalents, short-term investments, and bank accounts of Seller (other than the Escrow Account, which shall be funded by Buyer at Closing);
(c) all rights to Tax refunds, credits, prepayments, or overpayments attributable to Pre-Closing Tax Periods, whether with respect to the OncuPath Business or otherwise;
(d) Seller's corporate name ("Genome Dx Therapeutics Inc."), corporate logo, and all trademarks, trade names, and domain names associated with the "GDT" brand or any other brand of Seller outside the OncuPath brand family;
(e) all rights of Seller under this Agreement and the Ancillary Agreements (including the right to receive the Purchase Price hereunder);
(f) all personnel records and files for employees of Seller who are not Transferred Employees, including any personnel records that Seller is required by applicable Law to retain;
(g) all insurance policies of Seller and all rights to proceeds thereunder (other than to the extent relating to assigned claims under the Purchased Assets), including directors' and officers' insurance policies;
(h) the minute books, stock transfer ledgers, stock records, corporate seal, and other similar organizational records and documents of Seller; and
(i) the assets listed on Schedule 2.2, if any.
Section 2.3 — Assumed Liabilities
At the Closing, upon the terms and subject to the conditions set forth in this Agreement, Buyer shall assume and agree to pay, perform, and discharge only the following liabilities and obligations of Seller (collectively, the "Assumed Liabilities"):
(a) all trade payables and accrued expenses of the OncuPath Business arising in the ordinary course of business and accruing after the Closing Date, but only to the extent such trade payables and accrued expenses are reflected in the final Net Working Capital calculation pursuant to Section 2.6 or arise in the ordinary course of the OncuPath Business following the Closing;
(b) all obligations under the Assumed Contracts arising and required to be performed after the Closing Date (other than any obligations arising out of or relating to any breach, default, or violation by Seller of any such Assumed Contract that occurred on or prior to the Closing Date);
(c) all product warranty, product liability, and product return claims relating to OncuPath assays and products shipped or sold by Buyer after the Closing Date; and
(d) all other liabilities and obligations arising from the ownership, use, or operation of the Purchased Assets or the conduct of the OncuPath Business by Buyer after the Closing Date.
Section 2.4 — Excluded Liabilities
Notwithstanding anything to the contrary in this Agreement, Buyer shall not assume and shall not be responsible for any liabilities or obligations of Seller other than the Assumed Liabilities (all such liabilities and obligations not constituting Assumed Liabilities, collectively, the "Excluded Liabilities"). Without limiting the generality of the foregoing, the Excluded Liabilities shall include the following:
(a) all liabilities and obligations of the OncuPath Business arising out of, relating to, or accruing during, the period prior to the Closing Date, including all Pre-Closing trade payables, accrued expenses, and other obligations (except to the extent included in the calculation of Net Working Capital);
(b) any litigation, claim, action, suit, investigation, or proceeding pending or threatened as of the Closing Date, whether or not disclosed on Schedule 4.11, including all costs, expenses, and liabilities related thereto;
(c) all obligations and liabilities under any employee benefit plan, arrangement, or policy of Seller for employees who are not Transferred Employees, and all compensation, severance, retention, bonus, or benefit obligations for Business Employees accruing on or prior to the Closing Date;
(d) all environmental liabilities at Seller's facilities not conveyed to Buyer hereunder, including any liabilities arising under Environmental Laws in connection with the operation or condition of any facility owned, operated, or leased by Seller (other than the Leased Real Property to the extent such liabilities arise after the Closing Date);
(e) all Taxes of Seller or its Affiliates, including all Taxes attributable to the OncuPath Business for Pre-Closing Tax Periods and all Taxes arising out of or resulting from the consummation of the transactions contemplated hereby (other than Transfer Taxes, which shall be allocated in accordance with Section 6.10(b));
(f) any liabilities or obligations arising from or related to the Excluded Assets; and
(g) any indebtedness for borrowed money of Seller.
Section 2.5 — Purchase Price
(a) Total Consideration. The aggregate consideration for the Purchased Assets shall be One Hundred Forty Million Dollars ($140,000,000) (the "Total Consideration"), subject to adjustment as set forth in Section 2.6, comprised of the following components:
(i) Closing Cash Payment. At the Closing, Buyer shall pay to Seller (or to such account or accounts as Seller shall designate in writing not fewer than two (2) Business Days prior to the Closing Date) One Hundred Twenty-Six Million Dollars ($126,000,000) (the "Closing Cash Payment") in cash by wire transfer of immediately available funds in United States dollars.
(ii) Escrow Deposit. At the Closing, Buyer shall deposit Fourteen Million Dollars ($14,000,000) (the "Escrow Amount") into the Escrow Account (Account No. 8841-7023-5500) at Ashgrove Equity Partners Escrow Services, Inc. in accordance with the terms and conditions of the Escrow Agreement. The Escrow Amount shall be held, invested, and released in accordance with the Escrow Agreement and Section 9.5 hereof.
(iii) Earnout. In addition to the Closing Cash Payment and the Escrow Amount, Buyer shall pay to Seller up to Fourteen Million Dollars ($14,000,000) in earnout payments upon the achievement of the Earnout Milestones, as set forth in Section 2.7 and the Earnout Agreement.
(b) Allocation of Purchase Price. The Total Consideration shall be allocated among the Purchased Assets in accordance with Section 2.8.
Section 2.6 — Net Working Capital Adjustment
(a) Target NWC. The Parties have agreed that the target net working capital of the OncuPath Business, calculated in accordance with GAAP applied on a basis consistent with the preparation of the audited carve-out financial statements described in Section 4.5, shall be Six Million Eight Hundred Thousand Dollars ($6,800,000) (the "Target NWC"). As used herein, "Net Working Capital" or "NWC" means, as of the applicable measurement date, the current assets of the OncuPath Business that are included in the Purchased Assets minus the current liabilities of the OncuPath Business that are included in the Assumed Liabilities, in each case calculated in accordance with GAAP applied on a basis consistent with the preparation of the audited carve-out financial statements described in Section 4.5, utilizing the accounting policies, practices, procedures, and methodologies set forth on Schedule 2.6(a).
(b) Estimated Closing NWC. Not fewer than three (3) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer (i) an estimated closing balance sheet of the OncuPath Business as of the close of business on the day immediately preceding the Closing Date (the "Estimated Closing Balance Sheet") and (ii) a calculation of the estimated Net Working Capital based on the Estimated Closing Balance Sheet (the "Estimated NWC"), together with reasonable supporting documentation. The Estimated NWC shall be prepared in good faith in accordance with GAAP and the methodologies set forth on Schedule 2.6(a).
(c) Post-Closing True-Up. Within ninety (90) days following the Closing Date (i.e., by no later than November 6, 2023), Seller shall cause Haverford & Lane LLP (the "Independent Accountant") to prepare and deliver to Buyer (i) a final closing balance sheet of the OncuPath Business as of the close of business on the day immediately preceding the Closing Date (the "Final Closing Balance Sheet") and (ii) a final calculation of Net Working Capital based on the Final Closing Balance Sheet (the "Final NWC"), together with reasonable supporting documentation. The Final Closing Balance Sheet and the Final NWC shall be prepared in accordance with GAAP and the methodologies set forth on Schedule 2.6(a). Buyer shall, and shall cause its employees and representatives to, cooperate with Seller and Haverford & Lane LLP in connection with the preparation of the Final Closing Balance Sheet and the Final NWC, including by providing access to books, records, and personnel of the OncuPath Business.
(d) Collar. No adjustment to the Closing Cash Payment shall be required if the absolute value of the difference between the Final NWC and the Target NWC is equal to or less than Three Hundred Fifty Thousand Dollars ($350,000) (the "Collar Amount"). For the avoidance of doubt, if the Final NWC exceeds the Target NWC by $350,000 or less, or the Final NWC is less than the Target NWC by $350,000 or less, then no payment shall be due from either Party pursuant to this Section 2.6.
(e) Payment Mechanics.
(i) If the Final NWC exceeds the Target NWC by more than the Collar Amount, Buyer shall pay to Seller, in cash by wire transfer of immediately available funds, the amount by which the Final NWC exceeds the Target NWC (for the avoidance of doubt, the entire excess amount, calculated from the Target NWC, and not merely the amount in excess of the Collar Amount), within five (5) Business Days after the Final NWC is finally determined.
(ii) If the Final NWC is less than the Target NWC by more than the Collar Amount, Seller shall pay to Buyer, in cash by wire transfer of immediately available funds, the amount by which the Target NWC exceeds the Final NWC (for the avoidance of doubt, the entire shortfall amount, calculated from the Target NWC), within five (5) Business Days after the Final NWC is finally determined.
(f) Dispute Resolution. If Buyer disputes Seller's Final NWC calculation, Buyer shall deliver to Seller a written notice of disagreement (a "Dispute Notice") within thirty (30) days following Buyer's receipt of the Final Closing Balance Sheet and Final NWC calculation. The Dispute Notice shall set forth, in reasonable detail, the items or amounts with which Buyer disagrees and Buyer's proposed adjustments. If Buyer fails to deliver a Dispute Notice within such thirty (30)-day period, the Final NWC as delivered by Seller shall be deemed final, conclusive, and binding on the Parties. If Buyer timely delivers a Dispute Notice, the Parties shall negotiate in good faith for a period of thirty (30) days to resolve the disputed items. If the Parties are unable to resolve all disputed items within such thirty (30)-day period, the remaining disputed items shall be submitted for resolution to an independent accounting firm of nationally recognized standing mutually agreed upon by the Parties (the "Resolution Accountant"). The Resolution Accountant shall determine only those items remaining in dispute and shall render a written determination within thirty (30) days after its engagement, which determination shall be final, conclusive, and binding on the Parties. The fees and expenses of the Resolution Accountant shall be borne by the Party whose position is furthest from the determination of the Resolution Accountant (or, if neither Party's position is closest to the Resolution Accountant's determination, equally by the Parties).
Section 2.7 — Earnout
(a) Earnout Milestone 1. Subject to the terms and conditions of this Agreement and the Earnout Agreement, Buyer shall pay to Seller Eight Million Dollars ($8,000,000) (the "Milestone 1 Payment") upon the achievement of Earnout Milestone 1, which shall occur upon FDA clearance or approval of the OncuPath-HER3™ assay (or any successor assay thereto) as a companion diagnostic for any FDA-approved therapeutic product, on or before August 8, 2025 (the date that is twenty-four (24) months following the Closing Date).
(b) Earnout Milestone 2. Subject to the terms and conditions of this Agreement and the Earnout Agreement, Buyer shall pay to Seller Six Million Dollars ($6,000,000) (the "Milestone 2 Payment") upon the achievement of Earnout Milestone 2, which shall occur upon (i) the issuance by CMS of a unique HCPCS code for OncuPath-HER3™ (or any successor assay thereto) and (ii) the receipt by Buyer (or any of its Affiliates) of the first Medicare reimbursement payment for such assay, each occurring on or before August 8, 2026 (the date that is thirty-six (36) months following the Closing Date).
(c) Maximum Earnout. The aggregate amount of all earnout payments payable by Buyer to Seller under this Section 2.7 and the Earnout Agreement shall not exceed Fourteen Million Dollars ($14,000,000). The Milestone 1 Payment and the Milestone 2 Payment are referred to herein collectively as the "Earnout" or the "Earnout Payments."
(d) Commercially Reasonable Efforts. During the Earnout Period, Buyer shall use commercially reasonable efforts to achieve the Earnout Milestones, including by devoting adequate resources (financial, personnel, and otherwise) to the development, regulatory, and commercialization activities necessary to achieve such milestones. For purposes of this Section 2.7(d), "commercially reasonable efforts" means those efforts consistent with those that a similarly situated company in the companion diagnostics industry would use to develop and commercialize a product of similar commercial potential, taking into account all relevant factors, including scientific, regulatory, commercial, and competitive considerations. Notwithstanding the foregoing, Buyer shall not be required to take any action that would be materially contrary to Buyer's overall business interests or that would require Buyer to incur material expenditures not contemplated at the time of this Agreement.
(e) Detailed Terms. Additional terms governing the Earnout, including detailed provisions regarding dispute resolution, acceleration of Earnout Payments upon a Buyer change of control, anti-embarrassment protections, anti-sandbagging provisions, reporting obligations, audit rights, and other customary protections, are set forth in the Earnout Agreement attached hereto as Exhibit D. In the event of any conflict between this Section 2.7 and the Earnout Agreement, the Earnout Agreement shall control.
(f) Payment Timing. Each Earnout Payment shall be made by Buyer to Seller (or to such account as Seller shall designate in writing) within thirty (30) days following the achievement and verification of the applicable Earnout Milestone, in cash by wire transfer of immediately available funds in United States dollars.
Section 2.8 — Purchase Price Allocation
(a) The Parties shall allocate the Total Consideration (plus the Assumed Liabilities to the extent required by applicable Law) among the Purchased Assets in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder (and any similar provision of applicable state, local, or foreign Law).
(b) The Parties agree that the following preliminary allocation shall serve as the basis for the final allocation, subject to finalization as provided in Section 2.8(c):
(c) The Parties shall use commercially reasonable efforts to finalize the allocation within one hundred twenty (120) days following the Closing Date (i.e., by no later than December 6, 2023). If the Parties are unable to agree on the final allocation within such period, the unresolved items shall be submitted for resolution to a nationally recognized independent accounting firm mutually agreed by the Parties.
(d) Seller and Buyer shall report consistently with the agreed allocation on all Tax Returns (including IRS Form 8594 and any applicable state or local forms), and neither Party shall take any position on any Tax Return or in any Tax proceeding that is inconsistent with such allocation unless required to do so by a final determination (as defined in Section 1313(a) of the Code) of a Governmental Authority.
Section 2.9 — Withholding
Buyer shall be entitled to deduct and withhold from any payment made pursuant to this Agreement such amounts as Buyer is required to deduct and withhold under the Code or any applicable provision of state, local, or foreign Tax Law. To the extent that amounts are so withheld and paid over to the appropriate Governmental Authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made.
ARTICLE III — CLOSING
Section 3.1 — Closing Date
The closing of the transactions contemplated by this Agreement (the "Closing") shall take place remotely via the electronic exchange of documents and signatures on or before August 1, 2023 (the "Target Closing Date"), or on such other date as the Parties may mutually agree in writing, subject in each case to the satisfaction or waiver of all conditions precedent set forth in Article VII and Article VIII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing). The date on which the Closing actually occurs is referred to herein as the "Closing Date." For the avoidance of doubt, the Closing occurred on August 8, 2023. The Closing shall be deemed effective as of 12:01 a.m. Eastern Time on the Closing Date.
Section 3.2 — Seller's Closing Deliverables
At or prior to the Closing, Seller shall deliver (or cause to be delivered) to Buyer each of the following:
(a) the Bill of Sale, duly executed by Seller, in the form attached hereto as Exhibit A;
(b) the Assignment and Assumption Agreement, duly executed by Seller, in the form attached hereto as Exhibit B;
(c) the intellectual Property Assignment Agreement, duly executed by Seller, in the form attached hereto as Exhibit G, together with such short-form assignments as may be necessary for recording with the United States Patent and Trademark Office;
(d) the Escrow Agreement, duly executed by Seller, in the form attached hereto as Exhibit C;
(e) the Transition Services Agreement, duly executed by Seller, in the form attached hereto as Exhibit E;
(f) the Non-Competition and Non-Solicitation Agreement, duly executed by Seller, in the form attached hereto as Exhibit F;
(g) the Earnout Agreement, duly executed by Seller, in the form attached hereto as Exhibit D;
(h) a certificate of Seller (the "Seller's Closing Certificate"), dated as of the Closing Date, in the form attached hereto as Exhibit H, signed by Martin Kowalski, Chief Financial Officer of Seller, certifying that the conditions set forth in Sections 7.1, 7.2, and 7.3 have been satisfied;
(i) a Secretary's Certificate of Seller, dated as of the Closing Date, certifying as to (A) the incumbency and specimen signatures of the officers of Seller executing this Agreement and the Ancillary Agreements, (B) true and complete copies of resolutions of the board of directors of Seller, duly adopted on May 8, 2023, authorizing the execution, delivery, and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby, (C) a true and complete copy of the certificate of incorporation of Seller, as amended and in effect as of the Closing Date, and (D) a true and complete copy of the bylaws of Seller, as amended and in effect as of the Closing Date;
(j) a certificate, dated as of the Closing Date, duly executed by Seller in the form attached hereto as Exhibit I, certifying that Seller (EIN: 47-3892061) is not a "foreign person" within the meaning of Section 1445 of the Code and Treasury Regulations Section 1.1445-2(b) (the "FIRPTA Certificate");
(k) evidence of the consent of Vantage Molecular Sciences, Inc. to the assignment of the Vantage License to Buyer, dated July 14, 2023, in form and substance reasonably satisfactory to Buyer;
(l) the written consent of Towne Centre Properties LLC, dated July 28, 2023, to the assignment of the lease for the premises at 4820 Towne Centre Drive, Suite 200, San Diego, California 92121, in form and substance reasonably satisfactory to Buyer;
(m) an Assignment of Sublease for the Carlsbad Facility at 925 Industrial Court, Carlsbad, California 92010 (sublease expiring December 31, 2025), duly executed by Seller, in form and substance reasonably satisfactory to Buyer, together with any required consents of the sublessor and the master landlord;
(n) a certificate of good standing (or equivalent certificate) for Seller issued by the Secretary of State of the State of Delaware, dated within ten (10) days prior to the Closing Date;
(o) evidence, in form and substance reasonably satisfactory to Buyer, of the termination, release, or discharge of all Liens on the Purchased Assets (other than Permitted Liens), including UCC-3 termination statements and payoff letters, as applicable;