10. Background of the Offer; Past Contacts or Negotiations with the Company.
As part of Parent’s continuing transformation to a next generation biopharma leader, Parent is committed to implementing a strategy which it refers to as its “String of Pearls.” Pursuant to this strategy, Parent remains focused on entering into a series of transactions including acquisitions, licensing agreements, joint ventures and other business arrangements which are intended to enrich Parent’s pipeline, technology, capabilities and talent. Accordingly, Parent continues to search for opportunities to complement its internal capabilities with external innovation.
In August 2011, Parent commenced an in-depth review of its pipeline assets being developed for the treatment of the hepatitis C virus (“HCV”). As part of this review, Parent identified a small number of companies with assets in development which would be complementary to Parent’s existing HCV portfolio and give Parent the potential to develop an all oral direct acting antiviral combination therapy for the treatment of HCV. On August 4, 2011, Citigroup Global Markets Inc. (“Citi”) was retained by Parent to act as its financial advisor in connection with Parent’s review of potential target companies.
On October 14, 2011, Demetrios Kydonieus, Parent’s Vice President, Strategy, Alliances & Transactions, contacted Russell Plumb, the Company’s President and Chief Executive Officer, to express Parent’s interest in pursuing a potential transaction involving INX-189, the Company’s nucleotide polymerase inhibitor in Phase II clinical trials for the treatment of HCV. Mr. Kydonieus and Mr. Plumb agreed that representatives of the two companies would meet on October 20 and 21, 2011, at the Company’s offices in Alpharetta, Georgia, subject to the prior execution and delivery by Parent and the Company of a mutually acceptable form of confidentiality agreement.
During the period October 13 through October 21, 2011, representatives of Parent and the Company’s external legal counsel, Dechert LLP (“Dechert”), negotiated the terms and conditions of a confidentiality agreement, including a customary standstill provision. On October 21, 2011, Parent and the Company executed and delivered a confidentiality agreement.
On October 20 and 21, 2011, Mr. Kydonieus, along with St. John McGrath and Brian Heaphy, each of Parent’s Strategic Transactions Group, met with Mr. Plumb and Dr. Joseph Patti, the Company’s co-founder, Chief Scientific Officer and Senior Vice President of Research and Development, to discuss INX-189 and the potential for a transaction between the two companies involving this asset.
During the period October 24 through November 1, 2011, Mr. Kydonieus and Mr. Plumb spoke on various occasions regarding Parent’s interest in INX-189 and the potential for a transaction between the two companies involving the Company’s INX-189 development program.
At a meeting on November 2, 2011, Parent’s senior management team reviewed a presentation regarding a potential acquisition of INX-189. After careful consideration of the potential transaction, it was decided that Parent should submit to the Company a proposal to acquire from the Company its INX-189 development program.
On November 3, 2011, following a call by Mr. Kydonieus to Mr. Plumb, Parent submitted to Mr. Plumb confidentially a preliminary non-binding indication of interest to acquire from the Company its INX-189 development program for an aggregate purchase price of $550.0 million subject to, among other things, the satisfactory completion by Parent of a due diligence review of INX-189 of the type which is customary in the context of an asset acquisition transaction and the receipt by each of Parent and the Company of all requisite corporate and regulatory approvals. The closing price of the Company’s common stock on November 3, 2011, was $3.96 per share.
On November 4, 2011 and November 5, 2011, Gabriele Cerrone, a member of the Company Board, and Lamberto Andreotti, Parent’s Chief Executive Officer, exchanged emails regarding the potential attractiveness to Parent of INX-189 and Parent’s ongoing discussions of a potential transaction with the Company, including a scheduled meeting between Dr. Brian Daniels, Parent’s Senior Vice President, Global Development and Medical Affairs, R&D, and Mr. Plumb and Dr. Patti. The closing price of the Company’s common stock on November 4, 2011 was $8.54 per share.
On November 6, 2011, during the 62nd Annual Meeting of the American Association for the Study of Liver Diseases in San Francisco, California, representatives of Parent met with Mr. Plumb and Dr. Patti to discuss generally the clinical development of INX-189. The same group plus Dr. Daniels again met with Mr. Plumb and Dr. Patti on November 7, 2011 to discuss the information released by the Company on November 4, 2011 regarding early data from a mid-stage study showing that a 200-milligram dose of INX-189 did well in reducing HCV in patients, and was well tolerated, with no serious side effects, when given to patients with a certain form of chronic hepatitis who had not been treated.
During the period November 9 through November 30, 2011, representatives of Parent spoke at various times with each of Mr. Plumb and Dr. Patti to discuss the potential for a transaction between Parent and the Company regarding the INX-189 development program and to facilitate Parent’s due diligence review.
On December 1, 2011, representatives of Parent, including Dr. Elliott Sigal, Parent’s Executive Vice President, Chief Scientific Officer and President, R&D, and a member of Parent’s board of directors, Messrs. Kydonieus and McGrath, and members of Parent’s scientific and technical due diligence teams attended a management presentation by the Company’s senior management team during which it presented information regarding INX-189, the Company’s other pipeline assets, its technology platform, and information regarding its discovery, and research and development capabilities. Also on December 1, 2011, the Company granted to representatives of Parent and its external advisors access to the Company’s electronic datasite in which the Company had made available confidential non-public information related to its business and operations.
During the period December 1, 2011 through January 3, 2012, Parent’s representatives and representatives of Citi and Kirkland & Ellis LLP (“Kirkland & Ellis”), Parent’s legal counsel, conducted detailed business, financial, scientific, technical, regulatory, environmental, intellectual property and legal due diligence investigations of the Company and its business and operations utilizing the information provided by the Company. In addition to customary aspects of the due diligence process, Parent also held discussions with members of the Company’s senior management and certain representatives of its scientific and technical teams.
On December 5, 2011, Charles Bancroft, Parent’s Executive Vice President and Chief Financial Officer, was contacted by a representative of Credit Suisse Securities (USA) LLC (“Credit Suisse”). During this telephone call, the representative from Credit Suisse indicated on behalf of the Company that the Company had received an offer from a third party to acquire the Company, and that Credit Suisse had been retained as the Company’s financial advisor in connection with the Company’s review of its strategic alternatives, including a potential sale of the Company. The representative from Credit Suisse indicated that the Company intended to include Parent in any process involving a sale of the Company or INX-189.
On December 6, 2011, at a regularly scheduled meeting of Parent’s board of directors, members of Parent’s senior management team discussed with members of Parent’s board of directors senior management’s interest in engaging in a potential transaction with the Company. There was a discussion by Parent’s board of directors regarding the strategic value of INX-189 to Parent. Following these discussions, Parent’s board of directors agreed that Parent’s senior management team should continue to pursue a transaction with the Company, including a potential acquisition.
On December 7, 2011, Parent received from Credit Suisse a process letter (the “Process Letter”) on behalf of the Company inviting Parent to submit to Credit Suisse, as financial advisor to the Company, a definitive proposal for an acquisition of one hundred percent of the issued and outstanding shares of common stock of the Company. The Process Letter indicated that binding proposals to acquire the Company, including a mark-up of a draft merger agreement prepared by Dechert, were to be submitted by interested parties no later than January 4, 2012.
During the period December 7 through December 22, 2011, representatives of Parent and its advisors spoke on a number of occasions with representatives of the Company and its advisors, regarding the status of the Company’s sale process.
On December 16, 2011, Parent’s management presented the scientific and technical due diligence findings regarding INX-189 to the Science & Technology Committee of Parent’s board of directors. The presentation included a review of Parent’s due diligence review of INX-189, the scientific developments in the field of HCV, the strategic rationale for the acquisition of INX-189 and its potential effects on Parent’s HCV pipeline, and the risks and benefits associated with the development of INX-189. After careful consideration of the information presented, the members of the Science & Technology Committee of Parent’s board of directors unanimously agreed that Parent’s senior management should continue to pursue a transaction with the Company to secure the rights to INX-189.
On December 21, 2011, representatives of Parent contacted Mr. Plumb regarding the status of the Company’s process and indicated that Parent remained interested in a transaction with the Company and intended to submit a proposal to acquire the Company in accordance with the procedures and on the date set forth in the Process Letter. Also on December 21, 2011, Mr. Kydonieus sent to Credit Suisse a letter in which Mr. Kydonieus provided Credit Suisse with the status of Parent’s review of the Company and INX-189.
On January 3, 2012, Parent convened and held a meeting of its board of directors. During the meeting, members of Parent’s senior management team and other members of Parent’s management provided Parent’s board of directors with an update on the proposed transaction. Following a careful review of Parent’s due diligence findings, the strategic value of acquiring INX-189, and a discussion of the principal financial terms of the proposed acquisition, the board of directors of Parent unanimously approved the delivery to the Company of a definitive proposal to acquire the Company, and the execution, delivery and performance of a merger agreement and the completion of the transactions contemplated by such merger agreement, including the Offer and the Merger, on such terms as agreed to by Parent’s senior management team.
Following the approval of Parent’s board of directors, Parent submitted to Credit Suisse, as representative for the Company, during the afternoon of January 3, 2012, a definitive proposal to acquire one hundred percent of the issued and outstanding shares of common stock of the Company at a price per share (on a fully diluted basis) of $20.00 in cash, including a mark-up of the draft merger agreement reflecting Parent’s comments to the document. Parent’s definitive proposal was not subject to any financing condition and already had been approved by Parent’s board of directors. The closing price of the Company’s common stock on January 3, 2012 was $10.11 per share.
During the evening of January 4, 2012, a representative of Credit Suisse on behalf of the Company contacted representatives of Parent and Citi indicating that the Company had received an acquisition proposal from another party at the same price level as Parent’s and that Parent would need to satisfy the Company Board as to two principal factors, value and certainty of closing. Parent was also requested to provide an updated “best and final” bid by 6:00 p.m. on January 5, 2012.
On January 5, 2012, members of Parent’s management team met at various times to discuss and carefully consider Parent’s potential acquisition of the Company. Mr. Andreotti decided that Parent should submit to the Company a revised definitive proposal to acquire the Company for a price of $23.50 per share in cash. The closing price of the Company’s common stock on January 5, 2012 was $9.63 per share.
During the evening of January 5, 2012, Parent submitted a revised definitive proposal to acquire one hundred percent of the issued and outstanding shares of common stock of the Company at a price per share (on a fully diluted basis) of $23.50 in cash. Again, Parent’s definitive proposal was not subject to any financing condition and already had been approved by Parent’s board of directors. Parent’s proposal included a provision under which the Company would grant Parent an exclusive negotiating period through 6:00 p.m. on January 8, 2012.
Soon thereafter, a representative of Credit Suisse on behalf of the Company contacted a representative of Citi to inform him that the Company’s board of directors would be meeting to discuss the revised bids submitted by the two parties.
Later that evening, Mr. Andreotti sent an e-mail message to Mr. Cerrone indicating that Parent remained serious about acquiring the Company as evidenced by Parent’s offer of $23.50 per share and was prepared to move quickly to finalize the form of merger agreement for signature by the parties. A short while later, Mr. Cerrone and Mr. Andreotti spoke by telephone and Mr. Cerrone indicated that he believed that the Company’s board of directors felt strongly that in order to accept Parent’s revised proposal Parent would need to be willing to accept the Company’s proposal regarding the language in the draft merger agreement with respect to the absence of a “serious adverse event” with respect to INX-189.
Following the telephone call between Mr. Andreotti and Mr. Cerrone, and subsequent telephone calls between representatives of Parent and the Company and their respective advisors, Parent and the Company finalized the language of the “serious adverse event” language and the terms of the exclusivity agreement. The exclusivity agreement granting Parent an exclusive negotiation period until 12:00 p.m. on January 8, 2012, was executed by the Company during the early morning of January 6, 2012.
During the day on January 5, 2012, representatives of Parent, Kirkland & Ellis and Dechert met via teleconference to discuss and negotiate the terms and conditions of the Merger Agreement and related documents.
During the early afternoon of January 6, 2012, a representative of Kirkland & Ellis received a call from representatives of Dechert during which he was informed that the Company had received an unsolicited revised offer from the other party which was in excess of the $23.50 per share offered by Parent on January 5, 2012, and although the Company would comply with the terms of the exclusivity agreement, they expected that the Company’s board of directors would not be in a position to approve a transaction with Parent at a price per share of $23.50. Representatives of Dechert indicated that Parent would need to materially increase its offer in order to secure such an approval.
Later on January 6, 2012, members of Parent’s management team and its advisors met via teleconference to discuss Parent’s offer to acquire the Company; Mr. Andreotti decided that a meeting of Parent’s board of directors should be scheduled for the purpose of seeking approval to increase Parent’s offer to acquire the Company.
Parent convened and held a meeting of its board of directors during the afternoon of January 6, 2012. Following a discussion of the revised terms of the proposed acquisition, the board of directors of Parent unanimously approved the delivery to the Company of a definitive proposal to acquire the Company for a price per share (on a fully diluted basis) of $26.00 in cash, and the execution, delivery and performance of a merger agreement and the completion of the transactions contemplated by such merger agreement, including the Offer and the Merger, on such terms as agreed to by Parent’s senior management team. The closing price of the Company’s common stock on January 6, 2012 was $9.87 per share.
During the evening of January 6, 2012, representatives of Parent, Kirkland & Ellis and Dechert again met via teleconference to continue to discuss and negotiate the terms and conditions of the Merger Agreement and related documents.
Also that evening, Mr. Andreotti contacted Mr. Cerrone to indicate that Parent’s next bid would be its best and final offer. Mr. Bancroft, of Parent, and representatives of Parent’s financial advisor also contacted representatives of Credit Suisse that evening to communicate that Parent was prepared to offer $26.00 per Share, which would be its best and final offer. In this conversation, representatives of Credit Suisse urged Parent to offer a higher price.
At 6:00 a.m. on January 7, 2012, Parent submitted a revised proposal to acquire one hundred percent of the issued and outstanding shares of common stock of the Company at a price per share (on a fully diluted basis) of $26.00 in cash. The proposal also indicated that if Parent’s offer was not accepted by the Company by 2:00 p.m. on January 7, 2012, the proposal would be deemed withdrawn and Parent would actively pursue the transaction on the terms set out in its January 5th proposal.
Following the submission on January 7, 2012, of Parent’s revised proposal, representatives of Parent and its advisors spoke with representatives of the Company and its advisors to discuss the terms of Parent’s revised proposal, including the amount of the proposed termination fee contemplated by Parent’s revised proposal.
Later on January 7, 2012, representatives of Dechert contacted representatives of Kirkland & Ellis to inquire whether Parent was willing to reduce the amount of the termination fee. Representatives of Dechert also requested that the expiration time of Parent’s proposal be extended until 3:00 p.m. from the 2:00 p.m. deadline. Parent subsequently agreed to extend the expiration time of Parent’s proposal until 3:00 p.m. subject to the same conditions as set forth in its proposal submitted earlier on January 7th.
During the morning of January 7, 2012, representatives of Parent, Kirkland & Ellis and Dechert finalized the terms and conditions of the Merger Agreement and related documents. During the course of these final negotiations, Parent agreed to a reduction of the termination fee to 3.0%.
Following completion of the negotiation of the terms of the Merger Agreement, on January 7, 2012, the Company Board determined that the Merger Agreement and the transactions contemplated thereby, including the Offer, the Top-Up Option and the Merger are advisable, fair to and in the best interests of the Company and its stockholders and resolved to recommend that the Company’s stockholders accept the Offer and tender their Shares to Purchaser in the Offer and, if required by applicable law, adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger.
Following the meeting of the Company Board on January 7, 2012, the Company, Parent and Purchaser exchanged execution copies of the agreements and executed and delivered the definitive Merger Agreement as of January 7, 2012.
Later on January 7, 2012, Parent and the Company issued a joint press release announcing the execution of the Merger Agreement. A copy of the joint press release is attached as Exhibit 99(a)(5) to the Schedule TO, which is incorporated herein by reference.
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