Item 1.01. Entry into a Material Definitive Agreement.
Merger Agreement
On May 23, 2022, Entasis Therapeutics Holdings Inc., a Delaware corporation
("Entasis" or the "Company"), entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Innoviva, Inc., a Delaware corporation ("Parent"), and
Parent's wholly owned subsidiary, Innoviva Merger Sub, Inc., a Delaware
corporation ("Merger Sub"). Pursuant to the Merger Agreement, and upon the terms
and subject to the conditions thereof, Merger Sub will commence a tender offer
(the "Offer") to acquire all of the issued and outstanding shares of the
Company's common stock, par value $0.001 per share (the "Shares"), other than
Shares held by Parent or Merger Sub, at a price of $2.20 per Share in cash (the
"Offer Price"), without interest and subject to any applicable withholding of
taxes.
The Offer will be scheduled to expire on the 20th business day following the
commencement of the Offer, unless extended in accordance with the terms of the
Merger Agreement and applicable law. The obligation of Parent and Merger Sub to
consummate the Offer is subject to certain customary conditions, including that
there be validly tendered and not validly withdrawn a number of Shares that,
excluding the Shares beneficially owned by Parent, Merger Sub, and the Company's
Chief Executive Officer, represents at least one Share more than 50% of the
Shares not beneficially owned by such persons that are outstanding at the time
of the expiration of the Offer (the "Minimum Condition"). The Minimum Condition
may not be waived. Parent and its affiliates currently own approximately 60% of
the issued and outstanding Shares. Consummation of the Offer is not subject to a
financing condition.
At the time of the acceptance for payment of all Shares tendered (and not
validly withdrawn) pursuant to the Offer (the "Offer Acceptance Time"), each
Share (other than any Shares held by (i) Parent or Merger Sub and (iii) by
stockholders who have properly exercised and perfected their demands for
appraisal of such Shares in accordance with Section 262 of the General
Corporation Law of the State of Delaware (the "DGCL") will be cancelled and
converted into the right to receive an amount in cash equal to the Offer Price,
without interest and subject to any applicable withholding of taxes. As soon as
practicable following the Offer Acceptance Time, subject to the satisfaction or
waiver of certain customary conditions, Merger Sub will merge with and into the
Company, with the Company surviving as a wholly owned subsidiary of Parent
pursuant to Section 251(h) of the DGCL (the "Merger").
Immediately prior to the effective time of the Merger (the "Effective Time"),
each Company stock option with a per share exercise price less than the Offer
Price, whether or not vested, will terminate and be cancelled, and the holder
thereof will be entitled to receive the Offer Price less any applicable per
share exercise price for each share subject to such award, pursuant to the terms
set forth in the Merger Agreement. Each Company stock option with a per share
exercise price equal to or greater than the Offer Price will be cancelled as of
immediately prior to the Effective Time, with no consideration payable.
Additionally, each Company restricted stock unit ("RSU") will terminate and be
cancelled as of immediately prior to the Effective Time and be converted into
the right to receive a number of restricted stock units in respect of shares of
Parent common stock, par value $0.01 per share ("Parent Common Stock") with
terms and conditions that are similar the RSUs for which they were exchanged
(each, a "Replacement RSU Award"), except for certain changes to the vesting
schedule and conditions and changes to such terms and conditions as do not
adversely impact the rights of the holder thereof if Parent determines in good
faith that such changes are necessary for the administration of such awards. The
number of shares underlying the Replacement RSU Awards will equal (x) the number
of Shares subject to RSUs immediately prior to the Effective Time, multiplied by
(y) the Offer Price, divided by (z) the per share volume-weighted average price
of Parent Common Stock for the 10 business days prior to the closing date (the
"Parent Stock VWAP"). The Merger Agreement further provides that, as of the
Effective Time, each outstanding Company warrant (a "Warrant") that is
outstanding as of immediately prior to the Effective Time with a per share
exercise price less than the Offer Price will be cancelled, and Parent will
issue a replacement warrant (each, a "Replacement Warrant") (i) exercisable for
(a) a number of shares of Parent Common Stock equal to the aggregate number of
Shares underlying such Entasis Warrant; multiplied by (b) the Offer Price;
divided by (c) the Parent Stock VWAP and (ii) having a per share exercise price
equal to (a) the current per share exercise price of such Warrant; multiplied by
(b) the Parent Stock VWAP; divided by (C) the Offer Price.
The Merger Agreement includes customary representations, warranties and
covenants of the Company, Parent and Merger Sub. The Company has agreed to use
reasonable best efforts to ensure that its business and operations are conducted
in the ordinary course of business consistent with past practices until the
earlier of the Effective Time or the termination of the Merger Agreement. The
Company has also agreed not to solicit or initiate, or knowingly facilitate or
knowingly encourage the submission of proposals for a strategic transaction
involving the Company. The Company's board of directors unanimously approved the
execution, delivery and performance by the Company of the Merger Agreement and
the Merger on the terms and subject to the conditions set forth in the Merger
Agreement and unanimously recommends that the stockholders of the Company (other
than Parent and its affiliates) tender their Shares in the Offer.
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The Merger Agreement also includes customary termination provisions for both the
Company and Parent. The Merger Agreement provides that the parties are entitled
to an injunction or injunctions to prevent breaches of the Merger Agreement, and
to specifically enforce the terms and provisions of the Merger Agreement.
Amendment to Investor Rights Agreement
In connection with entry into the Merger Agreement, the Company and Parent
entered into Amendment No. 1 to the Investor Rights Agreement (the "Amendment"),
dated April 22, 2020, as amended, between the Company and Parent. The Amendment
adjusts and clarifies the circumstances in which Parent would have preemptive
rights to acquire Company securities and narrows the exception under which the
Company may issue securities on an expedited basis without first giving Parent
the opportunity to participate in the transaction. The Amendment also grants
Parent certain rights to negotiate a sale or material licensing transaction
related to the Company's product candidate sulbactam-durlobactam in the United
States, the European Economic Area or the United Kingdom before the Company can
enter into such an agreement with respect to such a transaction with a third
party.
General
The foregoing summaries of the principal terms of the Merger Agreement and the
Amendment do not purport to be a complete description of such agreements and the
rights and obligations of the respective parties thereunder. The respective
summaries are qualified in their entirety to the full copy of the Merger
Agreement and Amendment which are filed as Exhibits 2.1 and 10.1, respectively,
and incorporated in this Item 1.01 by reference. The foregoing summaries and
attached exhibits are intended to provide information regarding the material
terms of the transactions described herein and are not intended to modify or
supplement any factual disclosures about the Company in its public reports filed
with the Securities and Exchange Commission (the "SEC"). The assertions embodied
in the representations and warranties included in the Merger Agreement and the
Amendment were made solely for purposes of such agreements among the respective
parties thereto and are subject to important qualifications and limitations
agreed to by the parties, including in the case of the Merger Agreement being
qualified by confidential disclosures made by each contracting party to the
other for the purposes of allocating contractual risk between them that differ
from those applicable to investors. Moreover, some of those representations and
warranties may not be accurate or complete as of any specified date, may be
subject to a contractual standard of materiality different from those generally
applicable to the Company's SEC filings or may have been used for purposes of
allocating risk among the contracting parties rather than establishing matters
as facts. Investors should not rely on the representations and warranties or any
description of them as characterizations of the actual state of facts of the
parties to the Merger Agreement and the Amendment or any of their respective
subsidiaries or affiliates. Moreover, information concerning the subject matter
of the representations and warranties may change after the date of the Merger
Agreement and the Amendment, and this subsequent information may or may not be
fully reflected in public disclosures by the Company or Parent.
Item 8.01. Other Events.
On May 23, 2022, the Company and Parent issued a joint press release announcing
the execution of the Merger Agreement. A copy of the joint press release is
attached as Exhibit 99.1 hereto and incorporated herein by reference.
Important Information about the Tender Offer
The Offer has not yet commenced. This document is for informational purposes
only and is neither an offer to purchase nor a solicitation of an offer to sell
any shares of the Company's common stock or any other securities. At the time
the Offer is commenced, a tender offer statement on Schedule TO, including an
offer to purchase, a letter of transmittal and related documents, will be filed
by Parent and Merger Sub with the SEC, and a solicitation/recommendation
statement on Schedule 14D-9 will be filed by the Company with the SEC. The Offer
will only be made pursuant to the offer to purchase, the letter of transmittal
and related documents filed as a part of the Schedule TO.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ BOTH THE TENDER OFFER STATEMENT
AND THE SOLICITATION/ RECOMMENDATION STATEMENT REGARDING THE OFFER, AS THEY MAY
BE AMENDED FROM TIME TO TIME, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION.
Investors and security holders may obtain a free copy of these statements (when
available) and other documents filed with the SEC at the website maintained by
the SEC at www.sec.gov or by directing such requests to the Information Agent
for the Offer, which will be named in the tender offer statement. Additional
copies may be obtained at no charge by contacting Innoviva at 1350 Old Bayshore
Highway Suite 400, Burlingame, CA 94010 or (650) 238-9600 or by contacting
Entasis at 35 Gatehouse Drive, Waltham, MA 02451 or (781) 810-0120. In addition,
Innoviva and Entasis file annual, quarterly and current reports and other
information with the SEC, which are also available to the public at the SEC's
website at www.sec.gov.
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Cautionary Statement Regarding Forward-Looking Statements
This document includes statements that are not statements of historical fact, or
"forward-looking statements," including with respect to Parent's proposed
acquisition of the Company. Such forward-looking statements include, but are not
limited to, the ability of Innoviva and Company to complete the transactions
contemplated by the Merger Agreement, including the parties' ability to satisfy
the conditions to the consummation of the Offer contemplated thereby and the
other conditions set forth in the Merger Agreement, statements about the
expected timetable for completing the transaction, Parent's and the Company's
beliefs and expectations and statements about the benefits sought to be achieved
in Parent's proposed acquisition of the Company, the potential effects of the
acquisition on both Parent and the Company, the possibility of any termination
of the Merger Agreement, as well as the expected benefits and success of the
Company's product candidates. Many of these risks and uncertainties are beyond
the Company's control. Investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. There can be no guarantees that the conditions to the closing of
the proposed transaction will be satisfied on the expected timetable or at all,
or with respect to pipeline products that the products will receive the
necessary regulatory approvals or that they will prove to be commercially
successful. If underlying assumptions prove inaccurate or risks or uncertainties
materialize, actual results may differ materially from those set forth in the
forward-looking statements.
Risks and uncertainties include, but are not limited to, uncertainties as to the
timing of the Offer and the subsequent Merger; uncertainties as to how many of
the Company's stockholders unaffiliated with Parent will tender their shares in
the Offer; the risk that competing offers or acquisition proposals will be made;
the possibility that various conditions to the consummation of the Merger and
the Offer contemplated by the Merger Agreement may not be satisfied or waived;
the effects of disruption from the transactions contemplated by the Merger
Agreement and the impact of the announcement and pendency of the transactions on
the Company's business; the risk that stockholder litigation in connection with
the offer or the merger may result in significant costs of defense,
indemnification and liability, and diversion of management time and attention
from managing the Company's affairs; general industry conditions and
competition; general economic factors, including interest rate and currency
exchange rate fluctuations; the impact of pharmaceutical industry regulation and
health care legislation in the United States and internationally; global trends
toward health care cost containment; technological advances, new products and
patents attained by competitors; challenges inherent in new product development,
including obtaining regulatory approval; manufacturing difficulties or delays;
financial instability of international economies and sovereign risk; dependence
on the effectiveness of the Company's and Parent's patents and other protections
for innovative products; and the exposure to litigation, including patent
litigation, and/or regulatory actions.
The Company and Parent undertake no obligation to publicly update any
forward-looking statement, whether as a result of new information, future events
or otherwise, except to the extent required by law. Additional factors that
could cause results to differ materially from those described in the
forward-looking statements can be found in the Company's and Parent's respective
2021 Annual Reports on Form 10-K and the Company's and Parent's other filings
with the SEC available on the SEC's website at www.sec.gov.
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Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
No. Description
2.1 Agreement and Plan of Merger, dated as of May 23, 2022, among the
Company, Parent and Merger Sub.*
10.1 Amendment No. 1 to Investor Rights Agreement, dated as of May 23, 2022,
by and between the Company and Parent.
99.1 Joint Press Release, dated May 23, 2022, issued by the Company and
Parent.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
* Schedules and exhibits to the Agreement and Plan of Merger have been omitted
pursuant to Item 601(b)(2) of Regulation S-K. The Company will supplementally
furnish a copy of any omitted schedule or exhibit to the Securities and
Exchange Commission upon its request.
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ENTASIS THERAPEUTICS HOLDINGS INC. 
