AcelRx Pharmaceuticals, Inc. (NasdaqGM:ACRX) definitive merger agreement to acquire Tetraphase Pharmaceuticals, Inc. (NasdaqGS:TTPH) for $5.3 million on March 15, 2020. Under the terms of agreement, Tetraphase equityholders to be received the stock consideration valued at approximately $14.4 million, with approximately $7.4 million of this amount allocated to the Tetraphase's outstanding common stock warrants and each share of Tetraphase common stock will be converted into the right to receive 0.6303 shares of AcelRx common stock, subject to adjustment in certain circumstances, provided that if the Tetraphase's closing net cash is less than $5 million, the Exchange Ratio shall be adjusted to the ratio determined as follows: (a) (i) $20,000,000, minus (ii) the dollar amount by which the Closing Net Cash is less than $5 million , minus (iii) $10.3 million , divided by (b) (i) 10.8 million , divided by (ii) $1.43, and (2) one contingent value right per share (a "CVR") representing the right to receive certain consideration based on the achievement of net sales milestones pursuant to the CVR Agreement and a contingent value right (CVR) that could provide up to an additional $12.5 million in aggregate, payable in cash or AcelRx common stock at the AcelRx's election, without interest, and allocated among the outstanding CVRs to Tetraphase stockholders upon the achievement of net sales of XERAVA™ of $20 million, $35 million and $55 million within the applicable timeframes, and as soon as year-end 2021. Accordance to terms of agreement, each outstanding common stock warrant issued by the Tetraphase in November 2019 shall be converted into the right to receive, 0.8813 of a share of AcelRx for each share of the Tetraphase's common stock underlying such warrant, (ii) each outstanding common stock warrant issued by the Tetraphase in January 2020 shall be converted into the right to receive, at the closing of the Merger, 0.9087 of a share of AcelRx for each share of the Tetraphase's common stock underlying such warrant. AcelRx shareholders will own approximately 85.4% of the combined company and Tetraphase shareholders will own approximately 14.6% on a pro forma, fully diluted basis, giving effect to all dilutive securities at the time of announcement, and excluding any settlement of the CVR through issuance of AcelRx common stock. Post completion of the acquisition, Tetraphase Pharmaceuticals shall continue as the surviving corporation and will become a wholly- owned subsidiary of AcelRx Pharmaceuticals. Tetraphase will also become a privately held company and shares of Tetraphase's common stock will no longer be listed on any public market. Subject to certain limited exceptions, the CVRs will be non-transferable. Under the termination of the transaction, Tetraphase Pharmaceuticals will pay a termination fee of $810,000 and if terminated by AcelRx Pharmaceuticals it will pay an amount not to exceed $200,000. As per amendment dated May 27, 2020, termination fee of $810,000 payable by Tetraphase Pharmaceuticals has been increased to $1,441,000. As on May 6, 2020, Tetraphase has received a proposal from La Jolla Pharmaceutical Company which is expected to lead a superior offer, which in turn could lead to the termination of this acquisition. As of May 14, 2020, Melinta Therapeutics, Inc. made a competing bid to acquire Tetraphase Pharmaceuticals, Inc. As of May 21, 2020, Tetraphase Pharmaceuticals has given notice to AcelRx of such determination and of its intention to consider changing its recommendation of the AcelRx Merger Agreement or terminating the AcelRx Merger Agreement unless AcelRx proposes revisions to the terms of the AcelRx Merger Agreement or makes another proposal on or prior to May 29, 2020 that, if accepted, would result in the Melinta proposal ceasing to be a Superior Offer. As of May 22, 2020, the Tetraphase Board has not changed its recommendation with respect to the pending transaction with AcelRx and the Tetraphase Board continues to recommend the AcelRx merger agreement to its stockholders, is not modifying or withdrawing its recommendation with respect to the AcelRx agreement and the merger, or proposing to do so, and is not making any recommendation with respect to the Melinta proposal or the proposed merger agreement with Melinta.

The transaction is subject to Tetraphase having net cash at closing in excess of $5 million, receipt of approval from Tetraphase shareholders, registration statement effectiveness, listing of new shares on NASDAQ as well as satisfaction of other customary closing conditions. The transaction was unanimously approved by both the AcelRx and Tetraphase Boards of Directors, Select Tetraphase stockholders and warrant holders, including Armistice Capital, LLC, holding in the aggregate approximately 31% of Tetraphase's outstanding common stock, have signed voting agreements in favor of the transaction. The transaction does not require a vote by AcelRx shareholders. Tetraphase shareholders will hold a special meeting on June 8, 2020 to approve the transaction. As of April 30, 2020, Lifshitz Law Firm, P.C. announces investigation into possible breach of fiduciary duties in connection with the sale of of Tetraphase Pharmaceuticals. The transaction is expected to close in the second quarter of 2020. As of May 8, 2020, the transaction is expected to close in June 2020.

As of May 27, 2020, the parties entered into an amendment, pursuant to which, each share of Tetraphase will receive $0.2434 in cash and 0.7217 share of AcelRx, subject to adjustments, plus one contractual contingent value right to receive the consideration set forth in the Revised CVR Agreement, pursuant to which, CVRs now represent an aggregate right to receive up to $14.5 million in cash. It includes a one-time payment of $2.5 million upon the achievement of specified annual net sales of XERAVA in 2021, a one-time payment of $4.5 million upon the achievement of specified annual net sales of XERAVA in any calendar year ending on or before December 31, 2024; a one-time payment of $7.5 million upon the achievement of specified annual net sales of XERAVA in any calendar year ending on or before December 31, 2024. The total consideration payable to Tetraphase stockholders and warrant holders includes AcelRx stock valued at $24.6 million. Tetraphase Board of Directors has approved the merger and the amended terms. The transaction is expected to close following the Tetraphase's stockholder meeting, which is currently set for June 8, 2020.

As of May 29, 2020, the parties entered into a second amendment to the agreement and plan of merger, pursuant to which, each share of Tetraphase will receive $0.5872 in cash and 0.7409 of a share of AcelRx common stock, subject to adjustments, and plus CVRs representing the right to receive potential contingent payments of up to $16 million in the aggregate, payable in cash, based on the achievement of net sales milestones.

Robert Phillips, Rama Padmanabhan and Mark Weeks of Cooley LLP is acting as legal counsel to AcelRx. Hal J. Leibowitz, Stuart Falber and Christopher D. Chris Barnstable- Brown, Stuart Falber, Hal Leibowitz, Kim Wethly, Julie Hogan Rodgers, Scott Kilgore and Steve Barrett of Wilmer, Cutler, Pickering, Hale and Dorr LLP acted as legal advisor and Janney Montgomery Scott LLC acted as financial advisor and provided fairness opinion to Tetraphase's board of directors in the transaction. Moelis & Company (NYSE:MC) acted as financial advisor to AcelRx Pharmaceuticals, Inc. (NasdaqGM:ACRX) in this transaction. Alliance Advisors, LLC acted as Tetraphase's proxy solicitor for a fee of $10, 000. Janney Montgomery Scott LLC will receive a fee of $0.6 million for its services to Tetraphase.