Item 1.01 Entry into a Material Definitive Agreement
On May 29, 2020, Tetraphase Pharmaceuticals, Inc. (Tetraphase or the Company) entered into a Second Amendment to Agreement and
Plan of Merger (the Second Amendment) further amending the merger agreement, dated as of March 15, 2020 and amended on May 27, 2020, by and among Tetraphase, AcelRx Pharmaceuticals, Inc. (AcelRx) and Consolidation
Merger Sub, Inc. (the Merger Agreement, and as amended by the Second Amendment, the Amended Merger Agreement).
Pursuant to the
Amended Merger Agreement, at the effective time of the merger (the Merger), the holders of Tetraphase common stock (including common stock underlying restricted stock units and performance-based stock units) will be entitled to receive
upfront consideration of $0.5872 in cash and 0.7409 of a share of AcelRx common stock per share of Tetraphase common stock, subject to downward adjustment in the event that the Companys closing net cash is less than $5.0 million, plus
contingent value rights (CVRs) representing the right to receive potential contingent payments of up to $16.0 million in the aggregate, payable in cash, based on the achievement of net sales milestones pursuant to the CVR Agreement,
as described below.
In addition, pursuant to the Amended Merger Agreement, the outstanding warrants of Tetraphase will be treated in accordance with
their terms, except that those warrantholders which have executed amendments to the voting agreements described below would be entitled to receive (i) $0.8085 in cash and 1.0201 of a share of AcelRx common stock per share of Tetraphase common stock
underlying the common stock warrants issued by Tetraphase in 2019, (ii) $0.8123 in cash and 1.0250 of a share of AcelRx common stock per share of Tetraphase common stock underlying the common stock warrants issued by Tetraphase in 2020 and
(iii) the product of (a) in the case of pre-funded warrants issued by the Company in November 2019, 99.42631%, and in the
case of pre-funded warrants issued by the Company in January 2020, 99.94263%, and (b) each element of the merger consideration to be received by the Tetraphase stockholders for each
share of the Companys common stock underlying such pre-funded warrants.
Based on the closing
price of AcelRx stock on May 28, 2020, the upfront stock and cash consideration to be received by Tetraphase equityholders is valued at approximately $37.0 million, with approximately $18.7 million of this amount allocated
to the Companys outstanding common stock warrants. The upfront stock and cash consideration is subject to downward adjustment in the event that the Companys closing net cash is less than $5.0 million.
The Amended Merger Agreement also increased the termination fee payable to AcelRx in specified circumstances from $1,441,000 to $1,778,000.
The Tetraphase board of directors has approved the Merger and the amended terms of the Merger in the Second Amendment, determined that as a result of the
Second Amendment, Melintas previously disclosed amended proposal of May 27, 2020 is not superior and has recommended the adoption of the merger agreement, as amended by the Second Amendment, by the Tetraphase stockholders.
In connection with the Amended Merger Agreement, certain of the Companys warrantholders entered into amendments to the voting agreements dated
March 15, 2020, as previously amended on May 27, 2020, to which they were a party with AcelRx. Under the amended voting agreements, these warrantholders, which collectively beneficially own approximately 20% of the outstanding voting power
of the Company, agreed, among other things, to vote their shares of Tetraphase common stock in favor of the adoption of the Amended Merger Agreement and to the treatment of the warrants specified above.
The Second Amendment further provides for a revised form of contingent value rights agreement to be entered into prior to the effective time of the merger
between AcelRx and a rights agent selected by Parent and reasonably acceptable to the Company governing the terms of certain consideration payable thereunder (the CVR Agreement). Under the CVR Agreement, the CVRs will be payable in cash
if the following milestones are achieved: (a) $2.5 million upon the achievement of annual net sales of XERAVA in the United States of at least $20.0 million during the calendar year ending on December 31, 2021; (b) $4.5 million
upon the achievement of annual net sales of XERAVA in the United States of at least $35.0 million during any calendar year ending on or before December 31, 2024; and/or (c) $9.0 million upon the achievement of annual net sales of
XERAVA in the United States of at least $55.0 million during any calendar year ending on or before December 31, 2024. The right to the contingent consideration as evidenced by the CVR Agreement is a contractual right only and will not be
transferable, except in the limited circumstances specified in the CVR Agreement.