Consummation of the Merger is subject to certain closing conditions, including, among other things, (1) approval by AVRO stockholders of specified AVRO voting matters as set forth in the Merger Agreement, (2) approval by the requisite Tectonic stockholders of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, (3) Nasdaq’s approval of the listing of the shares of AVRO common stock to be issued in connection with the Merger and the continued listing of the AVRO common stock on Nasdaq, (4) the effectiveness of the Registration Statement, (5) the financing transactions described below resulting in aggregate cash proceeds of not less than $114,500,000 to Tectonic, (6) absence of material adverse effects on AVRO and Tectonic, respectively, and (7) AVRO’s net cash not being less than $50,000,000 as of immediately prior to the Effective Time of the Merger (the “Effective Time”). Each party’s obligation to consummate the Merger is also subject to other specified customary conditions, including regarding the accuracy of the representations and warranties of the other party, subject to the applicable materiality standard, and the performance in all material respects by the other party of its obligations under the Merger Agreement required to be performed on or prior to the date of the closing of the Merger.
The Merger Agreement contains certain termination rights of each of AVRO and Tectonic. Upon termination of the Merger Agreement under specified circumstances, AVRO may be required to pay Tectonic a termination fee of $2,712,500 and/or reimburse Tectonic’s expenses up to a maximum of $650,000, and Tectonic may be required to pay AVRO a termination fee of $4,900,000.
At the Effective Time of the Merger, one director of AVRO will be appointed to the Board, with the remaining directors selected by Tectonic.
Financing Transactions
Concurrently with the Merger Agreement, Tectonic entered into a subscription agreement with certain investors (the “Subscription Agreement”), pursuant to which Tectonic agreed to sell shares of its common stock immediately prior to the closing of the Merger in a private placement financing. The proceeds from the private placement financing expected to be consummated at the closing of the merger, together with additional private placement financings through simple agreements for future equity (the “SAFEs”), are expected to be at least $130.7 million in the aggregate. The closing of the private placement financing contemplated by the Subscription Agreement is conditioned upon the satisfaction or waiver of the conditions set forth in the Merger Agreement and the SAFEs will convert to common stock of Tectonic in connection with the closing of the Merger. Shares of common stock issued pursuant to the Subscription Agreement and upon conversion of the SAFEs will be converted into shares of AVRO in accordance with the Exchange Ratio.
Contingent Value Rights Agreement
At the Effective Time, AVRO and a rights agent are expected to enter into a Contingent Value Rights Agreement (the “CVR Agreement”), pursuant to which AVRO stockholders of record as of the close of business on the last business day prior to the day on which the Effective Time occurs will receive one contingent value right (each, a “CVR”) for each outstanding share of AVRO common stock held by such stockholder on such date.
Each CVR will represent the contractual right to receive payments from AVRO upon the actual receipt by AVRO or its subsidiaries of certain contingent proceeds derived from any marketable consideration that is paid to AVRO as a result of the direct or indirect sale, license, assignment, transfer, conveyance, grant of any option or other disposition of certain of AVRO’s assets, rights and interests to the extent existing prior to the closing of the Merger relating to AVRO’s (a) plato® manufacturing platform, (b) AVR-RD-01 (Fabry disease), AVR-RD-02 (Gaucher disease), and/or AVR-RD-03 (Pompe disease) research and development programs (none of which are currently active), and (c) certain intellectual property, net of certain tax, transaction costs and certain other expenses or liabilities.
The contingent payments under the CVR Agreement, if they become payable, will become payable to the rights agent for subsequent distribution to the holders of the CVRs. There can be no assurance that holders of CVRs will receive any payments with respect thereto.
The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the SEC. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in the Company or any of its affiliates. No interest will accrue on any amounts payable in respect of the CVRs.