| Strategic Transactions | 2.
STRATEGIC TRANSACTIONS (a) Merger Transaction with Aegerion
Pharmaceuticals, Inc. On June 14, 2016, QLT and Aegerion Pharmaceuticals,
Inc. (“Aegerion”) entered into an agreement and plan of
merger (as amended, the “Merger Agreement”) pursuant to
which a wholly owned indirect subsidiary of QLT will be merged with
and into Aegerion, with Aegerion surviving as a wholly-owned
subsidiary of QLT (the “Merger”). Upon completion of
the proposed Merger, each outstanding share of Aegerion common
stock will be converted into a right to receive 1.0256 QLT common
shares (the “Exchange Ratio”), subject to adjustment as
described below. QLT plans to change its name upon closing of the
Merger to Novelion Therapeutics Inc. (“Novelion”) and
its common shares will continue to trade on the NASDAQ Global
Select Market (“NASDAQ”) and the Toronto Stock Exchange
(“TSX”). As at the date of this filing, QLT is
anticipated to be the accounting acquirer and the acquisition
method of accounting under ASC No. 805 – Business
Combinations Under the Merger Agreement, the Exchange Ratio may
be reduced if, prior to closing of the Merger, Aegerion settles
(i) the previously disclosed U.S. Department of Justice
(“DOJ”) and SEC investigations into Aegerion’s
sales activities and disclosure related to its JUXTAPID ® While the proposed Merger has been approved by the
boards of directors of both companies, the closing of the Merger is
subject to various conditions, including but not limited to (i)
receipt of the required approvals of the shareholders at the
special meetings of each of QLT and Aegerion on November 7,
2016 and (ii) completion of the private placement (with an
aggregate subscription price not less than $17.5 million)
contemplated by the unit subscription agreement (as described
below, the “Unit Subscription Agreement”), that QLT
entered into on June 14, 2016 with the investors party thereto (the
“Investors”) in connection with the Merger. Following
the completion of the Merger and assuming no adjustment to the
Exchange Ratio, QLT shareholders, including the Investors who will
purchase QLT common shares immediately prior to the Merger under
the Unit Subscription Agreement, are expected to own approximately
68% of the outstanding Novelion common shares and Aegerion
shareholders are expected to own approximately 32% of the
outstanding Novelion common shares. Immediately prior to the consummation of the
Merger, the Unit Subscription Agreement contemplates the issuance
of certain units (the “Units”) to the Investors in a
private placement for an aggregate subscription price of $21.8
million. These Units will, in the aggregate, consist of (i)
12,363,636 QLT common shares, which includes up to 2,840,909 QLT
common shares issuable upon exercise of fully paid-up warrants, and
(ii) Warrants (as defined and described above) exercisable for a
maximum of 13,224,761 QLT common shares at an exercise price of
$0.01 per common share. This investment is intended to provide
Novelion with additional capital to support future operations and
business development initiatives. Under the Merger Agreement, QLT and Aegerion have
agreed to use commercially reasonable efforts to cause the board of
directors of Novelion following the Merger and until the 2017
annual meeting of Novelion to consist of four individuals
designated by Aegerion, four individuals designated by QLT, one
individual designated by Broadfin Capital, LLC (“Broadfin
Capital”) and one individual designated by Sarissa Capital
Management LP (“Sarissa Capital Management”). For a
specified period of time following the Merger, Sarissa Capital
Management will also have the right to designate one additional
member of the board of directors of Novelion. Following the
completion of the Merger, Mary Szela, Chief Executive Officer of
Aegerion, will serve as Chief Executive Officer of Novelion. On June 14, 2016, QLT entered into a loan and
security agreement with Aegerion (the “Loan Agreement”)
concurrently with the execution of the Merger Agreement, pursuant
to which QLT agreed to provide a term loan facility to Aegerion for
an aggregate principal amount of up to $15.0 million. Aegerion
borrowed $3.0 million in term loans (the “QLT Loans”)
on June 15, 2016 and may also borrow up to an additional $3
million per month (commencing July 2016) if and to the extent such
amounts are necessary in order for Aegerion to maintain an
unrestricted cash balance of $25 million, subject to the
satisfaction of certain terms and conditions. As at September
30, 2016, the $3.1 million outstanding under the Loan Agreement has
been reflected as a short term loan receivable on the condensed
consolidated balance sheet. The QLT Loans bear interest at 8% per
annum and are subject to certain increases under certain
conditions. Pursuant to the Loan Agreement, accrued interest will
be capitalized and added to the aggregate principal amount of the
QLT Loans outstanding. The QLT Loans mature on the earliest of
(i) July 1, 2019, (ii) the maturity date of Aegerion
2% senior convertible notes, (iii) three business days after a
termination of the Merger Agreement by Aegerion and (iv) 90
days after a termination of the Merger Agreement by QLT.
Aegerion’s obligations under the QLT Loan Agreement are
secured by (1) a first priority security interest in
Aegerion’s intellectual property related to its
MYALEPT ® During the three and nine months ended September
30, 2016, QLT incurred consulting and advisory fees of $1.9 million
and $5.5 million respectively, in connection with the pursuit of
the Merger with Aegerion. These consulting and advisory fees are
reflected as part of Selling, General and Administrative expenses
(“SG&A”) on the consolidated statements of
operations and comprehensive loss.
(b) Aralez Investment and Distribution On June 8, 2015, QLT entered into a share
subscription agreement (as amended on December 7, 2015, the
“Amended and Restated Subscription Agreement”) with
Tribute Pharmaceuticals Canada Inc. (“Tribute”), POZEN
Inc. (“POZEN”), Aralez Pharmaceuticals plc (formally
known as Aguono Limited), Aralez Pharmaceuticals Inc.
(“Aralez Canada”), and certain other investors
(referred to as the “Co-Investors”). Pursuant to the
Amended and Restated Subscription Agreement, immediately prior to
and contingent on the consummation of the merger of Tribute and
POZEN (the “Aralez Merger”), Tribute agreed to sell to
QLT and the other Co-Investors $75.0 million of common shares of
Tribute (the “Tribute Shares”) in a private placement
at a purchase price per share equal to: (a) the lesser of
(i) US$7.20, and (ii) a five percent discount off
the five day volume weighted average price (“VWAP”) per
share of POZEN common stock calculated over the five trading days
immediately preceding the date of closing of the Aralez Merger, not
to be less than US$6.25 per share; multiplied by (b) the
Aralez Merger exchange ratio of 0.1455. On consummation of the
Aralez Merger, the Tribute Shares would be exchanged for common
shares of Aralez Canada (the “Aralez Shares”). The
transaction contemplated by the Amended and Restated Subscription
Agreement was entered into by QLT for the purpose of returning
capital to its shareholders pursuant to a special election
distribution that was payable, at the election of each QLT
shareholder, in either Aralez Shares (approximately 0.13629 of an
Aralez Share for each QLT share) or cash, subject to pro-ration
(the “Aralez Distribution”) for a $15.0 million maximum
cash component that was funded pursuant to the terms of the
Backstop Agreement (as defined and described below). On February 5, 2016, the Aralez Merger was
consummated and QLT purchased 7,200,000 Aralez Shares (representing
10.1% of the issued and outstanding Aralez Shares) at a price of
US$6.25 per share (the “Aralez Investment”) for an
aggregate total investment of $45.0 million. The Aralez Shares are
listed on the NASDAQ and TSX. QLT entered into a share purchase agreement, dated
June 8, 2015 (as amended, the “Backstop Agreement”)
with Broadfin Healthcare Master Fund, Ltd.
(“Broadfin”), JW Partners, LP, JW Opportunities Fund,
LLC and J.W. Opportunities Master Fund, Ltd. (together, the
“JW Parties”) (the “Backstop Purchasers”)
pursuant to which the Backstop Purchasers agreed to purchase up to
$15.0 million of the Aralez Shares from QLT at US$6.25 per share.
This arrangement provided QLT shareholders the opportunity to elect
to receive, in lieu of Aralez Shares, up to an aggregate of US$15.0
million in cash, subject to proration. Pursuant to the terms of the
Backstop Agreement, on March 17, 2016, QLT sold 2,400,000 Aralez
Shares to the Backstop Purchasers and received $15.0 million of
cash proceeds. On March 18, 2016, QLT obtained shareholder
approval to reorganize its share capital (the “Share
Reorganization”) pursuant to a court-approved statutory Plan
of Arrangement under Section 288 of the Business
Corporations Act QLT held the Aralez Shares from February 5, 2016 to
the Date of Distribution and the Aralez Shares were
marked-to-market. As a result, the Company recognized a $10.7
million loss during the nine months ended September 30, 2016, to
reflect the changes in value from the acquisition date to the
Distribution Date. During the three and nine months ended September
30, 2016, QLT incurred consulting and advisory fees of nil and $4.4
million respectively, in connection with the Aralez Investment and
Aralez Distribution. The $4.4 million for the nine months ended
September 30, 2016 includes a $4.0 million advisory fee paid to
Greenhill & Co, LLC for financial advisory services performed
in connection with the completion of the Aralez Investment and
exploration of certain other strategic initiatives. These
consulting and advisory fees are reflected as part of SG&A on
the consolidated statements of operations and comprehensive
loss. |
