Tekmira/OnCore
Overview
OnCore, a private Delaware company with a controlling Bermuda sharehholder, will be merged into a Delaware subsidiary of Tekmira, a BC public company, with OnCore shareholders receiving Tekmira common shares on the merger. Post-merger the OnCore shareholders will hold an estimated 51.7% of the common shares Tekmira – or 50% on a fully diluted basis. (i.e., taking into account the in-the-money value of Tekmira options). Although the Code s. 7874 inversion rules should not apply, the Code s. 382 ownership change rules may restrict the use of Tekmira's NOLs.
Tekmira
Tekmira is a biopharmaceutical company governed by the BCBCA which is focused on advancing novel RNAi therapeutics and providing its lipid nanoparticle delivery technology to pharmaceutical and biotechnology partners. Tekmira's common shares are listed on the NASDAQ Global Market and on the TSX, but it has applied to delist from the TSX.
OnCore
OnCore Biopharma, Inc. is a private biopharmaceutical Delaware company dedicated to discovering, developing and commercializing an all oral cure for patients suffering from chronic hepatitis B infections.
Merger Sub
Merger Sub is a wholly owned subsidiary of Tekmira that was incorporated in Delaware on January 6, 2015
Merger
Merger Sub will merge with and into OnCore, with OnCore surviving the merger as a wholly-owned subsidiary of Tekmira. It is expected that all outstanding shares of OnCore preferred stock will be converted into shares of OnCore common stock on a one-for-one basis immediately prior to the Effective Time of the Merger, and that at the Effective Time, all outstanding OnCore common shares will be converted into Tekmira common shares based on the exchange ratio (estimated to be 1.066 Tekmira common shares for each OnCore common share). OnCore stock options and restricted stock awards will be converted automatically at the Effective Time into options on Tekmira common shares or Tekmira restricted stock awards.
Effect of Merger
Based on the closing price of Tekmira common shares on the NASDAQ and the number of outstanding securities of each of Tekmira and OnCore on January 28, 2015, Tekmira and OnCore security holders would own, following the closing of the merger, approximately (i) 48.3% and 51.7%, respectively, of the common shares of Tekmira on a non-diluted basis, and (ii) 50% and 50%, respectively, on a fully-diluted and as-converted basis using the "treasury stock method" (i.e., converting the in-the-money value of options and warrants into shares based on current market price). The 7-person board will comprise 3 designees of each of Tekmira and OnCore, with the final director to be agreed between Tekmira and OnCore. During a post-merger period, certain actions will require the approval of 70% of the directors. This period will last 3 years, assuming that 10% of its common shares continue to be held by Roivant Sciences Ltd. (a Bermuda exempt company and a shareholder of OnCore) which immediately post-merger will hold 34.8% of the common shares of Tekmira.
Anticipated accounting treatment
. Under ASC 805, the merger is expected to be accounted for using acquisition accounting pursuant to which Tekmira is considered the acquiring entity. As such, Tekmira expects to allocate the total purchase consideration to OnCore's tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values at the date of the completion of the merger.
Canadian tax consequences
Shareholders of Tekmira will not dispose of their common shares of Tekmira by virtue of the merger and will not receive any consideration as a consequence of the merger. Accordingly, they will not realize a capital gain (or incur a capital loss) in respect of their common shares in Tekmira as a result of the merger.
U.S. tax consequences
Tekmira/Tekmira shareholders. No gain or loss will be recognized by Tekmira. Shareholders of Tekmira will not exchange or surrender their common shares of Tekmira in the merger or receive any separate consideration. Accordingly, they will not recognize gain or loss as a result of the merger.
Merger
The merger is intended to qualify as a "reorganization" within the meaning of Code s. 368(a), and the Merger Agreement as a "plan of reorganization" within the meaning of ss. 1.368-2(g) and 1.368-3(a) of the Regulations. OnCore shareholders are expected to receive less than 60% of the vote and value of Tekmira common shares after the merger by reason of holding OnCore shares, so that under current law, OnCore is not expected to be subject to Code s. 7874 limitations on the use of U.S. tax attributes and Tekmira is not expected to be treated as a U.S. domestic corporation under those rules. It is not expected that the promulgation of any of the Treasury Regulations described in the Notice 2014-52 will have any material adverse impact.
Losses
OnCore may undergo an s. 382 ownership change as a result of the merger and as a result, the ability of OnCore to use NOLs and other tax attributes following the merger may be limited.