Always my favorite read from mergers docs...
THE MERGER
Background of the Merger
Since its formation, AME has financed its operations, in part, through research collaborations with third parties, primarily large pharmaceutical and biotechnology companies.
In February 2001, members of AME’s management presented non-confidential information regarding AME’s protein optimization capabilities to members of Lilly’s management. In June 2001, AME and Lilly entered into a confidential disclosure agreement to permit additional discussions concerning a possible collaboration. Since that time, AME and Lilly have had many discussions concerning both existing and future collaborations and other potential business relationships.
In December 2001, AME entered into its first collaboration agreement with Lilly involving the optimization of an antibody and a non-antibody protein which is described more fully in the section captioned “— Interests of Certain Persons in the Merger; Relationship between Lilly and AME — Corporate Collaboration.”
From December 2002 through February 2003, representatives of AME and Lilly met on several occasions to discuss ways to broaden their existing collaborative relationship, including potential equity or other investments by Lilly. The parties discontinued discussions regarding a broader strategic relationship in February 2003.
In June 2003, AME entered into another collaboration agreement with Lilly involving the optimization of an antibody and a growth factor which is described more fully in the section captioned “— Interests of Certain Persons in the Merger; Relationship between Lilly and AME — Corporate Collaboration.”
In July 2003, the parties again began to explore ways to broaden their existing collaborative relationship. On July 24, 2003, Dr. William Huse, President and Chief Executive Officer of AME, met with members of Lilly’s management to discuss a potential acquisition of AME by Lilly.
From July 25, 2003 through August 10, 2003, discussions continued between Dr. Huse and representatives of Lilly regarding a potential acquisition. These discussions were focused primarily on strategic vision, AME’s function within the Lilly organization, scientific objectives, scientific synergies and the potential benefits of an acquisition.
On August 13, 2003, the AME board of directors met in a regularly scheduled meeting at AME’s headquarters in San Diego and discussed Lilly’s interest in exploring a potential acquisition of AME. The AME board of directors instructed Dr. Huse to continue discussions with Lilly and to begin exploring with Lilly the price to be offered to AME stockholders.
On August 26, 2003, representatives of AME and Lilly met to discuss a potential acquisition. During this meeting, the representatives of Lilly verbally indicated that Lilly would be interested in acquiring AME for consideration in the range of $11.00 to $13.00 per share of AME common stock, subject to due diligence and further discussions. This price range represented a significant premium to the closing price of AME common stock of $6.53 per share on August 25, 2003.
On September 10, 2003, the AME board of directors met by conference telephone call and discussed the potential acquisition of AME by Lilly, the possible opportunity for an equity financing and AME’s strategic alternatives.
On September 12, 2003, representatives of AME and Lilly met to discuss valuations for a potential acquisition. At the conclusion of this meeting, the representatives of AME indicated that AME was interested in a transaction at prices ranging from $19.00 to $21.00 per share of AME common stock. The closing price of AME common stock on September 11, 2003 was $7.99 per share.
On September 22, 2003, representatives of AME and Lilly held a video conference to discuss the potential acquisition of AME by Lilly. During this meeting, the representatives of Lilly indicated a likely
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price range of $14.00 to $16.00 per share of AME common stock, which continued to represent a significant premium to the closing price of AME common stock of $9.74 per share on September 19, 2003, the trading day immediately preceding the date of this meeting.
On September 26, 2003, the AME board of directors met by conference telephone call. During this meeting, the AME board of directors was updated on the status of discussions with Lilly on a potential acquisition and discussed the recent meetings of Dr. Lawrence Bloch, Chief Financial Officer and Secretary of AME, with investment banking firms regarding a possible equity financing.
On September 29, 2003, representatives of AME and Lilly met by conference telephone call to discuss Lilly’s most recent proposal. At the conclusion of this meeting, the representatives of AME indicated AME’s interest in a potential transaction only at a price of $19.00 per share of AME common stock. Representatives of AME also indicated to the representatives of Lilly that AME preferred a transaction in which all outstanding AME common stock would be exchanged for Lilly common stock due to the tax advantages of this type of transaction over an all-cash acquisition. The closing price of AME common stock on September 26, 2003, the trading day immediately preceding the date of this meeting, was $9.73 per share.
On September 29 and 30, 2003 and October 1, 2003, the AME board of directors met by conference telephone call and discussed the potential acquisition by Lilly and authorized management to proceed with discussions with Lilly.
Also, on October 1, 2003, representatives of Lilly spoke with Dr. Huse by telephone and indicated that Lilly would be prepared to proceed with an acquisition of AME at a purchase price of $16.00 per share of AME common stock payable in Lilly common stock or $16.50 in cash, subject to due diligence and further discussions. The closing price of AME common stock on September 30, 2003 was $8.56 per share.
On October 3, 2003, the AME board of directors met by conference telephone call and received a presentation by JPMorgan regarding potential equity financing alternatives which might be available to AME. The representatives of JPMorgan presented an equity capital markets update and its qualifications to act on behalf of AME in an equity financing. The potential acquisition of AME by Lilly was not discussed with JPMorgan at this time.
On October 4, 2003, the AME board of directors met by conference telephone call and discussed the potential acquisition of AME by Lilly. The AME board of directors discussed the various components of the consideration, including a fixed value price versus other possible structures. At the conclusion of this meeting, the AME non-management directors met in executive session with AME’s outside legal counsel, Pillsbury Winthrop LLP, and discussed the potential acquisition.
Between October 6 and October 13, 2003, the parties met several times by conference telephone call and discussed a potential transaction in the price range indicated by Lilly on October 1, 2003. During these discussions, representatives of AME proposed a structure that provided AME stockholders with a choice between cash and Lilly common stock so that, depending on the stockholders’ preference, they could realize immediate value through cash or participate in the long-term growth of Lilly through ownership of Lilly common stock. Representatives of Lilly continued to state their preference for a transaction which consisted of either all cash or all stock. As part of these discussions, representatives of Lilly proposed a non-binding term sheet for discussion purposes which contained, among other things, a requirement by Lilly that AME would negotiate exclusively with Lilly for a 60-day period and deal protection provisions, to be contained in a definitive agreement, including a break-up fee.
During this period, the AME board of directors met by conference telephone call and discussed AME’s strategic alternatives and authorized the management of AME to enter into a confidentiality and standstill agreement with Lilly in order to continue further discussions.
On October 13, 2003, representatives of AME and Lilly by conference telephone call agreed to continue further discussions on the basis of a price of $16.25 per share of AME common stock, payable, at
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the election of each AME stockholder, in cash or Lilly common stock, with the aggregate consideration payable by Lilly capped at 51 percent in stock and 49 percent in cash. Representatives of Lilly indicated that they would consider a “cash election” merger but only if the stock component did not exceed more than 51% of the aggregate consideration. Representatives of Lilly also continued to insist that further discussions would be subject to a 60-day exclusivity period. The closing price of AME common stock on October 10, 2003, the trading day immediately preceding the date of this meeting, was $11.35 per share.
Also during this period, representatives of AME continued to explore possible private and public equity financings.
On October 14, 2003, Dr. Huse conveyed to representatives of Lilly that, although AME desired to continue the discussions, the AME board of directors had determined earlier that day that AME could not agree to the 60-day exclusivity period. On October 15, 2003, representatives of Lilly informed AME that Lilly would not proceed with further discussions without an exclusivity period.
On October 16 and October 17, 2003, the AME board of directors met by conference telephone call, and Dr. Huse reported on recent discussions with Lilly, including Lilly’s requirement of an exclusivity agreement in order to continue further discussions. The AME board of directors then discussed AME’s strategic alternatives. AME’s outside legal counsel reviewed with the AME board of directors its fiduciary duties. The AME board of directors authorized the management of AME to enter into a 30-day exclusivity agreement with Lilly under the terms and conditions discussed with the AME board of directors. The AME board of directors also discussed engaging an investment banker and authorized the management to engage JPMorgan with respect to assisting with a potential acquisition as well as a possible offering of equity securities. AME’s non-management directors also met in executive sessions and met with AME’s outside legal counsel to further discuss AME’s strategic alternatives.
On October 22, 2003, AME and Lilly executed an exclusive negotiation, standstill and employee non-solicitation agreement which, among other things, amended the confidentiality agreement between the companies and provided for an exclusivity period of 30 days commencing on October 20, 2003. In addition, on October 22, 2003, Lilly’s outside legal counsel, Dewey Ballantine LLP, delivered an initial draft of a merger agreement to AME’s outside counsel.
On October 23, 2003, members of Lilly’s management met with members of AME’s management in San Diego. During this meeting, Dr. James Breitmeyer, Vice President, Pharmaceutical Operations of AME, and Dr. Jeffry Watkins, Chief Scientific Officer of AME, described AME’s research and development capabilities and provided an overview of AME’s proprietary products, AME-527 and AME-133.
On October 27, 2003, representatives of Lilly and its outside legal counsel met with AME’s outside legal counsel, with members of AME’s management participating by conference telephone call, to discuss the major terms and conditions of the draft merger agreement.
On October 28, 2003, the AME board of directors met by conference telephone call, and Dr. Huse discussed with the AME board of directors AME’s alternatives in terms of private and public equity financings and potential strategic transactions. Dr. William Respess, Vice President, General Counsel and Director of AME, Dr. Keith Manchester, Vice President of Business Development of AME and AME’s outside legal counsel reported to the AME board of directors regarding the October 27, 2003 meeting with members of Lilly’s management. At the conclusion of these discussions, the AME board of directors authorized the management of AME to proceed with discussions with Lilly.
Commencing on November 3, 2003 and continuing through the following weeks, representatives of Lilly reviewed due diligence materials of AME at a data room in San Diego, and various scientific, business and legal personnel from both Lilly and AME met at various times in San Diego and participated in a series of teleconferences to conduct due diligence.
On November 7, 2003, AME formally retained JPMorgan as its financial advisor with respect to the potential acquisition by Lilly.
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At a meeting of the AME board of directors on November 9, 2003, representatives of JPMorgan discussed with the AME board of directors AME’s strategic alternatives and presented an equity capital markets update. The AME board of directors discussed with AME’s outside legal counsel a possible timetable for the potential acquisition and the AME board of directors’ fiduciary duties.
On November 12, 2003, representatives of AME and Lilly and their respective outside legal counsel met to discuss and negotiate the terms and conditions of the potential acquisition and the merger agreement. The discussion included, among other terms, the relative merits of the forward triangular merger and reverse triangular merger structures, the deal protection provisions sought by Lilly and the impact of the tax-free treatment sought by AME on the form of merger consideration, including, for a reverse triangular merger, that 80 percent or more of the aggregate consideration must consist of Lilly common stock.
On November 13, 2003, Lilly’s outside legal counsel delivered a revised draft of the merger agreement to AME’s outside legal counsel, which included a change in the structure to a reverse triangular merger with AME surviving as a wholly owned subsidiary of Lilly and provided for a merger consideration of $16.25 per share of AME common stock payable, at the election of each AME stockholder, in Lilly common stock or cash, with the aggregate merger consideration consisting of 80 percent Lilly common stock and 20 percent cash.
On November 14, 2003 and over the following weekend, representatives of JPMorgan, representatives of Merrill Lynch & Co., Lilly’s financial advisor, and representatives of Lilly discussed the purchase price. JPMorgan indicated that the AME board of directors was proposing that Lilly increase the proposed merger consideration from the $16.25 per share then being discussed by the parties. JPMorgan also noted the possible alternatives available to AME, such as an equity financing transaction or the execution of additional licensing agreements.
On November 17, 2003, the AME board of directors met by conference telephone call. Dr. Huse updated the AME board of directors on management’s discussions with representatives of Lilly. Dr. Huse summarized the proposed terms of the merger. AME’s outside legal counsel reviewed with the AME board of directors the status of discussions, the terms of the then current draft of the merger agreement, due diligence, regulatory matters and open issues and the fiduciary duties of the AME board of directors. Representatives of JPMorgan reported to the AME board of directors on the status of discussions with Merrill Lynch and matters relating to a financial review by JPMorgan. The AME board of directors discussed the terms and conditions of the potential acquisition and AME’s strategic alternatives and authorized the management of AME to proceed with the acquisition discussions with Lilly. At the conclusion of this meeting, the non-management directors met in executive session with AME’s outside legal counsel and discussed matters relating to the potential acquisition.
On November 18, 2003, members of AME’s management and members of Lilly’s management and their respective outside legal counsel discussed the terms and conditions of the draft merger agreement and negotiated various provisions, including representations and warranties, covenants, closing conditions and termination provisions.
In the morning on November 19, 2003, a number of telephone calls occurred between members of AME’s management, members of Lilly’s management and their respective legal advisors regarding the outstanding issues in the merger agreement and the purchase price to be paid.
Later in the morning on November 19, 2003, the AME board of directors met in a regularly scheduled meeting at AME’s headquarters in San Diego. During a brief recess of the meeting, Dr. Huse spoke with representatives of Lilly by telephone and proposed a $19.00 price per share of AME common stock in response to Lilly’s request that AME make a specific counter-proposal to the $16.25 per share amount which the parties had been discussing. When the AME board meeting resumed, Dr. Huse reported upon the recent exchange of telephone calls and that he had received Lilly’s final and best proposal of $18.00 per share of AME common stock conditioned upon AME’s acceptance of the deal protection provisions requested by Lilly, including the termination provisions of the merger agreement,
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voting and support agreements, the obligation of AME to present the Lilly transaction to a vote of AME stockholders and the termination fee requested by Lilly. The AME board of directors then reviewed with management and AME’s outside legal counsel the status of discussions with Lilly and the proposed terms and conditions. Representatives of JPMorgan joined the meeting and discussed with the AME board of directors its financial review of, and analysts’ reports on, Lilly and AME.
On the evening of November 20, 2003, the AME board of directors met by conference telephone call and discussed the proposed terms and conditions. Dr. Huse and AME’s outside legal counsel updated the AME board of directors on the status of the negotiations, summarized the proposed terms and conditions and outstanding negotiation points and responded to questions. AME’s outside legal counsel reviewed with the AME board of directors their fiduciary responsibilities and discussed with the AME board of directors the approvals that would be required for the acquisition. Representatives of JPMorgan reviewed with the AME board of directors the terms of the potential acquisition and discussed the proposed opinion of JPMorgan. The AME board of directors determined that, in light of the status of the negotiation of the merger agreement, it would reconvene early the next morning to receive an update and consider the transaction further.
During the course of the evening of November 20 and the morning of November 21, 2003, the parties negotiated the remaining provisions of the merger agreement.
On the morning of November 21, 2003, the AME board of directors met by conference telephone call. AME’s legal counsel reviewed with the AME board of directors the terms of the final draft of the merger agreement. JPMorgan delivered its oral opinion to the AME board of directors, subsequently confirmed in writing, that, based upon the assumptions made, matters considered, procedures followed and the scope of review as set forth in the opinion, the merger consideration was fair, from a financial point of view, to holders of AME common stock. After discussion, the AME board of directors unanimously determined that the merger was advisable and fair to, and in the best interests of, AME stockholders, approved the merger agreement, the merger and the voting and support agreements and unanimously resolved to recommend that AME stockholders vote to adopt the merger agreement.
Shortly thereafter, Lilly, Merger Sub and AME entered into the merger agreement. |
