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QCOR > SEC Filings for QCOR > Form 8-K on 30-Jul-2014All Recent SEC Filings

Show all filings for QUESTCOR PHARMACEUTICALS INC

Form 8-K for QUESTCOR PHARMACEUTICALS INC


30-Jul-2014

Other Events


ITEM 8.01 OTHER EVENTS

Settlement of Certain Litigation

As previously disclosed at page 170 of the definitive joint proxy statement/prospectus dated July 11, 2014 (the "Definitive Joint Proxy Statement/Prospectus") under the heading "Litigation Relating to the Transaction," certain actions were filed by putative shareholders of Questcor Pharmaceuticals, Inc. ("Questcor") and were subsequently consolidated in the California Superior Court. The consolidated complaint alleges that the Questcor board of directors breached their fiduciary duties to Questcor's shareholders because, among other things, the proposed merger in which Mallinckrodt plc ("Mallinckrodt") will acquire Questcor allegedly involves an unfair price, an inadequate sales process, self-dealing, and unreasonable deal protection devices. The consolidated complaint further alleges that the Questcor directors breached their fiduciary duties by failing to disclose purportedly material information to shareholders in connection with the merger. The consolidated complaint also alleges that Mallinckrodt and Quincy Merger Sub, Inc. aided and abetted these purported breaches of fiduciary duty.

On July 29, 2014, the defendants reached an agreement in principle with plaintiffs regarding the actions, and that agreement is reflected in a memorandum of understanding. In connection with the settlement contemplated by the memorandum of understanding, Questcor agreed to make certain additional disclosures related to the proposed transaction with Mallinckrodt, which are contained in this Form 8-K. Additionally, as part of the settlement and pursuant to the memorandum of understanding, Mallinckrodt and Quincy Merger Sub, Inc. agreed to forbear from exercising certain rights under the Agreement and Plan of Merger, dated as of April 5, 2014, by and among Mallinckrodt, Quincy Merger Sub, Inc. and Questcor, which is set forth in Annex A to the Definitive Joint Proxy Statement/Prospectus (the "Merger Agreement"), as follows: the four (4) business day period referenced in Section 5.3(e) of the Merger Agreement will be reduced to three (3) business days. The memorandum of understanding contemplates that the parties will enter into a stipulation of settlement.

The stipulation of settlement will be subject to customary conditions, including court approval. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the California Superior Court will consider the fairness, reasonableness, and adequacy of the settlement. If the settlement is finally approved by the court, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the proposed transaction, the Merger Agreement, and any disclosure made in connection therewith, including in the Definitive Joint Proxy Statement/Prospectus, pursuant to terms that will be disclosed to shareholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that the parties shall negotiate in good faith regarding the amount of attorneys' fees and expenses that shall be paid to plaintiffs' counsel in connection with the actions. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the California Superior Court will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may be terminated.

SUPPLEMENT TO DEFINITIVE PROXY STATEMENT

In connection with the settlement of certain outstanding shareholder suits as described in this Form 8-K, Questcor has agreed to make these supplemental disclosures to the Definitive Joint Proxy Statement/Prospectus dated July 11, 2014. This supplemental information should be read in conjunction with the Definitive Joint Proxy Statement/Prospectus, which should be read in its entirety.

The second full paragraph on page 98 of the Definitive Joint Proxy Statement/Prospectus concerning the "Background of the Transaction" is replaced, in its entirety, with the following:

On February 10, 2014 and February 11, 2014, the Questcor board of directors held a regularly scheduled meeting. Representatives of Centerview attended the meeting in person and discussed with the Questcor board of directors an overview of a possible business combination with Mallinckrodt. During the meeting, Messrs. Bailey and Mulroy updated the Questcor board of directors on the status of discussions with Mallinckrodt and Company A. The


Questcor board of directors, together with representatives of Centerview and Questcor management, reviewed Questcor's strategic plan and its potential future as a standalone business, noting Questcor's current financial position, and discussed the various risks facing Questcor, including the risks related to its product concentration. The Questcor board of directors, together with representatives of Centerview and Questcor management, also discussed strategies Questcor might pursue as an alternative to pursuing Questcor's standalone business plan, including (i) a sale of Questcor to another company,
(ii) acquiring another business or product, (iii) a merger of equals,
(iv) engaging in an inversion transaction, (v) in-licensing products,
(vi) various forms of financing and (vii) a special dividend in conjunction with a leveraged recapitalization. In connection with this discussion, Centerview identified numerous potential acquirers and potential acquisition targets. Mr. Mulroy provided an overview for the members of the Questcor board of directors of their fiduciary duties in connection with their consideration of a potential transaction. The Questcor board of directors directed management to continue discussions with Mallinckrodt to learn more about what Mallinckrodt envisioned in terms of a potential combination.

The penultimate paragraph on page 98 of the Definitive Joint Proxy Statement/Prospectus concerning the "Background of the Transaction" is replaced, in its entirety, with the following:

On February 21, 2014, Mr. Trudeau spoke with Mr. Bailey by telephone and provided Mr. Bailey with Mallinckrodt's preliminary proposal, which included the following material terms:

The merger consideration would be comprised of cash and Mallinckrodt ordinary shares;

To try to make the receipt of the stock consideration in the proposed transaction a tax free exchange, the stock consideration would result in Questcor shareholders owning slightly under 50% of the combined company, provided that the exchange ratio might need to imply a slightly lower ownership percentage to account for the vesting and/or exercise of outstanding Questcor stock options;

Cash consideration of $1.5 billion (which, together with the proposed stock consideration, would represent an implied aggregate purchase price for Questcor of approximately $5.3 billion to $5.5 billion based on the closing price of Mallinckrodt's ordinary shares on February 21, 2014);

Three or more members of the Questcor board of directors would join the board of directors of the combined company;

Mr. Trudeau would serve as the chief executive officer of the combined company; and

Questcor would be held as a separate business unit within Mallinckrodt with the head of the unit reporting directly to Mr. Trudeau.

The following paragraph is added to the top of page 99 of the Definitive Joint Proxy Statement/Prospectus concerning the "Background of the Transaction":

During one of Mr. Bailey's conversations with Mr. Trudeau in the weeks following the February 11 meeting of the Questcor board of directors, Mr. Trudeau asked Mr. Bailey if Questcor was in discussions with any other parties regarding a possible strategic transaction. Mr. Bailey confirmed that Questcor was not engaged in such discussions at that time.

The carryover paragraph on pages 99 and 100 of the Definitive Joint Proxy Statement/Prospectus concerning the "Background of the Transaction" is replaced, in its entirety, with the following:

On February 27, 2014, the Questcor board of directors held a telephonic meeting, attended by all directors as well as representatives of Latham & Watkins LLP ("Latham & Watkins"), Questcor's legal advisor, Centerview and Questcor management. Questcor management provided a summary of potential acquisition candidates and other strategic alternatives being considered by Questcor, including continuing to operate as a standalone company, a leveraged recapitalization and a stock repurchase. Discussion ensued regarding the various strategic alternatives available to Questcor. Members of Questcor's senior management and the representatives of Centerview and Latham & Watkins then briefed the Questcor board of directors on the Mallinckrodt proposal. Centerview and Questcor management each discussed a preliminary financial overview of the Mallinckrodt proposal and the Questcor board of directors discussed with Centerview and Questcor management a comparison of the Mallinckrodt proposal to the other strategic alternatives being considered by the Questcor board of directors and how the Mallinckrodt proposal helped to achieve certain strategic objectives of Questcor. Management expressed its views (i) that the increased scale and diversity of the combined company would enhance the combined company's ability to thrive in a changing healthcare environment, (ii) that, as a result of the combined company's diversified product portfolio as compared to


Questcor's single product concentration, the combined company's ordinary shares had the potential to trade at multiples to earnings and cash flow that were higher than the multiples to earnings and cash flow at which Questcor's common stock had been trading, and (iii) that the combined company would have a more efficient tax structure than Questcor on a standalone basis. After being briefed by management and Centerview on the Mallinckrodt proposal, the Questcor board of directors discussed the financial and strategic rationale of the proposed transaction and strategies for responding to the Mallinckrodt proposal. The Questcor board of directors was then briefed on its fiduciary duties by representatives of Latham & Watkins, after which the Questcor board of directors unanimously agreed to direct Questcor management to continue discussions with Mallinckrodt. The Questcor board of directors then discussed the advantages and disadvantages of conducting a potential pre-signing "market check" to assess the interest of potential alternative strategic partners should the proposed transaction with Mallinckrodt continue to move forward. At the conclusion of this discussion, the Questcor board of directors determined to not conduct a pre-signing "market check" at this time, but to revisit the topic at a subsequent board meeting if the transaction with Mallinckrodt continued to move forward. The Questcor board of directors then determined to formally engage Centerview to act as financial advisor to the Questcor board of directors and to facilitate the strategic transaction process due to Centerview's knowledge and experience in the pharmaceuticals industry, its familiarity with Questcor and its business and Centerview's nationally recognized reputation as a top-tier investment bank. The Questcor board of directors directed the Questcor Strategic Advisory Committee and Questcor management to formally engage Centerview to act as financial advisor to the Questcor board of directors on terms acceptable to the Questcor Strategic Advisory Committee. The Questcor board of directors then discussed the potentially tax free nature of the proposal as it related to the stock component of the merger consideration, other material terms of the Mallinckrodt proposal and the level of due diligence that should be undertaken when evaluating the potential receipt of Mallinckrodt stock as a significant portion of the merger consideration. At the conclusion of the Questcor board discussion, the Questcor board of directors authorized Questcor management to make a counter proposal to Mallinckrodt's management with the following terms:

Tax free stock exchange resulting in Questcor shareholders owning 49.9% of the combined company;

Cash consideration of $2.2 billion (which, together with the proposed stock consideration, would represent an aggregate purchase price for Questcor of approximately $6.4 billion based on the closing price of Mallinckrodt's ordinary shares on February 26, 2014); and

Equal representation on the combined company board of directors consisting of seven directors from each of Questcor and Mallinckrodt or, if the former Questcor directors represented less than half of the combined company board, a Questcor director would become the Chairman of the combined company board.

The fifth paragraph on page 101 of the Definitive Joint Proxy Statement/Prospectus concerning the "Background of the Transaction" is replaced, in its entirety, with the following:

On March 15, 2014, the Questcor board of directors held a telephonic meeting. Various members of Questcor's management and representatives from Centerview and Latham & Watkins were also present. Latham & Watkins discussed with the Questcor board of directors their fiduciary duties in connection with the proposed transaction. Mr. Bailey then provided an overview for the Questcor board of directors of the status of negotiations with Mallinckrodt, including the revised proposal submitted by Mallinckrodt, which after discussion between Questcor and Mallinckrodt management, included cash consideration of between $1.8 billion and $1.9 billion, stock consideration resulting in Questcor's shareholders owning 49.0% to 49.9% of the combined company (which would represent an aggregate purchase price for Questcor of approximately $5.8 billion to $6.1 billion based on the closing price of Mallinckrodt's ordinary shares on March 14, 2014) and three current Questcor directors being appointed to the combined company board. Mr. Bailey also noted that Questcor had not received any additional unsolicited proposals from third parties. Detailed discussions ensued regarding the proposed transaction terms. Mr. Bailey then provided the Questcor board of directors with a summary of the due diligence that had been performed by each party to date and the parties' plans for further diligence. Following discussion, Centerview discussed a financial overview of Mallinckrodt's revised proposal. Discussion ensued regarding Questcor's standalone prospects and the financial and strategic rationale for an acquisition of Questcor. At the conclusion of the discussion, the Questcor board of directors directed the management team to continue negotiations with Mallinckrodt regarding the allocation of stock and cash consideration that would be paid to Questcor's shareholders by proposing that Questcor shareholders should receive $1.85 billion in cash and stock consideration resulting in Questcor shareholders owning 49.5% of the combined company. The Questcor board of directors also directed the management team to continue negotiations regarding the composition of the board of directors of the combined company and to continue with detailed due diligence on Mallinckrodt.


The fourth full paragraph on page 103 of the Definitive Joint Proxy Statement/Prospectus concerning the "Background of the Transaction" is replaced, in its entirety, with the following:

On March 28, 2014, the Questcor board of directors held a telephonic meeting. Members of Questcor's management team and representatives of Latham & Watkins and Centerview also attended. Questcor management reviewed with the Questcor board of directors its financial projections for Questcor and the projections received by Mallinckrodt. Centerview discussed an updated financial overview of the merger consideration of the proposed transaction. The Questcor board of directors discussed the merger consideration to be received by Questcor shareholders, the lack of a financing contingency and Questcor's standalone prospects. Questcor management discussed an update on the due diligence performed on Mallinckrodt to date. Latham & Watkins reviewed the material terms of the draft merger agreement, which had been provided to the members of the Questcor board of directors in advance of the meeting. Detailed discussion ensued regarding the proposed transaction terms, with the focus being on provisions relating to the marketing period, deal certainty and the taxable nature of the merger consideration to Questcor shareholders. The Questcor board of directors directed Questcor management and Centerview to negotiate for increased consideration in exchange for moving away from a potentially tax-free structure or return to a potentially tax-free structure. Mr. Bailey then provided the Questcor board of directors with an update on the voicemail Mr. Asarpota received from Banker B. A discussion ensued regarding the advantages and disadvantages of engaging in discussions with Company B. Following the discussion, the Questcor board of directors agreed that the potential benefit of pursuing such discussions was outweighed by the potential disruption to the ongoing discussions with Mallinckrodt. Specifically, the Questcor board of directors agreed that the probability of such discussions resulting in a better transaction for Questcor shareholders was low due to the fact that Company B had not previously reached out to Questcor in the several months since Questcor had signaled to the market its willingness to consider a strategic transaction, that negotiations involving a transaction of this size and type often do not proceed past preliminary due diligence and negotiations, and that Company B (like Mallinckrodt) likely would require third-party financing to consummate a transaction. The Questcor board of directors also agreed that pursuing a potential strategic transaction with Company B would delay the timing of, and thereby increase the execution risks of the proposed transaction with Mallinckrodt because of the negotiations that would need to occur, and due diligence required for, a transaction of this size and type; that pursuing another indication of interest would create additional work force disruption; that any such opportunity was very unlikely to materialize soon enough to present an alternative to the present opportunity with Mallinckrodt; and that any party, including Company B, could present a competitive proposal on an unsolicited basis following the announcement of a business combination with Mallinckrodt. At the conclusion of the discussion, the Questcor board of directors determined that pursuing discussions Company B would not be in the best interest of Questcor or its shareholders at that time as the potential benefits were outweighed by the risk of jeopardizing the proposed Mallinckrodt transaction.

The third full paragraph on page 104 of the Definitive Joint Proxy Statement/Prospectus concerning the "Background of the Transaction" is replaced, in its entirety, with the following:

On April 3, 2014, representatives from Centerview and Barclays spoke by telephone and, during their conversation, as instructed by Mallinckrodt management, Barclays delivered a revised proposal from Mallinckrodt, which included the following material terms:

Questcor could pay up to two dividends between signing and closing not to exceed $0.30 per share per dividend (approximately $36 million in the aggregate);

Cash consideration of $1.875 billion;

49.5% ownership of the combined company by Questcor shareholders in a taxable exchange (which, together with the proposed cash consideration, would represent an aggregate purchase price for Questcor of approximately $5.6 billion based on the closing price of Mallinckrodt's ordinary shares on April 4, 2014);

Transaction would be structured in a manner that the receipt of the entire merger consideration would be a taxable event for Questcor shareholders;

A five business day marketing period that begins on the date of Questcor's shareholder meeting to approve the transaction;

A reciprocal break-up fee at 3.5%;

A reciprocal obligation to submit the transaction to a vote of shareholders even if an unsolicited superior proposal is received; and

Three Questcor directors would serve on the board of directors of the combined company.


The third full paragraph on page 126 of the Definitive Joint Proxy Statement/Prospectus concerning the "Opinion of Questcor's Financial Advisor" is replaced, in its entirety, with the following:

The consideration to be paid with respect to Questcor's fully-diluted shares (including share equivalents) in the transaction consists of (a) approximately $1.88 billion of cash and (b) Mallinckrodt ordinary shares representing approximately 49.5% of the pro forma ownership of the combined company immediately following the closing of the transaction by holders of Questcor shares and awards calculated based on the fully diluted shares of each of Questcor and Mallinckrodt using the treasury stock method as of April 4, 2014 (the "aggregate consideration"). Centerview's written financial analysis that was delivered to the Questcor board of directors prior to its meeting on April 5, 2014 and presented by Centerview at such meeting was based on an assumed consideration unit consisting of (a) $29.05 in cash (the "assumed cash amount") and (b) 0.912 Mallinckrodt ordinary shares (the "assumed exchange ratio"), taken together and not separately (the "assumed combined per share consideration"). The final mix of consideration was not finally determined until the morning of April 5, 2014, prior to the meeting of the Questcor board of directors but after Centerview had distributed its written presentation materials to the Questcor board of directors. Therefore, in presenting its analysis at the meeting of the board of directors of Questcor, Centerview reviewed with the Questcor board of directors that the assumed combined per share consideration represented (a) the weighted average mix of consideration to be received by all holders of Questcor's common shares and share equivalents,
(b) an implied per share equity value of $86.10 as of the market close on April 4, 2014, the same implied equity value per Questcor common share as the combined per share consideration payable pursuant to the Merger Agreement, the mix of which was ultimately agreed between Questcor and Mallinckrodt after Centerview had completed its analysis, and (c) the same aggregate consideration to be paid with respect to Questcor's fully-diluted shares (including share equivalents) calculated using the treasury stock method pursuant to the Merger Agreement. Because unvested stock options and awards of restricted shares and restricted stock units of employees of Questcor will not be eligible under the Merger Agreement to receive any portion of the aggregate cash consideration, but instead will be assumed by Mallinckrodt and converted into stock options, restricted shares, or restricted stock units, as applicable, of Mallinckrodt, the actual mix of the consideration to be received per Questcor common share is weighted slightly in favor of more cash and fewer Mallinckrodt ordinary shares than represented by the assumed combined per share consideration.

The column titles "Y15" and "Y16" in the table on page 127 of the Definitive Joint Proxy Statement/Prospectus concerning the "Opinion of Questcor's Financial Advisor" are replaced with "CY15" and "CY16", respectively.

The second paragraph on page 128 of the Definitive Joint Proxy Statement/Prospectus concerning the "Opinion of Questcor's Financial Advisor" is replaced, in its entirety, with the following:

Among other calculations, Centerview calculated for each of the selected companies the multiple of the stock price of its common equity divided by its earnings per share estimate for the calendar year 2015 (which is referred to in this section as CY15), in each case excluding amortization expenses, which is referred to as the adjusted P/E multiple.

     Company                                        Adjusted P/E Multiple
     Actavis plc                                                     11.9x
     Alkermes plc                                                       NM (1)
     Endo Health Solutions Inc.                                      16.1x
     Jazz Pharmaceuticals plc                                        13.2x
     Perrigo Company                                                 17.8x
     Valeant Pharmaceuticals International, Inc.                     11.8x

(1) This multiple was greater than 24x and therefore excluded as an outlier.


Based on the above analysis, the median adjusted P/E multiple was 13.2x.

The ultimate paragraph on page 128 of the Definitive Joint Proxy Statement/Prospectus concerning the "Opinion of Questcor's Financial Advisor" is replaced, in its entirety, with the following:

Among other calculations, Centerview calculated for each of the selected companies the adjusted P/E multiples for CY15 as set forth below.

           Company                            Adjusted P/E Multiple
           Aegerion Pharmaceuticals, Inc.                      11.5x
           Auxilium Pharmaceuticals Inc.                       17.4x
           Cubist Pharmaceuticals, Inc.                           NM (1)
           The Medicines Company                               11.3x
           Salix Pharmaceuticals, Inc.                         14.7x
           United Therapeutics Corporation                     10.8x

(1) This multiple was greater than 24x and therefore excluded as an outlier.

Based on the above analysis, the median adjusted P/E multiple was 11.5x. Centerview noted that Questcor had historically traded at a discounted next twelve months ("NTM") adjusted P/E multiple relative to these selected companies. Centerview calculated an average percentage discount of Questcor's NTM adjusted P/E multiple relative to the average NTM adjusted P/E ratio for the selected companies over both a past one-year (38% discount) and a past two-year (35% discount) period. Based on this analyses and using its professional judgment and expertise, Centerview applied a 38% discount to the adjusted P/E multiples for CY15. This calculation produced what is referred to as the discounted adjusted P/E multiple. Centerview did not discount the individual adjusted P/E multiples of the selected public companies. The discount was applied to the summary statistics of the selected public companies. Based on this analysis for each of the selected companies, the median discounted adjusted P/E multiples was 7.1x. This analysis provided a 25th percentile to 75th percentile range of discounted adjusted P/E multiples of 7.0x to 9.1x, which Centerview applied to Questcor's estimated calendar year 2015 adjusted earnings per share, as set forth in the Questcor forecasts, in order to calculate an implied equity value per share range. The results of this analysis implied an equity value per share range for Questcor's common stock of $54.00 to $70.25.


The carryover paragraph on pages 129 and 130 of the Definitive Joint Proxy Statement/Prospectus concerning the "Opinion of Questcor's Financial Advisor" is replaced, in its entirety, with the following:

Centerview performed a discounted cash flow analysis of Mallinckrodt and Questcor in which Centerview calculated the estimated present value of the standalone unlevered after-tax free cash flows that Mallinckrodt and Questcor were each forecasted to generate from June 30, 2014 through the fiscal year . . .

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