Non-profit economic-development organization Ben Franklin Technology Partners of Southeastern Pennsylvania this month sued Opko Health for allegedly breaching a contractual obligation requiring it to pay it more than $800,000 worth of stock warrants if one of its business components was to move out of the state before an agreed-upon date.
The suit, filed in a US District Court early this month, accuses Opko of refusing to make good on a promise made by Acuity Pharmaceuticals to provide BFTP-SEP with the warrants if it moves out of Pennsylvania before March 2, 2009.
Opko, which is headquartered in Miami, was created earlier this year after Philadelphia-based Acuity merged with privately held ophthalmic drug developer Froptix and public shell corporation eXegenics (see RNAi News, 3/29/2007).
Soon after that deal was announced, Dale Pfost, former president and CEO of Acuity and one-time president of Opko, told RNAi News that Acuity’s obligations to its early investors to stay in Philadelphia “have all been discharged and fulfilled.”
The non-profit’s lawsuit suggests otherwise. “The only way for Acuity to avoid having to issue the relocation warrants by merging into a non-Pennsylvania-based company was pursuant to one of two express agreements between Acuity and the merger entity,” BFTP-SEP said in its suit.
The first arrangement called for the corporate headquarters of the merged company to remain in Pennsylvania until March 2, 2009, while the second required that at least 70 percent of Acuity’s Pennsylvania employees remain employed until that date.
“Prior to the Opko merger, no such agreements existed or were ever sought by Acuity,” BFTP-SEP noted in the lawsuit.
An Opko spokesperson said the company does not comment on pending litigation. Officials from BFTP-SEP did not return requests for comment.
BFTP-SEC was established by the Pennsylvania legislature to stimulate economic growth in the state “through innovation, entrepreneurship and the development and adoption of new technologies,” according to the non-profit.
In late 2003, BFTP-SEP awarded Acuity $500,000 to conduct preclinical work on its RNAi-based drug candidates (see RNAi News, 11/28/2003). In connection with the financing, Acuity provided BFTP-SEP with 257,000 shares of its Series B stock, as well as warrants to purchase an additional 77,650 shares at $0.01 per share, BFTP-SEP said in its lawsuit.
“Consistent with BFTP-SEP’s mandate to develop Pennsylvania-based emerging companies … BFTP-SEP was entitled to additional warrants to purchase 50,000 shares of Acuity common stock if Acuity took one of several steps to remove or reduce its Pennsylvania presence,” the suit states.
“Consistent with BFTP-SEP’s mandate to develop Pennsylvania-based emerging companies … BFTP-SEP was entitled to additional warrants to purchase 50,000 shares of Acuity common stock if Acuity took one of several steps to remove or reduce its Pennsylvania presence.”
According to BFTP-SEP, those steps were taken when Acuity became part of Opko, which “always was to be headquartered in Miami.”
In its suit, BFTP-SEP cites Acuity’s press release announcing the merger with Froptix and eXegenics, which states that the transaction “will bring the three companies under one corporate umbrella … [that] will be headquartered in Miami.”
Additionally, just days after the merger, Pfost sent information about the merger to Acuity’s interest holders in which he stated that Acuity will relocate to eXegenic’s Miami office as of July 2007, the suit adds.
“Thus, it is clear that, before March 2, 2009, Acuity merged with and into an entity headquartered outside of Pennsylvania, thereby triggering BFTP-SEP’s entitlement to the relocation warrants,” the non-profit said in its lawsuit.
According to BFTP-SEP, the terms of the Opko merger called for Acuity warrants to be replaced with warrants to buy Opko shares.
While Opko has provided BFTP-SEP with warrants to buy 402,960 shares of Opko at $0.00019 per share to replace the original warrants to purchase 77,650 shares of Acuity, it has neglected to deliver the warrants related to Acuity’s move outside of Pennsylvania despite requests that it do so, BFTP-SEP said in the suit.
BFTP-SEP added that the 50,000 relocation warrants are equivalent to warrants to purchase 259,472 shares of Opko. As of late morning Thursday, shares of Opko were trading at $3.21, valuing BFTP-SEP’s claim at approximately $832,905.
Under the terms of the merger, “Opko Health expressly assumed and undertook the obligations under the Acuity warrant, including the duty to issue warrants to BFTP-SEP to purchase an additional 259,472 shares of Opko Health,” BFTP-SEP said in its lawsuit.
“Prior to filing suit, BFTP-SEP made a written demand upon [Opko] to issue [the] warrants,” the non-profit agency added. Opko “did not do so.”
As such, BFTP-SEP has asked the US District Court for the Eastern District of Pennsylvania to order Opko to issue the warrants in question, as well as for compensatory damages and court costs.