S-4/A 1 v406427_s4a.htm S-4/A

  

As filed with the Securities and Exchange Commission on April 2, 2015

 

Registration No. 333-202593

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 1

TO

 

Form S-4

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

  

ALLIQUA BIOMEDICAL, INC. 

(Exact name of registrant as specified in its charter)

 

Delaware 3841 58-2349413
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)

 

2150 Cabot Blvd. West

Langhorne, PA 19047

(215) 702-8550

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

David I. Johnson

Chief Executive Officer

Alliqua BioMedical, Inc.

2150 Cabot Boulevard West

Langhorne, Pennsylvania 19047

(215) 702-8550

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies to:

 

Rick A. Werner, Esq.

Haynes and Boone, LLP

30 Rockefeller Plaza, 26th Floor

New York, New York 10112

Tel. (212) 659-7300

Fax (212) 884-8234

 

Mark T. Wagner

Chief Executive Officer
Celleration, Inc.
6321 Bury Drive, Suite 15
Eden Prairie, MN 55346
(952) 224-8700

 

Brian G. Moore, Esq.
Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402
Tel. (612) 492-6112

Fax (612) 395-5247

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective and upon completion of the merger described in the enclosed joint proxy and consent solicitation statement/prospectus.

 

If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.   ¨

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨   Accelerated filer   ¨
       
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)   Smaller reporting company   x

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 
 

  

The information in this joint proxy and consent solicitation statement/prospectus is not complete and may be changed. The securities being offered by the use of this joint proxy and consent solicitation statement/prospectus may not be sold nor may offers to buy be accepted prior to the time the registration statement filed with the Securities and Exchange Commission is declared effective. This joint proxy and consent solicitation statement/prospectus is not an offer to sell these securities nor a solicitation of any offer to buy these securities in any jurisdiction where the offer, solicitation or sale is not permitted.

 

PRELIMINARY— SUBJECT TO COMPLETION, DATED APRIL 2, 2015

 

JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS

 

 

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

To the Stockholders of Alliqua BioMedical, Inc. and Celleration, Inc.:

 

On February 2, 2015, Alliqua BioMedical, Inc. (“Alliqua”), ALQA Cedar, Inc., a wholly-owned subsidiary of Alliqua (“Merger Sub”), Celleration, Inc. (“Celleration”) and certain representatives of the Celleration stockholders entered into an Agreement and Plan of Merger (as may be amended from time to time, the “Merger Agreement”), which provides for, among other things, the merger of Celleration with and into Merger Sub, with Merger Sub continuing as the surviving corporation on the terms and conditions set forth in the Merger Agreement. The boards of directors of each of Alliqua and Celleration have unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the merger.

 

If the merger is completed, holders of outstanding shares of Celleration common stock, holders of Celleration Series AA preferred stock and holders of in-the-money Celleration options and warrants (collectively referred to herein as the Celleration equity holders) will initially receive at closing, a pro rata portion of an aggregate purchase price of $30,415,000, payable in equal amounts of cash and shares of Alliqua common stock, subject to certain adjustments and escrow holdbacks. In addition, the Celleration equity holders will have the right to receive certain future contingent payments subject to the terms and conditions set forth in the Merger Agreement.

 

The exact amounts of cash and shares of Alliqua common stock that Celleration equity holders will be entitled to receive as part of the merger consideration will be determined subsequent to the closing of the merger based on certain future contingent payments as described in more detail in this joint proxy and consent solicitation statement/prospectus. The number of shares of Alliqua common stock to be issued from time to time post-merger pursuant to the Merger Agreement will be calculated by dividing the dollar amount of such payment by a forty-five trading day moving average of the volume weighted average price (the “VWAP”) of the Alliqua common stock on the NASDAQ Capital Market as of the applicable reference date up to a maximum of 9,500,000 shares, unless the cash consideration paid exceeds 60% of the total consideration paid, at which point Alliqua may issue further shares. Because the aggregate number of shares of Alliqua common stock to be issued as part of the merger consideration will depend in part on the market prices of the Alliqua common stock at the time the shares are required to be issued to Celleration equity holders, the total number of shares of Alliqua common stock to be issued in the merger cannot be determined at this time. As a result, such number of shares of Alliqua common stock may be in excess of 20% of Alliqua’s pre-merger outstanding shares of common stock.

 

The market value of certain future contingent payments will fluctuate with the market price of Alliqua common stock and will not be known at the time Alliqua stockholders and Celleration stockholders vote on or consent to the proposals described in this joint proxy and consent solicitation statement/prospectus. Alliqua common stock is currently listed on the NASDAQ Capital Market under the symbol “ALQA.” On February 2, 2015, the last full trading day before the announcement of the merger, the last reported sale price of Alliqua common stock was $5.01 per share, and, on [   •   ], 2015, the latest practicable date prior to the date of this joint proxy and consent solicitation statement/prospectus, the last reported sale price of Alliqua common stock was $[   •   ] per share. We urge you to obtain current market quotations for the price of Alliqua common stock.

 

 
 

 

Alliqua intends to fund the upfront cash portion of the merger consideration and other expenses of the merger through a combination of cash on Alliqua’s balance sheet and third-party debt financing consisting of a new senior, secured term loan facility in the aggregate amount of $15.5 million, which Perceptive Credit Opportunities Fund, LP has committed to provide pursuant to the terms and conditions of a commitment letter, dated February 2, 2015, as amended, and a credit agreement to be entered into prior to or substantially concurrent with the closing of the merger. The funding of the debt financing in accordance with the terms of the commitment letter is a condition to Alliqua’s obligation to complete the merger under the terms of the Merger Agreement. There is a risk that this condition will not be satisfied and the debt financing may not be funded when required. Failure to have this debt financing condition satisfied or waived by the outside date of the Merger Agreement could delay or prevent the closing of the merger and, in certain circumstances, require Alliqua to pay Celleration a reverse termination fee of $3 million, less any amount previously loaned to Celleration (if any).

 

The obligations of Alliqua and Celleration to complete the merger are subject to several other conditions set forth in the Merger Agreement and summarized in this joint proxy and consent solicitation statement/prospectus. More information about these conditions, the potential consequences to stockholders and the merger is contained in this joint proxy and consent solicitation statement/prospectus. You are encouraged to carefully read this joint proxy and consent solicitation statement/prospectus in its entirety, including the sections titled “Risk Factors” and “The Merger Agreement—Conditions to Completion of the Merger” beginning on pages [●] and [●], respectively.

 

Each of Alliqua and Celleration will take the position that the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

Alliqua will hold a special meeting of its stockholders, while Celleration will solicit its stockholders’ approval by written consent. Alliqua stockholders will be asked to consider and vote upon a proposal to approve the issuance of shares of Alliqua common stock to Celleration equity holders in the merger pursuant to the terms and conditions of the Merger Agreement and a proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of the Alliqua share issuance proposal. Celleration stockholders will be asked to approve by written consent a proposal to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the merger.

 

The Alliqua special meeting will be held on [   •   ], 2015 at 9:00 a.m., Eastern Time, at the Sheraton Bucks County Hotel, located at 400 Oxford Valley Rd., Langhorne, PA 19047.

 

Completion of the merger is conditioned upon, among other things (i) the adoption and approval of the Merger Agreement by the affirmative vote or written consent of the holders of a majority of Celleration’s issued and outstanding capital stock, voting together on an as converted basis, and the holders of a majority of Celleration’s preferred stock, voting as a separate class and (ii) the approval of Alliqua’s share issuance proposal by the affirmative vote of the majority of the votes cast and represented in person or in proxy at the special meeting.

 

Simultaneously with the execution of the Merger Agreement, certain 5% stockholders, directors and executive officers of Celleration, collectively representing approximately 83% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and 81% of the outstanding shares of Celleration Series AA preferred stock, entered into voting agreements with Alliqua, pursuant to which such holders have agreed, among other things, to execute and deliver a written consent with respect to their respective shares of Celleration common stock and Celleration Series AA preferred stock in favor of the adoption and approval of the Merger Agreement and merger (or, if applicable, to vote such shares in favor of the same proposal at a meeting of Celleration stockholders duly called for such purpose) and not to sell any shares of Alliqua common stock received in the merger for a period of 180 days after the effective time of the merger. Celleration expects that the delivery of the written consents (or, if applicable, vote) by Celleration stockholders with respect to the shares of Celleration common stock and Celleration Series AA preferred stock covered by the voting agreements will be sufficient to adopt the Merger Agreement and thereby approve the merger and other transactions contemplated by the Merger Agreement.

 

Celleration’s board of directors has determined that the Merger Agreement and transactions contemplated thereby, including the merger, are advisable and in the best interests of Celleration and its stockholders, has unanimously approved the Merger Agreement and the merger and unanimously recommends that Celleration stockholders adopt the Merger Agreement and thereby approve the merger and the other transactions contemplated by the Merger Agreement.

 

Alliqua’s board of directors has determined that the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of Alliqua common stock pursuant to the terms of the Merger Agreement, are advisable and in the best interests of Alliqua and its stockholders, has unanimously approved the Merger Agreement and unanimously recommends that Alliqua stockholders vote “FOR” the Alliqua share issuance proposal and “FOR” the Alliqua adjournment proposal.

  

This joint proxy and consent solicitation statement/prospectus provides you with important information about the special meeting and solicitation of written consents, Alliqua, Celleration, the proposed merger and the documents related to the merger. Please carefully read this entire joint proxy and consent solicitation statement/prospectus (including any documents incorporated by reference therein), including “Risk Factors” beginning on page [●].

 

For the Alliqua stockholders: Your vote is very important. Whether or not you plan to attend the Alliqua special meeting, please take the time to vote by completing and returning the enclosed proxy card to us or by granting your proxy electronically over the Internet or by telephone. If your shares are held in “street name,” you must instruct your broker in order to vote.

 

 
 

 

Sincerely,

 

/s/ David I. Johnson
David I. Johnson

Chief Executive Officer
Alliqua BioMedical, Inc.

 

/s/ Mark T. Wagner

Mark T. Wagner
Chief Executive Officer

Celleration, Inc.

  

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the merger described in this joint proxy and consent solicitation statement/prospectus nor have they approved or disapproved the Alliqua common stock to be issued in the merger, or determined if this joint proxy and consent solicitation statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

This joint proxy and consent solicitation statement/prospectus is dated [   •   ], 2015, and is first being mailed or otherwise delivered to the stockholders of Alliqua and Celleration on or about [   •   ], 2015.

 

 
 

 

 

2150 Cabot Blvd. West

Langhorne, PA 19047

Telephone: (215) 702-8550

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [   •   ], 2015

 

To the Stockholders of Alliqua BioMedical, Inc.:

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Alliqua BioMedical, Inc., a Delaware corporation (“Alliqua”), will be held on [   •   ], 2015, at 9:00 a.m., Eastern Time, at the Sheraton Bucks County Hotel, located at 400 Oxford Valley Rd., Langhorne, PA 19047, to consider and vote upon the following matters:

 

(1)A proposal to approve the issuance of shares of Alliqua common stock to the equity holders of Celleration, Inc., a Delaware corporation (“Celleration”) pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of February 2, 2015 (as may be amended from time to time, the “Merger Agreement”), by and among Alliqua, ALQA Cedar, Inc., a wholly owned subsidiary of Alliqua, Celleration and certain representatives of the Celleration stockholders (the “Alliqua Share Issuance Proposal”); and

 

(2)A proposal to approve one or more adjournments of the special meeting, if necessary, to solicit additional proxies in favor of the Alliqua Share Issuance Proposal (the “Alliqua Adjournment Proposal”).

 

The board of directors of Alliqua has fixed the close of business on [   •   ], 2015 as the record date for the special meeting. Only holders of record of shares of Alliqua common stock on such date are entitled to receive notice of, and vote at, the special meeting or at any postponement(s) or adjournment(s) of the special meeting. A complete list of registered shareholders entitled to vote at the special meeting will be available for inspection at the office of Alliqua during regular business hours for the 10 calendar days prior to and during the special meeting. The approval of the Alliqua Share Issuance Proposal requires the affirmative vote of at least a majority of the votes cast by holders of Alliqua’s common stock that are represented in person or by proxy at the special meeting, assuming a quorum is present.

 

After careful consideration, the board of directors of Alliqua unanimously recommends that Alliqua stockholders vote “FOR” the Alliqua Share Issuance Proposal (Proposal 1) and “FOR” the Alliqua Adjournment Proposal (Proposal 2).

 

Your vote is very important. If your shares are registered in your name as a stockholder of record of Alliqua, even if you plan to attend the special meeting or any postponement or adjournment of the special meeting in person, we encourage you to authorize a proxy to vote your shares at the special meeting by telephone or on the Internet, or, by completing, signing, dating and returning your proxy card as promptly as possible to ensure that your shares will be represented at the special meeting.

 

If your shares are held in the name of a broker, trust, bank or other nominee, and you receive notice of special meeting through your broker or through another intermediary, please vote or complete and return the materials in accordance with the instructions provided to you by such broker or other intermediary or contact your broker directly in order to obtain a proxy issued to you by your nominee holder to attend the special meeting and vote in person. Failure to do so may result in your shares not being eligible to be voted by proxy at the special meeting.

 

You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the enclosed joint proxy and consent solicitation statement/prospectus.

 

 
 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ALLIQUA SPECIAL MEETING TO BE HELD ON [   •   ], 2015: We urge you to read the accompanying joint proxy and consent solicitation statement/prospectus, including all documents incorporated by reference into the accompanying joint proxy and consent solicitation statement/prospectus and the section entitled “Risk Factors” beginning on page [   •   ], and its annexes carefully and in their entirety. If you have any questions concerning the merger, the Merger Agreement, the proposals, the Alliqua special meeting or the accompanying joint proxy and consent solicitation statement/prospectus, would like additional copies of the accompanying joint proxy and consent solicitation statement/prospectus or need help voting your shares of Alliqua common stock, please contact Brian Posner by email at info@alliqua.com or phone at (215) 702-8550.

 

  By Order of the Board of Directors,
   
  /s/ Jerome Zeldis
   
  Jerome Zeldis, M.D., Ph.D.
  Chairman

[   •   ], 2015

 

 
 

 

 

Celleration, Inc.

6321 Bury Drive, Suite 15

Eden Prairie, MN 55346

 

NOTICE OF SOLICATION OF WRITTEN CONSENT

 

To the Stockholders of Celleration, Inc.:

 

Pursuant to an Agreement and Plan of Merger, dated as of February 2, 2015 (as may be amended from time to time, the “Merger Agreement”), by and among Celleration, Inc., a Delaware corporation (“Celleration”), Alliqua BioMedical, Inc., a Delaware corporation (“Alliqua”), ALQA Cedar, Inc., a Delaware corporation and a wholly-owned subsidiary of Alliqua (“Merger Sub”), and certain representatives of the Celleration stockholders, Celleration will merge with and into Merger Sub with Merger Sub as the surviving entity (the “Merger”).

 

As more specifically described in the enclosed joint proxy and consent solicitation statement/prospectus, the approval of the Merger Agreement requires the affirmative vote of a majority of the issued and outstanding common stock of Celleration and Celleration Series AA preferred stock, voting together on an as converted basis, and of a majority of the issued and outstanding shares of Celleration Series AA preferred stock, voting as a separate class.

 

The enclosed joint proxy and consent solicitation statement/prospectus is being delivered to you on behalf of the Celleration board of directors to request that holders of Celleration common stock and Series AA preferred stock, as of the record date of [   •   ], 2015, execute and return written consents to adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger.

 

The joint proxy and consent solicitation statement/prospectus describes the proposed Merger and the actions to be taken in connection with the Merger and provides additional information about the parties involved. We encourage you to read carefully the entire joint proxy and consent solicitation statement/prospectus, including all its annexes, the documents incorporated by reference and the section entitled “Risk Factors” beginning on page [   •   ].

 

A summary of the appraisal rights that may be available to you is described in the section entitled “Appraisal Rights” beginning on page [   •   ] of the joint proxy and consent solicitation statement/prospectus. Please note that if you wish to exercise appraisal rights you must not sign or return a written consent approving the Merger Agreement, or sign or deliver a written consent without indicating a decision on the proposal. So long as you do not return a written consent at all, however, it is not necessary to affirmatively vote against the Merger in order to preserve your appraisal rights. You must take all other steps necessary to perfect your appraisal rights.

 

The Celleration board of directors has carefully considered the Merger, the terms thereof and the other transactions contemplated by the Merger Agreement and has declared that the Merger, the terms thereof and the other transactions contemplated by the Merger Agreement are advisable and fair to and in the best interests of Celleration and its stockholders. Accordingly, the Celleration board of directors unanimously recommends that Celleration stockholders adopt the Merger Agreement and approve the transactions contemplated thereby.

 

After your review of the joint proxy and consent solicitation statement/prospectus and assuming your approval thereof, please sign and complete the written consent furnished with the enclosed joint proxy and consent solicitation statement/prospectus and return it to Celleration by one of the means described under “The Celleration Solicitation of Written Consents.” Time is of the essence, and, assuming your approval thereof, you must return the written consent by [   •   ], 2015.

 

Thank you for your prompt attention to these matters.

 

  Yours truly,
   
  /s/ Mark T. Wagner
  Mark T. Wagner
  President and Chief Executive Officer

 

NO MEETING OF THE STOCKHOLDERS OF CELLERATION IS BEING HELD IN CONNECTION WITH THE PROPOSED TRANSACTION. CELLERATION IS SOLICITING BY THE ENCLOSED DOCUMENTS YOUR WRITTEN CONSENT TO THE MERGER AGREEMENT.

 

 
 

 

REFERENCE TO ADDITIONAL INFORMATION

 

This joint proxy and consent solicitation statement/prospectus incorporates important business and financial information about Alliqua from documents filed with or furnished to the Securities and Exchange Commission, or the “SEC,” that are not included in or delivered with this joint proxy and consent solicitation statement/prospectus. For a listing of documents incorporated by reference into this joint proxy and consent solicitation statement/prospectus, see “Where You Can Find More Information” beginning on page [   •   ]. You can obtain any of the documents filed with or furnished to the SEC by Alliqua at no cost from the SEC's website at http://www.sec.gov. You may also request copies of these documents, including documents incorporated by reference in this joint proxy and consent solicitation statement/prospectus, at no cost by requesting them in writing or by telephone at the following address and telephone number:

 

Alliqua BioMedical, Inc.

2150 Cabot Boulevard West

Langhorne, Pennsylvania 19047

Attention: Brian Posner

Telephone: (215) 702-8550

 

To obtain timely delivery of these documents, you must request them no later than five business days before the date of your respective special meeting or deadline for submitting written consents. This means that Alliqua stockholders requesting documents must do so by [   •   ], 2015 and Celleration stockholders requesting documents must do so by [   •   ], 2015.

 

You should rely only on the information contained in or incorporated by reference into this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This joint proxy and consent solicitation statement/prospectus is dated [   •   ], 2015, and you should assume that the information in this document is accurate only as of such date. You should assume that the information incorporated by reference into this document is accurate as of the date of such document. Neither the mailing or delivery of this document to Alliqua stockholders or Celleration stockholders nor the issuance by Alliqua of shares of Alliqua common stock in connection with the merger will create any implication to the contrary.

 

ABOUT THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS

 

Except where the context otherwise indicates, information contained in this document regarding Alliqua has been provided by Alliqua and information contained in this document regarding Celleration has been provided by Celleration. See "Where You Can Find More Information" beginning on page [   •   ] for more details.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

 
 

 

TABLE OF CONTENTS

 

  Page
QUESTIONS AND ANSWERS 1
SUMMARY 9
SELECTED HISTORICAL FINANCIAL INFORMATION OF ALLIQUA 20
SELECTED HISTORICAL FINANCIAL INFORMATION OF CELLERATION 21
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 22
COMPARATIVE HISTORICAL AND UNAUDITED  PRO FORMA PER SHARE INFORMATION 23
RISK FACTORS 24
Risks Related to the Merger 24
Risks Related to the Combined Company Following the Merger 29
Risks Related to Celleration 31
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS 39
THE COMPANIES 41
Alliqua, Inc. 41
ALQA Cedar, Inc. 41
Celleration, Inc. 41
THE ALLIQUA SPECIAL MEETING 42
General 42
Date, Time and Place 42
Purpose of the Alliqua Special Meeting 42
Recommendation of the Alliqua Board of Directors 42
Alliqua Record Date and Quorum 42
Vote Required for Approval 43
Abstentions and Broker Non-Votes 43
Manner of Submitting Proxy 43
Shares Held in Street Name 44
Revocation of Proxies and Voting Instructions 44
Tabulation of Votes 45
Solicitation of Proxies 45
Assistance 45
PROPOSALS SUBMITTED TO ALLIQUA STOCKHOLDERS 46
Alliqua Share Issuance Proposal 46
Alliqua Adjournment Proposal 47
THE CELLERATION SOLICITATION OF WRITTEN CONSENTS 48
Purpose of the Consent Solicitation 48
Record Date 48
Celleration Stockholders Entitled to Consent 48
Recommendation of the Celleration Board of Directors 48
Consents; Required Consents 48
Submission of Consents 49
Executing Consents; Revocation of Consents 49
Solicitation of Consents; Expenses 49
PROPOSAL SUBMITTED TO CELLERATION STOCKHOLDERS 50
Celleration Merger Agreement Proposal 50
THE MERGER 51
General 51
Background of the Merger 51
Alliqua's Reasons for the Merger 56
Celleration's Reasons for the Merger 58
Opinion of Alliqua's Financial Advisor 61
Board Composition and Management of Alliqua after the Merger 67
Interests of Celleration's Directors and Executive Officers in the Merger 68
Liquidation Preference Payable to Certain Stockholders of Celleration in the Merger 71
Regulatory Approvals Required for the Merger 72
Accounting Treatment 73
U.S. Federal Income Tax Considerations 73

 

 
 

 

Appraisal Rights 76
Listing of Alliqua Common Stock 80
Restrictions on Sales of Shares of Alliqua Common Stock Received in the Merger 80
Debt Financing 80
Bridge Loan 81
THE MERGER AGREEMENT 82
Form, Effective Time and Closing of the Merger 82
Directors and Officers of the Surviving Corporation 82
Director Appointment to the Alliqua Board 82
Effects of Merger 82
Treatment of Celleration Stock Options and Warrants 83
Merger Consideration 83
Dissenting Shares 85
Exchange Procedures 85
Representations and Warranties 86
Covenants and Agreements 88
Indemnification 92
Conditions to Completion of the Merger 92
Termination of the Merger Agreement 93
Effect of Termination 94
Termination Fees 94
Miscellaneous Provisions 94
ANCILLARY AGREEMENTS 95
Voting Agreement 95
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION 96
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 97
DESCRIPTION OF ALLIQUA CAPITAL STOCK 104
COMPARISON OF RIGHTS OF ALLIQUA STOCKHOLDERS AND CELLERATION STOCKHOLDERS 106
CELLERATION’S BUSINESS 120
Overview 120
Employees 128
Legal Proceedings 128
Properties 128
Market for Celleration’s Common Equity and Related Stockholder Matters 129
CELLERATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 130
INFORMATION ABOUT THE CELLERATION DIRECTOR 136
PRINCIPAL STOCKHOLDERS OF CELLERATION 140
LEGAL MATTERS 143
EXPERTS 143
WHERE YOU CAN FIND MORE INFORMATION 143
INDEX TO FINANCIAL STATEMENTS F-1
ANNEX A – AGREEMENT AND PLAN OF MERGER A-1
ANNEX B – VOTING AGREEMENT B-1
ANNEX C – OPINION OF COWEN AND COMPANY, LLC C-1
ANNEX D – SECTION 262 OF DELAWARE GENERAL CORPORATION LAW D-1
PART II – INFORMATION NOT REQUIRED IN PROSPECTUS II-1

 

 
 

 

QUESTIONS AND ANSWERS

 

The following are answers to some questions that Alliqua stockholders and Celleration stockholders may have regarding the proposed transaction between Alliqua and Celleration and the other proposals being considered by Alliqua stockholders and Celleration stockholders. Alliqua and Celleration urge you to read carefully this entire joint proxy and consent solicitation statement/prospectus, including the Annexes, and the documents incorporated by reference into this joint proxy and consent solicitation statement/prospectus, because the information in this section does not provide all the information that might be important to you.

 

Unless the context otherwise requires, references in this joint proxy and consent solicitation statement/prospectus to (1) "Alliqua" refer to Alliqua BioMedical, Inc., a Delaware corporation, and its subsidiaries, (2) "Merger Sub" refer to ALQA Cedar, Inc., a Delaware corporation and a wholly owned subsidiary of Alliqua; and (3) "Celleration" refer to Celleration, Inc., a Delaware corporation.

 

Q:Why am I receiving this joint proxy and consent solicitation statement/prospectus?

 

A:Alliqua, Merger Sub and Celleration have entered into an Agreement and Plan of Merger, dated as of February 2, 2015 (as may be amended from time to time, the “Merger Agreement”). Pursuant to the Merger Agreement, Celleration will be merged with and into Merger Sub, with Merger Sub continuing as the surviving company and a wholly owned subsidiary of Alliqua. See “The Merger Agreement” beginning on page [   •   ]. A copy of the Merger Agreement is attached to this joint proxy and consent solicitation statement/prospectus as Annex A.

 

The merger cannot be completed unless, among other things:

 

Ÿa majority of the votes cast by holders of Alliqua common stock that are represented in person or by proxy at the Alliqua special meeting are voted in favor of the proposal to approve the issuance of shares of Alliqua common stock to Celleration equity holders in connection with the merger on the terms and conditions set forth in the Merger Agreement (the “Alliqua Share Issuance Proposal”); and

 

Ÿthe holders of a majority of the issued and outstanding shares of Celleration common stock and Series AA preferred stock, voting together on an as converted basis, and of a majority of the issued and outstanding shares of Celleration Series AA preferred stock, voting as a separate class, execute written consents in favor of the proposal to adopt and approve the Merger Agreement, the merger and the transactions contemplated by the Merger Agreement (the “Celleration Merger Agreement proposal”).

 

In addition, Alliqua is soliciting proxies from its stockholders with respect to the following proposal, although the completion of the merger is not conditioned upon stockholder approval of this proposal:

 

Ÿa proposal to approve one or more adjournments of the Alliqua special meeting, if necessary, to solicit additional proxies in favor of the Alliqua Share Issuance Proposal if there are insufficient votes at the time of such adjournment to approve such proposal (the “Alliqua Adjournment Proposal”).

 

This joint proxy and consent solicitation statement/prospectus contains important information about the merger and the other proposals being voted on by Alliqua stockholders and Celleration stockholders, and you should read it carefully. This document collectively serves as a proxy statement of Alliqua, consent solicitation statement of Celleration and a prospectus of Alliqua. It is a joint proxy and consent solicitation statement because both the Alliqua and Celleration boards of directors are soliciting proxies or written consents from their respective stockholders. It is a prospectus because Alliqua will issue shares of Alliqua common stock to Celleration equity holders in connection with the merger. Your vote is important. You are encouraged to submit your proxy or written consent as soon as possible after carefully reviewing this joint proxy and consent solicitation statement/prospectus and its annexes.

 

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Q:When do you expect to complete the merger?

 

A:Alliqua and Celleration expect to complete the merger during the second quarter of 2015, subject to the receipt of any required approvals and the satisfaction or waiver of the conditions to the merger contained in the Merger Agreement. However, it is possible that factors outside the control of Alliqua and Celleration could require Alliqua and Celleration to complete the merger at a later time or not complete it at all. See “The Merger Agreement—Conditions to Completion of the Merger” on page [   •   ] of this joint proxy and consent solicitation statement/prospectus for a more complete summary of the conditions that must be satisfied prior to closing.

 

Q:What happens if the merger is not completed?

 

A:If the merger is not completed for any reason, Celleration equity holders will not receive any merger consideration or shares of Alliqua common stock for their equity in Celleration pursuant to the Merger Agreement or otherwise. Instead, Alliqua and Celleration will remain separate companies, and Alliqua expects that its common stock will continue to be registered under the Securities Exchange Act of 1934, as amended, and traded on the NASDAQ Capital Market. In specified circumstances, either Alliqua or Celleration may be required to pay to the other party a termination fee, as described in “The Merger Agreement — Termination of the Merger Agreement; Termination Fees” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Q:What do I need to do now?

 

A:After you have carefully read this joint proxy and consent solicitation statement/prospectus and have decided how you wish to vote your shares, in the case of Alliqua stockholders, please authorize a proxy to vote your shares promptly so that your shares are represented and voted at the Alliqua special meeting or, in the case of Celleration stockholders, please execute and return your written consent as soon as possible.

 

QUESTIONS AND ANSWERS FOR ALLIQUA STOCKHOLDERS

 

Q:What will I receive in the merger?

 

A:If the merger is completed, Alliqua stockholders will not receive any merger consideration and will continue to hold the shares of Alliqua common stock that they currently hold. Following the merger, shares of Alliqua common stock will continue to be traded on the NASDAQ Capital Market under the symbol "ALQA." Alliqua stockholders will experience dilution as a result of the issuance of Alliqua common stock to the Celleration equity holders in connection with the merger.

 

Q:When and where is the Alliqua special meeting?

 

A:The Alliqua special meeting will be held on [   •   ], 2015, at 9:00 a.m., Eastern Time, at the Sheraton Bucks County Hotel, located at 400 Oxford Valley Rd., Langhorne, PA 19047.

 

Q:What is the purpose of the Alliqua special meeting?

 

A:At the Alliqua special meeting, Alliqua stockholders will be asked to consider and vote upon the matters outlined in the accompanying Notice of Special Meeting of Stockholders of Alliqua, including the following:

 

(1)The Alliqua Share Issuance Proposal – a proposal to approve the issuance of shares of Alliqua common stock to the Celleration equity holders in the merger pursuant to the terms and conditions of the Merger Agreement; and

 

(2)The Alliqua Adjournment Proposal – a proposal to approve one or more adjournments of the special meeting, if necessary, to solicit additional proxies in favor of the Alliqua Share Issuance Proposal.

 

Q:What constitutes a quorum for the Alliqua special meeting?

 

A:The presence, in person or by proxy, of the holders of a majority of the shares of the stock entitled to vote at the Alliqua special meeting is necessary to constitute a quorum to transact business. Abstentions and any broker non-votes (i.e., the failure to instruct your bank or broker how to vote if you hold your shares in “street name”) will be counted for purpose of determining that a quorum is present. If a quorum is not present or represented at the Alliqua special meeting, the holders of a majority of the shares represented, and who would be entitled to vote at the special meeting if a quorum were present, may adjourn the special meeting to another date.

 

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Q:What is the record date and what does it mean?

 

The record date to determine the Alliqua stockholders entitled to notice of and to vote at the special meeting is the close of business on [   •   ], 2015. The record date was established by the Alliqua board of directors as required by Delaware law. As of the close of business on the Alliqua record date, [   •   ] shares of Alliqua common stock were issued and outstanding.

 

Q:Who is entitled to vote at the special meeting?

 

Holders of common stock at the close of business on the Alliqua record date may vote at the special meeting.

 

Q:How many votes do I have?

 

A:You are entitled to one vote on each proposal to be considered at the Alliqua special meeting for each share of Alliqua common stock that you owned as of the close of business on [   •   ], 2015, which is the Alliqua record date.

 

Q:Why is my vote important?

 

A:If you do not submit a proxy or vote in person, it may be more difficult for Alliqua to obtain the necessary quorum to hold its special meetings. In addition, the merger cannot be completed unless a majority of the votes cast by holders of Alliqua common stock entitled to vote and represented in person or by proxy at the Alliqua special meeting are voted in favor of the Alliqua Share Issuance Proposal.

 

Q:How do I vote?

 

A:If you are a stockholder of record, you may vote your shares of Alliqua common stock on the matters to be presented at the Alliqua special meeting in any of the following ways:

 

·In Person – To vote in person, come to the Alliqua special meeting and you will be able to vote by ballot. To ensure that your shares of Alliqua common stock are voted at the Alliqua special meeting, the Alliqua board of directors recommends that you submit a proxy even if you plan to attend the Alliqua special meeting.

 

·By Mail – To vote using the enclosed proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the enclosed return envelope. If you return your signed proxy card to Alliqua before the Alliqua special meeting, the persons named as proxies will vote your shares of Alliqua common stock as you direct.

 

·By Telephone – To vote by telephone, dial the toll free telephone number located on the enclosed proxy card using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card.

 

·By Internet – To vote over the Internet, go to the web address identified on the enclosed proxy card to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card.

 

If your shares are held in “street name” by a broker, bank or other nominee, please refer to the voting instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you. Your bank, brokerage firm or other nominee cannot vote your shares without instructions from you. Please note that if your shares are held in street name and you wish to vote in person at the Alliqua special meeting, you must obtain a legal proxy from your bank, brokerage firm or other nominee.

 

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Q:What is the vote required to approve each proposal?

 

A:Approval of each of the Alliqua Share Issuance Proposal and the Alliqua Adjournment Proposal requires the affirmative vote of a majority of the votes cast affirmatively or negatively by holders of Alliqua common stock entitled to vote and represented in person or by proxy at the Alliqua special meeting, assuming a quorum is present.

 

Q:What happens if I abstain from voting or fail to instruct my bank or broker?

 

A:If you mark "ABSTAIN" on your proxy with respect to the Alliqua Share Issuance Proposal or the Alliqua Adjournment Proposal, it will not be counted with respect to the vote and will have no effect on the proposals. If you fail to submit a proxy or vote in person at the Alliqua special meeting or fail to instruct your bank or broker how to vote with respect to the Alliqua Share Issuance Proposal or the Alliqua Adjournment Proposal, it will have no effect on the proposals.

 

Q:Can I attend the Alliqua special meeting and vote my shares in person?

 

A:Yes. All holders of Alliqua common stock as of the record date, including stockholders of record and stockholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Alliqua special meeting. Holders of record of Alliqua common stock can vote in person at the Alliqua special meeting. If you are not a stockholder of record, you must obtain a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the Alliqua special meeting. If you plan to attend the Alliqua special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership.

 

Q:Can I change or revoke my vote?

 

A:Yes. If you are a holder of record of Alliqua common stock, you may revoke any proxy at any time prior to the Alliqua special meeting by providing notice in writing to Brian Posner, chief financial officer, treasurer and secretary, at 2150 Cabot Boulevard West, Langhorne, Pennsylvania 19047 (which notice must be received before noon, Eastern Time, on [   •   ], 2015), by returning a duly executed proxy bearing a later date by mail, by logging onto the Internet website specified on your proxy card in the same manner you would submit your proxy electronically or by calling the telephone number specified on your proxy card, as described on your proxy card. Your attendance at the Alliqua special meeting will not constitute automatic revocation of the proxy unless you vote your shares by ballot at the special meeting to revoke your proxy. If you hold your shares in "street name" through a bank or broker, you should contact your bank or broker to revoke your proxy.

 

Q:Do I have any dissenters’ or appraisal rights with respect to any of the matters to be voted on at the special meeting?

 

A:No. Alliqua stockholders do not have any dissenters’ or appraisal rights under Delaware law in connection with the proposed merger or with respect to any of the matters to be voted on at the special meeting.

 

Q:How does Alliqua's board of directors recommend that I vote at the special meeting?

 

A:Alliqua's board of directors unanimously recommends that you vote "FOR" the Alliqua Share Issuance Proposal (Proposal 1) and "FOR" the Alliqua adjournment proposal (Proposal 2).

 

Q:Who can help answer my questions?

 

A:The information provided above in this “Question and Answer” format is for your convenience only and is merely a summary of the information contained in this joint proxy and consent solicitation statement/prospectus. We urge you to carefully read this entire joint proxy and consent solicitation statement/prospectus, including the documents referred to herein or otherwise incorporated by reference. If you have any questions, or need additional material, please feel free to contact Brian Posner by email at info@alliqua.com or phone at (215) 702-8550.

 

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QUESTIONS AND ANSWERS FOR CELLERATION STOCKHOLDERS

 

Q:What will I receive in the merger?

 

A:If the merger is completed, the Celleration equity holders will initially receive at closing a pro rata portion of an aggregate purchase price of $30,415,000, payable in 3,168,229 shares of Alliqua common stock and $15,207,500 in cash, subject to certain adjustments and escrow holdbacks. In addition, the Celleration equity holders will have the right to receive certain future contingent payments, subject to the terms and conditions set forth in the Merger Agreement. For more information, see the section entitled “The Merger Agreement—Merger Consideration” on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Q:Will the value of the stock consideration change between the date of this joint proxy and consent solicitation statement/prospectus and the time the merger is completed?

 

A:Yes. Because Alliqua will issue a fixed number of shares of Alliqua common stock at the closing, in exchange for each share of Celleration common stock, the value of the stock merger consideration that Celleration equity holders will receive in the merger will depend on the market price of shares of Alliqua common stock at the time the merger is completed. The market price of shares of Alliqua common stock when Celleration equity holders receive such shares after the merger is completed could be greater than, less than or the same as the market price of shares of Alliqua common stock on the date of this joint proxy and consent solicitation statement/prospectus.

 

Q:What will happen to Celleration options and warrants in the merger?

 

A:At the effective time of the merger, each outstanding and unexercised Celleration stock option will be cancelled. Celleration has agreed to take any actions necessary to effect the foregoing cancellation and cause the Celleration, Inc. Amended and Restated 2002 Stock Option Plan to terminate at or prior to the effective time. Only certain holders of in-the-money options will be entitled to receive a pro rata share of the merger consideration, as determined by taking the product of (i) the number of shares underlying such in-the-money option and (ii) the excess of the closing per share merger consideration over the per share exercise price of such option.

 

Likewise, at the effective time, each agreement evidencing warrants to purchase shares of Celleration common stock that is outstanding and terminates in accordance with its terms upon closing will be cancelled, terminated and extinguished. Celleration and its designated stockholder representatives have agreed to use reasonable commercial efforts to effect the termination, cancellation and release of all outstanding and unexercised warrants prior to the effective time of the merger. In exchange for each cancelled Celleration warrant, holders will be entitled to receive a pro rata share of the merger consideration, as determined by taking the product of (i) the number of shares previously underlying such warrant and (ii) the excess of the closing per share merger consideration over the per share exercise price of such warrant. If the exercise price payable in respect of any warrant exceeds the per share merger consideration, no amount of merger consideration will be paid in exchange for its cancellation. For more information, see the section entitled “The Merger Agreement—Treatment of Celleration Stock Options and Warrants” on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Q:What are the U.S. federal income tax consequences of the merger to Celleration stockholders?

 

Although not free of doubt, it is more likely than not that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986 as amended (the “Code”). If the merger is treated as a reorganization, a U.S. holder (as described on page [ • ] of this joint proxy and consent solicitation statement/prospectus) of Celleration stock may recognize gain (but not loss) with respect to the merger consideration in an amount equal to the lesser of any gain realized or the value of the cash consideration received with respect to the exchange. Alternatively, if the merger does not qualify as a reorganization, then a U.S. holder of Celleration stock will recognize gain or loss with respect to all such U.S. holder's shares of Celleration common stock based on the difference between (i) that U.S. holder's tax basis in such shares and (ii) the aggregate cash and the fair market value of the Alliqua common stock received. The amount and timing of gain that a U.S. holder may recognize is subject to substantial uncertainty. For further information, see "The Merger—U.S. Federal Income Tax Considerations" on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

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The U.S. federal income tax consequences described above may not apply to all equity holders of Celleration. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your independent tax advisor for a full understanding of the particular tax consequences of the merger to you.

 

Q:What am I being asked to approve?

 

A:You are being asked to adopt the Merger Agreement and thereby approve the merger and the other transactions contemplated by the Merger Agreement.

 

Q:What is the record date and what does it mean?

 

The record date to determine the Celleration stockholders entitled to sign and deliver written consents with respect to the Celleration Merger Agreement proposal is the close of business on [   •   ], 2015. The record date was established by the Celleration board of directors as required by Delaware law.

 

Q:Who is entitled to give a written consent?

 

A:Only holders of outstanding shares of Celleration common stock and Celleration Series AA preferred stock as of the close of business on the Celleration record date are entitled to sign and deliver written consents with respect to the Celleration Merger Agreement proposal. As of the close of business on the Celleration record date, there were [   •   ] shares of Celleration common stock and [   •   ] shares of Celleration Series AA preferred stock issued and outstanding and entitled to sign and deliver written consents with respect to the Celleration Merger Agreement proposal. Each share of Celleration common stock is entitled to one vote, and each share of Celleration Series AA preferred stock is entitled to the number of votes equal to the number of shares of Celleration common stock into which such shares of Series AA preferred stock are convertible.

 

Q:What stockholder consent is required to approve the Celleration Merger Agreement proposal?

 

A:The merger cannot be completed unless Celleration stockholders adopt and approve the Celleration Merger Agreement proposal. Adoption and approval of the Celleration Merger Agreement proposal requires the approval of the holders of a majority of the issued and outstanding shares of Celleration common stock and Series AA preferred stock, voting together on an as converted basis, and a majority of the issued and outstanding shares of Celleration Series AA preferred stock, voting as a separate class.

 

Certain 5% stockholders, directors and executive officers of Celleration, representing approximately 83% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and 81% of the outstanding shares of Celleration Series AA preferred stock as of February 2, 2015, have entered into voting agreements with Alliqua pursuant to which, among other things, they have agreed to execute and return a written consent with respect to their shares of Celleration common stock and Celleration Series AA preferred stock adopting and approving the Celleration Merger Agreement proposal. As of the close of business on the Celleration record date, approximately [   •   ]% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and [   •   ]% of the outstanding shares of Celleration Series AA preferred stock are subject to the voting agreements. Therefore, Celleration expects that the written consents to be delivered by holders pursuant to the voting agreements will represent a sufficient number of shares of Celleration common stock and Celleration Series AA preferred stock to satisfy the approval requirement described above for the adoption and approval of the Celleration Merger Agreement proposal. See the section titled “Ancillary Agreements—Voting Agreement” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. The form of voting agreement is included in this joint proxy and consent solicitation statement/prospectus as Annex B.

 

Q:What options do I have with respect to the proposed merger?

 

A:With respect to the shares of Celleration common stock and/or Series AA preferred stock that you hold, you may execute a written consent to approve the Celleration Merger Agreement proposal (which is equivalent to a vote for the proposal) or to disapprove the Celleration Merger Agreement proposal (which is equivalent to a vote against the proposal). If you fail to execute and return your written consent, or otherwise withhold your written consent or abstain, it has the same effect as voting against the Celleration Merger Agreement proposal.

 

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Q:Can I dissent and require appraisal of my shares?

 

A:Yes. If you do not approve the Celleration Merger Agreement proposal via written consent, you may, by strictly complying with Section 262 of the Delaware General Corporation Law (the “DGCL”), be entitled to the appraisal rights described therein. Section 262 of the DGCL is attached to this joint proxy and consent solicitation statement/prospectus as Annex D. Failure to follow precisely any of the statutory procedures set forth in Annex D may result in the loss or waiver of appraisal rights under Delaware law. Delaware law requires that, among other things, you send a demand for appraisal to the surviving company in the merger after receiving a notice from Alliqua or Celleration that appraisal rights are available to you, which notice will be sent to non-consenting stockholders in the future. This joint proxy and consent solicitation statement/prospectus is not intended to constitute such a notice. Do not send in your demand prior to mailing of such notice because any demand for appraisal made prior to your receipt of such notice may not be effective to perfect your rights.

 

Pursuant to the terms of the investor rights agreement, dated January 4, 2013, among Celleration and certain holders of Celleration common stock and Series AA preferred stock, should a majority of the outstanding shares of the Series AA preferred stock party to such agreement approve the merger, the holders of such shares may require all of the holders party to such agreement to consent to the merger and to waive any appraisal rights.

 

Please see the section titled “The Merger—Appraisal Rights” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Q:How do I return my written consent?

 

A:You may return your written consent to Celleration by faxing it to Celleration, Inc., Attention: Secretary, at (952) 224-8750, by emailing a “.pdf” copy of your written consent to dwerz@celleration.com or by mailing your written consent to Celleration, Inc. at 6321 Bury Drive, Suite 15 Eden Prairie, MN 55346, Attention: Secretary.

 

Q:What is the deadline for returning Celleration written consents?

 

A:The Celleration board of directors has set [   •   ], 2015 as the final date for receipt of written consents. Celleration reserves the right to extend the final date for receipt of written consents beyond [   •   ], 2015. Any such extension may be made without notice to you.

 

Q:What if I am a stockholder as of the Celleration record date and return my signed written consent without indicating a decision with respect to the Celleration Merger Agreement proposal?

 

A:If you are a Celleration stockholder as of the Celleration record date and you return a signed written consent without indicating your decision on the Celleration Merger Agreement proposal, you will have given your consent to the adoption and approval of the Celleration Merger Agreement proposal.

 

Q:Can I change or revoke my written consent?

 

A:Yes. If you are a stockholder on the Celleration record date of shares of Celleration common stock or of Celleration Series AA preferred stock, you may change or revoke your consent to the Celleration Merger Agreement proposal, subject to any contractual obligation you may have, at any time prior to [   •   ], 2015 or, if earlier, at any time before the consents of a sufficient number of shares to approve such proposal have been filed with the corporate secretary of Celleration. If you wish to change or revoke your consent before that time, you may do so by sending in a new written consent with a later date by one of the means described in the section entitled “Solicitation of Written Consents— Executive Consents; Revocation of Consents,” on page [   •   ], or delivering a notice of revocation to the corporate secretary of Celleration.

 

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Q:What is the Celleration board of directors’ recommendation for the Celleration Merger Agreement proposal?

 

A:The Celleration board of directors unanimously recommends that you execute a written consent to approve the Celleration Merger Agreement proposal and thereby approve the merger and the other transactions contemplated by the Merger Agreement.

 

Q:Should I send in my Celleration stock certificates now?

 

A:No. Please do not send in your Celleration stock certificates with your written consent. After the effective time of the merger, an exchange agent designated by Alliqua will send you a letter of transmittal with instructions for exchanging Celleration stock certificates for the merger consideration.

 

Q:Whom may I contact if I cannot locate my Celleration stock certificate(s)?

 

A:If you cannot locate your certificates representing shares of Celleration stock and believe them to be lost, stolen or destroyed, please follow the instructions in the letter of transmittal you will receive from the exchange agent dealing with lost, stolen or destroyed certificates. You will then be provided with an affidavit of lost stock certificates to complete and return to Celleration, or if you provide such affidavit after the merger occurs, to the exchange agent.

 

Q:Who can help answer my questions?

 

  A: The information provided above in this “Question and Answer” format is for your convenience only and is merely a summary of the information contained in this joint proxy and consent solicitation statement/prospectus. We urge you to carefully read this entire joint proxy and consent solicitation statement/prospectus, including the documents referred to herein or otherwise incorporated by reference. If you have any questions, or need additional material, please feel free to contact Christopher Geyen at (952) 224-8700.

 

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SUMMARY

 

This summary highlights selected information from this joint proxy and consent solicitation statement/prospectus and may not contain all of the information that is important to you. You are urged to carefully read this entire document, including the annexes, and the other documents to which Alliqua and Celleration refer for a more complete understanding of the Merger. In addition, Alliqua and Celleration encourage you to read the information about Alliqua incorporated by reference into this joint proxy and consent solicitation statement/prospectus, which includes important business and financial information about Alliqua, and to read the information in the section entitled “Celleration’s Business” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus, which includes important business and financial information about Celleration. Stockholders of Alliqua and Celleration may obtain the information about Alliqua incorporated by reference into this joint proxy and consent solicitation statement/prospectus without charge by following the instructions in the section entitled “Where You Can Find More Information” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. Each item in this summary refers to the page of this joint proxy and consent solicitation statement/prospectus on which that subject is discussed in more detail.

 

This summary and the balance of this document contain forward-looking statements about events that are not certain to occur, and you should not place undue reliance on those statements. Please carefully read “Cautionary Information Regarding Forward-Looking Statements” on page [   •   ] of this document.

 

The Companies (see page [   •   ] and [   •   ] )

 

Alliqua BioMedical, Inc.

2150 Cabot Boulevard West

Langhorne, Pennsylvania 19047

(215) 702-8550

 

Alliqua is a provider of advanced wound care solutions. Its commercial wound care portfolio currently consists of four product categories: human biologics, antimicrobial protection, exudate management and contract manufacturing. Alliqua seeks to expand this portfolio though targeted acquisitions and strategic distribution and license agreements. Alliqua has historically served as a contract manufacturer, supplying its gels to third parties who incorporate them into their own products. Alliqua also markets two proprietary hydrogels primarily to the wound care segment of the health care industry. Alliqua’s core businesses include advanced wound care and contract manufacturing.  

 

Alliqua common stock trades on the NASDAQ Capital Market under the symbol “ALQA.”

 

Additional information about Alliqua and its subsidiaries is included in the documents incorporated by reference into this joint proxy and consent solicitation statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

ALQA Cedar, Inc.

c/o Alliqua BioMedical, Inc.

2150 Cabot Boulevard West

Langhorne, Pennsylvania 19047

(215) 702-8550

 

ALQA Cedar, Inc. is a wholly-owned subsidiary of Alliqua that was recently incorporated in Delaware solely for the purpose of entering into the Merger Agreement and effecting the merger and the other transactions contemplated by the Merger Agreement. It is not engaged in any business and has no material assets. Its principal executive offices have the same address and telephone number as Alliqua set forth above.

 

Celleration, Inc.

6321 Bury Drive, Suite 15

Eden Prairie, MN 55346

(952) 224-8700 

 

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Celleration focuses on developing and commercializing therapeutic ultrasound healing technologies. Celleration has received 510(k) clearance from the U.S. Food and Drug Administration to market and sell its core product offerings, the MIST Therapy System and the next-generation system, UltraMIST, in the United States. The MIST Therapy System and UltraMIST deliver noncontact low-frequency, low-intensity ultrasound to the wound bed through a saline mist (“MIST Therapy”). MIST Therapy is used in wound management protocols across a number of different care settings depending upon the needs of the individual patient and the clinical setting.

 

The Merger (see page [   •   ])

 

The Merger Agreement (see page [   •   ]and Annex A)

 

On February 2, 2015, Alliqua, Merger Sub, Celleration and certain representatives of the Celleration stockholders entered into the Merger Agreement. The Merger Agreement is the legal document governing the merger and is included in this joint proxy and consent solicitation statement/prospectus as Annex A. All descriptions in this summary and elsewhere in this joint proxy and consent solicitation statement/prospectus of the terms and conditions of the merger are qualified in their entirety by reference to the full text of the Merger Agreement. Please read the Merger Agreement carefully for a more complete understanding of the merger.

 

The Merger (see page [   •   ])

 

Pursuant to the Merger Agreement, Celleration will merger with and into Merger Sub, a wholly-owned subsidiary of Alliqua. Upon completion of the merger, the separate corporate existence of Celleration will cease and Merger Sub will continue as the surviving corporation.

 

The Merger Consideration (see page [   •   ])

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, holders of outstanding shares of Celleration common stock, holders of Celleration Series AA preferred stock and holders of in-the-money Celleration options and warrants will initially receive at closing, a pro rata amount aggregate purchase price of $30,415,000, payable in equal amounts of cash and shares of Alliqua common stock, as follows:

 

Ÿ3,168,229 shares of Alliqua common stock, minus (i) 208,333 shares to be deposited with the designated escrow agent to hold in escrow in order to secure certain indemnification obligations of the Celleration equity holders and (ii) the number of shares necessary to pay the liquidation preference to the holders of Celleration Series AA preferred stock; and

 

Ÿ$15,207,500, minus (i) the amount necessary to extinguish all outstanding indebtedness and unpaid transaction expenses of Celleration, (ii) the amount necessary to pay the liquidation preference to the holders of Celleration Series AA preferred stock, (iii) $100,000, or such greater amount as may be set forth in a notice sent by Celleration to Alliqua at least five days prior to the closing, to be used to pay certain expenses of the Celleration’s stockholder representatives and (iv) $1,500,000 which will be deposited in escrow in order to secure certain post-closing adjustments to the purchase price and certain indemnification obligations of the Celleration equity holders.

 

The aggregate purchase price (and as a result, the aggregate merger consideration) reflects an amount equal to three and one-half times the actual revenue generated by Celleration for the 2014 fiscal year as reported in the Celleration audited financial statements for the year ended December 31, 2014 and is subject to certain customary working capital adjustments.

 

The aggregate merger consideration will be allocated among holders of Celleration common stock, Celleration Series AA preferred stock, Celleration in-the-money stock options and Celleration in-the-money warrants, collectively referred to herein as the Celleration equity holders. The precise amount of the consideration to be paid to the Celleration equity holders will not be known until shortly before the effective time of the merger and will vary, depending on the amount of the aggregate adjusted merger consideration and the number of shares of Celleration common stock and of Celleration Series AA preferred stock, Celleration in-the-money stock options and Celleration in-the-money warrants outstanding immediately prior to the effective time of the merger.

 

In addition to the right of the holders of Celleration Series AA preferred stock to participate in the merger consideration with the holders of Celleration common stock, the holders of the Celleration Series AA preferred stock will also receive $10,500,000 as a liquidation preference, payable in equal amounts of cash and shares of Alliqua common stock.

 

10
 

 

The Celleration equity holders will also have the right to receive additional consideration that is subject to and contingent upon the occurrence of certain events in the future, on the terms and conditions set forth in the Merger Agreement, including (i) subject to the National Institute for Health and Care Excellence of the United Kingdom publishing a technology appraisal guidance that supports the case for the adoption of utilizing MIST products in therapy before January 1, 2017 (the “NICE Approval”), 20% of the incremental net sales recognized from the acquired MIST products for the fiscal years ending December 31, 2016, 2017 and 2018 in excess of the net sales for the twelve calendar months immediately prior to receipt of the NICE Approval, payable in cash; (ii) shares of Alliqua common stock with an aggregate value of $500,000 upon receipt of such NICE Approval and (iii) three and one half times the incremental revenue generated from the acquired Celleration products for each of the fiscal years ending December 31, 2015 and 2016, payable in equal amounts of cash and shares of Alliqua common stock (collectively referred to herein as the contingent consideration). The number of shares of Alliqua common stock to be paid from time to time upon the occurrence of such events will be calculated by dividing the dollar amount of such payment by a forty-five trading day moving average of the VWAP of the Alliqua common stock on the NASDAQ Capital Market as of the applicable reference date and shall not exceed an aggregate of 9,500,000 shares; provided that (i) the aggregate cash consideration paid shall not exceed 60% of the total consideration paid to the Celleration equity holders in connection with the merger and (ii) Alliqua has agreed to use commercially reasonable efforts to issue the Celleration equity holders more than 9,500,000 shares of Alliqua common stock in the event that the Celleration equity holders are entitled to additional contingent consideration in excess of the 60% cash threshold pursuant to the terms of the Merger Agreement. Because the number of shares to be issued will depend in part on the market prices of the Alliqua common stock at the times such shares are required to be issued to Celleration equity holders, if at all, the total number of shares of Alliqua common stock to be issued in the merger cannot be determined at this time. For a more complete discussion of these contingent consideration payments, see “The Merger Agreement—Contingent Consideration” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. The contingent consideration payments are also subject to Alliqua’s right to setoff certain indemnification claims, as described in the section titled “The Merger Agreement—Indemnification” on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

In addition, if a change of control of Alliqua occurs or Alliqua disposes of substantially all of the Celleration assets during the 2015 or 2016 fiscal year, Celleration equity holders will have the option of retaining their rights to the contingent consideration or receiving a one-time cash payment equal to $49,500,000 reduced by the purchase price and by the value of any contingent consideration paid prior to such event.

 

Alliqua will not issue any fractional shares of Alliqua common stock in the merger. Celleration equity holders who would otherwise be entitled to a fraction of a share of Alliqua common stock upon the completion of the merger will instead receive cash in lieu of such fractional shares. After the merger is completed, Celleration equity holders will have only the right to receive the merger consideration, any cash in lieu of such fractional shares of Alliqua common stock and any future contingent consideration that may be paid to such holders, or, in the case of Celleration stockholders that properly exercise and perfect appraisal rights, the right to receive the fair market value for such shares, and will no longer have any rights as Celleration stockholders, including voting or other rights.

 

For a full description of the merger consideration, see the sections titled “The Merger Agreement—Merger Consideration” beginning on page [   •   ] and “—Treatment of Celleration Stock Options and Warrants” on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Comparative Market Price Information (see page [   •   ])

 

Alliqua common stock is listed on the NASDAQ Capital Market under the symbol “ALQA.” However, currently there is no established public trading market for Celleration common stock. The following table sets forth the closing sale prices per share of Alliqua common stock on February 2, 2015, the last full trading day immediately preceding the public announcement of the Merger Agreement, and on [   •   ], 2015, the latest practicable date prior to the date of this joint proxy and consent solicitation statement/prospectus.

 

   Alliqua
Common Stock
   Celleration
Common Stock
 
February 2, 2015  $5.01    N/A 
[   •   ], 2015  $ [   •   ]    N/A 

 

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Risks Factors (see page [   •   ])

 

In evaluating the Merger Agreement and merger, you should carefully consider all the information contained in or incorporated by reference into this joint proxy and consent solicitation statement/prospectus. In particular, you are urged to read and consider all of the factors discussed in the section titled “Risk Factors” beginning on page [   •   ].

 

Recommendation of the Alliqua Board of Directors (see page [   •   ])

 

Alliqua’s board of directors has determined that the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Alliqua common stock pursuant to the terms of the Merger Agreement, are advisable and in the best interests of Alliqua and its stockholders and has unanimously approved and adopted the Merger Agreement, the merger and the other transactions contemplated therein. Alliqua’s board of directors unanimously recommends that Alliqua stockholders vote “FOR” the Alliqua Share Issuance Proposal and “FOR” the Alliqua Adjournment Proposal. For the factors considered by Alliqua’s board of directors in reaching its decision to approve the merger and Merger Agreement, see the section titled “The Merger—Alliqua’s Reasons for the Merger” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Recommendation of the Celleration Board of Directors (see page [   •   ])

 

Celleration’s board of directors has determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Celleration and its stockholders and has unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby, including the merger. Celleration’s board of directors unanimously recommends that Celleration stockholders consent to the adoption and approval of the Merger Agreement and the other transactions contemplated by the Merger Agreement, including the merger. For the factors considered by Celleration’s board of directors in reaching its decision to approve the Celleration Merger Agreement proposal, see the section titled “The Merger—Celleration’s Reasons for the Merger” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

The Alliqua Special Meeting (see page [   •   ])

 

The Alliqua special meeting will be held on [   •   ], 2015, at 9:00 a.m., Eastern Time, at the Sheraton Bucks County Hotel, located at 400 Oxford Valley Rd., Langhorne, PA 19047. At the special meeting, Alliqua stockholders will be asked to:

 

(1)approve the Alliqua Share Issuance Proposal; and
   
(2)approve the Alliqua Adjournment Proposal.

 

Only the holders of record of shares of Alliqua common stock at the close of business on [   •   ], 2015, the Alliqua record date, will be entitled to vote at the special meeting. Each share of Alliqua common stock is entitled to one vote on each proposal to be considered at the Alliqua special meeting. As of the Alliqua record date, there were [   •   ] shares of Alliqua common stock outstanding and entitled to vote at the Alliqua special meeting.

 

As of the close of business on the Alliqua record date, the directors and executive officers of Alliqua and their affiliates collectively owned and were entitled to vote [   •   ] shares of Alliqua common stock, which represent, in the aggregate, approximately [   •   ]% of the outstanding shares of Alliqua common stock on that date. Alliqua currently expects that Alliqua’s directors and executive officers will vote their shares in favor of the Alliqua Share Issuance Proposal and the Alliqua Adjournment Proposal.

 

Assuming the presence of a quorum, the affirmative vote of a majority of the votes cast affirmatively or negatively by holders of Alliqua common stock entitled to vote and represented in person or by proxy at the Alliqua special meeting is required to approve the Alliqua Share Issuance Proposal and the Alliqua Adjournment Proposal. If you are an Alliqua stockholder and mark "ABSTAIN" on your proxy with respect to the Alliqua Share Issuance Proposal or the Alliqua Adjournment Proposal, it will not be counted with respect to the vote and will have no effect on the proposals. In addition, if you fail to submit a proxy or vote in person at the Alliqua special meeting or fail to instruct your bank or broker how to vote with respect to the Alliqua Share Issuance Proposal or the Alliqua Adjournment Proposal, it will have no effect on the proposal.

 

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The Celleration Solicitation of Written Consents (see page [   •   ])

 

The Celleration board of directors has set [   •   ], 2015 as the record date for determining Celleration stockholders entitled to sign and deliver written consents with respect to the Celleration Merger Agreement proposal.

 

Written consents from a majority of the issued and outstanding common stock of Celleration and Celleration Series AA preferred stock, voting together on an as converted basis, and of a majority of the issued and outstanding shares of Celleration Series AA preferred stock, voting as a separate class, are required to approve the Celleration Merger Agreement proposal.

 

As of the close of business on the Celleration record date, the directors and executive officers of Celleration and their affiliates collectively owned and were entitled to give a written consent with respect to [   •   ] shares of Celleration common stock and [   •   ] shares of Celleration Series AA preferred stock, which represent, in the aggregate, approximately [   •   ]% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and [   •   ]% of the outstanding shares of Celleration Series AA preferred stock on that date, all of which are subject to the voting agreements with Alliqua. Therefore, Celleration expects that its directors and executive officers will execute and deliver written consents in favor of the adoption and approval of the Celleration Merger Agreement proposal.

 

Interests of Executive Officers and Directors of Celleration in the Merger (see page [   •   ])

 

In considering the recommendation of the Celleration board of directors that Celleration stockholders vote or consent to approve the merger, Celleration stockholders should be aware that some of Celleration’s directors and officers have interests in the merger and have arrangements that are different from, or in addition to, those of Celleration stockholders generally. These interests and arrangements may create potential conflicts of interest. Celleration’s board of directors was aware of these interests and considered these interests, among other matters, in adopting and approving the Merger Agreement and the transactions contemplated thereby, including the merger, and in recommending that Celleration stockholders consent to the adoption and approval of the Merger Agreement and the merger.

 

These interests include:

 

·the appointment of Mark Wagner, a director and the president and chief executive officer of Celleration, to the Alliqua board of directors upon the effective time of the merger;

 

·certain options to acquire Celleration common stock held by executive officers and affiliates of certain directors are expected to be converted into the right to receive a pro rata share of the merger consideration and the contingent consideration;

 

· certain of the Celleration officers and directors will be entitled to a pro rata portion of the Series AA preferred stock liquidation preference upon the closing of the merger;

 

·certain of the Celleration officers and directors are entitled to a cash bonus upon the closing of the merger;

 

·pursuant to the terms of the merger agreement, Celleration’s current and former directors and officers will be entitled to certain ongoing indemnification and coverage for six years after the effective time;

 

·certain of the Celleration stockholders who have entered into voting agreements with Alliqua, among other things, to execute and deliver a written consent with respect to all shares of Celleration common stock and Series AA preferred stock owned by them as of the applicable record date in favor of the adoption and approval of the Merger Agreement and merger, are affiliated with directors of Celleration; and

 

·certain of Celleration’s named officers are entitled to severance payments upon a change of control pursuant to the terms of their respective employment agreements or offer letters.

 

For a more complete description of these interests, see “The Merger—Interests of Celleration’s Directors and Executive Officers in the Merger” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

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Board Composition and Management of Alliqua After the Merger (see page [   •   ])

 

The directors and officers of Alliqua immediately prior to the effective time of the merger will continue to be directors and officers of Alliqua immediately following the merger. Pursuant to the terms of the Merger Agreement, Alliqua has agreed to appoint Mr. Wagner, a director and the president and chief executive officer of Celleration, to the Alliqua board of directors upon the effective time of the merger.

 

Appraisal Rights (see page [   •   ])

 

Pursuant to Section 262 of the DGCL, holders of Celleration stock who comply with the applicable requirements of Section 262 of the DGCL and do not otherwise withdraw or lose the right to appraisal under Delaware law have the right to seek appraisal of the fair value of their shares of Celleration stock, as determined by the Delaware Court of Chancery, if the merger is completed. The “fair value” of your shares of Celleration stock as determined by the Delaware Court of Chancery may be more or less than, or the same as, the value of the merger consideration per share that you are otherwise entitled to receive under the terms of the Merger Agreement. Holders of Celleration stock who wish to preserve any appraisal rights must so advise Celleration by submitting a demand for appraisal within the period prescribed by Section 262 of the DGCL, and must otherwise follow the procedures prescribed by Section 262 of the DGCL. A person having a beneficial interest in shares of Celleration stock held of record in the name of another person, such as a broker, bank or other nominee, must act promptly to cause the record holder to follow the steps summarized in this joint proxy and consent solicitation statement/prospectus and in a timely manner to perfect appraisal rights. In view of the complexity of Section 262 of the DGCL, Celleration stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors. Pursuant to the terms of the investor rights agreement dated January 4, 2013, should a majority of the outstanding shares of the Series AA preferred stock party to such agreement approve the merger, the holders of such shares may require all of the holders party to such agreement to consent to the merger and to waive any appraisal rights. Please see the section titled “The Merger—Appraisal Rights” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Alliqua stockholders do not have any dissenters’ or appraisal rights under the DGCL in connection with the merger or with respect to any of the matters to be vote on at the Alliqua special meeting.

 

No Solicitation (see page [   •   ])

 

The Merger Agreement contains provisions that make it more difficult for Celleration to sell its business to a party other than Alliqua. These provisions include a general prohibition on Celleration soliciting any third party acquisition proposal or offer for a competing transaction. Furthermore, there are only limited exceptions to Celleration’s agreement that the Celleration board of directors will not withdraw or modify in a manner adverse to Alliqua the recommendation of the Celleration board of directors in favor of adoption of the Merger Agreement.

 

Notwithstanding the foregoing, prior to the effective time of the merger, Celleration may, under certain specified circumstances, participate in negotiations or discussions with any third party making an unsolicited written acquisition proposal that the Celleration board has determined could reasonably be expected to result in a superior proposal (as defined in “The Merger Agreement—Covenants and Agreements” on page [   •   ]) if a failure to take such action could reasonably be expected to result in a breach of the directors’ fiduciary obligations to the Celleration stockholders. After making such determination, Celleration may provide confidential information to such third party (subject to a confidentiality agreement with terms comparable to those with Alliqua). Celleration must notify Alliqua promptly (but in no event later than 48 hours) after receipt of such competing acquisition proposal and keep Alliqua informed on a prompt basis of any material developments with respect to such acquisition proposal.

 

Additionally, prior to obtaining Celleration’s required stockholder approval, Celleration may, under certain specified circumstances, withdraw its recommendation to its stockholders with respect to the merger and/or terminate the Merger Agreement if the following occurs:

 

Ÿthe Celleration board of directors determines in good faith after consulting with Celleration’s financial advisors and legal counsel that (A) the failure to effect a change of recommendation would reasonably be expected to result in a breach of the directors’ fiduciary duties to the Celleration stockholders under applicable law and (B) that a proposal for an alternative transaction constitutes a Superior Proposal, and concurrently terminates the Merger Agreement and pays Alliqua a termination fee;

 

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ŸCelleration gives at least five business days’ notice to Alliqua prior to the Celleration board of directors changing its recommendation, and thereafter, the Celleration board of directors and Celleration’s representatives negotiate with Alliqua in good faith to adjust the terms of the Merger Agreement so as to obviate the need for the change of recommendation; and

 

Ÿupon the expiration of the five business day notice period to Alliqua and after consultation with Celleration’s financial and legal advisors and taking into account any proposed changes to the terms of the Merger Agreement by Alliqua, the Celleration board of directors will have determined that the failure of the Celleration board of directors to change its recommendation would be inconsistent with the directors’ fiduciary duties under applicable law.

 

Conditions to Completion of the Merger (see page [   •   ])

 

Currently, Alliqua and Celleration expect to complete the merger during the second quarter of 2015. As more fully described in this joint proxy and consent solicitation statement/prospectus and in the Merger Agreement, each party’s obligation to complete the Merger depends on a number of conditions being satisfied or, where legally permissible, waived, including the following:

 

·the approval of the Merger Agreement by Celleration stockholders and the approval of the issuance of Alliqua common stock in the merger by Alliqua stockholders;

 

·the submission of all filings pursuant to the HSR Act (if any) and the expiration or termination of the related statutory waiting period;

 

·the absence of any legal restraint or governmental order that would prevent or prohibit the completion of the merger and the other transactions contemplated by the Merger Agreement;

 

·the receipt of all required consents, authorizations, orders and approvals from government authorities;

 

·the effectiveness of the registration statement of which this joint proxy and consent solicitation statement/prospectus is a part with respect to the Alliqua common stock to be issued in the merger, which shall not be the subject of any stop order; and

 

·the authorization for listing the shares of Alliqua common stock to be issued as part of the merger consideration on the NASDAQ Capital Market, subject to official notice of issuance.

 

The obligation of Alliqua and Merger Sub to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

Ÿcertain of Celleration’s representations and warranties will be true in all respects, to the extent qualified by materiality or material adverse effect, and others will be true in all material respects as of the date of the Merger Agreement and closing, except for those otherwise qualified as to a specified date;

 

Ÿthe performance, in all material respects, by Celleration of its covenants and agreements required to be performed or complied with prior to or on the closing date of the merger;

 

Ÿno action commenced against any party, injunction or restraining order issued by a governmental authority, in effect, that would prevent or prohibit the closing of the merger or transaction contemplated by the Merger Agreement;

 

Ÿreceipt by, and delivery to, Alliqua at or prior to closing of all required approvals, consents and waivers from Celleration and all closing deliverables from Celleration;

 

Ÿthe funding of the debt financing in accordance with the terms of Alliqua’s commitment letter;

 

Ÿno more than 7.5% of the total outstanding shares of Celleration common stock and Celleration Series AA preferred stock as of immediately prior to the effective time have exercised, or remain entitled to exercise, statutory appraisal rights pursuant to Section 262 of the DGCL; and

 

Ÿthe absence, since December 31, 2013, of any material adverse effect on Celleration or any event, state of facts or circumstances that individually or in the aggregate, with or without the lapse of time, would likely result in a material adverse effect on Celleration. For a more complete discussion on what constitutes a material adverse effect on Celleration, see the section titled “The Merger Agreement—Representations and Warranties” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

15
 

 

The obligation of Celleration to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

Ÿcertain of the representations and warranties of Alliqua and Merger Sub will be true in all respects, to the extent qualified by materiality or material adverse effect, and others will be true in all material respects as of the date of the Merger Agreement and closing, except for those otherwise qualified as to a specified date;

 

Ÿthe performance, in all material respects, by Alliqua and Merger Sub of their covenants and agreements required to be performed or complied with prior to or on the closing date of the merger;

 

Ÿno injunction or restraining order issued by a governmental authority, in effect, that would prevent or prohibit the closing of the merger or transaction contemplated by the Merger Agreement; and
   
Ÿreceipt by, and delivery to, Celleration at or prior to closing of all required approvals, consents and waivers from Alliqua and all closing deliverables from Alliqua.

 

Neither Alliqua nor Celleration can be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed. See “The Merger Agreement—Conditions to Completion of the Merger” on page [   •   ] of this joint proxy and consent solicitation statement/prospectus for a more complete summary of the conditions that must be satisfied prior to closing.

 

Regulatory Approvals Required for Merger (see page [   •   ])

 

Both Alliqua and Celleration have agreed to use their commercially reasonable efforts and cooperate to prepare and file, as promptly as possible, all necessary documentation and to obtain as promptly as practicable all regulatory and other governmental approvals or orders required or advisable to complete the transactions contemplated by the Merger Agreement. Although neither Alliqua nor Celleration knows of any reason why these regulatory approvals cannot be obtained, Alliqua and Celleration cannot be certain when or if they will be obtained, as the length of the review process may vary based on, among other things, requests by regulators for additional information or materials.

 

Listing of Alliqua Common Stock (see page [   •   ])

 

Pursuant to the terms of the Merger Agreement, application will be made to have the shares of Alliqua common stock issued to Celleration equity holders in the merger approved for listing on the NASDAQ Capital Market.

 

Financing for the Merger (see page [   •   ])

 

Alliqua intends to fund the upfront cash portion of the merger consideration and other expenses of the merger from a combination of cash resources, including cash on hand and a new senior, secured term loan facility in the aggregate amount of $15,500,000 that Perceptive Credit Opportunities Fund, LP (“Perceptive”) has committed to provide pursuant to the terms and conditions set forth in that certain commitment letter (the “Commitment Letter”) dated February 2, 2015, as amended by the parties on March 10, 2015 (such financing, the “Debt Financing”). Perceptive’s commitments and agreements with respect to the Debt Financing described in the Commitment Letter, as amended, will automatically terminate on 5:00 p.m., New York time, on May 31, 2015, which date shall automatically be extended with any extension of the outside date of the Merger Agreement to July 31, 2015 in certain circumstances (such time as may be extended, is referred to as the expiration time), if the conditions precedent to the form of definitive credit documentation have not been satisfied as of the expiration time.

On March 10, 2015, Alliqua, each of its subsidiaries and Perceptive agreed on a form credit agreement and guaranty (the “Credit Agreement”), which the parties have signed and agreed to hold in escrow pending release upon the satisfaction of certain conditions precedent to Perceptive’s obligation to fund the term loan set forth in the Credit Agreement prior to the expiration time, after any applicable extension thereof. These conditions include, among other things:

 

· the substantially concurrent consummation of the merger on the terms and conditions set forth in the Merger Agreement;
· the receipt by Perceptive of a promissory note evidencing the full amount of the loan and related loan documentation evidencing the security interests granted therein, a five-year warrant to purchase 750,000 shares of Alliqua’s common stock, certain financial statements, documentation for the perfection of security interests, various closing certificates and opinions of counsel to Alliqua;
· Alliqua’s payment of all fees due and payable to Perceptive under the Credit Agreement as of the closing date of the merger;
· the truth and accuracy of Alliqua’s representations and warranties contained in the Credit Agreement;
· the absence of events or circumstances that would reasonably be expected to have a material adverse effect on the results of operation, business or financial condition of Alliqua or Celleration, subject to certain exception; and
· miscellaneous other closing conditions that are customary for credit facilities and transactions of this type.

 

The terms and conditions set forth in the Credit Agreement are expected to supersede and supplant the terms of the Debt Financing contemplated by the Commitment Letter. The Credit Agreement will provide for a senior secured term loan in a single borrowing to Alliqua on the closing date of the merger in the principal amount of approximately $15.5 million (or such lesser amount requested by Alliqua). Pursuant to the terms of the Credit Agreement, the proceeds of the term loan will be available on the closing date of the merger, subject to the prior or substantially concurrent satisfaction of those certain conditions precedent described above, including the contemporaneous completion of the merger. The obligations of Alliqua under the Credit Agreement will be guaranteed by each of its subsidiaries and secured by a first priority lien on all of the existing and after acquired tangible and intangible assets of Alliqua and its subsidiaries. The term loan will (i) have a four year term, (ii) accrue interest at an annual rate equal to sum of (a) the greater of one-month LIBOR and 1% plus (b) an applicable margin of 9.75%, and (iii) be interest only for the first 24 months, followed by monthly amortization payments of $225,000, with the remaining unpaid balance due on the maturity date.

 

The obligation of Alliqua and Merger Sub to complete the merger is subject to the satisfaction or waiver of the condition in the Merger Agreement requiring the funding of the Debt Financing in accordance with the terms of the Commitment Letter, as amended and finalized in the Credit Agreement. The obligation of Perceptive to provide the Debt Financing on such terms is also subject to a number of conditions precedent. There is a risk that these conditions will not be satisfied and the Debt Financing may not be funded when required. As of the date of this joint proxy and consent solicitation statement/prospectus, no alternative financing arrangements or alternative financing plans have been made in the event the Debt Financing described in this joint proxy and consent solicitation statement/prospectus is not available. As a result, failure to have the Debt Financing condition satisfied or waived by the outside date of the Merger Agreement could delay or prevent the closing of the merger and, in certain circumstances, could require Alliqua to pay Celleration a reverse termination fee of $3 million, less any amount previously loaned to Celleration (if any). For a more complete description of Alliqua’s Debt Financing for the merger and potential risks, see the sections titled “The Merger—Debt Financing” and “Risk Factors” on pages [ • ] and [ • ], respectively, of this joint proxy and consent solicitation statement/prospectus.

 

16
 

 

Alliqua and Celleration expect to incur approximately $3.6 million in aggregate fees and expenses in consummating the merger, including financial advisory fees and expenses, legal fees and expenses, accountants’ fees and expenses, SEC registration fees, and printing and mailing expenses.

 

Ancillary Agreements (see page [   •   ])

 

Voting Agreements (see page [   •   ] and Annex B)

 

Simultaneously with the execution of the Merger Agreement, certain 5% stockholders, directors and executive officers of Celleration, collectively representing approximately 83% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and 81% of the outstanding shares of Celleration Series AA preferred stock as of February 2, 2015, entered into voting agreements with Alliqua, pursuant to which such holders have agreed, among other things, to execute and deliver a written consent with respect to their respective shares of Celleration common stock and Celleration Series AA preferred stock in favor of the adoption and approval of the Merger Agreement and merger. The voting agreements also contain a restrictive covenant, pursuant to which the holders have agreed not to sell any shares of Alliqua common stock received in the merger for a period of 180 days after the effective time of the merger. The form of voting agreement is included in this joint proxy and consent solicitation statement/prospectus as Annex B.

 

Termination of Merger Agreement (see page [   •   ])

 

The Merger Agreement may be terminated at any time prior to the closing of the merger by mutual written consent of the parties. The Merger Agreement may also be terminated by either party, prior to closing of the merger, by written consent to the other party in the following circumstances:

 

·if the merger is not completed by May 31, 2015, which may be extended by Alliqua to July 31, 2015 in certain circumstances, so long as Alliqua has provided Celleration with a $1,000,000 bridge loan prior to May 15, 2015 (which date as may be extended, is referred to as the outside date);

 

·if any law or other final and non-appealable governmental order makes the consummation of the merger illegal or otherwise prohibits, restrains or enjoins the transactions contemplated by the Merger Agreement;

 

·if either party fails to obtain the requisite approval of its respective stockholders at the special meeting or by written consent, as applicable;

 

·if the other party has breached or is in breach of any representation, warranty, covenant or agreement, which would prevent any closing condition from being satisfied and such breach is not cured within ten days after written notice of such breach; or
   
·if it becomes apparent that any of the closing conditions have not been or will not be fulfilled by the outside date, absent any failure to perform by the terminating party.

 

In addition, Celleration may terminate the Merger Agreement in the following circumstances:

 

·if Celleration’s board of directors determines to withdraw its recommendation in favor of the Merger Agreement and approves the termination of the Merger Agreement and Celleration enters into a definitive agreement with respect to a superior proposal in accordance with the terms and procedures set forth in the Merger Agreement; or

 

·if Alliqua fails to fulfill the condition requiring the funding of the Debt Financing in accordance with the terms of the Commitment Letter by the outside date, subject to all other mutual closing conditions having been fulfilled and absent any breach by Celleration.

 

17
 

 

Termination Fees (see page [   •   ])

 

If the Merger Agreement is terminated by Celleration in order to accept a superior proposal, Celleration is required to pay Alliqua a termination fee of $4 million. Alliqua is also required to pay Celleration a reverse termination fee of $3 million, less the amounts owed for any bridge loan provided to Celleration (including any accrued and unpaid interest thereon) if the Merger Agreement is terminated by (i) Alliqua or Celleration for Alliqua’s failure to obtained the required approval of Alliqua stockholders at the special meeting or (ii) Celleration for Alliqua’s failure to fulfill the Debt Financing condition in accordance with the terms of the Commitment Letter.

 

Comparison of the Rights of Holders of Alliqua Common Stock and Celleration Common Stock (see page [   •   ])

 

As a result of the completion of the merger, holders of Celleration common stock, Series AA preferred stock and in-the-money options and warrants to acquire Celleration common stock will become holders of Alliqua common stock. Each of Alliqua and Celleration is a Delaware corporation governed by the DGCL, but the rights of Alliqua stockholders currently are, and from and after the merger will be, governed by the Alliqua organizational documents and bylaws, while the rights of Celleration stockholders are currently governed by the Celleration organizational documents, bylaws and investor agreement. This joint proxy and consent solicitation statement/prospectus includes summaries of the material differences between the rights of Celleration stockholders and Alliqua stockholders arising because of differences between the Alliqua organizational documents and bylaws and the Celleration organizational documents, bylaws and investor agreement.

 

Accounting Treatment (see page [   •   ])

 

Alliqua will account for the acquisition pursuant to the Merger Agreement using the acquisition method of accounting in accordance with U.S. GAAP. Alliqua will measure the assets acquired and liabilities assumed at their fair values including net tangible and identifiable intangible assets acquired and liabilities assumed as of the closing of the transaction. Any excess of the purchase price over those fair values will be recorded as goodwill. Definite lived intangible assets will be amortized over their estimated useful lives. Intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually. All intangible assets and goodwill are also tested for impairment when certain indicators are present. The purchase price reflected in the unaudited pro forma condensed combined financial statements is based on preliminary estimates using assumptions Alliqua management believes are reasonable based on currently available information. The final purchase price and fair value assessment of assets and liabilities will be based in part on a detailed valuation which has not yet been completed.

 

U.S. Federal Income Tax Considerations (see page [   •   ])

 

Although not free of doubt, it is more likely than not that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If the merger is treated as a reorganization, a U.S. holder of Celleration stock may recognize gain (but not loss) with respect to the merger consideration in an amount equal to the lesser of any gain realized or the value of the cash consideration received with respect to the exchange. Alternatively, if the merger does not qualify as a reorganization, then a U.S. holder of Celleration stock will recognize gain or loss with respect to all such U.S. holder's shares of Celleration common stock based on the difference between (i) that U.S. holder's tax basis in such shares and (ii) the aggregate cash and the fair market value of the Alliqua common stock received. The amount and timing of gain that a U.S. holder may recognize is subject to substantial uncertainty. For further information, see "The Merger—U.S. Federal Income Tax Considerations" on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

Opinion of Alliqua’s Financial Advisor (see page [   •   ] and Annex C)

 

On January 30, 2015, at a meeting of the Alliqua board of directors held to evaluate the Merger Agreement and the transactions contemplated thereby, including the merger, Cowen and Company, LLC (“Cowen”) rendered its oral opinion to the Alliqua board of directors which was subsequently confirmed in writing that, as of that date, and based upon and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the consideration to be paid by Alliqua in the merger pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Alliqua.

 

The full text of Cowen’s opinion is attached as Annex C to this joint proxy and consent solicitation statement/prospectus. You are urged to read the entire opinion for a discussion of, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Cowen in rendering its opinion.

 

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Cowen’s opinion was for the information of, and was directed to, Alliqua’s board of directors in connection with the fairness, from a financial point of view, of the consideration to be paid by Alliqua in the merger and does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to Alliqua, nor does it address Alliqua's underlying business decision to effect the merger or any other aspect of the merger. Cowen's opinion does not constitute a recommendation as to how any stockholder of Alliqua or Celleration should vote on or act with respect to the merger or any other matter.

 

For further information, see the section titled "The Merger—Opinion of Alliqua’s Financial Advisor" beginning on page [   •   ] and the full text of the opinion attached as Annex C to this joint proxy and consent solicitation statement/prospectus.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF ALLIQUA

 

The following table sets forth selected historical consolidated financial data of Alliqua. The historical consolidated financial information of Alliqua as of and for the five fiscal years ended December 31, 2014, 2013, 2012, 2011 and 2010 has been derived from Alliqua’s audited historical consolidated financial statements, which were audited by Marcum LLP, an independent registered public accounting firm. Alliqua’s audited historical consolidated financial statements for the fiscal years ended December 31, 2014 and 2013 are contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is incorporated by reference into this joint proxy and consent solicitation statement/prospectus. Alliqua’s audited historical consolidated financial statements for the fiscal years ended December 31, 2012, 2011 and 2010 are not incorporated by reference into this joint proxy and consent solicitation statement/prospectus.

 

The following information is only a summary and should be read together with Alliqua’s management’s discussion and analysis of results of operations and financial condition and Alliqua’s consolidated financial statements and the notes related thereto incorporated by reference into this joint proxy and consent solicitation statement/prospectus. For additional information, see the section titled “Where You Can Find More Information” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

   Year Ended December 31, 
   2014   2013 (3)   2012 (4)   2011   2010 
Statements of operations data:                    
Total revenue  $4,786,131   $1,797,745   $1,228,674   $1,832,234   $1,319,297 
Net loss (1)   (25,445,435)   (21,976,882)   (4,905,335)   (13,853,203)   (3,098,053)
Basic and diluted net loss per common share (1) (2)  $(1.74)  $(3.14)  $(0.91)  $(2.93)  $(0.87)
                          
Balance sheet data:                         
Total assets  $29,723,724   $17,451,568   $13,727,151   $14,025,095   $25,197,369 

 

(1)All amounts are from continuing operations, as Alliqua did not have discontinued operations in any of the above periods.

 

(2)The effects of a 1-for-43.75 reverse stock split completed in November 2013 have been reflected retroactively for all periods presented.

 

(3)The year ended December 31, 2013 includes impairment of $8.1 million related to in-process research and development.

 

(4)The year ended December 31, 2012 includes goodwill impairment of $9.4 million.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF CELLERATION

 

The following table sets forth selected historical financial information of Celleration for each of the fiscal years presented. The selected financial information presented for each of the years ended December 31, 2014, 2013, 2012, 2011 and 2010 has been derived from Celleration’s audited financial statements and related notes. The following table should be read together with “Celleration’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus and Celleration’s audited financial statements for the years ended December 31, 2014 and 2013 and related notes beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus. Celleration’s historical results are not necessarily indicative of results to be expected in any future period.

 

    Year Ended December 31,  
(In $)   2014     2013     2012     2011     2010  
Selected Statements of Operations Data                                        
Revenue   $ 8,689,641     $ 9,467,443     $ 10,150,502     $ 10,231,285     $ 9,797,019  
Cost of goods sold     1,398,380       1,461,069       1,616,916       1,804,841       1,995,398  
Gross margin     7,291,261       8,006,374       8,533,586       8,426,444       7,801,621  
Total operating expenses     10,064,750       11,955,472       13,985,739       11,721,626       10,645,176  
Operating loss     (2,773,489 )     (3,949,098 )     (5,452,153 )     (3,295,182 )     (2,843,555 )
Preferred and common stock warrants gain     -       -       22,400       45,600       (296,000 )
Interest income     342       2,733       13,047       3,398       (3,626 )
Interest expense     (4,884 )     (8 )     -       (75,764 )     (572,067 )
Net loss     (2,778,031 )     (3,946,373 )     (5,416,706 )     (3,321,948 )     (3,115,996 )
                                         
Selected Balance Sheet Data                                        
Cash and cash equivalents   $ 2,311,594     $ 5,288,261     $ 1,142,167     $ 6,564,813     $ 3,662,822  
Total assets     3,982,998       6,961,889       3,175,494       8,570,355       5,677,483  
Total current liabilities     1,283,689       1,568,760       1,297,104       1,373,261       3,229,587  
Preferred stock warrants subject to contingent redemption     -       -       -       22,400       68,000  
Other long-term liabilities     6,975       21,191       32,695       41,621       4,011  
Total liabilities     1,290,664       1,589,951       1,329,799       1,437,282       3,301,598  
Accumulated deficit     (85,061,975 )     (82,283,944 )     (78,337,571 )     (72,920,865 )     (68,375,963 )
Total stockholders’ equity     2,692,334       5,371,938       1,845,695       7,133,073       2,375,885  

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The merger will be accounted for as an acquisition of Celleration by Alliqua under the acquisition method of accounting in accordance with FASB ASC Topic 805, “Business Combinations.” See “The Merger—Accounting Treatment" on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. The unaudited pro forma condensed combined financial statements contained in this joint proxy and consent solicitation statement/prospectus were prepared using the acquisition method of accounting. The following selected unaudited pro forma condensed combined consolidated statements of operations data of Alliqua for the fiscal year ended December 31, 2014 have been prepared to give effect to the merger as if the merger had been completed on January 1, 2014.

 

The following selected unaudited pro forma condensed combined financial information is not necessarily indicative of the results that might have occurred had the merger taken place on January 1, 2014 and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. The following selected unaudited pro forma condensed combined financial information should be read in conjunction with the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” and related notes beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

   For the Year Ended
December 31, 2014
 
Unaudited Pro Forma Income Statement Data     
Total revenue  $13,475,772 
Net loss   (32,697,149)
Basic and diluted net loss per share  $(1.84)
Weighted average common shares used in computing basic and diluted net loss per common share   17,797,210 
Unaudited Pro Forma Balance Sheet Data     
Total assets  $78,329,888 
Long-term obligations   15,500,000 

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE INFORMATION

 

The following table shows the historical, unaudited pro forma combined and pro forma equivalent per share financial information for Alliqua and Celleration as of and for the year ended December 31, 2014. The historical per share data of Alliqua and Celleration has been derived from, and should be read in conjunction with, the historical financial statements of Alliqua incorporated by reference into this joint proxy and consent solicitation statement/prospectus and the historical financial statements of Celleration and notes thereto included elsewhere in this joint proxy and consent solicitation statement/prospectus.

 

The unaudited pro forma equivalent data of Celleration was calculated by multiplying the corresponding unaudited pro forma consolidated data of Alliqua by the exchange ratio of .0358. The exchange ratio represents the maximum total number of shares of Alliqua common stock to be issued as part of the initial merger consideration relative to the number of outstanding shares of Celleration common stock as of December 31, 2014. The exchange ratio does not include the potential shares of Alliqua common stock that may be issued in connection with the contingent consideration. These computations exclude the benefit to Celleration stockholders from receiving the cash portion of the merger consideration. The actual exchange ratio may vary as described in this joint proxy and consent solicitation statement/prospectus. This data shows how each share of Celleration common stock would have participated in net income and book value of Alliqua if the companies had always been consolidated for accounting and financial reporting purposes for all periods presented. These amounts, however, are not intended to reflect future per share levels of net income and book value of Alliqua.

 

The unaudited pro forma per share data has been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information provided in the section titled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus. The unaudited pro forma and pro forma equivalent per share data for the year ended December 31, 2014 were prepared based on the audited consolidated financial statements of Alliqua for the year ended December 31, 2014 and the audited financial statements of Celleration for the year ended December 31, 2014. The unaudited pro forma combined per share information is provided for illustrative purposes only and is not necessarily indicative of what the operating results or financial position of Alliqua or Celleration would have been had the merger and related transactions been completed at the beginning of the periods or on the dates indicated, nor is it necessarily indicative of any future operating results or financial position. Alliqua and Celleration may have performed differently had they been combined during the periods presented.

 

   Alliqua   Celleration 
   Historical   Pro Forma
Combined
   Historical   Pro Forma
Combined
Equivalent (1)
 
For the year ended December 31, 2014                    
Income (loss) from continuing operations attributable to common stockholders per common share, basic and diluted  $(1.74)  $(1.84)  $(0.06)  $(0.07)
Cash dividends declared per common share   -    -    -    - 
Book value per common share (2)   (1.39)   (1.97)   (0.05)   (0.07)

 

(1)Pro forma Celleration equivalent per share amounts were calculated by multiplying the pro forma combined per share amounts by the exchange ratio of 0.0627.

 

(2)Alliqua historical book value per common share is computed by dividing stockholders’ equity by the number of shares of Alliqua common stock outstanding. Celleration historical book value per common share is computed by dividing stockholders’ equity by the number of shares of Celleration common stock outstanding. Pro forma combined book value per common share is computed by dividing pro forma stockholders’ equity by the pro forma number of shares of the combined company common stock that would have been outstanding as of December 31, 2014.

 

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RISK FACTORS

 

In addition to general investment risks and the other information included in and incorporated by reference into this joint proxy and consent solicitation statement/prospectus, including the matters addressed in the section titled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus, Celleration stockholders should consider carefully the matters described below in determining whether to adopt the Merger Agreement and thereby approve the merger and the other transactions contemplated by the Merger Agreement, and the Alliqua stockholders should carefully consider the following risk factors before deciding whether to vote for approval of the issuance of Alliqua common stock in connection with the merger. Alliqua stockholders should also read and consider the risks associated with the business of Celleration set forth on page [   •   ] herein because these risk factors may affect the operations of the combined company. In addition, Celleration stockholders should read and consider the risks associated with an investment in Alliqua common stock. These risks can be found in Alliqua’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is filed with the SEC and incorporated by reference into this joint proxy and consent solicitation statement/prospectus. For further information regarding the documents incorporated into this joint proxy and consent solicitation statement/prospectus by reference, see the section titled “Where You Can Find More Information” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Risks Relating to the Merger

 

There is no assurance when or if the merger will be completed. Any delay in completing the merger may substantially reduce the benefits that Alliqua and Celleration expect to obtain from the merger.

 

Completion of the merger is subject to the satisfaction or waiver of a number of conditions as set forth in the Merger Agreement. There can be no assurance that Alliqua and Celleration will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived. For a discussion of the conditions to the completion of the merger, see the section titled “The Merger Agreement—Conditions to Completion of the Merger” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. If the merger and the integration of the companies’ respective businesses are not completed within the expected timeframe, such delay may materially and adversely affect the synergies and other benefits that Alliqua and Celleration expect to achieve as a result of the merger and could result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the merger.

 

Alliqua and Celleration can agree at any time to terminate the Merger Agreement, even if Celleration stockholders have already adopted the Merger Agreement and thereby approved the merger and the other transactions contemplated by the Merger Agreement. Alliqua and Celleration can also terminate the Merger Agreement under other specified circumstances. See the section titled “The Merger Agreement—Termination of the Merger Agreement” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Alliqua is expected to incur substantial expenses related to the merger and the integration of Celleration.

 

Alliqua is expected to incur substantial expenses in connection with the merger and the integration of Celleration. Specifically, based on estimates as of April 2, 2015, Alliqua expects to incur approximately $3.2 million of transaction costs related to the merger. Additionally, in connection with the plan to integrate the operations of Alliqua and Celleration, Alliqua expects to incur various nonrecurring expenses, such as costs associated with systems implementation, severance and other costs related to exit or disposal activities. Alliqua is not able to determine the exact timing, nature and amount of these expenses as of the date of this joint proxy and consent solicitation statement/prospectus. However, these expenses could have an adverse effect on the financial condition or results of operations of Alliqua and Celleration, as well as those of the combined company following the completion of the merger, during the period in which they are recorded. Although Alliqua and Celleration expect that the realization of efficiencies related to the integration of the businesses may offset incremental transaction, merger-related and restructuring costs over time, Alliqua and Celleration cannot give any assurance that this net benefit will be achieved in the near term, or at all.

 

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Covenants in the Merger Agreement place certain restrictions on Celleration’s conduct of business prior to the closing of the merger.

 

The Merger Agreement restricts Celleration from taking certain specified actions with respect to the conduct of its business without Alliqua’s consent while the merger is pending. These restrictions may prevent Celleration from pursuing otherwise attractive business opportunities or other capital structure alternatives and making other changes to its business or executing certain of its business strategies prior to the completion of the merger.

 

The announcement and pendency of the merger could have an adverse effect on Alliqua’s and/or Celleration’s business, financial condition, results of operations or business prospects.

 

The announcement and pendency of the merger could disrupt Alliqua’s and/or Celleration’s businesses in the following ways, among others:

 

·Alliqua’s and/or Celleration’s employees may experience uncertainty regarding their future roles in the combined company, which might adversely affect Alliqua’s and/or Celleration’s ability to retain, recruit and motivate key personnel;

 

·the attention of Alliqua’s and/or Celleration’s management may be directed towards the completion of the merger and other transaction-related considerations and may be diverted from the day-to-day business operations of Alliqua and/or Celleration, as applicable, and matters related to the merger may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to Alliqua and/or Celleration, as applicable; and

 

·customers, suppliers and other third parties with business relationships with Alliqua and/or Celleration may decide not to renew or may decide to seek to terminate, change and/or renegotiate their relationships with Alliqua and/or Celleration as a result of the merger, whether pursuant to the terms of their existing agreements with Alliqua and/or Celleration or otherwise.

 

Any of these matters could adversely affect the businesses of, or harm the financial condition, results of operations or business prospects of, Alliqua and/or Celleration.

 

The Merger Agreement contains provisions that limit Celleration’s ability to pursue alternatives to the merger, which could discourage a potential acquirer of Celleration from making an alternative transaction proposal.

 

The Merger Agreement contains provisions that make it more difficult for Celleration to sell its business to a party other than Alliqua. These provisions include a general prohibition on Celleration soliciting any acquisition proposal or offer for a competing transaction. Further, there are only limited exceptions to Celleration’s agreement that the Celleration board of directors will not withdraw or modify in a manner adverse to Alliqua the recommendation of the Celleration board of directors in favor of the adoption of the Merger Agreement, and Alliqua generally has a right to match any competing acquisition proposals that may be made. Notwithstanding the foregoing, at any time prior to the adoption of the Merger Agreement by Celleration stockholders, the Celleration board of directors is permitted to withdraw or modify in a manner adverse to Alliqua the recommendation of the Celleration board of directors in favor of the adoption of the Merger Agreement if it determines in good faith that an unsolicited written competing acquisition proposal is superior to the current transaction contemplated by the Merger Agreement and the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties to Celleration stockholders under applicable law, in addition to certain other specified conditions that must be met. The Merger Agreement also provides for the payment by Celleration of a termination fee of $4 million if the Merger Agreement is terminated in certain circumstances in response to a superior proposal for Celleration. The obligation to pay the termination fee also may discourage a third party from pursuing an acquisition proposal of Celleration. See “The Merger Agreement—Covenants and Agreements— Agreement Not to Solicit Other Offers” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

While Celleration believes these provisions and agreement are reasonable and customary and are not preclusive of other offers, the provisions might discourage a third party that has an interest in acquiring all or a significant part of Celleration from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per-share value than the currently proposed merger consideration

 

In addition, certain 5% stockholders, directors and executive officers of Celleration, collectively representing approximately 83% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and 81% of the outstanding shares of Celleration Series AA preferred stock as of February 2, 2015, have entered into the voting agreements with Alliqua, pursuant to which such holders have agreed to vote against or, in the case of a written consent, to withhold their consent with respect to any competing transaction.

 

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Alliqua’s share price may fluctuate prior to the completion of the merger, and the value of the merger consideration at the closing of the merger may not be the same as at the time of the signing of the Merger Agreement or on the date of this joint proxy and consent solicitation statement/prospectus.

 

Upon completion of the merger, shares of Celleration common stock, Series AA preferred stock and underlying in-the-options and warrants will be converted into the merger consideration, which will consist of a fixed amount of cash and a fixed number of shares of Alliqua common stock, as set forth in the Merger Agreement. Any change in the market price of Alliqua common stock prior to completion of the merger will affect the dollar value of the merger consideration that Celleration stockholders receive upon completion of the merger. Changes in the market price of Alliqua common stock could result from a variety of factors, many of which are beyond Alliqua’s control, including:

 

·general market and economic conditions, including market conditions in the wound care, pain management and healthcare industry;

 

·technological innovations or new products and services by Alliqua or its competitors;

 

·actual or expected variations in results of operations;

 

·changes in recommendations by securities analysts;

 

·operations and stock performance of industry participants;

 

·significant acquisitions or strategic alliances by competitors;

 

·sales of Alliqua common stock, particularly under any registration statement for the purposes of selling any other securities, including management shares;

 

·recruitment or departure of key personnel;

 

·loss of any strategic relationship; and

 

·failure to achieve the perceived benefits of the merger as rapidly as, or to the extent, expected.

 

The issuance of Alliqua common stock in connection with the merger could decrease the market price of Alliqua common stock.

 

In connection with the merger and as part of the merger consideration, Alliqua will issue shares of Alliqua common stock to Celleration equity holders. The issuance of Alliqua common stock in the merger may result in fluctuations in the market price of Alliqua common stock, including a stock price decrease.

 

The current ownership and voting interests of Celleration equity holders and Alliqua stockholders will be diluted by the merger.

 

The consummation of the merger and the issuance of Alliqua common stock as part of the merger consideration will dilute the ownership position of current Alliqua stockholders and result in Celleration equity holders having an ownership stake in Alliqua that is smaller than their current stake in Celleration. Upon completion of the merger, we estimate that current continuing Alliqua stockholders will own approximately 84% and former Celleration equity holders will own approximately 16% of the issued and outstanding shares of Alliqua common stock immediately after the transaction. The estimated ownership position of continuing Alliqua stockholders may be further diluted by the potential issuance of additional shares of Alliqua common stock as part of the contingent consideration upon the occurrence of certain future events. Consequently, Alliqua stockholders and Celleration equity holders, as a general matter, will have less influence over the management and policies of Alliqua after the effective time of the merger than they currently exercise now over the management and policies of Alliqua and Celleration, respectively.

 

26
 

 

Failure to complete the merger could negatively affect the value of Alliqua common stock and the future business and financial results of both Alliqua and Celleration.

 

If the merger is not completed, the ongoing businesses of Alliqua and Celleration could be adversely affected and each of Alliqua and Celleration will be subject to a variety of risks associated with the failure to complete the mergers, including without limitation the following:

 

·Alliqua being required, under certain circumstances, to pay to Celleration a reverse termination fee equal to $3 million less any amount previously loaned to Celleration (if any);

 

·Celleration being required, under certain circumstances, to pay to Alliqua a termination fee equal to $4 million;

 

·diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the merger;

 

·reputational harm due to the adverse perception of any failure to successfully complete the merger; and

 

·having to pay certain costs relating to the merger, such as legal, accounting, financial advisory, filing and printing fees.

 

If the merger is not completed, these risks could materially affect the market price of Alliqua common stock and the business and financial results of both Alliqua and Celleration.

 

There has been no public market for Celleration common stock and the lack of a public market makes it difficult to determine the fair market value of Celleration.

 

The outstanding capital stock of Celleration is privately held and is not traded on any public market. The lack of a public market may make it more difficult to determine the fair market value of Celleration than if Celleration common stock were traded publicly. The value ascribed to Celleration’s securities in other contexts may not be indicative of the price at which Celleration common stock may have traded if it were traded on a public market. The merger consideration to be paid to Celleration stockholders was determined based on negotiations between the parties and likewise may not be indicative of the price at which Celleration common stock may have traded if it were traded on a public market.

 

Directors and officers of Celleration may have conflicts of interest that may influence them to support or approve the merger.

 

Although the Celleration board of directors recommends to Celleration stockholders that they adopt the Merger Agreement and thereby approve the merger and the other transactions contemplated by the Merger Agreement, Celleration stockholders should be aware that certain members of the Celleration board of directors and executive officers of Celleration have interests in the transactions contemplated by the Merger Agreement that may be different from, or are in addition to, the general interests of Celleration stockholders, as described in the section titled “The Merger—Interests of Executive Officers and Directors of Celleration in the Merger” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus. These interests include, among other things, arrangements that provide for severance payments to certain of Celleration’s named officers upon a change of control pursuant to the terms of their respective employment agreements or offer letters; cash bonus payments to certain of the Celleration officers and directors upon the closing of the merger; the appointment of Mark Wagner, a director and the president and chief executive officer of Celleration, to the Alliqua board of directors upon the effective time of the merger; payments to certain of the Celleration officers and directors entitled to receive a pro rata portion of the Series AA preferred stock liquidation preference upon the closing of the merger; payments in return for cancellation of Celleration equity-based awards and rights to indemnification and directors’ and officers’ liability insurance that will survive the completion of the merger. Celleration stockholders should consider whether these interests may have influenced the directors and executive officers of Celleration to support or recommend the merger.

 

The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes or other causes.

 

In general, Alliqua may refuse to complete the merger if there is a material adverse effect (as defined in the Merger Agreement) affecting Celleration prior to the closing of the merger. However, some types of changes do not permit either party to refuse to complete the merger, even if such changes would have a material adverse effect on Alliqua or Celleration. If adverse changes occur but Alliqua and Celleration must still complete the merger, the market price of Alliqua common stock may suffer. For a more complete discussion of what constitutes a material adverse effect on Alliqua or Celleration under the Merger Agreement, see the section titled “The Merger Agreement—Representations and Warranties” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

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A portion of the merger consideration is contingent on the occurrence of certain events in the future.

 

Alliqua has agreed to pay certain additional consideration to Celleration equity holders that is contingent upon the occurrence of certain events in the future, subject to the terms and conditions set forth in the Merger Agreement, including the contingent consideration. For a more complete discussion of the contingent consideration, see the section titled “The Merger Agreement—Merger Consideration” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. There can be no assurance that any of the foregoing contingencies or future events will occur or be satisfied in a timely manner or at all, or that an effect, event, development or change will not transpire that could delay or prevent these contingencies or future events from occurring or being satisfied.

 

In addition, for a period of 18 months after the closing of the merger, Alliqua has the right to setoff certain indemnification claims against the contingent consideration in certain circumstances, as further described in the section titled “The Merger Agreement—Indemnification” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus. Accordingly, there can be no guarantee with respect to whether or when any of the contingent consideration will be paid to Celleration equity holders, if at all. As a result, the exact amounts of cash and shares of Alliqua common stock that Celleration equity holders will be entitled to receive as part of the total merger consideration will not be determined until subsequent to the closing of the merger.

 

The fairness opinion of Alliqua’s financial advisor in connection with the merger does not reflect changes in circumstances between the date of the signing of the Merger Agreement and the closing of the merger.

 

The Alliqua board of directors received an opinion from Cowen, that as of the date of the opinion, and based upon and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the consideration to be paid by Alliqua in the merger pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Alliqua. Subsequent changes in the operation and prospects of Alliqua or Celleration, general market and economic conditions and other factors may significantly alter the value of Alliqua or Celleration or the price of the shares of Alliqua common stock by the time the merger is to be completed. The opinion does not address the fairness, from a financial point of view, of the consideration to be paid by Alliqua at the time the merger is to be completed, or as of any other date other than the date of such opinion. Cowen’s opinion is attached as Annex C to this joint proxy and consent solicitation statement/prospectus. For a description of the opinion, see "The Merger—Opinion of Alliqua's Financial Advisor" beginning on page [   •   ].

 

If the merger does not qualify as a "reorganization" within the meaning of Section 368(a) of the Code, the stockholders of Celleration may be required to pay substantial U.S. federal income taxes.

 

Although Alliqua and Celleration will take the position that the merger qualifies as a "reorganization" within the meaning of Section 368(a) of the Code, it is possible that the Internal Revenue Service (“IRS”) may assert that the merger fails to qualify as such. If the IRS were to be successful in any such contention, or if for any other reason the merger were to fail to qualify as a "reorganization," each U.S. holder of Celleration common stock would recognize gain or loss with respect to all such U.S. holder's shares of Celleration common stock based on the difference between (i) that U.S. holder's tax basis in such shares and (ii) the aggregate cash and the fair market value of the Alliqua common stock received. In addition, regardless of whether the merger qualifies as a reorganization, the amount and timing of gain that a U.S. holder may recognize, particularly with respect to any contingent payments, is subject to substantial uncertainty. For additional information, see the section entitled "The Merger—U.S. Federal Income Tax Considerations" beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

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Risks Relating to the Combined Company Following the Merger

 

Successful integration of Celleration with Alliqua and successful operation of the combined company are not assured. Also, integrating Alliqua’s business with that of Celleration may divert the attention of management away from operations.

 

If the merger is completed, Merger Sub will acquire all of the business and assets of Celleration and will continue operating as a wholly owned subsidiary of Alliqua. There can be no assurance that, after the merger, Merger Sub will be able to maintain and grow the acquired business and operations of Celleration. In addition, the market segments in which Celleration operates may experience declines in demand and/or new competitors. Integrating and coordinating certain aspects of the operations, portfolio of products and personnel of Celleration with Alliqua will involve complex operational, technological and personnel-related challenges. This process will be time-consuming and expensive, may disrupt the businesses of either or both of the companies and may not result in the full benefits expected by Alliqua and Celleration, including cost synergies expected to arise from supply chain efficiencies and overlapping general and administrative functions. The potential difficulties, and resulting costs and delays, include:

 

    managing a larger combined company;

 

    consolidating corporate and administrative infrastructures;

 

    issues in integrating research and development and sales forces;

 

    difficulties attracting and retaining key personnel;

 

    loss of customers and suppliers and inability to attract new customers and suppliers;

 

    unanticipated issues in integrating information technology, communications and other systems;

 

    incompatibility of purchasing, logistics, marketing, administration and other systems and processes; and

 

    unforeseen and unexpected liabilities related to the merger or Celleration’s business.

 

Additionally, the integration of Alliqua’s and Celleration’s operations, products and personnel may place a significant burden on management and other internal resources. The diversion of management’s attention, and any difficulties encountered in the transition and integration process, could harm the combined company’s business, financial condition and operating results.

 

The combined company may not be able to adequately protect or enforce its intellectual property rights, which could harm its competitive position.

 

The combined company’s success and future revenue growth will depend, in part, on its ability to protect its intellectual property. The combined company will primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect its proprietary technologies and processes. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose proprietary technologies and processes, despite efforts by the combined company to protect its proprietary technologies and processes. While the combined company will hold a significant number of patents, there can be no assurances that any additional patents will be issued. Even if new patents are issued, the claims allowed may not be sufficiently broad to protect the combined company’s technology. In addition, any of Alliqua’s or Celleration’s existing patents, and any future patents issued to the combined company, may be challenged, invalidated or circumvented. As such, any rights granted under these patents may not provide the combined company with meaningful protection. Alliqua and Celleration may not have, and in the future the combined company may not have, foreign patents or pending applications corresponding to its U.S. patents and applications. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If the combined company’s patents do not adequately protect its technology, competitors may be able to offer products similar to the combined company’s products. The combined company’s competitors may also be able to develop similar technology independently or design around its patents.

 

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The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the merger.

 

The pro forma financial statements contained in this joint proxy and consent solicitation statement/prospectus are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the merger for several reasons. The pro forma financial statements have been derived from the historical financial statements of Alliqua and Celleration and adjustments and assumptions have been made regarding the combined company after giving effect to the merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in integrating Alliqua and Celleration are not reflected in the pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the completion of the merger may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the merger. Any decline or potential decline in the combined company’s financial condition or results of operations may cause significant variations in the market price of Alliqua common stock.

 

Alliqua will incur substantial additional indebtedness in connection with the merger, may not be able to refinance the senior, secured loan facility on favorable terms, if drawn upon, and may not be able to meet all of its debt obligations.

 

In connection with the merger, Alliqua entered into the Commitment Letter for a senior, secured term loan facility in the aggregate amount of $15,500,000. Proceeds from the Debt Financing will be used to finance, in part, the cash consideration for the merger and to pay fees and expenses incurred in connection with the merger. If Alliqua finances the merger by drawing on the loan facility, based on assumed interest rates, leverage ratios and credit ratings, the combined company’s debt service obligations, comprised of principal and interest (excluding capital leases and equipment notes), during the 12 months following the completion of the merger is expected to be approximately $1,662,250. As a result of this increase in debt, demands on the combined company’s cash resources will increase after the completion of the merger. The increased level of debt could, among other things:

 

    require the combined company to dedicate a large portion of its cash flow from operations to the servicing and repayment of its debt, thereby reducing funds available for working capital, capital expenditures, research and development expenditures and other general corporate requirements;

 

    limit the combined company’s ability to obtain additional financing to fund future working capital, capital expenditures, research and development expenditures and other general corporate requirements;

 

    limit the combined company’s flexibility in planning for, or reacting to, changes in its business and the industry in which Alliqua operates;

 

    restrict the combined company’s ability to make strategic acquisitions or dispositions or to exploit business opportunities;

 

    place the combined company at a competitive disadvantage compared to its competitors that have less debt;

 

    adversely affect the combined company’s credit rating, with the result that the cost of servicing the combined company’s indebtedness might increase and its ability to obtain surety bonds could be impaired;

 

    adversely affect the market price of Alliqua common stock; and

 

    limit the combined company’s ability to apply proceeds from an offering or asset sale to purposes other than the servicing and repayment of debt.

 

For a more complete discussion of the terms and conditions of the Commitment Letter and Debt Financing contemplated thereby, see the section titled “The Merger—Debt Financing” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

The market price of Alliqua common stock after the merger may be subject to significant fluctuations and may be affected by factors different from those currently affecting the market price of Alliqua common stock.

 

Upon completion of the merger, Celleration equity holders who receive shares of Alliqua common stock will become Alliqua stockholders. While Alliqua common stock has an observable trading history, Alliqua common stock on a post-merger basis may trade differently than its pre-merger trading history, and the market price of Alliqua common stock could be subject to significant fluctuations following the merger.

 

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In addition, the businesses of Alliqua differ from those of Celleration in important respects and, accordingly, the results of operations of the combined company and the market price of Alliqua common stock following the merger may be affected by factors different from those currently affecting the independent results of operations of Alliqua and Celleration. For a discussion of the business of Alliqua and of certain factors to consider in connection with Alliqua’s business, see the documents incorporated by reference into this joint proxy and consent solicitation statement/prospectus referred to in the section titled “Where You Can Find More Information” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus. For a discussion of the business of Celleration and of certain factors to consider in connection with Celleration’s business, see the section titled “Celleration’s Business” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

The merger may cause dilution to Alliqua’s earnings per share, which may negatively affect the market price of Alliqua common stock.

 

Although Alliqua anticipates that the merger will have an immediate accretive impact on the adjusted earnings per share of Alliqua common stock, Alliqua’s current expectation is based on preliminary estimates as of the date of the public announcement of the merger, which may materially change. Alliqua could also encounter additional transaction-related costs or other factors, such as the failure to realize all of the benefits anticipated to result from the merger. In addition, Alliqua expects that Celleration equity holders immediately prior to the merger will own, in the aggregate, approximately [    •    ]% of the then outstanding shares of Alliqua common stock following the merger, based on the number of outstanding shares of Alliqua common stock on [    •    ], 2015. Once its shares are issued in the merger, Alliqua’s earnings per share may be lower than it would have been in the absence of the merger. All of these factors could cause dilution to Alliqua’s earnings per share or decrease or delay the expected accretive effect of the merger, and cause a decrease in the market price of Alliqua common stock. There can be no assurance that any increase in Alliqua’s earnings per share will occur, even over the long term. Any increase in Alliqua’s earnings per share as a result of the merger is likely to require, among other things, Alliqua to successfully manage the operations of Celleration and increase the consolidated earnings of Alliqua after the merger.

 

The rights of Celleration equity holders who become Alliqua stockholders in the merger will be governed by the Alliqua certificate of incorporation and the Alliqua by-laws.

 

Celleration equity holders who receive shares of Alliqua common stock in the merger will become Alliqua stockholders and will be governed by the Alliqua certificate of incorporation and the Alliqua by-laws, rather than the Celleration certificate of incorporation, the Celleration by-laws and investment agreement. There may be material differences between the current rights of Celleration equity holders, as compared to the rights they will have as Alliqua stockholders. For more information, see the section titled “Comparison of Rights of Alliqua Stockholders and Celleration Stockholders” beginning on page [    •    ] of this joint proxy and consent solicitation statement/prospectus.

 

Anti-takeover provisions in Delaware corporate law may make it difficult for Alliqua stockholders to replace or remove Alliqua’s current board of directors and could deter or delay third parties from acquiring Alliqua, which may adversely affect the marketability and market price of Alliqua common stock.

 

Alliqua is subject to the anti-takeover provisions of Section 203 of the DGCL. Under these provisions, if anyone becomes an “interested stockholder,” Alliqua may not enter into a “business combination” with that person for three years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of the DGCL, “interested stockholder” means, generally, someone owning 15% or more of Alliqua’s outstanding voting stock or an affiliate of Alliqua that owned 15% or more of Alliqua’s outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203 of the DGCL.

 

Risks Relating to Celleration

 

Celleration continues to incur losses and may never reach profitability.

 

Celleration was incorporated in April 2000 and since that time has incurred net losses each year. Celleration’s future existence remains uncertain, and the report of its independent auditors on its financial statements for the years ended December 31, 2014 and 2013 includes an explanatory paragraph relating to Celleration’s ability to continue as a going concern. As of December 31, 2014, Celleration had an accumulated deficit of approximately $85.1 million, primarily because of costs relating to the development, regulatory approvals, clinical studies and commercialization of its MIST Therapy and UltraMIST Systems. Celleration expects its operating expenses relating to sales and marketing activities and product development will continue during the foreseeable future. To achieve profitability, Celleration must generate substantially more revenue than it has in prior years. Celleration’s ability to achieve significant revenue growth will depend, in large part, on its ability to achieve widespread market acceptance and third-party reimbursement for MIST Therapy and successfully expand its business in the U.S. Celleration may never achieve substantial market acceptance or realize significant revenue from the sale of its products, and therefore may never reach profitability.

 

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The inability of Celleration’s customers to obtain adequate reimbursement for its products may diminish demand for Celleration’s products and have a material adverse effect on Celleration’s financial condition and results of operations.

 

In the U.S., healthcare providers that purchase medical devices generally rely on third-party payers, including Medicare, Medicaid, private health insurance carriers and managed care organizations, to reimburse all or part of the cost and fees associated with the procedures performed using these devices. The commercial success of Celleration’s products depends on the ability of healthcare providers to obtain adequate reimbursement from third-party payers for the procedures in which Celleration’s products are used. Third-party payers are increasingly challenging the coverage and pricing of medical products and procedures. Celleration believes the availability of a Category I Current Procedural Terminology (“CPT”) code as of January 2014 for MIST Therapy has encouraged broader coverage and subsequent use of its MIST Therapy System in the U.S. Each governmental and private payer, however, makes its own coverage decision. Even if a procedure is eligible for reimbursement, the level of reimbursement may not be adequate to justify the use of Celleration’s products. There can be no assurance that additional payers will agree to create coverage policies or that the policies, if they are created, will provide adequate reimbursement, that existing coverage will not again be challenged or that government actions will not decrease the level of reimbursement, each of which could decrease demand for Celleration’s products and have a material adverse effect on Celleration’s financial condition and results of operations.

 

Celleration will require additional financing and may find it difficult to obtain the financing on favorable terms, or at all.

 

Celleration will need to raise additional financing to support its operations and planned growth activities in the future because it has yet to achieve profitability and generate positive cash flows. Celleration’s liquidity and capital requirements will depend on numerous factors, including:

 

·the revenues generated by the sale of product;

 

·the timing and cost required to expand its sales, marketing and distribution capabilities;

 

·the cost and effectiveness of its marketing and sales efforts;

 

·the effect of competing technologies;

 

·market, reimbursement and regulatory developments;

 

·the cost of research and development programs; and

 

·the cost involved in protecting its proprietary rights.

 

Any equity financing will dilute the equity interests of shareholders in Celleration, and any debt financing could impose significant financial and operational restrictions on Celleration. Celleration cannot assure you that it will obtain additional financing on acceptable terms, or at all. Further, if Celleration issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to those of its existing stockholders. In addition, if Celleration raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to its future products or proprietary technologies, or grant licenses on terms that are not favorable to it. If Celleration cannot raise funds on acceptable terms, Celleration may not be able to expand its operations, develop new products, take advantage of future opportunities or respond to competitive pressures or unanticipated customer requirements. The occurrence of any of the foregoing could have an adverse effect on Celleration’s business and financial condition.

 

Health care industry cost-containment measures may result in reduced sales of Celleration’s products.

 

All third-party reimbursement programs, whether government-funded or insured commercially, inside the U.S. or outside, are developing increasingly sophisticated methods of controlling health care costs through prospective reimbursement programs and capitation programs in which a physician or group of physicians is paid a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care, group purchasing, redesign of benefits, second opinions, careful review of bills, encouragement of healthier lifestyles and exploration of more cost-effective methods of delivering healthcare. These types of programs can potentially limit the amount that healthcare providers may be willing to pay for medical devices, which could have a material adverse effect on Celleration’s financial condition and results of operations.

 

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Celleration’s inability to achieve market acceptance of its products could have a material adverse effect on its business and results of operations.

 

Celleration cannot assure you that it will be successful in educating the marketplace about the benefits of its products. In addition to the availability of third-party reimbursement, market acceptance of Celleration’s products depends on Celleration’s ability to demonstrate the safety, clinical efficacy, perceived benefits, and cost-effectiveness of its products compared to products or treatment options of its competitors. In particular, MIST Therapy generally requires a new or modified treatment protocol for physicians and their staff to implement repeatedly. Even if customers initially accept Celleration’s products, this acceptance may not translate into repeat sales if customers do not fully adopt the new treatment protocol in their practice. If Celleration’s products do not achieve market acceptance because Celleration is unable to educate the marketplace, it could have a material adverse effect on Celleration’s business and results of operations.

 

Celleration’s business strategy includes expansion into the United Kingdom which depends on obtaining a favorable reimbursement approval for Celleration’s products, and the failure to carry out Celleration’s strategy would adversely affect its ability to grow its business.

 

Celleration has applied for reimbursement approval for Celleration’s products from the National Institute for Health and Care Excellence (“NICE”) of the United Kingdom. Celleration’s ability to market its products in the United Kingdom is dependent on NICE publishing a technology appraisal guidance that supports the case for utilizing MIST Therapy in the treatment of wounds. Without a favorable appraisal guidance, Celleration will be unable to pursue its strategy of expansion in the United Kingdom and Celleration’s ability to carry out its strategy to grow its business would suffer. Additionally, if NICE approval is not obtained, the Celleration equity holders will not receive certain contingent payments in connection with the merger.

 

Changes in U.S. federal and state regulations that increase the cost of doing business or impose requirements with which Celleration cannot comply could have an adverse effect on Celleration’s financial condition and results of operations.

 

In response to perceived increases in health care costs in recent years, there have been and continue to be proposals by the U.S. federal government, state governments, regulators and third-party payers to control these costs and, more generally, to reform the U.S. healthcare system. Certain of these proposals could limit the prices Celleration can charge for its products or the amounts of reimbursement available for its products and could limit the acceptance and availability of its products. The occurrence of the foregoing could have an adverse affect on Celleration’s financial condition and results of operations.

 

Recent U.S. healthcare legislation imposes an excise tax on Celleration that Celleration has been unable to recoup and requires cost controls that may impact the rate of reimbursement for Celleration’s products, each of which may adversely affect Celleration’s business, cash flows and results of operations.

 

Significant U.S. healthcare reform legislation, the Patient Protection and Affordable Care Act, as reconciled by the Health Care and Education Reconciliation Act of 2010 (collectively, the “PPACA”), was enacted into law in March 2010. Commencing January 1, 2013, the PPACA imposed an excise tax on manufacturers or producers making sales of medical devices in the U.S., other than sales at retail for individual use. Although several bills have been proposed in U.S. Congress to eliminate the tax, including bills passed in the U.S. House of Representatives, most of these bills are tied to corresponding increases in taxes from other sources, and therefore face substantial opposition. Celleration likely will not be able to offset the new tax with increased revenue. Accordingly, the excise tax may continue to adversely affect Celleration’s business, cash flows and results of operations.

 

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The PPACA also contains provisions aimed at improving the quality and decreasing the costs of healthcare. The Medicare provisions include value-based payment programs, increased funding for comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital-acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Additionally, the PPACA includes a reduction in the annual rate of reimbursement growth for hospitals that began in 2011 and provides for the establishment of an independent payment advisory board to recommend ways of reducing the rate of growth in Medicare spending beginning in 2014. Many of these provisions will not be effective for a number of years, and there are many programs and requirements for which the details have not yet been fully established. Although it remains impossible to predict the extent of the regulation and the full impact of the PPACA, any changes that lower reimbursement for Celleration’s products or reduce medical procedure volumes could adversely affect its business and results of operations.

 

Increased scrutiny, particularly at the U.S. Food and Drug Administration (“FDA”), and new regulation may delay Celleration’s’ introduction of new products and adversely affect Celleration’s business.

 

The FDA has increased significantly the scrutiny applied to 510(k) submissions, and it may also focus more scrutiny on other regulation within its purview. The FDA and the U.S. Congress are influenced by high profile events, injuries and cases that generate publicity and public attention, and new legislation is often generated as a result of those events. Celleration may be required to devote substantial time and financial resources to further develop and implement policies, systems, and processes to comply with enhanced legal and regulatory requirements, which may impact its business. Celleration anticipates that governmental authorities will continue to scrutinize the medical device industry closely, and that additional regulation may increase compliance and legal costs and expose Celleration to litigation, each of which could have an adverse effect on Celleration’s business. In addition, there can be no assurance that new products Celleration introduces will not be delayed by the current level of scrutiny applied to applications at the FDA or that new laws and regulations will not be adopted that negatively impact the cost of production and marketing of Celleration’s existing products, each of which could adversely affect Celleration’s business.

 

Celleration competes in the field of wound care against companies with much greater financial resources, and competition from existing or new products and procedures may reduce its market potential and have an adverse effect on Celleration’s business and results of operations.

 

The markets for wound care are highly competitive, subject to change and significantly affected by new product introductions and other activities of industry participants. Celleration’s products face competition from alternative procedures that use different kinds of medical devices or procedures that Celleration does not currently develop, promote or sell. Many of the companies that provide these competitive devices or procedures have substantially greater capital resources, larger customer bases, broader product lines, larger sales forces, greater marketing and management resources, products and procedures that are less expensive and take less time to perform, larger research and development staffs, larger facilities, established reputations with Celleration’s target customers and worldwide distribution channels that are more developed and effective than Celleration’s. Competitors may develop technologies and products that are safer, more effective, easier to use, less expensive, or more readily accepted than Celleration’s. Their products could make Celleration’s technology and products obsolete or noncompetitive. These companies may also be able to achieve more efficient manufacturing and distribution operations than Celleration can and may offer lower prices than Celleration will be able to offer profitably. Any of these competitive factors could have an adverse effect on Celleration’s business and results of operations.

 

Celleration could be subject to fines and penalties, or required to temporarily or permanently cease offering products, if it fails to comply with the extensive regulations applicable to the sale and manufacture of medical products.

 

The production and marketing of Celleration’s products and its ongoing research and development, preclinical testing, and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities both in the U.S. and abroad. U.S. and foreign regulations applicable to medical devices are wide-ranging and govern, among other things, the testing, marketing and pre-market review of new medical devices, and the manufacturing practices, reporting, advertising, exporting, labeling and record keeping procedures. Celleration is required to obtain regulatory approval or clearance before it can market its products in the U.S. and certain foreign countries. The regulatory process requires significant time, effort and expenditures to bring Celleration’s products to market, and Celleration cannot assure you that the regulatory authority it currently possesses to market its products will remain available, or that it will be able to obtain authority to sell new or existing products in new markets. Further, the manufacture and manufacturing facilities of medical products are subject to periodic reviews and inspection by the FDA and foreign regulatory authorities. Celleration’s failure to comply with regulatory requirements could result in governmental agencies:

 

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·imposing fines and penalties on Celleration;

 

·preventing Celleration from manufacturing or selling its products;

 

·bringing civil or criminal charges against Celleration;

 

·delaying the introduction of its new products into the market;

 

·enforcing operating restrictions on Celleration;

 

·recalling or seizing Celleration’s products; or

 

·withdrawing or denying approvals or clearances for Celleration’s products.

 

Even if Celleration receives regulatory approval or clearance of a product, the approval or clearance could limit the uses for which it may label and promote the product, which may limit the market for its products. The occurrence of any of the foregoing could have an adverse effect on Celleration’s financial condition and results of operations.

 

Celleration’s failure to comply with rules relating to reimbursement and regulation of health care goods and services may subject Celleration to penalties and adversely impact Celleration’s reputation and business operations.

 

Celleration’s products and MIST Therapy are subject to regulation regarding quality and cost by the U.S. Department of Health and Human Services, including the Centers for Medicare & Medicaid Services (“CMS”) as well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of health care goods and services. U.S. federal government health care laws apply when Celleration submits a claim on behalf of a U.S. federal health care program beneficiary, or when a customer submits a claim for an item or service that is reimbursed under a U.S. federal government-funded health care program, such as Medicare or Medicaid. The principal U.S. federal laws implicated include those that prohibit the filing of false or improper claims for federal payment, known as the false claims laws; those that prohibit unlawful inducements for the referral of business reimbursable under federally-funded health care programs, known as the anti-kickback laws and that which prohibits health care service providers seeking reimbursement for providing certain services to a patient who was referred by a physician who has certain types of direct or indirect financial relationships with the service provider, known as the Stark law.

 

The laws applicable to Celleration are subject to evolving interpretations. If a governmental authority were to conclude that Celleration is not in compliance with applicable laws and regulations, Celleration and its officers and employees could be subject to severe criminal and civil penalties, including, for example, exclusion from participation as a supplier of product to beneficiaries covered by CMS. If Celleration were excluded from participation based on such an interpretation it could adversely affect Celleration’s reputation and business operations.

 

Celleration’s distributors may not obtain regulatory approvals internationally on a timely basis, or at all, and the failure to do so may limit Celleration’s business strategy and cause its sales from international operations to suffer.

 

Celleration often relies on its distributors in countries outside the U.S. in seeking regulatory approval to market its products in particular countries. To the extent Celleration does so, it is dependent on persons outside of its direct control to make regulatory submissions and secure approvals, and it does or will not have direct access to health care agencies in those markets to ensure timely regulatory approvals or prompt resolution of regulatory or compliance matters. If Celleration’s distributors fail to obtain the required approvals or do not do so in a timely manner, Celleration’s business strategy may be negatively impacted and its sales from its international operations and its results of operations may be adversely affected.

 

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If the merger is not completed and Celleration continues as an independent business, but cannot attract and retain its key personnel and management team, it may not be able to manage and operate successfully, and it may not be able to meet its strategic objectives.

 

Prior to the effective time of the merger, or if the merger is not completed and Celleration continues as an independent business in the future, Celleration’s success will depend in part upon its ability to attract and retain and motivate its management team and key managerial, scientific, sales and technical personnel. Key personnel may depart because of difficulties with change or a desire not to remain with Celleration. Celleration is highly dependent on its president and chief executive officer, Mark Wagner, and other senior management, and any unanticipated loss or interruption of their services could significantly reduce Celleration’s ability to meet its strategic objectives because, given the intense competition for senior management and other key personnel, it may not be possible for Celleration to find appropriate replacement personnel should the need arise. The loss of a member of Celleration’s senior management or its professional staff would require the remaining senior executive officers to divert immediate and substantial attention to seeking a replacement. There is no guarantee that Celleration will be successful in retaining its current personnel or in hiring or retaining qualified personnel prior to the consummation of the merger or in the future if the merger is not completed. Loss of key personnel or the inability to hire or retain qualified personnel in the future could have an adverse effect on Celleration’s ability to operate successfully. Further, any inability on Celleration’s part to enforce non-compete arrangements related to key personnel who have left the company could have an adverse effect on Celleration’s business.

 

If Celleration is not able to attract, retain and motivate its sales force, its sales and revenues will suffer.

 

In the U.S., Celleration has a sales organization, consisting primarily of direct sales representatives, and a marketing organization to market its products. Celleration expects to expand its sales and marketing organization, as needed, to support its strategy of growth. Celleration has and will continue to incur significant additional expenses to support this organization. Celleration cannot be certain that its sales organization will be able to generate sales of its MIST Therapy System at levels that justify the expense, or even if it can, that Celleration will be able to recruit, train, motivate or retain qualified sales and marketing personnel to generate increased revenue. The failure to or to recruit, retain and motivate qualified sales and marketing personnel could have an adverse effect on Celleration’s product sales and revenues.

 

If third parties claim that Celleration infringes upon their intellectual property rights, Celleration may incur liabilities and costs and may have to redesign or discontinue selling the affected product.

 

The medical device industry is litigious with respect to patents and other intellectual property rights. Companies operating in Celleration’s industry routinely seek patent protection for their product designs, and many of Celleration’s principal competitors have large patent portfolios. Companies in the medical device industry have used intellectual property litigation to gain a competitive advantage. The determination of whether a product infringes a patent involves complex legal and factual issues, the outcome of which is often uncertain. Celleration faces the risk of claims that it has infringed on third parties’ intellectual property rights. Celleration’s efforts to identify and avoid infringing on third parties’ intellectual property rights may not always be successful. Any claims of patent or other intellectual property infringement, even those without merit, could:

 

·be expensive and time consuming for Celleration to defend;

 

·result in Celleration being required to pay significant damages to third parties;

 

·cause Celleration to cease making or selling products that incorporate the challenged intellectual property;

 

·require Celleration to redesign, reengineer or rebrand its products, if feasible;

 

·require Celleration to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property, which agreements may not be available on terms acceptable to Celleration, or at all;

 

·divert the attention of Celleration’s management; or

 

·result in Celleration’s customers or potential customers deferring or limiting their purchases or use of the affected products until resolution of the litigation.

 

In addition, new patents obtained by Celleration’s competitors could threaten its products’ continued life in the market even after it has already been introduced.

 

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If Celleration is unable to protect its intellectual property rights adequately, it may not be able to compete effectively.

 

Celleration’s success depends in part on its ability to protect the proprietary rights to the technologies used in its products. Celleration relies on patent protection, as well as a combination of trademark laws and confidentiality, noncompetition and other contractual arrangements to protect its proprietary technology. However, these legal means afford only limited protection and may not adequately protect Celleration’s rights or permit Celleration to gain or keep a competitive advantage. Celleration’s patents and patent applications, if issued, may not be broad enough to prevent competitors from introducing similar products into the market. Celleration’s patents, if challenged or if it attempts to enforce them, may not necessarily be upheld by the courts. In addition, patent protection in foreign countries may be different from patent protection under U.S. laws and may not be favorable to Celleration.

 

Efforts on Celleration’s part to enforce any of its proprietary rights could be time-consuming and expensive, which could adversely affect Celleration’s business and prospects and divert its management’s attention.

 

Product liability claims and product recalls could adversely affect Celleration’s business and impair its reputation.

 

The manufacture and sale of medical devices expose Celleration to significant risk of product liability claims, some of which may have a negative impact on its business. Any defects or risks that Celleration has not yet identified with its products may give rise to product liability claims. Celleration’s existing $5 million of worldwide product liability insurance coverage may be inadequate to protect it from liabilities it may incur or it may not be able to maintain adequate product liability insurance at acceptable rates. If a product liability claim or series of claims is brought against Celleration for uninsured liabilities or in excess of its insurance coverage, Celleration’s business could suffer, whether or not Celleration is found liable. Additionally, Celleration could experience a material design or manufacturing failure in its products, a quality system failure, other safety issues or heightened regulatory scrutiny that would warrant a recall of some of its products. A recall of any of Celleration’s products likely would be costly, would be uninsured and could also result in increased product liability claims. Celleration cannot be certain that the physician customers it trains in the proper use of its products will implement its instructions accurately and consistently. If Celleration’s products are used incorrectly by its physician customers, injury may result and this could give rise to product liability claims against Celleration. Product liability claims or product recalls in the future, regardless of their ultimate outcome, could have an adverse effect on Celleration’s business and reputation and on its ability to attract and retain customers for Celleration’s products.

 

Security breaches and other disruptions could compromise Celleration’s information and expose it to liability, which would cause its business and reputation to suffer.

 

In the ordinary course of Celleration’s business, it uses its networks to collect and store sensitive data, including intellectual property, its proprietary business information and that of its customers, suppliers and business partners, personally identifiable information of its customers and employees, and data relating to patients who use its products. The secure processing, maintenance and transmission of this information is critical to Celleration’s operations. Despite Celleration’s security measures, its information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise Celleration’s networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt Celleration’s operations and the services it provides to customers, damage its reputation, and cause a loss of confidence in its products and services, which could adversely affect its operating margins, revenues and competitive position.

 

The occurrence of supply problems, price fluctuations and manufacturing delays with Celleration’s suppliers could adversely affect Celleration’s business.

 

Celleration purchases MIST Therapy applicators and the saline bottles included with each applicator from single sources. Celleration purchases the UltraMIST system from a single source. The MIST Therapy System is no longer in production. Reliance on outside suppliers makes Celleration vulnerable to a number of risks that could impact Celleration’s ability to manufacture the UltraMIST System and/or disposable applicators, resulting in harm to its business, including:

 

·inability to obtain an adequate supply in a timely manner or on commercially reasonable terms;

 

·uncorrected defects that impact the performance, efficacy and safety of its products;

 

·difficulty identifying and qualifying alternative suppliers for components in a timely manner;

 

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·production delays related to the evaluation and testing of products from alternative suppliers and corresponding regulatory qualifications;

 

·delays in delivery by Celleration’s suppliers due to changes in demand from Celleration or other customers; and

 

·delays in delivery or production stoppage by Celleration’s supplier due to a shortage of one or more of the components comprising Celleration’s product.

 

If the supply of the UltraMIST System or the disposable applicators for the MIST Therapy System or UltraMIST System or saline bottles is interrupted or significantly delayed and Celleration is unable to acquire product from alternate sources in a timely manner and at a commercially reasonable price, Celleration’s ability to meet its customers’ demand would be impaired and its business could be harmed. Identifying and qualifying additional or replacement suppliers for the UltraMIST System or disposable applicators may not be accomplished quickly or at all and could involve significant additional costs. Interruption of supply from Celleration’s suppliers or failure to obtain additional suppliers would limit its ability to distribute its products and could therefore have an adverse effect on Celleration’s business.

 

Reduction or interruption in supply and an inability to develop alternative sources for supply may adversely affect Celleration’s manufacturing operations and related product sales.

 

Celleration and Celleration’s suppliers purchase many of the components and raw materials used in manufacturing Celleration’s products from numerous suppliers in various countries. Celleration and Celleration’s suppliers have been able to obtain adequate supplies of such raw materials and components and work closely with suppliers to try to ensure continuity of supply while maintaining high quality and reliability. However, Celleration cannot guarantee that these efforts will be successful. In addition, due to the stringent regulations and requirements of the FDA regarding the manufacture of Celleration’s products, Celleration may not be able to quickly establish additional or replacement sources for certain components or materials. A reduction or interruption in supply, and an inability to develop alternative sources for such supply, could adversely affect Celleration’s ability to manufacture our products in a timely or cost-effective manner and to make our related product sales.

 

If Celleration is not able to maintain sufficient quality controls, regulatory approvals of its products by the European Union, the FDA or other relevant authorities could be delayed or denied and Celleration’s sales and revenues will suffer.

 

The FDA and regulatory authorities in the European Union and elsewhere could stop or delay approval of production of products if Celleration’s manufacturing facilities do not comply with applicable manufacturing requirements. The FDA quality system regulations impose extensive testing, control, documentation and other quality assurance requirements. The European Union also impose requirements on quality systems of manufacturers, who are inspected and certified on a periodic basis and may be subject to additional unannounced inspections. Further, Celleration’s suppliers are also subject to these regulatory requirements. Failure by any of Celleration’s suppliers or by Celleration to comply with these requirements could prevent Celleration from obtaining or retaining approval for and marketing of its products.

 

Celleration does not intend to declare dividends on its capital stock in the foreseeable future.

 

Celleration has never declared or paid cash dividends on its common stock. Celleration currently intends to retain all future earnings, if any, for the operation and expansion of its business and, therefore, does not anticipate declaring or paying cash dividends on its common stock in the foreseeable future. Any payment of cash dividends on Celleration’s common stock will be at the discretion of its board of directors and will depend upon its results of operations, earnings, capital requirements, financial condition, future prospects, contractual restrictions and other factors deemed relevant by the Celleration board of directors. You should have no expectation of dividend income from shares of Celleration’s common stock.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This joint proxy and consent solicitation statement/prospectus and other documents incorporated by reference into this joint proxy and consent solicitation statement/prospectus contain or may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terms such as “may,” “will,” “can,” “expects,” “believes,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “assumes,” “guides,” “targets,” “forecasts,” “is confident that” and “seeks” or the negative of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, but are not limited to, statements about the benefits of the proposed merger between Alliqua and Celleration, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions, the expected timing of completion of the transaction and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the respective managements of Alliqua and Celleration and are subject to significant risks and uncertainties that could cause actual outcomes and results to differ materially. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, without limitation, the risks and uncertainties set forth under the section titled “Risk Factors” beginning on page [    •    ] of this joint proxy and consent solicitation statement/prospectus. These risks and uncertainties include, but are not limited to:

 

·the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, including a termination of the Merger Agreement under circumstances that could require Celleration to pay a termination fee to Alliqua or Alliqua to pay a reverse termination fee to Celleration;

 

·the inability to complete the merger due to the failure to obtain stockholder approval or governmental or regulatory clearances or the failure to satisfy other conditions to the closing of the merger;

 

·the failure of the merger to be completed for any other reason;

 

·legal or regulatory proceedings or other matters that affect the timing or ability to complete the merger as contemplated;

 

·the risk that the proposed merger disrupts current plans and operations;

 

·fluctuations in the market value of Alliqua common stock;

 

·the effects of the merger on Alliqua’s financial results;

 

·potential difficulties in employee retention as a result of the merger;

 

·disruption from the merger making it difficult to maintain business and operational relationships;

 

·diversion of management time on issues related to the merger;

 

·the risk that the businesses will not be integrated successfully, or that the integration will be more costly or more time consuming and complex than anticipated;

 

·the risk that cost savings and other synergies anticipated to be realized from the merger may not be fully realized or may take longer to realize than expected;

 

·adverse developments in general market, business, economic, labor, regulatory and political conditions;

 

·the amount of any costs, fees, expenses , impairments and charges related to the merger;

 

·the uncertainty regarding the adequacy of Alliqua’s liquidity to pursue its business objectives;

 

·the impact of any outbreak or escalation of hostilities on a national, regional or international basis, acts of terrorism or natural disasters;

 

·competitive factors, including technological advances achieved and patents attained by competitors;

 

·the impact of any change to applicable laws and regulations affecting domestic and foreign operations, including those relating to trade, monetary and fiscal policies, taxes, price controls, regulatory approval of new products, licensing and healthcare reform;

 

·the intended tax treatment of the merger;

 

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·the risk that Celleration will continue to incur losses and may never reach profitability;

 

·the inability of Celleration to achieve market acceptance of its products or Celleration’s customers to obtain adequate reimbursement for its products;

 

·the ability of Celleration to obtain additional financing;

 

·the implementation of health care industry cost-containment measures;

 

·the failure of Celleration to expand into the United Kingdom; and

 

·the impact of recent changes in U.S. federal and state regulations and future changes in regulations.

 

For a further list and description of such risks and uncertainties, see periodic public reports filed by Alliqua with the SEC, including but not limited to Alliqua’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is filed with the SEC and incorporated by reference into this joint proxy and consent solicitation statement/prospectus. Alliqua does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be set forth in Alliqua’s periodic reports. You are cautioned not to place undue reliance on these forward-looking statements, since, while the respective managements of Alliqua and Celleration believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this document.

 

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THE COMPANIES

 

Alliqua BioMedical, Inc.

 

Alliqua is a Delaware corporation that was originally formed in 1997 under the name Zeta Corporation in Florida. On April 17, 2003, Alliqua changed its name to Hepalife Technologies, Inc., and on December 20, 2010, changed its name to Alliqua, Inc. On June 6, 2014, pursuant to an Agreement and Plan of Merger, Alliqua merged with and into its wholly-owned Delaware subsidiary, Alliqua BioMedical, Inc. for the purpose of effecting a reincorporation and change of domicile to the state of Delaware in addition to changing its name to Alliqua BioMedical, Inc.

 

Alliqua is a provider of advanced wound care solutions. Its commercial wound care portfolio currently consists of four product categories: human biologics, antimicrobial protection, exudate management and contract manufacturing. Alliqua seeks to expand this portfolio though targeted acquisitions and strategic distribution and license agreements. Alliqua has historically served as a contract manufacturer, supplying its gels to third parties who incorporate them into their own products. Alliqua also markets two proprietary hydrogels primarily to the wound care segment of the health care industry. Alliqua’s core businesses include advanced wound care and contract manufacturing.

 

Alliqua’s common stock is listed on the NASDAQ Capital Market under the symbol “ALQA.”

 

Alliqua’s principal executive offices are located at 2150 Cabot Boulevard West, Langhorne, Pennsylvania 19047, its telephone number is (215) 702-8550, and its website is located at www.alliqua.com. Information on or accessed through Alliqua’s website is not incorporated into this joint proxy and consent solicitation statement/prospectus.

 

Additional information about Alliqua and its subsidiaries is included in the documents incorporated by reference into this joint proxy and consent solicitation statement/prospectus. See “Where You Can Find More Information” beginning on page [    •    ].

 

ALQA Cedar, Inc.

 

Merger Sub is a wholly-owned subsidiary of Alliqua that was incorporated in Delaware on January 28, 2015 solely for the purpose of entering the Merger Agreement and effecting the merger and the other transactions contemplated by the Merger Agreement. It is not engaged in any business and has no material assets. Its principal executive offices have the same address and telephone number as Alliqua set forth above.

 

Celleration, Inc.

 

Celleration is a Delaware corporation that was originally formed in April 2000 under the name Advanced Medical Applications Inc. in Minnesota and changed its name to Celleration, Inc. in July 2002. In May 2003, Celleration reincorporated in Delaware.

 

Celleration focuses on developing and commercializing therapeutic ultrasound healing technologies. Celleration has received 510(k) clearance from the FDA to market and sell its core product offerings, the MIST Therapy System and the next-generation system, UltraMIST, in the United States. The MIST Therapy System and UltraMIST deliver noncontact low-frequency, low-intensity ultrasound to the wound bed through a saline mist. MIST Therapy is used in wound management protocols across a number of different care settings depending upon the needs of the individual patient and the clinical setting.

 

Celleration’s principal executive offices are located at 6321 Bury Drive, Suite 15, Eden Prairie, MN 55346, its telephone number is (952) 224-8700, and its website is located at www.misttherapy.com. Information on or accessed through Celleration’s website is not incorporated into this joint proxy and consent solicitation statement/prospectus.

 

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THE ALLIQUA SPECIAL MEETING

 

This section contains information for Alliqua’s stockholders about Alliqua’s special meeting of stockholders that has been called to consider the approval of the Alliqua Share Issuance Proposal and approval of the Alliqua Adjournment Proposal.

 

General

 

We are furnishing this joint proxy and consent solicitation statement/prospectus to the holders of Alliqua common stock as of the record date for use at Alliqua’s special meeting and any adjournment or postponement of its special meeting. Alliqua is first mailing this joint proxy and consent solicitation statement/prospectus to its stockholders on or about [    •    ], 2015.

 

Date, Time and Place

 

The Alliqua special meeting will be held on [    •    ], 2015, at 9:00 a.m., Eastern Time, at the Sheraton Bucks County Hotel, located at 400 Oxford Valley Rd., Langhorne, PA 19047.

 

Purpose of the Alliqua Special Meeting

 

At the Alliqua special meeting, Alliqua stockholders will be asked to consider and vote upon the following matters:

 

(1)The Alliqua Share Issuance Proposal – a proposal to approve the issuance of shares of Alliqua common stock to Celleration equity holders in connection with the merger on the terms and conditions of the Merger Agreement; and

 

(2)The Alliqua Adjournment Proposal – a proposal to approve one or more adjournments of the Alliqua special meeting, if necessary, to solicit additional proxies in favor of the Alliqua Share Issuance Proposal if there are insufficient votes at the time of such adjournment to approve such proposal.

 

Recommendation of the Alliqua Board of Directors

 

After careful consideration, the Alliqua board of directors has unanimously (1) determined that the terms of the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Alliqua common stock to the Celleration equity holders, are advisable and in the best interests of Alliqua and its stockholders and (2) approved and adopted the Merger Agreement, the merger and the transactions contemplated therein. Certain factors considered by the Alliqua board of directors in reaching its decision to approve and adopt the Merger Agreement and the merger can be found in the section of this joint proxy and consent solicitation statement/prospectus entitled “The Merger – Alliqua’s Reasons for the Merger” beginning on page [    •    ].

 

The Alliqua board of directors unanimously recommends that Alliqua stockholders vote “FOR” the Alliqua Share Issuance Proposal and “FOR” the Alliqua Adjournment Proposal.

 

Alliqua Record Date and Quorum

 

The Alliqua board of directors has fixed the close of business on [    •    ], 2015 as the record date for the Alliqua special meeting (the “Alliqua Record Date”). Only the holders of record of shares of Alliqua common stock on the Alliqua Record Date are entitled to receive notice of and to vote at the Alliqua special meeting or at any postponement(s) or adjournment(s) of the Alliqua special meeting.

 

As of the Alliqua Record Date, there were [    •    ] shares of Alliqua common stock outstanding and entitled to vote at the Alliqua special meeting held by approximately [    •    ] holders of record. Each share of Alliqua common stock entitles the holder to one vote at the Alliqua special meeting on each proposal to be considered at the Alliqua special meeting.

 

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The presence, in person or by proxy, of the holders of a majority of the shares of the stock entitled to vote at the Alliqua special meeting is necessary to constitute a quorum to transact business. Abstentions and any broker non-votes will be counted for purpose of determining that a quorum is present. If a quorum is not present or represented at the Alliqua special meeting, the holders of a majority of the shares represented, and who would be entitled to vote at the special meeting if a quorum were present, may adjourn the special meeting to another date.

 

Based on the number of shares of Alliqua common stock issued and outstanding as of the Alliqua Record Date, [    •    ] shares or Alliqua common stock must be present in person or represented by proxy at the Alliqua special meeting to constitute a quorum.

 

At the close of business on the Alliqua Record Date, directors and executive officers of Alliqua and their affiliates were entitled to vote [    •    ] shares of Alliqua common stock, or approximately [    •    ]% of the issued and outstanding shares of Alliqua common stock on that date. Alliqua currently expects that the Alliqua directors and executive officers will vote their shares of Alliqua common stock in favor of the Alliqua Share Issuance Proposal and the Alliqua Adjournment Proposal, although none of them is obligated to do so.

 

In accordance with Delaware law, a list of stockholders entitled to vote at the meeting will be available at the meeting, and for 10 days prior to the meeting, at [    •    ], between the hours of [    •    ] a.m. and [    •    ] p.m., local time.

 

Alliqua stockholders will be admitted to the special meeting beginning at 8:30 a.m., local time, on [    •    ], 2015. If you are a stockholder of record the inspector of elections will have your name on a list, and you will be able to gain entry to the special meeting with any form of government-issued photo identification, such as a driver’s license, state-issued identification card, or passport. If you hold stock in a brokerage account or in “street name” and wish to attend the special meeting in person, you will also need to bring a letter from your broker reflecting your stock ownership as of the record date, which is [    •    ], 2015

 

Vote Required for Approval

 

Approval of each of the Alliqua Share Issuance Proposal and the Alliqua Adjournment Proposal requires the affirmative vote of a majority of the votes cast affirmatively or negatively by holders of Alliqua common stock entitled to vote and represented in person or by proxy at the Alliqua special meeting, assuming a quorum is present.

 

Abstentions and Broker Non-Votes

 

If you are an Alliqua stockholder and mark "ABSTAIN" on your proxy with respect to the Alliqua Share Issuance Proposal or the Alliqua Adjournment Proposal, it will not be counted with respect to the vote and will have no effect on the proposal, although abstentions will be considered present for the purpose of determining the presence of a quorum. If you fail to submit a proxy or vote in person at the Alliqua special meeting, it will also have no effect on either of the proposals.

 

Banks, brokers and other nominees that hold their customers' shares in street name may not vote their customers' shares on "non-routine" matters without instructions from their customers. As each of the proposals to be voted upon at the Alliqua special meeting is considered "non-routine," such organizations do not have discretion to vote on any of the proposals. As a result, if you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your shares of Alliqua common stock, your shares will not be considered present at the Alliqua special meeting and will not be voted and will have no effect on either of the proposals.

 

Manner of Submitting Proxy

 

Whether or not you plan to attend the Alliqua special meeting in person, you should submit your proxy as soon as possible. If you own shares of Alliqua common stock in your own name, you are an owner or holder of record. This means that you may use the enclosed proxy card or the Internet or telephone voting options to tell the persons named as proxies how to vote your shares of Alliqua common stock. There are four convenient ways of submitting your vote:

 

·In Person – To vote in person, come to the Alliqua special meeting and you will be able to vote by ballot. To ensure that your shares of Alliqua common stock are voted at the Alliqua special meeting, the Alliqua board of directors recommends that you submit a proxy even if you plan to attend the Alliqua special meeting.

 

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·By Mail – To vote using the enclosed proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the enclosed return envelope. If you return your signed proxy card to Alliqua before the Alliqua special meeting, the persons named as proxies will vote your shares of Alliqua common stock as you direct.

 

·By Telephone – To vote by telephone, dial the toll free telephone number located on the enclosed proxy card using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from the enclosed proxy card.

 

·By Internet – To vote over the Internet, go to the web address identified on the enclosed proxy card to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card.

 

The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares, and to confirm that their instructions have been recorded properly. Submitting a proxy will not affect your right to vote in person if you decide to attend the Alliqua special meeting.

 

The Alliqua board of directors has appointed David Johnson, president and chief executive officer, and Brian Posner, chief financial officer, treasurer and secretary, to serve as the proxies for the Alliqua special meeting.

 

If a proxy card is signed and returned without an indication as to how the shares of Alliqua common stock represented by the proxy are to be voted with regard to a particular proposal, the Alliqua common stock represented by the proxy will be voted "FOR" each such proposal. As of the date of this joint proxy and consent solicitation statement/prospectus, Alliqua has no knowledge of any business that will be presented for consideration at the Alliqua special meeting and which would be required to be set forth in this joint proxy and consent solicitation statement/prospectus other than the matters set forth in the accompanying Notice of Special Meeting of Stockholders of Alliqua. In accordance with Alliqua's bylaws and Delaware law, business transacted at the Alliqua special meeting will be limited to those matters set forth in such notice.

 

Your vote as an Alliqua stockholder is very important. Please submit your proxy as soon as possible, whether or not you plan to attend the Alliqua special meeting in person.

 

Shares Held in Street Name

 

If you are an Alliqua stockholder and your shares are held in "street name" by a broker, bank or other nominee, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of Alliqua common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted.

 

You may not vote shares held in street name by returning a proxy card directly to Alliqua or by voting in person at the Alliqua special meeting unless you provide a "legal proxy," which you must obtain from your broker, bank or other nominee. Further, brokers, banks or other nominees who hold shares of Alliqua common stock on behalf of their customers may not give a proxy to Alliqua to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks and other nominees do not have discretionary voting power on these matters. Therefore, if you are an Alliqua stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares, your shares will NOT be voted on any of the proposals to be voted upon at the Alliqua special meeting, which will have the same effect as described above under "—Abstentions and Broker Non-Votes.”

Revocation of Proxies and Voting Instructions

 

If your shares of Alliqua common stock are registered in your own name, you may revoke your proxy in one of the following ways by:

 

·Attending the Alliqua special meeting and voting in person. Your attendance at the Alliqua special meeting will not by itself revoke a proxy. You must vote your shares by ballot at the Alliqua special meeting to revoke your proxy;
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·Voting again by telephone or over the Internet (only your latest telephone or Internet vote submitted prior to the Alliqua special meeting will be counted);

 

·Completing and submitting a new valid proxy card bearing a later date; or

 

·Sending written notice of revocation to Alliqua at 2150 Cabot Boulevard West, Langhorne, Pennsylvania 19047, Attention: Brian Posner, chief financial officer, treasurer and secretary, which notice must be received before noon, Eastern Time, on [ • ], 2015.

 

If your shares of Alliqua common stock are held in street name, your bank, broker or other nominee should provide instructions explaining how you may change or revoke your voting instructions.

 

Tabulation of Votes

 

Alliqua will appoint an inspector of election for the Alliqua special meeting to tabulate the affirmative and negative votes, broker non-votes and abstentions.

 

Solicitation of Proxies

 

The cost of solicitation of proxies from Alliqua stockholders will be borne by Alliqua. Alliqua will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses incurred in sending proxy solicitation materials to the beneficial owners of Alliqua common stock and collecting voting instructions. In addition to solicitations by mail, Alliqua’s directors, officers and employees may solicit the return of proxies, either by mail, telephone, fax, e-mail or through personal contact. These directors, officers and employees will not receive additional compensation for their efforts but will be reimbursed for reasonable out-of-pocket expenses.

 

Assistance

 

If you need assistance in completing your proxy card or have questions regarding the various voting options with respect to the Alliqua special meeting, please contact Alliqua's Investor Relations:

 

Alliqua BioMedical, Inc.

Attention: Investor Relations

2150 Cabot Boulevard West

Langhorne, Pennsylvania 19047

Telephone: (215) 702-8550

E-mail: info@alliqua.com

 

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PROPOSALS SUBMITTED TO ALLIQUA STOCKHOLDERS

 

ALLIQUA PROPOSAL 1 – APPROVAL OF THE ALLIQUA SHARE ISSUANCE PROPOSAL

 

As discussed in this joint proxy and consent solicitation statement/prospectus, Alliqua is asking its stockholders to approve the Alliqua Share Issuance Proposal. For a summary of and detailed information regarding this proposal, see the information about the Merger Agreement and the issuance of shares of Alliqua common stock in the merger throughout this joint proxy and consent solicitation statement/prospectus, including the information set forth in sections entitled “The Merger” beginning on page [    •    ] and “The Merger Agreement” beginning on page [    •    ]. A copy of the Merger Agreement is attached as Annex A to this joint proxy and consent solicitation statement/prospectus and incorporated herein by reference. You are urged to read carefully this joint proxy and consent solicitation statement/prospectus and the Merger Agreement attached hereto in their entirety before voting on this proposal.

 

The Merger Agreement provides that as part of the merger consideration and contingent consideration, Alliqua will issue shares of Alliqua common stock to the Celleration equity holders in connection with the merger. The aggregate number of shares of common stock that Alliqua may issue as part of the contingent consideration pursuant to the terms of the Merger Agreement will depend, in part, on the market prices of Alliqua common stock at the time that such shares are required to be issued. Accordingly, although subject to a cap, the total number of shares of common stock that Alliqua will be required to issue pursuant to the Merger Agreement cannot be determined at this time, and such number of shares may be in excess of 20% of Alliqua’s pre-merger outstanding shares of common stock. Accordingly, Alliqua is asking its stockholders to approve the Alliqua Share Issuance Proposal in accordance with the NASDAQ Listing Rules.

 

Pursuant to the Merger Agreement, approval of the Alliqua Share Issuance Proposal is a condition to the closing of the merger. If this proposal is not approved, the merger will not be completed.

 

Required Vote

 

Approval of the Alliqua Share Issuance Proposal requires the affirmative vote of a majority of votes cast affirmatively or negatively by holders of Alliqua common stock entitled to vote and represented in person or by proxy at the Alliqua special meeting, assuming a quorum is present.

 

Recommendation of the Alliqua Board of Directors

 

The Alliqua board of directors unanimously recommends that Alliqua stockholders vote “FOR” the Alliqua Share Issuance Proposal.

 

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ALLIQUA PROPOSAL 2 – APPROVAL OF THE ALLIQUA ADJOURNMENT PROPOSAL

 

If there are insufficient votes at the time of the Alliqua special meeting to approve the Alliqua Share Issuance Proposal, the Alliqua special meeting may be adjourned to another time or place, if necessary or appropriate, to permit the solicitation of additional proxies; provided, that the special meeting may not be adjourned, without further notice, to a date that is more than 30 days after the date for which the special meeting was originally noticed or if a new record date is fixed for the adjourned meeting. Alliqua does not intend to propose adjournment at the Alliqua special meeting if there are sufficient votes to approve the Alliqua Share Issuance Proposal.

 

If, at the Alliqua special meeting, the number of shares of Alliqua common stock present or represented by proxy and voting in favor of the Alliqua Share Issuance Proposal is insufficient to approve the Alliqua Share Issuance Proposal, Alliqua may move to adjourn the Alliqua special meeting in order to enable the Alliqua board of directors to solicit additional proxies for approval of the Alliqua Share Issuance Proposal. In that event, Alliqua's stockholders will be asked to vote upon the Alliqua Adjournment Proposal.

 

In the Alliqua Adjournment Proposal, Alliqua is asking its stockholders to authorize the holder of any proxy solicited by its board of directors to vote in favor of granting discretionary authority to the Alliqua board of directors to adjourn the Alliqua special meeting to another time and place for the purpose of soliciting additional proxies. If Alliqua's stockholders approve the Alliqua Adjournment Proposal, Alliqua could adjourn the Alliqua special meeting and any adjourned session of the Alliqua special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from Alliqua stockholders who have previously voted.

 

Required Vote

 

Approval of the Alliqua Adjournment Proposal requires the affirmative vote of a majority of votes cast affirmatively or negatively by holders of Alliqua common stock entitled to vote and represented in person or by proxy at the Alliqua special meeting, assuming a quorum is present.

 

Recommendation of the Alliqua Board of Directors

 

The Alliqua board of directors unanimously recommends that Alliqua stockholders vote “FOR” the Alliqua Adjournment Proposal.

 

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THE CELLERATION SOLICITATION OF WRITTEN CONSENTS

 

This section contains information for Celleration stockholders regarding the solicitation of written consents to approve the Celleration Merger Agreement proposal.

 

Purpose of the Consent Solicitation

 

The Celleration board of directors is providing these consent solicitation materials to Celleration stockholders. Celleration stockholders are being asked to adopt the Celleration Merger Agreement proposal and thereby approve the Merger Agreement, the merger and the transactions contemplated by the Merger Agreement by executing and delivering the written consent furnished with this joint proxy and consent solicitation statement/prospectus.

 

Record Date

 

The Celleration board of directors has set [    •    ], 2015 as the record date for determining Celleration stockholders entitled to sign and deliver written consents with respect to the Celleration Merger Agreement proposal.

 

Celleration Stockholders Entitled to Consent

 

Only holders of outstanding shares of Celleration common stock and Celleration Series AA preferred stock as of the close of business on the Celleration record date are entitled to sign and deliver written consents with respect to the Celleration Merger Agreement proposal. As of the close of business on the record date, there were [    •    ] shares of Celleration common stock and [    •    ] shares of Celleration Series AA preferred stock issued and outstanding and entitled to sign and deliver written consents with respect to the Celleration Merger Agreement proposal. Each share of Celleration common stock is entitled to one vote, and each share of Celleration Series AA preferred stock is entitled to the number of votes equal to the number of shares of Celleration common stock into which such shares of Series AA preferred stock are convertible.

 

As of the close of business on the Celleration record date, the directors and executive officers of Celleration and their affiliates collectively owned and were entitled to sign and deliver a written consent with respect to [    •    ] shares of Celleration common stock and [    •    ] shares of Celleration Series AA preferred stock, which represent, in the aggregate, approximately [    •    ]% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and [    •    ]% of the outstanding shares of Celleration Series AA preferred stock on that date.

 

Recommendation of the Celleration Board of Directors

 

The Celleration board of directors has unanimously approved and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement and has determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the merger, are fair to, and in the best interests of, Celleration and its stockholders. The Celleration board of directors unanimously recommends that Celleration stockholders consent to the Celleration Merger Agreement proposal and thereby approve the Merger and the other transactions contemplated by the Merger Agreement.

 

Consents; Required Consents

 

Written consents from a majority of the issued and outstanding shares of Celleration common stock and Celleration Series AA preferred stock, voting together on an as converted basis, and from a majority of the issued and outstanding shares of Celleration Series AA preferred stock, voting as a separate class, are required to approve the Celleration Merger Agreement proposal.

 

Certain 5% stockholders, directors and executive officers of Celleration, representing approximately 83% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and 81% of the outstanding shares of Celleration Series AA preferred stock as of February 2, 2015, have entered into voting agreements with Alliqua pursuant to which, among other things, they have agreed to execute and return a written consent with respect to their shares of Celleration common stock and Celleration Series AA preferred stock adopting and approving the Celleration Merger Agreement proposal. As of the close of business on the record date, approximately [ • ]% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and [ • ]% of the outstanding shares of Celleration Series AA preferred stock are subject to the voting agreements. Therefore, Celleration expects that the written consents to be delivered by holders pursuant to the voting agreements will represent a sufficient number of shares of Celleration common stock and Celleration Series AA preferred stock to satisfy the approval requirement described above for the adoption and approval of the Celleration Merger Agreement proposal.

 

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Pursuant to the terms of the investor rights agreement dated January 4, 2013, should a majority of the outstanding shares of Celleration Series AA preferred stock party to such agreement approve a merger, the holders of such shares of Celleration Series AA preferred stock may require all of the holders party to such agreement to consent to the merger and to waive any appraisal rights. A majority of the outstanding shares of Celleration Series AA preferred stock party to the investor rights agreement have entered into voting agreements with Alliqua pursuant to which, among other things, they have agreed to execute and return a written consent with respect to their shares of Celleration common stock and Celleration Series AA preferred stock adopting and approving the Celleration Merger Agreement proposal.

 

Submission of Consents

 

Celleration stockholders may consent to the Celleration Merger Agreement proposal with respect to their shares of Celleration stock by completing, dating and signing the written consent enclosed with this joint proxy and consent solicitation statement/prospectus and returning it to Celleration. The Celleration board of directors has set [ • ], 2015 as the final date for receipt of written consents. Celleration reserves the right to extend the final date for receipt of written consents beyond [ • ], 2015. Any such extension may be made without notice to you. Once a sufficient number of consents to adopt and approve the Celleration Merger Agreement proposal have been received, the consent solicitation will conclude.

 

If you hold shares of Celleration stock as of the close of business on the Celleration record date and you wish to give your written consent, you must fill out the enclosed written consent, date and sign it, and promptly return it to Celleration. Once you have completed, dated and signed the written consent, you may deliver it to Celleration by faxing it to Celleration, Inc., Attention: Secretary, at (952) 224-8750, by emailing a “.pdf” copy of your written consent to dwerz@celleration.com or by mailing your written consent to Celleration, Inc. at 6321 Bury Drive, Suite 15 Eden Prairie, MN 55346, Attention: Secretary.

 

Executing Consents; Revocation of Consents

 

You may execute a written consent to approve the Celleration Merger Agreement proposal. If you do not return your written consent, it will have the same effect as a vote against the Celleration Merger Agreement proposal. If you are a record holder of shares of Celleration stock and you return a signed written consent without indicating your decision on the Celleration Merger Agreement proposal, you will have consented to the proposal.

 

If you are a stockholder on the record date of shares of Celleration common stock or of Celleration Series AA preferred stock, you may change or revoke your consent to the Celleration Merger Agreement proposal, subject to any contractual obligation you may have, at any time prior to [ • ], 2015 or, if earlier, at any time before the consents of a sufficient number of shares to approve and adopt such proposal have been filed with the corporate secretary of Celleration. If you wish to change or revoke your consent before that time, you may do so by faxing it to Celleration, Inc., Attention: Secretary, at (952) 224-8750, by emailing a “.pdf” copy of your written consent to dwerz@celleration.com or by mailing your written consent to Celleration, Inc. at 6321 Bury Drive, Suite 15 Eden Prairie, MN 55346, Attention: Secretary.

 

Solicitation of Consents; Expenses

 

The expense of preparing, printing and mailing these consent solicitation materials is being borne by Celleration. Officers and employees of Celleration may solicit consents by telephone and personally, in addition to solicitation by mail. These persons will receive their regular salaries but no special compensation for soliciting consents.

 

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PROPOSAL SUBMITTED TO CELLERATION STOCKHOLDERS

 

CELLERATION PROPOSAL 1 – APPROVAL OF THE CELLERATION MERGER AGREEMENT PROPOSAL

 

As discussed in this joint proxy and consent solicitation statement/prospectus, Celleration is asking its stockholders to approve the Celleration Merger Agreement proposal. For a summary of and detailed information regarding this proposal, see the information about the Merger Agreement throughout this joint proxy and consent solicitation statement/prospectus, including the information set forth in sections entitled “The Merger” beginning on page [    •    ] and “The Merger Agreement” beginning on page [    •    ]. A copy of the Merger Agreement is attached as Annex A to this joint proxy and consent solicitation statement/prospectus and incorporated herein by reference. You are urged to read carefully this joint proxy and consent solicitation statement/prospectus and the Merger Agreement in their entirety before voting on this proposal.

 

The Merger Agreement provides that Celleration be merged with and into Merger Sub, a wholly-owned subsidiary of Alliqua. In connection with the Merger, shares of Celleration common stock and Celleration Series AA preferred stock that are issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive the merger consideration described herein.

 

Required Vote

 

Approval of the Celleration Merger Agreement proposal requires the affirmative vote of a majority of the issued and outstanding shares of Celleration common stock and Celleration Series AA preferred stock, voting together on an as converted basis, and of a majority of the issued and outstanding shares of Celleration Series AA preferred stock, voting as a separate class.

 

Recommendation of the Celleration Board of Directors

 

The Celleration board of directors unanimously recommends that Celleration stockholders vote to “APPROVE” the Celleration Merger Agreement proposal.

 

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THE MERGER

 

The following discussion contains certain information about the merger. The discussion is subject, and qualified in its entirety by reference, to the Merger Agreement attached as Annex A to this joint proxy and consent solicitation statement/prospectus. We urge you to read carefully this entire joint proxy and consent solicitation statement/prospectus, including the Merger Agreement attached as Annex A, for a more complete understanding of the merger.

 

General

 

Each of Alliqua and Celleration’s respective boards of directors has unanimously approved the Merger Agreement and the transactions contemplated therein, including the merger. Pursuant to the Merger Agreement, Celleration will merge with and into Merger Sub, with Merger Sub emerging as the surviving corporation.

 

Background of the Merger

 

The Alliqua board of directors, together with Alliqua’s senior management, has regularly evaluated and periodically reviewed opportunities to achieve long-term operational and financial goals and to enhance stockholder value through potential strategic transactions. Generally, these reviews have centered on strategies to access new sources of financing to support growth initiatives and to improve Alliqua’s existing operations, portfolio of wound care technologies and distribution infrastructure. From time to time, these assessments have included discussions and analyses of potential merger transactions as a means to enhance or improve stockholder value.

 

The Celleration board of directors, together with its senior management, has, from time to time in the ordinary course, reviewed the strategic direction for Celleration in light of its financial performance and market, economic, competitive and other conditions and developments. During 2013 and 2014, Celleration received considerable unsolicited interest in a potential strategic acquisition of Celleration triggered by important milestones achieved during the period. The Celleration board of directors, which includes representatives of three significant investors in Celleration, asked Celleration’s senior management to respond to interested parties while reaching out to other participants in the wound care sector. These discussions included the evaluations of a variety of strategic alternatives with numerous parties, including potential business combinations and strategic alliances. Considerable time was invested in such discussions, which ranged from informal expressions of interest from other parties to formal meetings regarding the terms of a possible transaction.

 

Since the beginning of 2013, Alliqua has raised approximately $37 million through the issuance of new equity. In light of its access to new sources of capital, the Alliqua board of directors and senior management determined that Alliqua had sufficient financial flexibility to begin exploring opportunities for the execution of its growth plan. In the second quarter of 2013, Alliqua initiated exploratory discussions with four companies in the wound care industry regarding potential acquisitions and other strategic transactions.

 

David Johnson, chief executive officer of Alliqua, was familiar with Celleration based on his previous employment with a company that had considered an acquisition of Celleration in 2006, but which was never consummated. In May 2013, Mr. Johnson connected with Mark Wagner, president and chief executive officer of Celleration, at a wound care conference in Denver, Colorado, during which Mr. Johnson contacted Mr. Wagner to set up an introductory breakfast meeting with him and Lori Toner, chief marketing officer of Alliqua. At the meeting, they had a preliminary, high-level discussion on the current business of each company and what each sought to accomplish in the wound care industry.

 

In September 2013, Alliqua commenced preliminary discussions with Choice Therapeutics, Inc. (“Choice”), a privately held wound care company regarding the possible acquisition of Choice by Alliqua.

 

In January 2014, Alliqua commenced preliminary discussions with a company in the wound care and orthopedics industry (referred to as “Party A”) regarding the possible acquisition of Party A by Alliqua.

 

On February 19, 2014, the Celleration board of directors held a quarterly meeting at which, among other matters, the board discussed the contacts made with participants in the wound care sector.

 

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In March 2014, Celleration engaged in discussions with a strategic buyer (referred to as “Party B”) with whom Celleration had discussed a potential transaction previously. In addition, Celleration began discussing a potential business combination or distribution alliance with another participant in the wound care sector (referred to as “Party C”).

 

In March 2014, in addition to gauging the interest from Party B and Party C, Mr. Wagner initiated preliminary, high-level communications with Mr. Johnson regarding a potential business combination between Alliqua and Celleration and provided certain introductory information on Celleration.

 

On March 20, 2014, the Alliqua board of directors held a meeting at which Mr. Johnson provided an update on Alliqua’s mergers and acquisitions initiatives, including the status of discussions with Choice and Party A. In the following weeks, the Alliqua board of directors, together with senior management, decided to pursue and ultimately completed the acquisition of Choice on May 5, 2014. 

 

On March 26, 2014, the Celleration board of directors held an update call at which, among other matters, members of senior management updated the Celleration board of directors on the status of discussions with Alliqua, Party B and Party C and other potentially interested parties.

 

On March 31, 2014, Celleration received an offer and preliminary term sheet from Party B. The term sheet provided for the acquisition of Celleration by Party B in a cash transaction containing an upfront payment and subsequent payments based on the achievement of defined revenue and gross margin milestones.

 

On April 2, 2014, Celleration and Alliqua entered into a mutual non-disclosure agreement relating to a potential transaction.

 

On April 8, 2014, Mr. Johnson invited Mr. Wagner to attend a meeting with certain other members of Alliqua’s senior management, consisting of Ms. Toner and Janice Smeill, M.D., chief medical officer of Alliqua. The meeting was held by teleconference on April 9, 2014, during which Mr. Wagner presented an overview of Celleration’s history, technology and current position in the market.

 

On April 23, 2014, the Celleration board of directors held an update call at which Mr. Wagner and Christopher Geyen, chief financial officer of Celleration, summarized the progress of discussions with Party B, Party C and Alliqua, including a summary of the presentation made by Mr. Wagner at his meeting with Alliqua’s senior management on April 9, 2014.

 

On May 7, 2014, Celleration received a revised term sheet from Party B, in which Party B increased the amount of consideration payable under its proposal.

 

On May 8, 2014, Mr. Wagner and Mr. Johnson had a follow-up conversation during which they further discussed Celleration’s revenue numbers and value proposition as well as Alliqua’s continued interest in Celleration as a potential acquisition candidate. At that time, Mr. Johnson informed Mr. Wagner that although Alliqua was interested in continuing discussions, Alliqua would not be able to act immediately as it had just completed its acquisition of Choice and was devoting its resources to the integration of operations of the parties.

 

On May 9, 2014, the Alliqua board of directors held a meeting at which Mr. Johnson discussed Alliqua’s business development efforts and mergers and acquisitions strategy. During this discussion, Mr. Johnson reviewed Alliqua’s process of locating and evaluating potential targets and discussed the targets that senior management was analyzing at that time, including Celleration and Party A.

 

On May 27, 2014, Celleration received an offer and preliminary term sheet from Party C. The term sheet provided for the acquisition of Celleration by Party C in a cash transaction containing an upfront payment and subsequent payments based on the achievement of defined regulatory and revenue milestones.

 

On June 5, 2014, the Celleration board of directors held an update call at which Mr. Wagner and Mr. Geyen discussed the status of discussions with Alliqua, Party B and Party C, including the terms of the offer and preliminary term sheet from Party C and a comparison of the terms of the term sheets received from Party B and Party C.

 

During the first half of 2014, representatives of Alliqua and Celleration continued to meet with other potential merger candidates, all of whom were in the wound care or medical technology industry. On June 12, 2014, Mr. Wagner contacted Mr. Johnson to inform him that Celleration had received offers and preliminary term sheets from two strategic buyers. Mr. Johnson indicated that although Alliqua remained interested in Celleration as an acquisition candidate, it was not in a position to make Celleration an offer at that time.

 

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On July 23, 2014, the Celleration board of directors held an update call and discussed, among other matters, the terms of the offers being negotiated with Party B and Party C and the ongoing discussions with Alliqua.

 

On August 6, 2014, the Celleration board of directors held a quarterly meeting and discussed, among other matters, the terms of the offers being negotiated with Party B and Party C and the ongoing discussions with Alliqua. In addition, the board determined to terminate negotiations with Party C, by mutual agreement with Party C, based on Party C’s current inability to focus adequate effort and attention on Celleration’s products. 

 

On September 24, 2014, the Celleration board of directors held an update call and discussed, among other matters, the terms of the offer being negotiated with Party B and the ongoing discussions with Alliqua. In addition, the board determined to terminate negotiations with Party B because Celleration was unable to reach agreement with Party B on the structure and definition of objectives for subsequent payments.

 

From July through September 2014, Mr. Wagner and Mr. Johnson exchanged communications with respect to various milestones achieved by their respective businesses. At the end of September, Mr. Wagner contacted Mr. Johnson to inform him that Celleration had decided to terminate negotiations with Party B and Party C.

 

In September 2014, Alliqua began working informally with Cowen to identify and pursue various strategic alternatives, including a potential acquisition of Party A.

 

On October 16, 2014, Mr. Wagner and Mr. Johnson met for lunch at a wound care conference in Las Vegas, Nevada, during which Mr. Wagner discussed reimbursement, clinical and product development milestones with respect to Celleration’s business.

 

On October 22, 2014, the Celleration board of directors held an update call at which Mr. Wagner and Mr. Geyen provided an update on the progress of discussions with Alliqua, including an overview of the conversation that Mr. Wagner had with Mr. Johnson on October 16, 2014.

 

On November 3, 2014, Mr. Wagner contacted Mr. Johnson to inform him that Celleration had received a favorable reimbursement decision for MIST Therapy. In light of the positive reimbursement news, Mr. Johnson indicated that Alliqua had an increased interested in pursuing Celleration as a potential acquisition candidate.

 

On November 12, 2014, Mr. Johnson and Mr. Wagner had a telephone conversation, during which they discussed, among other things, the merits of a business combination for both companies and their respective stockholders in light of the evolving market for advanced wound care treatments and the opportunities for creating long-term stockholder value by leveraging the respective strengths of each business and expanding the combined company’s product portfolio. That same day, Mr. Johnson followed up with an email to Mr. Wagner that summarized the key points discussed on their call and invited Mr. Wagner to make a presentation at an informal meeting with certain members of Alliqua’s board on December 2, 2014. In his email, Mr. Johnson also requested certain further information on Celleration and included a proposed structure with certain preliminary terms for a potential acquisition of Celleration, which provided for, among other things, consideration based on a multiple of 2.5 to 2.7 times Celleration’s 2014 audited gross revenue, consisting of equal amounts of cash and shares of Alliqua common stock, and other general provisions for a potential earn-out payment, financing contingency and agreements as to non-solicitation and confidentiality.

 

On November 17, 2014, Mr. Wagner sent the additional information on Celleration as requested by Mr. Johnson including with respect to an analysis and valuation of Celleration, financial statements and organizational information.

 

On December 2, 2014, Mr. Wagner, together with Mr. Geyen and Pamela Unger, vice president of medical affairs and clinical education of Celleration, attended a dinner meeting with certain Alliqua directors, during which Messrs. Wagner and Geyen and Ms. Unger presented an overview of Celleration’s business, products and value proposition, including its recent reimbursement approvals, clinical trials and 510(k) clearance from the FDA.

 

On December 3, 2014, at a meeting of the Alliqua board of directors, certain representatives of Cowen provided the directors with an overview of the businesses of and the potential acquisition opportunities with Celleration and Party A. Mr. Johnson also provided the board with an update on the status of current discussions and negotiations with each potential acquisition target. Brian Posner, chief financial officer of Alliqua, and a representative of Cowen further presented a preliminary analysis of the valuation of Alliqua after a combination with each of Celleration and Party A, respectively. After a thorough discussion with management and Cowen regarding each potential transaction, the Alliqua board of directors authorized management to negotiate a formal acquisition term sheet with each of Celleration and Party A.

 

On December 7, 2014, Alliqua submitted a preliminary offer together with a non-binding term sheet to Party A for a potential acquisition. Notwithstanding the status of negotiations with Party A, Alliqua senior management determined that, in the interest of maximizing stockholder value and obtaining the best possible acquisition candidate for Alliqua, it was advisable to also continue negotiations with Celleration.

 

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On the evening of December 8, 2014, Mr. Johnson, together with Mr. Posner and Brad Barton, chief operating officer of Alliqua, made a presentation to Celleration’s board of directors at an informal meeting held in Minnesota. During the presentation, the representatives of Alliqua reviewed the company’s growth strategy and operating plan for 2015 and presented certain preliminary assumptions on the combined company, including forecasted pro forma information and valuation analysis of the combined company.

 

On December 9, 2014, the Celleration board of directors held its quarterly meeting. Among other matters, the Celleration board of directors reviewed and assessed the preliminary terms as proposed by Alliqua on November 12, 2014 and information presented by Alliqua on December 8, 2014. In addition, Celleration’s board provided guidance to Mr. Wagner regarding terms of a revised proposal and questions to be answered by Alliqua related to Alliqua’s business plans for the existing and combined business.

 

On December 10, 2014, Mr. Wagner sent an email to Mr. Johnson that summarized comments from Celleration’s board following the presentation by Alliqua that included questions about Alliqua’s business plans for the existing and combined business and certain revised terms for a proposed acquisition of Celleration by Alliqua. Among other matters, the Celleration counterproposal sought increases in the revenue multiple of the purchase price to 3.5 times Celleration’s 2014 audited gross revenue and in the amount of the earn-out consideration and also proposed the right to designate one director to serve on the Alliqua board of directors and a milestone payment based on NICE Approval.

 

On December 16, 2014, Alliqua determined to abandon discussions with Party A relating to a potential transaction because the parties were unable to agree on additional terms proposed by Party A.

 

During December 2014, following receipt of the email sent by Mr. Wagner on December 10, 2014, representatives of Alliqua, consisting principally of Mr. Johnson and certain Alliqua directors, and assisted by Cowen and Haynes and Boone LLP (“Haynes and Boone”), legal advisors to Alliqua, engaged in periodic discussions regarding Celleration’s proposed changes to the terms of the transaction, including the proposed increase in the revenue multiple of the purchase price. As part of these discussions, representatives of Alliqua considered various historical and projected financial and operating information, among other factors, that could affect the acquisition value of Celleration, as well as possible alternative transaction structures and the amount and forms of merger consideration that Alliqua would be willing to pursue. On December 18, 2014, Mr. Johnson sent Mr. Wagner an email that included two alternative transaction structures for Celleration’s board to consider. The first proposed structure contemplated upfront consideration based on a revenue multiple of 3.5, payable in equal amounts of cash and Alliqua common stock, with an incremental reduction to the amount of contingent consideration, also payable in equal amounts of cash and Alliqua common stock. The second proposed structure contemplated upfront consideration based on a revenue multiple of 3, payable in 60% cash and 40% Alliqua common stock., with an incremental increase in the amount of contingent consideration, payable in 87% cash and 13% Alliqua common stock. Mr. Johnson also indicated that Alliqua would continue to consider the proposed milestone payment based on NICE Approval.  

 

On December 19, 2014, Mr. Wagner discussed with the Celleration board of directors the status of discussions with Alliqua on the proposed transaction, including Alliqua’s revised proposals in response to the email sent by Mr. Wagner to Mr. Johnson on December 10, 2014. In connection with such discussions and over the course of the following week, Mr. Wagner, Mr. Johnson and their respective board of directors, legal and financial advisors continued to discuss and negotiate key terms with respect to the proposed transaction structure in light of certain tax considerations, amount and forms of the merger consideration, and treatment of milestone payments based on NICE Approval.

 

On December 24, 2014, Mr. Johnson sent a non-binding, indicative term sheet to Mr. Wagner for the proposed acquisition of Celleration by Alliqua. The term sheet provided for, among other things, (i) upfront consideration equal to 3.5 times Celleration’s 2014 audited gross revenue, payable in equal amounts of cash and shares of Alliqua common stock, (ii) certain contingent payments including earn-out consideration for each of 2015 and 2016 equal to 3.5 times the incremental increase in revenue generated from Celleration’s products payable in equal amounts of cash and shares of Alliqua common stock and a milestone payment for NICE Approval in an amount to be further negotiated by the parties and (iii) the appointment by Celleration of one member to Alliqua’s board of directors. Following receipt of the term sheet and through the execution of the Merger Agreement, Mr. Wagner and Mr. Geyen engaged in periodic discussions with members of Celleration’s board of directors and Dorsey & Whitney LLP (“Dorsey & Whitney”), legal counsel to Celleration, regarding the proposed terms from Alliqua. In connection with the increase in consideration offered in Alliqua’s original proposal, the Alliqua management and board of directors considered certain financial models for comparable companies in the industry and its desire to avoid a competitive bid process for the acquisition of Celleration.

 

On January 2, 2015, the Celleration board of directors held a telephonic meeting at which Mr. Wagner reported on the negotiations with Alliqua and the board of directors discussed the indicative term sheet, including how Alliqua’s common stock would be valued in the transaction, the proposed milestone payments based on NICE Approval and the timing and extent of due diligence to be performed.

 

On January 4, 2015, Mr. Wagner, on behalf of Celleration, sent a revised draft of the indicative term sheet to Mr. Johnson. Among the changes proposed by Celleration were a change in the volume-weighted average stock price to be used to determine the number of Alliqua shares issuable to Celleration stockholders. Also, Celleration indicated that it would require that the term sheet contain a specific milestone payment related to NICE approval. Throughout the day, Mr. Wagner and Mr. Johnson continued to discuss and negotiate the key terms of the transaction, which resulted in the final draft of the term sheet that Mr. Johnson sent to Mr. Wagner later that evening. In addition to the previously agreed upon consideration terms, the final term sheet included a one-time $500,000 payment upon receipt of NICE approval, payable in shares of Alliqua common stock and royalty payments equal to 20% of the net sales recognized from the MIST products for the three fiscal years ending December 31, 2016, 2017 and 2018, payable in cash.

 

On January 5, 2015, following discussions between each member of the Celleration board of directors and Mr. Wagner, the Celleration board of directors approved by written consent the term sheet and authorized its execution by Mr. Wagner.

 

On January 5, 2015, Alliqua and Celleration entered into the non-binding term sheet which contained an exclusivity agreement with respect to the potential merger.

 

Following the execution of the term sheet, each party engaged in due diligence investigations of the business and financial condition of the other party, including through exchanges of documents and information based on specific requests from the other party.

 

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On January 7, 2015, acting pursuant to a duly executed unanimous written consent, the Alliqua board of directors approved the terms of the engagement letter with Cowen to act as Alliqua’s financial adviser in connection with the proposed merger with Celleration. Alliqua subsequently entered into the engagement letter with Cowen on January 9, 2015.

 

On January 7 and January 9, 2015, Haynes and Boone and Dorsey & Whitney discussed preliminary matters related to the structure of the proposed merger.

 

On January 9 and January 16, 2015, the Celleration board of directors held telephonic meetings at which the structure of the proposed merger was discussed at length. During the meetings, Mr. Wagner and Mr. Geyen provided summary schedules and financial models that described to the Celleration board of directors the terms of the proposed Merger Agreement with Alliqua, including, among other things, the financial terms, contingent payments and a sensitivity model related to continent payments, the “no shop” covenants as related to other potential strategic interest, and escrow amounts. Mr. Wagner, Mr. Geyen and representatives from Dorsey & Whitney answered numerous questions from the members of the Celleration board of directors.

 

On January 12, 2015, Haynes and Boone sent an initial draft of the Merger Agreement to Dorsey & Whitney based upon the provisions set forth in the term sheet.

 

On January 15, 2015, Dorsey & Whitney provided Haynes and Boone with a revised draft of the Merger Agreement, which provided, among other things, for a revised transaction structure in light of certain tax considerations, a reduction in the amount of the merger consideration to be held in escrow to cover potential indemnification claims, a reduced fee in connection with certain termination rights of Celleration and certain revisions with respect to Celleration’s termination right in connection with a superior proposal.

 

On January 20, 2015, representatives of Haynes and Boone and Dorsey & Whitney held an in-person meeting at the offices of Haynes and Boone in New York City to discuss open legal comments to certain representations and warranties, covenants, indemnification and termination provisions in the proposed draft of the Merger Agreement.

 

On January 21, 2015, representatives of Haynes and Boone and Dorsey & Whitney, together with Mr. Johnson, Mr. Posner, Mr. Wagner and Mr. Geyen met at the offices of Haynes and Boone in New York City to conduct in-person discussions and negotiations regarding the open business issues in the Merger Agreement, including certain procedural terms related to payment of the merger consideration and contingent payments, revisions to the type of consideration to address certain tax considerations, required closing conditions, the definition of and process for addressing a superior proposal by Celleration, indemnification setoff and escrow amounts and procedures and the termination events and amounts for the termination and reverse termination fees.

 

On January 22, 2015, Haynes and Boone provided Dorsey & Whitney with a revised draft of the Merger Agreement based on the terms agreed upon by the parties at the January 21 meeting. The parties continued to negotiate and exchanged comments on the draft Merger Agreement over the next week.

 

On January 22, 2015, Haynes and Boone also sent drafts of certain ancillary agreements to Dorsey & Whitney. Subsequently, the parties continued to discuss and exchange revised drafts of such agreements.

 

On January 23, 2015, the Celleration board of directors held a telephonic meeting to discuss the results of the in-person discussions and negotiations that were conducted on January 21, 2015. Mr. Wagner and Mr. Geyen provided a summary of the negotiations and a revised outline of the proposed Merger Agreement, including the allocation of consideration between stock and cash, the structure of the transaction for tax purposes, escrow and indemnification requirements and estimated timing of the transactions. Mr. Wagner, Mr. Geyen and representatives from Dorsey & Whitney answered numerous questions from the Celleration board of directors.

 

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On January 30, 2015, Alliqua’s board of directors met to review and discuss the proposed merger and the Merger Agreement. At the meeting, representatives of Haynes and Boone reviewed with the Alliqua board of directors its fiduciary duties and then described to the Alliqua board of directors the terms of the proposed Merger Agreement with Celleration, including, among other things, the financial terms, contingent payments, the “no shop” covenants, closing conditions, reverse termination fee and other remedies provisions and other terms and conditions. Representatives of Haynes and Boone also reviewed with the Alliqua board of directors the terms of the proposed voting agreement with Celleration equity holders.  Cowen then reviewed with the Alliqua board its financial analysis of the transactions contemplated by the Merger Agreement and rendered its oral opinion (which was subsequently confirmed in writing and such written opinion is attached as Annex C to this joint proxy and consent solicitation statement/prospectus) to the Alliqua board that, as of the date of the opinion and based upon and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the consideration to be paid by Alliqua in the merger pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Alliqua. Representatives of Cowen and Haynes and Boone answered questions from the members of the Alliqua board of directors. The Alliqua board of directors then considered and discussed the factors set forth under “Recommendation of the Alliqua Board of Directors and Alliqua’s Reasons for the Merger” set forth on page [    •    ]. After further discussions and deliberations regarding, among other things, the results of the Celleration due diligence, the proposed terms of the Merger Agreement with Celleration, the views of Alliqua’s management and the presentations made by Alliqua’s legal and financial advisors, and taking into consideration the factors described below under “—Alliqua’s Reasons for the Merger,” the Alliqua board of directors unanimously determined that the Merger Agreement and the transactions contemplated thereby were advisable and fair to, and in the best interests of Alliqua and its stockholders and adopted and approved the Merger Agreement.

 

On January 30, 2015, the Celleration board of directors held a telephonic meeting. The directors acknowledged that they had met and discussed on several occasions, both formerly and informally, the potential merits and risks to Celleration and its stockholders of the merger, the chronology of events leading to the proposals to approve the merger, the negotiations with Alliqua with respect to the merger and the terms and conditions of the merger. Mr. Wagner reviewed the key provisions of the Merger Agreement, including the structure and timing considerations, the closing conditions, the “go shop” provision, the termination provisions, the termination fees to be paid by either Celleration or Alliqua and the consideration to be received by the Celleration stockholders; the funding of Alliqua’s debt financing; the terms of the bridge loan to be made by Alliqua to Celleration in the event that Alliqua requests an extension to the closing date; the voting agreements from certain Celleration stockholders to vote in favor of the merger; and the interests of certain Celleration directors and executive officers in the merger. After further discussions and deliberations regarding, among other things, the results of the due diligence of Alliqua, the proposed terms of the Merger Agreement with Celleration, the views of Celleration’s senior management and the fiduciary duties of the directors to the stockholders of Celleration, and taking into consideration the factors described below under “— Celleration’s Reasons for the Merger,” the Celleration board of directors, by unanimous written consent on January 30, 2015, determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Celleration and its stockholders; approved the Merger Agreement and related agreements; resolved to recommend that the Celleration stockholders approve and adopt the Merger Agreement; approved one-time special cash bonuses contingent on the successful completion of the merger to certain directors and executive officers; and approved certain other related matters.

 

On February 2, 2015, the Merger Agreement was executed by Alliqua, Merger Sub, Celleration and certain other representatives of the stockholders of Celleration, as identified therein. Simultaneously with the execution of the Merger Agreement, Alliqua and certain equity holders of Celleration entered into the voting agreements. For a discussion of the Merger Agreement and voting agreement, see the sections titled “The Merger Agreement” beginning on page [    •    ] and “Ancillary Agreements—Voting Agreement” beginning on page [    •    ] of this joint proxy and consent solicitation statement/prospectus.

 

Alliqua’s Reasons for the Merger

 

In reaching its decision to approve and adopt the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement, including the issuance of shares of Alliqua common stock in the merger, and to recommend that its stockholders approve the Alliqua Share Issuance Proposal and the Alliqua Adjournment Proposal, the Alliqua board of directors consulted with Alliqua management, as well as its outside financial and legal advisors, and considered a number of factors, including the following material factors:

 

·each of Alliqua’s and Celleration’s business, operations, financial condition, asset quality, earnings and prospects;

 

·the strategic fit of the businesses of the two companies, including their complimentary markets, business lines, sales infrastructures and approaches to advanced wound care treatments;

 

·the amounts and timing of the cost savings, related expenses and revenue synergies expected to result from the proposed merger;

 

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·the expectation that the combined company would create long-term shareholder value by creating additional growth opportunities by leveraging the respective strengths of each business and expanding the combined company’s development pipeline and product portfolio;

 

·the potential for expansion in the growing market for advanced wound care solutions and the opportunity to leverage complimentary sales channels of Alliqua and Celleration to market a broader portfolio of wound care treatments with the combined company’s suite of proprietary products;

 

·the demonstrated clinical efficacy and economic value proposition of Celleration’s proprietary MIST therapy;

 

·the status of the FDA’s approval process and favorable reimbursement decisions by Centers for Medicare and Medicaid Services for Celleration’s therapeutic devices;

 

·the anticipated pro forma impact of the transaction on the combined company, including the expected impact on financial metrics including earnings and tangible book value;

 

·its understanding of the current and prospective environment in which Alliqua and Celleration operate, including international, national, state and local economic conditions, the competitive environment for companies in the wound care industry generally, and the likely effect of these factors on Alliqua both with and without the proposed transaction;

 

·its review and discussions with Alliqua’s management concerning the due diligence investigation of Celleration, including its review of Celleration’s financial condition, results of operation, asset quality, market areas, growth potential and intellectual property;

 

·the regulatory and other approvals required in connection with the acquired products and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions;

 

·the opinion of Cowen, dated January 30, 2015, addressed to the Alliqua board of directors, that, as of the date of the opinion, the consideration to be paid by Alliqua in the merger pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Alliqua, which opinion was based on and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken as more fully described below under "—Opinion of Alliqua’s Financial Advisor;" and

 

·the financial and other terms of the Merger Agreement, including the limitations on the aggregate consideration paid in cash and stock, the portion of the total merger consideration based on future events and contingent performance measures, expected tax treatment, the no-shop covenants and prohibitions on Celleration’s ability to seek alternative acquisition proposals, the requirement that Celleration pay Alliqua a termination fee of $4 million if Celleration terminates the Merger Agreement to accept a superior proposal, the other deal protection and termination provisions, and restrictions on the conduct of Celleration’s business between the date of the Merger Agreement and the date of completion of the merger, which it reviewed with its outside legal advisors.

 

Alliqua’s board of directors also considered potential risks relating to the merger and other transactions contemplated by the Merger Agreement, including the following:

 

·Alliqua management’s attention and Alliqua resources may be diverted from the operation of Alliqua’s business and towards the completion of the merger;

 

·Alliqua may not realize all of the anticipated benefits of the merger, including cost savings, maintenance of existing customer and employee relationships, and minimal disruption in the integration of the Celleration operations and sales infrastructure with Alliqua;

 

·the challenges and difficulties relating to integrating the operations of Celleration and Alliqua;

 

·the nature and amount of payments and other benefits to be received by Celleration equity holders in connection with the merger pursuant to the Merger Agreement;

 

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·the risk that because the exchange ratio related to the stock portion of the initial merger consideration to be paid to Celleration shareholders is fixed, the value of the stock portion of the initial merger consideration to be paid by Alliqua could fluctuate and increase between the original signing of the Merger Agreement and the completion of the transactions contemplated by the Merger Agreement;

 

·the risk that the combination with Celleration might not be completed in a timely manner or at all and the attendant adverse consequences for Alliqua and Celleration’s respective businesses as a result of the pendency of the combination and operational disruption;

 

·the requirement that Alliqua pay Celleration a termination fee of $3 million under certain circumstances prompting the termination of the Merger Agreement; and

 

·the substantial costs that Alliqua will incur in connection with the merger and other transactions contemplated by the Merger Agreement, even if they are not consummated.

 

The foregoing discussion of the factors considered by the Alliqua board of directors is not intended to be exhaustive, but, rather, includes the material factors considered by the Alliqua board of directors. In reaching its decision to approve and adopt the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement, including the issuance of shares of Alliqua common stock in the merger, the Alliqua board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Alliqua board of directors considered all these factors as a whole, including discussions with, and questioning of, Alliqua's management and Alliqua's outside financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

 

Celleration’s Reasons for the Merger

 

The Celleration board of directors considered many factors in making its decision to recommend the approval of the Celleration Merger Agreement proposal. In arriving at its decision, the Celleration board of directors consulted with Celleration’s senior management, legal advisors, reviewed a significant amount of information, considered a number of factors and concluded in its business judgment that the proposed merger is likely to result in significant strategic and financial benefits to Celleration and its stockholders, including a number of positive factors (not in any relative order of importance):

 

historical and current information concerning Celleration’s business, financial performance, financial condition, operations and management, including financial projections of Celleration under various scenarios and its short- and long-term strategic objectives and the significant risks associated therewith;

 

the consideration of strategic alternatives to the proposed merger with Alliqua, including other merger transactions with other companies, continuing to operate Celleration on a stand-alone basis, and the belief that the proposed merger with Alliqua would provide the Celleration stockholders with a greater potential opportunity to realize a return on their investment than any other alternative reasonably available to Celleration and its stockholders;

 

the belief that the combination of Celleration’s and Alliqua’s businesses would create more value for the Celleration stockholders in the long-term than Celleration could create as an independent, stand-alone company, given the anticipated costs, timing and risks associated with developing the market and increasing sales of MIST Therapy, and the uncertain venture capital and debt markets, which Celleration historically has relied upon to raise additional financing to fund its product development efforts;

 

the complementary nature of Celleration’s and Alliqua’s businesses and geographic markets and the additional revenue growth opportunities presented by the combined company’s expanded and comprehensive product offering;

 

the current and prospective competitive climate in the medical device industry, including recent consolidation within the industry and significant regulatory, financial, economic and other challenges facing industry participants, and the belief that the combined company, in light of its larger scale, more comprehensive product offering and market presence, will be better positioned to meet these challenges;

 

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the expectation that the combined company could achieve annual cost savings and synergies from, among other things, reductions in corporate overhead and administrative costs in comparison to both companies on a stand-alone basis;

 

historical and current information concerning Alliqua’s business, financial performance, financial condition, operations and management, and the results of a due diligence investigation of Alliqua conducted by Celleration’s management;

 

the opportunity for the Celleration stockholders to participate in the potential future value of the combined company, including future potential value from Alliqua’s products and products pipeline;

 

the terms and conditions of the merger agreement, including without limitation the following:

 

the structure of the merger and the level of certainty as to the percentage of the total shares of common stock of the combined company that current Celleration and Alliqua stockholders will own after the merger;

 

the provisions of the merger agreement that limit the ability of Celleration to solicit and respond to offers for alternative transactions, but which allow Celleration to respond to a bona fide acquisition proposal that the Celleration board of directors determines is or is reasonably likely to lead to a superior proposal, subject to certain restrictions imposed by the merger agreement, which such provisions the Celleration board of directors believes are reasonable under the circumstances;

 

the ability of the Celleration board of directors, in accordance with its fiduciary duties, to withdraw, modify or amend its recommendation that the Celleration stockholders vote in favor the approval of the merger agreement and the transactions contemplated thereby, including the merger, which such provisions the Celleration board of directors believes are reasonable under the circumstances;

 

the requirement that Alliqua pay a $3.0 million fee, less the amounts owed for any bridge loan provided to Celleration (including any accrued and unpaid interest thereon), if the merger agreement is terminated by Celleration due to specified reasons; and

 

the belief that the parties’ respective representations, warranties, and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

 

In the course of its deliberations, the Celleration board of directors also considered a variety of uncertainties, risks and other potentially negative factors relevant to the merger, including the following:

 

the fact that Celleration stockholders will own a significantly smaller percentage in the combined company than such stockholders own in Celleration currently;

 

the difficulty and costs inherent in the combination of two businesses of the size, geographic diversity of Celleration and Alliqua, and complexity and the risk that the cost savings, synergies and other benefits expected to be obtained as a result of the merger might not be fully or timely realized;

 

the restrictions on the conduct of Celleration’s business during the pendency of the merger, which may delay or prevent Celleration from undertaking potential business opportunities that may arise or may negatively affect Celleration’s ability to attract, retain and motivate key personnel;

 

the adverse impact that business uncertainty prior to the effective time of the merger could have on Celleration’s ability to retain and motivate key personnel until the effective time;

 

the time, effort and substantial costs involved in connection with entering into the merger agreement and completing the merger and the related disruptions to the operation of Celleration’s business, including the risk of diverting management’s attention from other strategic priorities to implement merger integration efforts, and the risk that the operations of Celleration would be disrupted by employee concerns or departures or by changes to or termination of Celleration’s relationships with its customers, suppliers, independent sales representatives and distributors following the public announcement of the merger;

 

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the fact that the merger will result in the automatic, full acceleration of vesting of all outstanding equity-based awards held by Celleration employees and officers, which diminishes the retentive value of those awards and may result in the combined company making additional equity-based awards to the employees or officers in order to incentivize them to remain with the combined company and ensure continued alignment of the executive officers’ interests with those of the combined company and its stockholders;

 

the fact that Celleration has incurred and will continue to incur significant transaction costs and expenses in connection with the merger, regardless of whether the merger is consummated;

 

the risk that the Alliqua’s stockholders may fail to approve the merger;

 

the risk that Alliqua may fail to obtain financing to complete the merger;

 

the possibility that the merger might be unduly delayed and the potential for such a delay to reduce or eliminate the expected benefits of the transaction;

 

the possibility that the anticipated benefits of the merger may not be realized or that they may be lower than expected;

 

the fact that the anticipated cash resources of the combined company expected to be available at the closing of the merger would provide the combined company insufficient capital to execute its near-term business strategy before a subsequent financing may be completed;

 

the risk that sales of substantial amounts of common stock of the combined company immediately after the closing of the merger could adversely affect the market price of such common stock;

 

the risk that the combined company’s financial forecasts are not attained at the level or within the timeframe expected; and

 

the provisions of the merger agreement that require Celleration to pay a $4.0 million fee if the merger agreement is terminated by Celleration due to specified reasons.

 

In addition to considering the factors described above, the Celleration board of directors considered that some members of the Celleration board of directors and certain Celleration executive officers have interests in the proposed merger as individuals that are in addition to, and that may be different from, the interest of the Celleration stockholders generally, as described in “The Merger — Interests of Celleration’s Directors and Executive Officers in the Merger” beginning on page [•].

 

After considering the foregoing potentially negative and potentially positive factors, the Celleration board of directors unanimously concluded, in its business judgment, that the potentially positive factors relating to the Merger Agreement and the transactions contemplated thereby, including the merger, outweighed the potentially negative factors.

 

The previous discussion of the information and factors considered by the Celleration board of directors is not exhaustive but is intended to reflect the material factors considered by the Celleration board of directors in its consideration of the merger. In view of the complexity, and the large number, of the factors considered, the Celleration board of directors, both individually and collectively, did not find it practicable to and did not attempt to quantify or assign any relative or specific weight to the various factors. Rather, the Celleration board of directors based its recommendation on the totality of the information presented to and considered by it. In addition, individual members of the Celleration board of directors may have given different weight to different factors.

 

The previous discussion of the information and factors considered by the Celleration board of directors is forward-looking in nature. This information should be read in light of the factors described under “Cautionary Statement Concerning Forward-Looking Statements” beginning on page [•].

 

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Opinion of Alliqua’s Financial Advisor

 

Pursuant to an engagement letter with Alliqua (the “Engagement Letter”), dated as of January 9, 2015, Alliqua retained Cowen, as investment bankers, to render an opinion to the Alliqua board of directors as to the fairness, from a financial point of view, to Alliqua of the consideration to be paid by Alliqua in the merger.

 

On January 30, 2015, Cowen delivered to the Alliqua board of directors its oral opinion subsequently confirmed in writing (the “Opinion”) that, as of the date of the Opinion, and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the consideration to be paid by Alliqua in the merger pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Alliqua. The full text of the Opinion is attached as Annex C hereto and is incorporated herein by reference. Holders of shares of Alliqua common stock are urged to read the Opinion in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken by Cowen. The summary of the Opinion set forth herein is qualified in its entirety by reference to the full text of the Opinion. The Opinion was prepared for and addressed to the Alliqua board of directors and was directed only to the fairness, from a financial point of view, of the consideration to be paid by Alliqua in the merger, and does not constitute an opinion as to the merits of the merger or a recommendation to any stockholder as to how to vote on the proposed merger. The consideration to be paid in the merger was determined through negotiations between Alliqua and Celleration and not pursuant to recommendations of Cowen.

 

In connection with the Opinion, Cowen reviewed and considered such financial and other matters as it deemed relevant, including, among other things:

 

·the financial terms and conditions of the merger contained in a draft of the Merger Agreement, dated January 29, 2015, which was the most recent draft made available to Cowen;

 

·certain publicly available financial and other information for Alliqua and certain other relevant financial and operating data for Alliqua furnished to Cowen by management of Alliqua;

 

·certain financial and other information for Celleration and certain other relevant financial and operating data for Celleration furnished to Cowen by management of Celleration and management of Alliqua;

 

·certain internal financial analyses, financial forecasts, reports and other information concerning Celleration (the “Celleration Forecasts”) and Alliqua (the “Alliqua Forecasts”), prepared by managements of Celleration and Alliqua, respectively, and the amounts and timing of the cost savings, related expenses and revenue synergies expected to result from the merger furnished to Cowen by the management of Alliqua (the “Expected Synergies”);

 

·consensus estimates and financial projections in Wall Street analysts’ reports for Alliqua (together, “Wall Street Projections”);

 

·discussions Cowen had with certain members of management of each of Celleration and Alliqua, respectively, concerning the historical and current business operations, financial condition and prospects of Celleration and Alliqua, the Expected Synergies, and such other matters Cowen deemed relevant;

 

·certain operating results of Celleration as compared to the operating results of certain publicly traded companies Cowen deemed relevant;

 

·the reported price and trading history of shares of Alliqua common stock as compared to the reported price and trading histories of certain publicly traded companies Cowen deemed relevant;

 

·performed a discounted cash flow analysis with respect to Celleration;

 

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·compared certain financial terms of the merger to the financial terms of certain selected business combinations Cowen deemed relevant; and

 

·such other information, financial studies, analyses and investigations and such other factors that Cowen deemed relevant for the purposes of the Opinion.

 

In conducting its review and arriving at the Opinion, Cowen, with Alliqua’s consent, assumed and relied, without independent investigation, upon the accuracy and completeness of all financial and other information provided to it by Celleration and Alliqua, respectively, or which was publicly available or was otherwise reviewed by Cowen. Cowen did not undertake any responsibility for the accuracy, completeness or reasonableness of, or independent verification of, such information. Cowen relied upon, without independent verification, the assessment of the managements of Celleration and Alliqua as to the existing products and services of Celleration and the viability of, and risks associated with, the future products and services of Celleration. In addition, Cowen did not conduct, nor assume any obligation to conduct, any physical inspection of the properties or facilities of Celleration or Alliqua. Cowen further relied upon Alliqua’s and Celleration’s representations that all information provided to Cowen by Alliqua or Celleration, as applicable, was accurate and complete in all material respects. Cowen, with Alliqua’s consent, assumed that the financial forecasts and description of Expected Synergies which Cowen examined were reasonably prepared by the respective managements of Celleration and Alliqua on bases reflecting the best currently available estimates and good faith judgments of such managements as to the future performance of Celleration and Alliqua, as applicable, and such projections and synergies, and the Wall Street Projections utilized in Cowen analyses, provided a reasonable basis for the Opinion. The Opinion states that all such projected financial information is based upon numerous variables and assumptions and that actual results could vary significantly from those set forth in such projected financial information. Cowen expressed no opinion as to Celleration Forecasts, the Alliqua Forecasts, the Wall Street Projections, the Expected Synergies or the assumptions on which they were made and did not in any respect assume any responsibility for the accuracy thereof.

 

Cowen assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of Celleration or Alliqua since the date of the last financial statements made available to Cowen. Cowen did not make or obtain any independent evaluations, valuations or appraisals of the assets or liabilities of Celleration or Alliqua, nor was Cowen furnished with such materials. In addition, Cowen did not evaluate the solvency or fair value of Celleration, Alliqua or Merger Sub under any state or federal laws relating to bankruptcy, insolvency or similar matters. The Opinion does not address any legal, tax or accounting matters related to the Merger Agreement or the merger, as to which Cowen assumed that Alliqua and the Alliqua board of directors received such advice from legal, tax and accounting advisors as each determined appropriate. Cowen assumed, at Alliqua’s direction and with Alliqua’s consent, that (i) Celleration will achieve its Revenue Targets (as defined in the Merger Agreement) for the fiscal years ending December 31, 2015 and December 31, 2016, and (ii) NICE Approval (as defined in the Merger Agreement) will not be obtained, and consequently certain additional contingent consideration payments based on MIST Net Sales (as defined in the Merger Agreement) over an enumerated benchmark will not be made. The Opinion addresses only the fairness to Alliqua, from a financial point of view, of the consideration to be paid by Alliqua in the merger pursuant to the terms of the Merger Agreement. Cowen did not express any view as to any other aspect or implication of the merger or any other agreement, arrangement or understanding entered into in connection with the merger or otherwise, including, without limitation, the form or structure of the merger or any consequences of the merger on Alliqua, Merger Sub or Alliqua’s stockholders, creditors, employees or other constituencies. The Opinion is necessarily based upon economic and market conditions and other circumstances as they existed and could be evaluated by Cowen on the date of the Opinion. The Opinion states that it should be understood that, although subsequent developments may affect the Opinion, Cowen does not have any obligation to update, revise or reaffirm the Opinion and Cowen expressly disclaims any responsibility to do so.

 

Cowen did not consider any potential legislative or regulatory changes being considered at the time of or recently enacted before the issuance of the Opinion by the United States or any foreign government, or any domestic or foreign regulatory body, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the SEC, the Financial Accounting Standards Board or any similar foreign regulatory body or board.

 

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For purposes of rendering the Opinion, Cowen assumed in all respects material to its analysis, that the representations and warranties of each party contained in the Merger Agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the Merger Agreement and that all conditions to the consummation of the merger will be satisfied without waiver thereof, and without any adjustment to the consideration. Cowen assumed that the final form of the Merger Agreement will be substantially similar to the last draft reviewed by Cowen. Cowen also assumed that all governmental, regulatory and other consents and approvals contemplated by the Merger Agreement will be obtained and that in the course of obtaining any of those consents no restrictions will be imposed or waivers made that would have an adverse effect on the contemplated benefits of the merger. Cowen assumed that the merger will be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. The Opinion states that Alliqua informed Cowen, and Cowen assumed, that the merger will be treated as a tax-free reorganization.

 

The Opinion states that it is intended for the benefit and use of the Alliqua board of directors for its information and assistance in connection with its consideration of the financial terms of the merger and may not be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose without Cowen’s prior written consent. The Opinion does not constitute a recommendation to the Alliqua board of directors or stockholders of Alliqua on whether or not to approve or to vote in favor of the merger or to take any other action in connection with the merger or otherwise. Cowen was not requested to opine as to, and the Opinion does not in any manner address, Alliqua’s underlying business decision to effect the merger or the relative merits of the merger as compared to other business strategies or transactions that might have been available to Alliqua. Additionally, Cowen was not engaged to be involved in any determinations of the Alliqua board of directors or Alliqua’s management to pursue strategic alternatives and Cowen was not authorized or requested to, and did not, investigate any other alternative transactions that may have been available to Alliqua. In addition, Cowen was not requested to opine as to, and the Opinion does not in any manner address, (i) the fairness of the amount or nature of the compensation to any officers, directors or employees of any party to the merger, or class of such persons, relative to the consideration to be paid by Alliqua in the merger, (ii) the fairness of the merger or the consideration to the holders of any class of securities, creditors or other constituencies of Celleration or Alliqua, or (iii) whether Alliqua had sufficient cash, available lines of credit or other sources of funds to enable it to pay the consideration at the closing of the merger. Furthermore, Cowen expressed no view as to the price or trading range for shares of Alliqua common stock following the consummation of the merger.

 

The following is a brief summary of the principal financial analyses performed by Cowen to arrive at the Opinion. Some of the summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses. Cowen reviewed with the management of Alliqua the assumptions on which such analyses were based and other factors, including the historical and projected financial results of Alliqua and Celleration. No limitations were imposed by the Alliqua board of directors with respect to the investigations made or procedures followed by Cowen in rendering the Opinion.

 

Analysis of Selected Transactions. Cowen reviewed the financial terms, to the extent publicly available, of 12 transactions (the “MedTech Industry Transactions”) involving the acquisition of companies in the medical technology industry, which were announced or completed since March 12, 2008. These transactions were (listed as target/buyer):

 

Date   Target   Buyer
10/27/14   Wright Medical Group Inc.   Tornier N.V.
05/05/14   Choice Therapeutics, Inc.   Alliqua, Inc.
08/15/13   MAKO Surgical Corp.   Stryker Corporation
11/28/12   Healthpoint Biotherapeutics Ltd.   Smith & Nephew plc
09/15/12   Complete Genomics, Inc.   BGI-Shenzhen
09/20/11   ClearStream Technologies Group plc   C.R. Bard Inc.
05/17/11   Advanced BioHealing, Inc.   Shire plc
04/30/10   Lifecore Biomedical, LLC   Landec Corporation
09/24/08   CryoCath Technologies, Inc.   Medtronic, Inc.
04/22/08   Restore Medical, Inc.   Medtronic, Inc.
03/26/08   CryoCor, Inc.   Boston Scientific Corporation
03/12/08   Tissue Science Laboratories plc   Covidien plc

 

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Cowen reviewed the market capitalization of common stock plus total debt less cash and cash equivalents (“Enterprise Value”) paid in the MedTech Industry Transactions as a multiple of last 12 month (“LTM”) and next 12 month (“NTM”) revenues. The following table presents the multiples implied by the ratios of Enterprise Values to LTM and NTM revenues.

 

   Multiples for MedTech Industry Transactions 
   Low   Mean   Median   High 
Enterprise Value as a ratio of:                    
LTM Revenue   2.4x   5.5x   4.6x   12.4x
NTM Revenue   1.9x   4.9x   3.6x   11.8x

 

Based upon the information presented in the table above, Cowen’s experience in the medical technology industry and its professional judgment, Cowen selected implied reference range multiples. The following table presents the implied Enterprise Value of Celleration based on a range of 4.6x - 5.5x Enterprise Value/LTM revenue multiples and 3.6x - 4.9x Enterprise Value/NTM revenue multiples, in each case, compared to the implied Enterprise Value to be paid in the merger by Alliqua of $49.0 million.

 

   Reference Range Multiple  Implied
Enterprise
Value (in
millions)
Enterprise Value as a multiple of:      
LTM Revenue  4.6x-5.5x  $40.0-$47.9
NTM Revenue  3.6x-4.9x  $37.4-$51.0

 

Although the MedTech Industry Transactions were used for comparison purposes, none of those transactions is directly comparable to the merger, and none of the companies in those transactions is directly comparable to Alliqua or Celleration. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the companies involved and other factors that could affect the acquisition value of such companies or Celleration.

 

Analysis of Selected Publicly Traded Companies. To provide contextual data and comparative market information, Cowen compared selected historical operating and financial data and ratios for Celleration to the corresponding financial data and ratios of certain other companies (the “Selected Companies”) whose securities are publicly traded and which Cowen believes have operating, market valuation and trading valuations similar to what might be expected of Celleration. These companies were:

 

·MiMedx Group, Inc.

 

·Osiris Therapeutics Inc.

 

·Derma Sciences, Inc.

 

·MediWound Ltd.

 

The data and ratios included the Enterprise Values of the Selected Companies as multiples of LTM and NTM revenues. The following table presents the multiples implied by the ratios of Enterprise Values to LTM and NTM revenues.

 

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   Selected Company Multiples 
   Low   Mean   Median   High 
Enterprise Value as a ratio of:                    
LTM Revenue   1.8x   6.3x   8.1x   8.9x
NTM Revenue   1.7x   4.3x   5.2x   6.1x

 

Based upon the information presented in the table above, Cowen’s experience in the medical technology industry and its professional judgment, Cowen selected implied reference range multiples. The following table presents the implied Enterprise Value of Celleration based on a range of 6.3x – 8.1x Enterprise Value/LTM revenue multiples and 4.3x – 5.2x Enterprise Value/NTM revenue multiples, in each case, compared to the implied Enterprise Value to be paid in the merger by Alliqua of $49.0 million.

 

   Reference Range Multiple  Implied Enterprise Value (in
millions)
Enterprise Value as a multiple of:      
LTM Revenue  6.3x – 8.1x  $54.8 – $70.5
NTM Revenue  4.3x – 5.2x  $44.7 – $54.1

 

Although the Selected Companies were used for comparison purposes, none of those companies is directly comparable to Celleration. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the Selected Companies and other factors that could affect the acquisition value of the Selected Companies or Celleration.

 

Discounted Cash Flow Analysis. Cowen estimated a range of values for Celleration based upon the discounted present value of the projected after-tax cash flows of Celleration described in the financial forecasts provided by management of Celleration for Celleration’s fiscal quarters ended September 30, 2015 and December 31, 2015 and Celleration’s fiscal years ending 2016 through 2019, and of the terminal value of Celleration at the fiscal year ending 2019, based upon multiples of revenue, in each case discounted back to June 30, 2015, the assumed closing date of the merger. Unlevered free cash flow was calculated by taking operating earnings and subtracting from this amount projected taxes, capital expenditures, and decreases in net working capital, and adding back projected depreciation and amortization, stock-based compensation, and increases in net working capital. This analysis was based upon certain assumptions described by and projections supplied by the management of Celleration. In performing this analysis, Cowen utilized discount rates ranging from 10% to 14%, which were selected based on the average of the weighted average cost of capital of the Selected Companies. Cowen utilized terminal multiples of revenue ranging from 4.0x to 5.0x, which range was selected by Cowen in its professional judgment and based on multiples implied by the ratios of Enterprise Values to LTM revenues for the MedTech Industry Transactions.

 

Utilizing this methodology, the implied Enterprise Value of Celleration ranged from $83.7 million to $120.7 million, compared to the implied Enterprise Value to be paid in the merger by Alliqua of $49.0 million.

 

Relative Contribution/Pro Forma Ownership Analysis. Cowen analyzed the respective contributions of 2015 through 2017 calendar year estimated total revenues, gross profit and operating income (or loss) of Alliqua and Celleration to the combined company, based upon the projected financial results of Alliqua and Celleration (based upon the respective financial forecasts prepared by managements of Alliqua and Celleration and excluding synergies expected to result from the merger) and compared the results to the pro forma ownership of the combined company following the merger. The table below indicates the results of this analysis.

 

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   % of Combined Company 
   Celleration
Contribution
   Alliqua
Contribution
 
CY 2015E          
Total Revenues   36.1%   63.9%
Gross Profit   43.9%   56.1%
Operating Income (Loss)   Not meaningful     Not meaningful  
           
CY 2016E          
Total Revenues   31.1%   68.9%
Gross Profit   36.4%   63.6%
Operating Income (Loss)   Not meaningful    Not meaningful  
           
CY 2017E          
Total Revenues   28.6%   71.4%
Gross Profit   32.9%   67.1%
Operating Income (Loss)   80.3%   19.7%

 

Cowen analyzed the pro forma ownership in the combined company by the holders of Alliqua common stock and noted that current holders of Alliqua common stock would own approximately 76.9% of the combined company and shareholders of Celleration would own 23.1% of the combined company. In performing this analysis, Cowen assumed that Celleration will achieve its Revenue Targets for fiscal years ending December 31, 2015 and December 31, 2016 and that the related earn-out payments will paid at such level. Cowen noted that this percentage exceeded the percentage of Alliqua’s contributions to revenues, gross profit and operating income (loss) in each of the calendar years 2015 through 2017.

 

In analyzing the consideration to be paid by Alliqua in connection with the merger, Cowen reviewed certain publicly available data regarding the market value of shares of Alliqua common stock relative to that of the Selected Companies. In particular, Cowen analyzed the reported price and trading history of shares of Alliqua common stock as compared to the reported price and trading histories of shares of the Selected Companies. Cowen noted that Alliqua common stock, as of January 29, 2015, was trading at 54% of its 52 week high and 135% of its 52 week low, in line with trading of the shares of the Selected Companies. Furthermore, Cowen compared the multiples implied by the ratios of the Enterprise Values of the Selected Companies to their respective LTM and NTM revenues to the corresponding multiples for Alliqua (in each case utilizing Wall Street Projections). Cowen noted that Alliqua common stock, as of January 29, 2015, was trading at Enterprise Value to revenue multiples at or above the range of the Selected Companies’ 2014 and 2015 Enterprise Value to revenue multiples.

 

The summary set forth above does not purport to be a complete description of all the analyses performed by Cowen. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Cowen did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding the separate factors summarized above, Cowen believes, and has advised the Alliqua board of directors, that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying the Opinion. Additionally, no company or transaction used in any analysis as a comparison is identical to Celleration or the merger, and they all differ in material ways. Accordingly, an analysis of the results described above is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the acquisition value of the selected companies or transactions to which they are being compared. Cowen used these analyses to determine the impact of various operating metrics on the implied enterprise value of Celleration. Each of these analyses yielded a range of implied enterprise values, and therefore, such implied enterprise value ranges developed from these analyses were viewed by Cowen collectively and not individually.

 

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In performing its analyses, Cowen made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of Alliqua and Celleration. Except as otherwise noted, the information utilized by Cowen in its analyses, to the extent that it was based on market data, is based on market data as it existed on or before January 29, 2015 and is not necessarily indicative of current market conditions. These analyses performed by Cowen are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses or securities may actually be sold. Accordingly, such analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors. None of Alliqua, Celleration, Cowen or any other person assumes responsibility if future results are materially different from those projected. The analyses supplied by Cowen and the Opinion were among several factors taken into consideration by the Alliqua board of directors in making its decision to enter into the Merger Agreement and should not be considered as determinative of such decision.

 

Cowen was selected by the Alliqua board of directors to render the Opinion to the Alliqua board of directors because Cowen is a nationally recognized investment banking firm and because, Cowen as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In addition, in the ordinary course of its business, Cowen and its affiliates may actively trade the equity securities of Alliqua for their own account and for the accounts of their customers, and, accordingly, may at any time hold a long or short position in such securities. The issuance of the Opinion was approved by Cowen’s fairness opinion review committee.

 

Cowen is acting as exclusive financial advisor to the Alliqua board of directors in connection with the merger and will receive a fee of $1,500,000 (the “Transaction Fee”) from Alliqua for Cowen’s services pursuant to the terms of the Engagement Letter, all of which is contingent upon the consummation of the merger. Cowen received a fee of $750,000 for providing the Opinion without regard to whether the merger is ultimately consummated, but which is creditable against any Transaction Fee. In addition, Alliqua agreed to reimburse certain of Cowen’s expenses and to indemnify Cowen for certain liabilities that may arise out of Cowen’s engagement. The Opinion states that, in the two years preceding the date of the Opinion, Cowen has not had a material relationship with Alliqua or any other party to the merger and there were no material relationships mutually understood to be contemplated in which any compensation was received or was intended to be received as a result of the relationship between Cowen and any party to the merger. Pursuant to the terms of the Engagement Letter, Alliqua agreed that Cowen shall have the right to participate as one of Alliqua’s underwriters or placement agents in any equity financing by Alliqua to finance the merger after the execution of the Merger Agreement and during the term of the Engagement Letter, and Cowen would receive fees for the rendering of such services. Cowen and its affiliates may in the future provide commercial and investment banking services to Alliqua and Merger Sub and may receive fees for the rendering of such services.

 

The terms of the fee arrangement with Cowen, which are customary in transactions of this nature, were negotiated at arm’s length between Alliqua and Cowen, and the Alliqua board of directors was aware of the arrangement, including the fact that a significant portion of Cowen’s fees are contingent upon the completion of the merger.

 

Board Composition and Management of Alliqua after the Merger

 

The directors and officers of Alliqua immediately prior to the effective time of the merger will continue to be directors and officers of Alliqua immediately following the merger. Pursuant to the terms of the Merger Agreement, Alliqua has agreed to appoint Celleration’s president and chief executive officer, Mark Wagner, to the Alliqua board of directors upon the effective time of the merger.

 

Information about current directors and executive officers of Alliqua, including biographical information, executive compensation and stock ownership, can be found in Alliqua’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is filed with the SEC and incorporated by reference into this joint proxy and consent solicitation statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page [    •    ] of this joint proxy and consent solicitation statement/prospectus.

 

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Information about Mark Wagner, including his biographical information, executive compensation and stock ownership as the president and chief executive officer and a director of Celleration, can be found in the section titled “Information About the Celleration Director” beginning on page [    •    ] and the section titled “Principal Stockholders of Celleration” beginning on page [   •    ] of this joint proxy and consent solicitation statement/prospectus.

 

Interests of Celleration’s Directors and Executive Officers in the Merger

 

In considering the recommendation of the Celleration board of directors to approve and adopt the Celleration Merger Agreement proposal, Celleration stockholders should be aware that certain of Celleration’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Celleration stockholders generally. The Celleration board of directors was aware of these interests and considered them, among other matters, in approving and declaring advisable the Merger Agreement and the transactions contemplated by the Merger Agreement. These interests are described below.

 

Executive Officers

 

The following table sets forth the name and position of the individuals who currently serve as the executive officers of Celleration.

 

Name   Position
Mark Wagner   Director, President and Chief Executive Officer
Christopher Geyen   Chief Financial Officer
Doug Duchon   Vice President, Research and Development
Mark Rogozinski   Vice President, Reimbursement
Diane Sahr   Vice President, Clinical Research
Pamela Unger   Vice President, Medical Affairs and Clinical Education

 

Position with the Combined Company

 

Mark Wagner, currently a director and the president and chief executive officer of Celleration, will be appointed to the Alliqua board of directors upon the effective time of the merger pursuant to the terms of the Merger Agreement. Certain executive officers of Celleration may be hired as employees by Alliqua. No agreements with Alliqua have been finalized as of the date of this joint proxy and consent solicitation statement/prospectus. These matters are subject to negotiations and discussions and there can be no assurance that the parties will reach agreement. Such executive officers of Celleration do, however, have existing employment agreements or offer letters with Celleration.

 

Ownership Interests of Celleration’s Directors and Executive Officers

 

As of April 1, 2015, Celleration’s directors and executive officers as a group held eligible options to purchase a total of 14,177,200 shares of Celleration common stock. As described under “Treatment of Celleration Stock Options and Warrants,” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus, at the effective time of the merger, each outstanding and unexercised Celleration stock option will be cancelled. Only certain holders of in-the-money options will be entitled to receive a pro rata share of the merger consideration and the contingent consideration, as determined by taking the product of (i) the number of shares underlying such in-the-money option and (ii) the excess of the closing per share merger consideration over the per share exercise price of such option. The board of directors of Celleration anticipates that the options to purchase shares of Celleration common stock held by Celleration’s executive officers will be deemed in-the-money. Based on the exercise price of $0.05 per share for each option and an estimated closing per share merger consideration of $0.169, the value of the merger consideration Celleration’s directors and executive officers will receive for options to purchase shares of Celleration common stock expected to be deemed in-the-money is set forth in the table below.

 

    Number of
Vested
Options
Outstanding
    Aggregate
Value of
Exercised
Options
    Aggregate
Exercise
Price
    Aggregate
Value Less
Aggregate
Exercise
Price
 
Mark Wagner     6,324,000     $ 1,068,756     $ 316,200     $ 752,556  
Christopher Geyen     2,409,000     $ 407,121     $ 120,450     $ 286,671  
Pamela Unger     1,257,000     $ 212,433     $ 62,850     $ 149,583  
Doug Duchon     1,152,000     $ 194,688     $ 57,600     $ 137,088  
Mark Rogozinski     1,152,000     $ 194,688     $ 57,600     $ 137,088  
Diane Sahr     1,152,000     $ 194,688     $ 57,600     $ 137,088  
Bruce Elegant     331,200     $ 55,973     $ 16,560     $ 39,413  
Sven Wehrwein     400,000     $ 67,600     $ 20,000     $ 47,600  

 

For additional information on directors’ and executive officers’ beneficial ownership of Celleration common stock and options held by Celleration’s directors and executive officers, please refer to “Principal Stockholders of Celleration” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

Liquidation Preference Payable to Directors and Executive Officers

 

In addition, certain of the Celleration officers and directors will be entitled to a pro rata portion of the Series AA preferred stock liquidation preference upon the closing of the merger. For a discussion of the liquidation preference payable to directors and executive officers of Celleration, please refer to “—Liquidation Preference Payable to Certain Stockholders, Directors and Executive Officers of Celleration in the Merger” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

Bonus Upon Completion of the Merger

 

The Celleration board of directors approved a one-time special cash bonus for certain officers and directors of Celleration contingent on the successful completion of the merger and the closing of the transactions contemplated by the Merger Agreement. Sven Wehrwein and Bruce Elegant, each a current director of Celleration, are entitled to receive $13,432.80 and $11,122.40, respectively. In addition, Messrs. Wagner and Geyen are entitled to receive $145,212.13 and $13,737.37, respectively.

 

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Indemnification and Liability Insurance

 

Pursuant to the Merger Agreement, upon the completion of the merger, Celleration and Alliqua agreed that for six years after the effective time of the merger, to the fullest extent permitted under applicable law, Alliqua and the surviving corporation shall indemnify, defend and hold harmless each current and former director and officer of Celleration against all losses, claims, damages, liabilities, fees, expenses, judgments and fines arising in whole or in part out of actions or omissions in their capacity as such occurring at or prior to the effective time of the merger, including in connection with the transactions contemplated by the Merger Agreement, and shall reimburse each such director and officer of Celleration for any legal or other expenses reasonably incurred in connection with investigating or defending any such losses, claims, damages, liabilities, fees, expenses, judgments and fines as such expenses are incurred, subject to certain limitations.

 

Celleration will purchase a “tail” policy with respect to directors’ and officers’ liability insurance policy with a claims period of at least six-years after the effective time of the merger. During the term of the tail policy, Alliqua and the surviving company have agreed in the Merger Agreement not take any action to cause the tail policy to be cancelled or any provision therein to be amended or waived.

 

Voting Agreements

 

Certain of the Celleration 5% stockholders who have entered into voting agreements with Alliqua to, among other things, execute and deliver a written consent with respect to all shares of Celleration common stock and Series AA preferred stock owned by them as of the applicable record date in favor of the adoption and approval of the Merger Agreement and merger, are affiliated with directors of Celleration. Each of Celleration’s executive officers has also entered into a voting agreement with Alliqua. See the section titled “Ancillary Agreements—Voting Agreement” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

Golden Parachute Compensation

 

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each of Celleration’s named executive officers that is based on or otherwise relates to the merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section Celleration uses such term to describe the merger-related compensation payable to Celleration’s named executive officers. For 2014, the named executive officers of Celleration were Mark Wagner, president and chief executive officer; Chris Geyen, chief financial officer; and Pamela Unger, vice president of medical affairs and clinical education.

 

Mark Wagner—Mr. Wagner is employed as the president and chief executive officer of Celleration pursuant to an employment agreement. Under his employment agreement, if Celleration terminates Mr. Wagner’s employment without cause, or Mr. Wagner terminates his employment for good reason, both as defined in the agreement, Mr. Wagner is entitled to receive an amount equal to 12 months of his base salary, paid in equal installments over 12 months, and will be permitted to continue to participate in Celleration’s medical and dental benefit plans for a period of 12 months following the date of termination, at Celleration’s expense. Upon a change in control of Celleration, if Celleration terminates Mr. Wagner’s employment without cause, or Mr. Wagner terminates his employment for good reason, within one year of the change in control, Mr. Wagner is entitled to a lump sum payment equal to the sum of (i) 15 months of his base salary; (ii) 50% of his base salary; and (iii) an amount equal to the award that would have been payable under any incentive bonus plan if Celleration’s performance results remained the same for the rest of the year, pro-rated for the number of days elapsed during the year; and also to continued participation in the medical and dental benefit plans for a period of 15 months following the date of termination, at Celleration’s expense. Receipt of any benefits by Mr. Wagner upon termination will be conditioned upon Mr. Wagner executing a general release of all claims in a form provided by Celleration and his being compliant with the employment agreement and any other written agreements with the company.

 

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Christopher Geyen—Mr. Geyen is employed as the chief financial officer of Celleration pursuant to an employment agreement. Under his employment agreement, if Celleration terminates Mr. Geyen’s employment without cause, or Mr. Geyen terminates his employment for good reason, both as defined in the agreement, Mr. Geyen is entitled to receive an amount equal to 12 months of his base salary, paid in equal installments over 12 months, and will be permitted to continue to participate in Celleration’s medical and dental benefit plans for a period of 12 months following the date of termination, at Celleration’s expense. Upon a change in control of Celleration, if Celleration terminates Mr. Geyen’s employment without cause, or Mr. Geyen terminates his employment for good reason, within one year of the change in control, Mr. Geyen is entitled to a lump sum payment equal to the sum of (i) 12 months of his base salary; (ii) 35% of his base salary; and (iii) an amount equal to the award that would have been payable under any incentive bonus plan if Celleration’s performance results remained the same for the rest of the year, pro-rated for the number of days elapsed during the year; and also to continued participation in the medical and dental benefit plans for a period of 12 months following the date of termination, at Celleration’s expense. Receipt of any benefits by Mr. Geyen upon termination will be conditioned upon Mr. Geyen executing a general release of all claims in a form provided by Celleration and his being compliant with the employment agreement and any other written agreements with the company.

 

Pamela Unger—Ms. Unger is employed as the vice president of medical affairs and clinical education of Celleration pursuant to an employment agreement. Under her employment agreement, if Celleration terminates Ms. Unger’s employment without cause, or Ms. Unger terminates her employment for good reason, both as defined in the agreement, Ms. Unger is entitled to receive an amount equal to three months of her base salary, paid in equal installments over three months, and will be permitted to continue to participate in Celleration’s medical and dental benefit plans for a period of three months following the date of termination, at Celleration’s expense. Upon a change in control of Celleration, if Celleration terminates Ms. Unger’s employment without cause, or Ms. Unger terminates her employment for good reason, within one year of the change in control, Ms. Unger is entitled to a lump sum payment equal to the sum of (i) six months of her base salary; (ii) an amount equal to 50% of the award that would have been payable under Celleration’s annual incentive bonus plan; and (iii) an amount equal to the award that would have been payable under any incentive bonus plan if Celleration’s performance results remained the same for the rest of the year, pro-rated for the number of days elapsed during the year; and also to continued participation in the medical and dental benefit plans for a period of six months following the date of termination, at Celleration’s expense. Receipt of any benefits by Ms. Unger upon termination will be conditioned upon Ms. Unger executing a general release of all claims in a form provided by Celleration. Receipt of any benefits by Ms. Unger upon termination will be conditioned upon Ms. Unger executing a general release of all claims in a form provided by Celleration and her being compliant with the employment agreement and any other written agreements with the company.

 

For purposes of the employment and equity arrangements above, the consummation of the merger will constitute a “change of control” under each arrangement.

 

Aggregate Amounts of Potential Compensation

 

The table below summarizes potential golden parachute compensation that each named executive officer would be entitled to receive from Celleration if the merger is consummated and if the named executive officer thereafter incurs a termination of employment. Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described herein. Some of these assumptions are based on information not currently available and, as a result, the actual amounts, if any, to be received by named executive officer may differ in material respects from the amounts set forth below.

 

For purposes of calculating such potential golden parachute compensation, Celleration has assumed that the merger occurs on May 31, 2015, including with respect to calculating the portion of equity awards subject to accelerated vesting, and has further assumed that the named executive officers will incur a termination of employment on such date that would entitle them to the benefits set forth in the table below.

 

       Golden Parachute Compensation 
   Cash(1)   Equity   Perquisites /
Benefits
   Total 
Mark Wagner
President and chief executive officer
  $796,661(2)      $35,157(3)  $831,818 
Christopher Geyen
Chief financial officer
  $415,719(2)      $21,682(4)  $437,401 
Pamela Unger
Vice president of medical affairs and clinical education
  $104,150       $6,899(5)  $104,150 

 

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(1)Amounts in this column represent the lump sum cash severance payment to be paid to Mr. Wagner, Mr. Geyen and Ms. Unger upon a termination of employment without “cause” or a termination for “good reason” after a change of control, pursuant to their employment agreements, subject to the execution and non-revocation of a general release of claims in favor of Celleration, and calculated as described above. These amounts assume that base salaries remain unchanged from their levels in effect on the date of this joint proxy and consent solicitation statement/prospectus.

 

(2)These amounts include one-time special cash bonus payments of $145,212 to Mr. Wagner and $13,737 to Mr. Geyen contingent on the successful completion of the Merger and the closing of the transactions contemplated by the Merger Agreement.

 

(3)This amount reflects the aggregate value of Mr. Wagner’s continued participation in Celleration’s medical and dental benefit plans for a period of 15 months following the date of termination, to be paid for at Celleration’s expense.

 

(4)This amount reflects the aggregate value of Mr. Geyen’s continued participation in Celleration’s medical and dental benefit plans for a period of 12 months following the date of termination, to be paid for at Celleration’s expense.

 

(5)This amount reflects the aggregate value of Ms. Unger’s continued participation in Celleration’s medical and dental benefit plans for a period of six months following the date of termination, to be paid for at Celleration’s expense.

 

Liquidation Preference Payable to Certain Stockholders, Directors and Executive Officers of Celleration in the Merger

 

In addition to the right of the holders of Celleration Series AA preferred stock to participate in the merger consideration with the holders of Celleration common stock, the holders of the Celleration Series AA preferred stock will also receive $10,500,000 as a liquidation preference, payable in equal amounts of cash and shares of Alliqua common stock. The following table shows the aggregate liquidation preference payable to each of the beneficial holders of more than 5% of Celleration’s common stock and, for the William Cadogan trusts, 5% of Celleration’s oustanding Series AA preferred stock, as well as for Celleration’s directors and officers.

 

5% Stockholders   Number of Shares of
Series AA Preferred
Stock Beneficially Owned
    Aggregate Liquidation
Preference Payable
 
Entities affiliated with Affinity Capital(1)     3,077,083     $ 849,275  
Entities affiliated with Venture Investors (2)     4,223,461     $ 1,165,675  
Sightline Healthcare Opportunity Fund, LLC     3,440,636     $ 949,616  
Entities affiliated with New Science Ventures(3)     2,731,224     $ 753,818  
Triathlon Medical Ventures, L.P.     2,584,462     $ 713,312  
TVP Partners, L.P.     6,385,983     $ 1,762,531  
John E. Rogers and Lois A. Rogers     3,052,413     $ 842,466  
Russell S. King     2,848,929     $ 786,304  
Heron Capital Venture Fund I, L.P.     1,851,092     $ 510,901  
William Cadogan trusts(4)     2,173,913     $ 600,000  

 

Directors and Executive Officers(5) Number of Shares of
Series AA Preferred
Stock Beneficially Owned
    Aggregate Liquidation
Preference Payable
 
Edson Spencer, Jr.(6)     271,739     $ 150,000  
Mark T. Wagner     645,381     $ 178,125  
Christopher R. Geyen     54,348     $ 15,000  

  

  (1) Consists of (i) 543,479 shares of Celleration Series AA preferred stock held by Affinity Ventures III, L.P.; (ii) 676,745 shares of Celleration Series AA preferred stock held by Affinity Ventures IV, L.P.; and (iii) 1,856,859 shares of Celleration Series AA preferred stock held by Affinity Ventures V, L.P.

 

  (2) Consists of (i) 1,153,005 shares of Celleration Series AA preferred stock held by Venture Investors Early Stage Fund III Limited Partnership and (ii) 3,070,456 shares of Celleration Series AA preferred stock held by Venture Investors Early Stage Fund IV Limited Partnership.

  

  (3) Consists of (i) 343,748 shares of Celleration Series AA preferred stock held by New Science Ventures Fund I – Madison, L.P.; (ii) 1,246,171 shares of Celleration Series AA preferred stock held by NSV Master Limited Partnership II, LP; and (iii) 1,141,305 shares of Celleration Series AA preferred stock held by NSV Partners Institutional, L.P.

 

  (4)

Consists of (i) 1,086,957 shares of Celleration Series AA preferred stock held by the William J. Cadogan GRAT No. 1 of 2013 and (ii) 1,086,956 shares of Celleration Series AA preferred stock held by the William J. Cadogan Revocable Trust of 2005.

 

  (5)

George Arida, Joe Biller and Thomas Lavin, each a director of Celleration, may be deemed to beneficially own shares of Celleration Series AA preferred stock through their affiliation with Venture Investors, Sightline Healthcare Opportunity Fund, LLC and New Science Ventures, respectively. See “Principal Stockholders of Celleration” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

  (6) Consists of  (i) 271,739 shares of Celleration Series AA preferred stock held by the Edson W. Spencer, Jr. Revocable Trust and (ii) 271,739 shares of Celleration Series AA preferred stock held by the Valerie C. Spencer #3 Trust. In addition, Edson Spencer, Jr., a director of Celleration, may be deemed to share voting and investment power over the securities of Celleration held by Affinity Capital. See “Principal Stockholders of Celleration” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

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For information on Celleration’s principal stockholders’ beneficial ownership of Celleration common stock and Series AA preferred stock, please refer to “Principal Stockholders of Celleration” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus. 

 

Regulatory Approvals Required for the Merger

 

Completion of the merger is subject to prior receipt of all approvals required to be obtained from applicable governmental and regulatory authorities. Subject to the terms and conditions of the Merger Agreement, Alliqua and Celleration have agreed to use their commercially reasonable efforts and cooperate to prepare and file, as promptly as possible, all necessary documentation and to obtain as promptly as practicable all regulatory approvals required or advisable to complete the transactions contemplated by the Merger Agreement.

 

Alliqua and Celleration believe that the merger does not raise substantial antitrust or other significant regulatory concerns and that both parties will be able to obtain all requisite regulatory approvals prior to the anticipated closing. However, at any time before or after the effective time of the merger, the FTC, the Antitrust Division or others (including foreign regulatory agencies, states and private parties) could challenge the merger and take action under antitrust laws. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if such challenge is made, that it would not be successful.

 

Alliqua must also comply with the applicable federal and state securities laws and the rules and regulations of The NASDAQ Stock Market LLC for the approval of the listing application to be submitted in connection with the issuance of shares of Alliqua common stock in the merger and the filing of this joint proxy and consent solicitation statement/prospectus with the SEC.

 

The parties' obligation to complete the merger is conditioned upon the receipt of all required regulatory approvals. Alliqua and Celleration will use their respective commercially reasonable efforts to resolve any objections that may be asserted by any regulatory authority with respect to the Merger Agreement or the merger or the other transactions contemplated by the Merger Agreement. For further information, see the section titled “The Merger Agreement—Conditions to Completion of the Merger” on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

The foregoing is a summary of the material regulatory requirements for the merger, satisfaction or waiver of certain of which requirements is a condition to the completion of the merger. There can be no guarantee as to if and when any of the consents or approvals required for the merger will be obtained or as to the conditions that such consents and approvals may contain.

 

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Accounting Treatment

 

Alliqua will account for the acquisition pursuant to the Merger Agreement using the acquisition method of accounting in accordance with U.S. GAAP. Alliqua will measure the assets acquired and liabilities assumed at their fair values including net tangible and identifiable intangible assets acquired and liabilities assumed as of the closing of the transaction. Any excess of the purchase price over those fair values will be recorded as goodwill. Definite lived intangible assets will be amortized over their estimated useful lives. Intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually. All intangible assets and goodwill are also tested for impairment when certain indicators are present. The purchase price reflected in the unaudited pro forma condensed combined financial statements is based on preliminary estimates using assumptions Alliqua management believes are reasonable based on currently available information. The final purchase price and fair value assessment of assets and liabilities will be based in part on a detailed valuation which has not yet been completed.

 

U.S. Federal Income Tax Considerations

 

The following discussion is the opinion of Haynes and Boone and of Dorsey & Whitney as to the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of Celleration stock whose shares of Celleration stock are exchanged for shares of Alliqua stock and cash in the merger. This discussion is based in part on representation letters provided by Alliqua and by Celleration and on customary factual assumptions. If any of those assumptions or representations is inaccurate, incomplete, or untrue, the conclusions stated below could be affected. Neither Haynes and Boone nor Dorsey & Whitney is under any obligation to update its opinion as a result of a change in law or discovery of any inaccuracy in such representations. This discussion assumes that none of the terms and conditions contained in the Merger Agreement will have been waived or modified in any respect on or prior to the closing date.

 

This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to the income tax. This discussion is based upon the Code, the regulations promulgated under the Code, and court and administrative rulings and decisions, all as in effect on the date of this joint proxy and consent solicitation statement/prospectus. These authorities may change, possibly retroactively, and any change could affect the accuracy of the statements and conclusions set forth in this discussion.

 

This discussion addresses only those U.S. holders of Celleration stock that hold their shares of Celleration stock as a "capital asset" within the meaning of Section 1221 of the Code. Importantly, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular U.S. holder in light of that U.S. holder's individual circumstances or to a U.S. holder that is subject to special treatment under the U.S. federal income tax laws, including, without limitation, a U.S. holder that is:

 

·a financial institution; 

 

·a tax-exempt organization; 

 

·a regulated investment company; 

 

·a real estate investment trust;

 

·an S corporation or other pass-through entity (or an investor in an S corporation or other pass-through entity); 

 

·an insurance company; 

 

·a mutual fund; 

 

·a controlled foreign corporation or passive foreign investment company; 

 

·a dealer or broker in stocks and securities, or currencies; 

 

·a trader in securities that elects to use the mark-to-market method of accounting; 

 

·a holder of Celleration stock subject to the alternative minimum tax provisions of the Code; 

 

·a holder of Celleration stock that received Celleration stock through the exercise of an employee stock option, through a tax qualified retirement plan or otherwise as compensation; 

 

·a holder of Celleration stock that has a functional currency other than the U.S. dollar; 

 

·a holder of Celleration stock that holds Celleration stock as part of a hedge, straddle, constructive sale, conversion or other integrated transaction; or

 

·a U.S. expatriate or certain former citizens or long-term residents of the United States.

 

For purposes of this discussion, the term "U.S. holder" means a beneficial owner of Celleration stock that is for U.S. federal income tax purposes (a) an individual citizen or resident of the United States, (b) a corporation (or an entity taxable as a corporation) created or organized in or under the laws of the United States or any state thereof or the District of Columbia, (c) a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes or (d) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.

 

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If an entity or an arrangement treated as a partnership for U.S. federal income tax purposes holds Celleration stock, the tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that holds Celleration stock, and any partners in such partnership, should consult their own tax advisors.

 

This discussion is for general information only and is not tax advice. Each U.S. holder should consult its own tax advisor as to the tax consequences of the merger and of the contingent payments in its particular circumstances, including the applicability and effect of any state, local, foreign or other tax laws.

 

Tax Classification of the Merger

 

Although not free of doubt, it is more likely than not that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Alliqua and Celleration intend to take the position that the merger qualifies as a reorganization and each has represented in the Merger Agreement that it has not taken or agreed to take any action, and does not know of any fact, agreement, plan or other circumstance, that is reasonably likely to prevent or impede the merger from constituting a reorganization. Alliqua has further agreed that it shall not take any action and shall not fail to take any action which action or failure to act would prevent, or would be reasonably likely to prevent, the merger from qualifying as a reorganization. However, neither Alliqua nor Celleration has requested or intends to request any ruling from the IRS as to the consequences of the merger, and the closing of the merger is not conditioned on the merger qualifying as a reorganization or upon receipt by either Alliqua or Celleration of an opinion from counsel as to the tax treatment of the merger.

 

In order for the merger to be treated as a reorganization, certain requirements, including the “continuity of interest” requirement as described in Treasury Regulation section 1.368-1(e), must be satisfied. For the “continuity of interest” requirement to be satisfied, a proprietary interest in Celleration must be preserved, which, under regulatory guidance, generally would be the case if at least 40% of the total consideration received by Celleration stockholders in the merger consists of Alliqua common stock. There is a lack of authority addressing the application of the continuity of interest requirement to transactions substantially similar to the merger. Specifically, no authority addresses the treatment of contingent consideration that may be adjusted after the effective date of the reorganization. Under regulatory guidance known as the “signing date rule,” if a binding contract providing for fixed consideration is entered into, fluctuations in the value of the stock consideration subsequent to the entry into of the contract will not affect the determination of whether continuity of interest is preserved. The treatment of the Contingent Consideration and the payments made from the Escrow Fund (each as defined in the Merger Agreement, with the payments from the Escrow Fund being “Escrow Payments”) with respect to the signing date rule and other authority is unclear.

 

No statutory, administrative or judicial authority directly addresses the treatment of the Contingent Consideration or the Escrow Payments or their effect on the qualification of the merger as a reorganization within the meaning of Section 368(a) of the Code. As a result, the IRS or a court might not agree that the merger qualifies as a reorganization. U.S. holders are urged to consult with their own tax advisors with respect to the U.S. federal income tax treatment of the merger in light of their particular circumstances.

 

Tax Consequences of the Merger if it Qualifies as a Reorganization

 

If the merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, then the following U.S. federal income tax consequences will result (subject to the discussion in “—Treatment of the Escrow Payments and the Contingent Payments” below):

 

Capital gain will be recognized by a U.S. holder in an amount equal to the lesser of (a) the amount of cash received by the U.S. holder (other than cash received in lieu of a fractional share of Alliqua common stock) and (b) the gain realized. The gain realized is the sum of the amount of cash (other than cash received in lieu of a fractional share of Alliqua common stock) and the fair market value of the Alliqua common stock received (including any fractional share interests deemed received and redeemed for cash as described below), minus the adjusted tax basis of the Celleration stock surrendered in the merger.

 

No loss will be recognized by a U.S. holder other than losses, if any, realized in connection with the receipt of cash in lieu of a fractional share interest, as described below.

 

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The initial aggregate tax basis of the Alliqua common stock received by a U.S. holder as a result of the merger will be the same as the aggregate tax basis of the Celleration shares surrendered in the merger plus the amount of any gain recognized (excluding any gain recognized as a result of any cash received in lieu of a fractional share of Alliqua common stock), reduced by the amount of cash received (excluding cash received in lieu of a fractional share of Alliqua common stock).

 

The holding period of the Alliqua common stock received will include the holding period of the Celleration shares surrendered.

 

If a U.S. holder receives cash in lieu of a fractional share of Alliqua common stock, the U.S. holder will be treated as having received a fractional share of Alliqua common stock pursuant to the merger and then as having exchanged the fractional share of Alliqua common stock for cash in a redemption by Alliqua. As a result, the U.S. holder generally will recognize capital gain or loss equal to the difference between the amount of cash received and the portion of the U.S. holder's aggregate tax basis allocable to the fractional share of Alliqua common stock.

 

If a U.S. holder of Celleration stock acquired different blocks or classes of Celleration shares at different times or different prices, the U.S. holder must determine gain or loss realized separately for each identifiable block or class. Any recognized gain generally will be long-term capital gain if, as of the effective date of the merger, the U.S. holder's holding period with respect to the Celleration shares surrendered exceeds one year. Long-term capital gain is generally subject to preferential rates of taxation.

 

Tax Consequences of the Merger if it fails to Qualify as a Reorganization

 

If the merger does not qualify as a reorganization, then (subject to the discussion in “—Treatment of the Escrow Payments and the Contingent Payments” below) each U.S. holder of Celleration stock generally will recognize capital gain or loss equal to the difference between (a) the sum of the fair market value of the shares of Alliqua common stock received by such U.S. holder pursuant to the merger and the amount of any cash received by such U.S. holder pursuant to the merger and (b) its adjusted tax basis in the shares of Celleration stock surrendered in the merger. Such gain or loss generally will be long-term capital gain or loss if, as of the effective date of the merger, the U.S. holder's holding period with respect to the Celleration shares surrendered exceeds one year. Long-term capital gain is generally subject to preferential rates of taxation. There are limitations on the deductibility of capital losses.

 

Treatment of the Escrow Payments and the Contingent Payments

 

Because the Escrow Payments and the Contingent Payments are expected to be received by U.S. holders after the close of the taxable year in which the merger is expected to occur, the installment method may apply to such payments. Under the installment method, a U.S. holder would defer the recognition of a portion of any gain realized in the merger until such times as the U.S. holder actually or constructively receives the Escrow Payments or Contingent Payments, but the U.S. holder would be required to allocate a portion of the U.S. holder’s aggregate adjusted tax basis in the Celleration stock surrendered to the potential future Escrow Payments and Contingent Payments. The rules governing such deferrals and basis allocation are complex, and their applicability to the Escrow Payments and Contingent Payments is unclear. In addition, the appropriate application of the installment method will depend on whether the merger qualifies as a reorganization, as discussed above. If the merger qualifies as a reorganization, a U.S. holder may be required to allocate basis first to Alliqua common stock.

 

If a U.S. holder has installment obligations arising during the year and outstanding at the close of the year exceeding $5.0 million in total, an interest charge, payable by the U.S. holder, is imposed on the deferred tax liability. A U.S. holder may elect out of the installment method (unless the U.S. holder is otherwise ineligible for installment method reporting) by timely filing the appropriate form with its tax return for the tax year in which the merger occurs.

 

If a U.S. holder elects out of the installment method or the installment method does not otherwise apply, the fair market value of the U.S. holder’s right to receive its portion of the cash component (or, if the merger fails to qualify as a reorganization, both the cash and share components) of the Escrow Payments and the Contingent Payments may be treated as taxable consideration received at the time of the merger. There is, however, no direct authority with respect to the tax treatment of the Escrow Payments or Contingent Payments in such case. Each U.S. holder should consult with its own tax advisor regarding the availability and advisability of reporting gain from the merger under the installment method, as well as what alternative treatment may apply absent application of the installment method.

 

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Imputed Interest

 

A portion of any payment from the Escrow Payments or Contingent Payments (including the receipt of Alliqua common stock from the Indemnification Escrow Fund and the receipt of Earn-Out Shares and MIST Shares) will be treated as interest income taxable at ordinary income rates when received (regardless of whether a U.S. holder reports under the installment method). The portion of any payment of any Escrow Payment or Contingent Payment that will be treated as interest income is determined by discounting the actual amount of the payment or the value of Alliqua common stock received from the Indemnification Escrow Fund, the Earn-Out Shares and MIST Shares at the time such shares are received, using the appropriate applicable federal rate, back to the date of the closing of the merger.

 

Backup Withholding

 

If a U.S. holder is a non-corporate holder of Celleration stock, the U.S. holder may be subject, under certain circumstances, to information reporting and backup withholding on any cash payments that the U.S. holder receives (or, if the merger does not qualify as a reorganization, with respect to the entire merger consideration). A U.S. holder generally will not be subject to backup withholding, however, if the U.S. holder:

 

·furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on IRS Form W-9 included in the letter of transmittal that the U.S. holder will receive; or 
·establishes that it is otherwise exempt from backup withholding.

 

Any amounts withheld under the backup withholding rules are not an additional tax and will generally be allowed as a refund or credit against the U.S. holder's U.S. federal income tax liability, if the U.S. holder timely furnishes the required information to the IRS.

 

Certain Reporting Requirements

 

If a U.S. holder that receives Alliqua common stock in the merger is considered a "significant holder," such U.S. holder will be required (a) to file a statement with its U.S. federal income tax return providing certain facts pertinent to the merger, including such U.S. holder's tax basis in, and the fair market value of, the Celleration stock surrendered by such U.S. holder, and (b) to retain permanent records of these facts relating to the merger. A "significant holder" is any Celleration stockholder that, immediately before the merger, (y) owned at least 1% (by vote or value) of the outstanding stock of Celleration or (z) owned Celleration securities with a tax basis of $1.0 million or more.

 

Appraisal Rights

 

Under the DGCL, only Celleration stockholders are entitled to appraisal rights in connection with the merger. Alliqua stockholders are not entitled to appraisal rights in connection with the merger. The text of the relevant provisions of the DGCL are attached to this joint proxy and consent solicitation statement/prospectus as Annex D. Pursuant to the terms of the investor rights agreement dated January 4, 2013, should a majority of the outstanding shares of Celleration Series AA preferred stock party to such agreement approve a merger, the holders of such shares may require all of the holders party to such agreement to consent to the merger and to waive any appraisal rights. A majority of the outstanding shares of Celleration Series AA preferred stock party to the investor rights agreement have entered into voting agreements with Alliqua pursuant to which, among other things, they have agreed to execute and return a written consent with respect to their shares of Celleration common stock and Celleration Series AA preferred stock adopting and approving the Celleration Merger Agreement proposal.

 

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Under the DGCL, if a Celleration stockholder of record does not wish to accept the merger consideration provided for in the Merger Agreement and the merger is consummated, such Celleration stockholder has the right to seek appraisal of his, her or its shares of Celleration common stock and to receive payment in cash for the fair value of his, her or its shares of Celleration common stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be the fair value of such shares of Celleration common stock. These rights are known as appraisal rights. The “fair value” of such shares of Celleration common stock as determined by the Delaware Court of Chancery may be more or less than, or the same as, the merger consideration that Celleration stockholder of record is otherwise entitled to receive for the same number of shares of Celleration common stock under the terms of the Merger Agreement. Celleration stockholders of record who elect to exercise appraisal rights must not vote in favor of or consent in writing to the Celleration Merger Agreement proposal and must comply with the other provisions of Section 262 of the DGCL to perfect their rights. Strict compliance with the statutory procedures in Section 262 of the DGCL is required. A Celleration stockholder of record, who wishes to exercise appraisal rights, or preserve the ability to do so, must not deliver a signed written consent adopting the Merger Agreement, or deliver a signed consent without indicating a decision on the Celleration Merger Agreement proposal. Any signed written consent returned without indicating a decision on the Celleration Merger Agreement proposal will be counted as approving the Celleration Merger Agreement proposal.

 

This section is intended only as a brief summary of the material provisions of the Delaware statutory procedures that a Celleration stockholder must follow in order to seek and perfect appraisal rights under Section 262 of the DGCL, the full text of which is attached as Annex D to this joint proxy and consent solicitation statement/prospectus. This summary, however, is not a complete statement of all applicable requirements and the law pertaining to appraisal rights under the DGCL. The following summary does not constitute any legal or other advice, nor does it constitute a recommendation that Celleration stockholders exercise their appraisal rights under Section 262 of the DGCL. Unless otherwise noted, all references in this summary to “Celleration stockholders” or “you” are to the record holders of shares of Celleration common stock immediately prior to the effective time of the merger as to which appraisal rights are asserted. A person having a beneficial interest in shares of Celleration common stock held of record in the name of another person must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights.

 

Section 262 of the DGCL requires that, where a Merger Agreement is adopted by a written consent of stockholders in lieu of a meeting of stockholders, certain stockholders must be given notice that appraisal rights are available. A copy of Section 262 of the DGCL must be included with such notice. The notice must be provided after the merger is approved and no later than ten days after the effective time of the merger. Only those Celleration stockholders who did not submit a written consent adopting the Merger Agreement and who have otherwise complied with Section 262 of the DGCL are entitled to receive such notice. The notice may be given by Celleration, if sent prior to the effective time of the merger, or the surviving corporation in the merger, if given after the effective time of the merger. If given at or after the effective time of the merger, the notice must also specify the effective time of the merger; otherwise, a supplementary notice will provide this information.

 

Following Celleration’s receipt of sufficient written consents to adopt the Merger Agreement, Celleration will send all non-consenting Celleration stockholders who satisfy the other statutory conditions the notice regarding the receipt of such written consents. A Celleration stockholder electing to exercise his, her or its appraisal rights will need to take action at that time, in response to such notice, but this description is being provided to all Celleration stockholders now so you can determine whether you wish to preserve your ability to demand appraisal rights in the future in response to such notice.

 

In order to preserve your right to receive notice and to demand appraisal rights, you must not deliver a written consent adopting the Merger Agreement, or deliver a signed written consent without indicating a decision on the Celleration Merger Agreement proposal. Consents that are executed and delivered without indicating a decision on the Celleration Merger Agreement proposal will be counted as approving the Celleration Merger Agreement proposal, which will also eliminate any appraisal rights. As described below, you must also continue to hold your shares through the effective time of the merger.

 

If you elect to demand appraisal of your shares of Celleration common stock, you must deliver to Celleration or the surviving corporation, as applicable, at the specific address which will be included in the notice of appraisal rights, a written demand for appraisal of your shares of Celleration common stock within 20 days after the date of the mailing of such notice. Do not submit a demand before the date of the notice of appraisal rights, because under Delaware case law, a demand that is made before the date of such notice may not be effective to perfect your appraisal rights.

 

A Celleration stockholder wishing to exercise appraisal rights must hold of record the shares of Celleration common stock on the date the written demand for appraisal is made and must continue to hold of record the shares of Celleration common stock through the effective time of the merger. Appraisal rights will be lost if your shares of Celleration common stock are transferred prior to the effective time of the merger. If you are not the stockholder of record, you will need to follow special procedures as discussed further below.

 

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If you and/or the record holder of your shares of Celleration common stock fail to comply with all of the conditions required by Section 262 of the DGCL to perfect your appraisal rights, and the merger is completed, you (assuming that you hold your shares through the effective time of the merger) will be entitled to receive payment for your shares of Celleration common stock as provided for in the Merger Agreement, but you will have no appraisal rights with respect to your shares of Celleration common stock.

 

In order to satisfy Section 262 of the DGCL, a demand for appraisal in respect of shares of Celleration common stock must reasonably inform Celleration or the surviving corporation, as applicable, of the identity of the Celleration stockholder of record and his, her or its intent to seek appraisal rights. The demand for appraisal should be executed by or on behalf of the holder of record of the shares of Celleration common stock, fully and correctly, as the stockholder’s name appears on the Celleration stock certificate(s), should specify the stockholder’s name and mailing address and the number of shares registered in the stockholder’s name, and must state that the person intends thereby to demand appraisal of the stockholder’s shares of Celleration common stock in connection with the merger. The demand cannot be made by the beneficial owner of shares of Celleration common stock if such beneficial owner does not also hold of record the shares of Celleration common stock. The beneficial owner of shares of Celleration common stock must, in such cases, have the holder of record of such shares of Celleration common stock submit the required demand in respect of such shares.

 

If shares of Celleration common stock are held of record by a person other than the beneficial owner, including a fiduciary (such as a trustee, guardian or custodian) or other nominee, a demand for appraisal must be executed by such record holder. If the shares of Celleration common stock are held of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a Celleration stockholder; however, the agent must identify the record holder or holders and expressly disclose the fact that, in executing the demand, he, she or it is acting as agent for the record holder or holders. A record holder, who holds shares of Celleration common stock as a nominee for others, may exercise his, her or its right of appraisal with respect to the shares of Celleration common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of Celleration common stock as to which appraisal is sought. Where no number of shares of Celleration common stock is expressly mentioned, the demand for appraisal will be presumed to cover all shares of Celleration common stock held in the name of the record holder.

 

At any time within 60 days after the effective time of the merger, any Celleration stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw the demand for appraisal and accept the merger consideration for his, her or its shares of Celleration common stock by delivering to the surviving corporation a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the effective time of the merger will require written approval of the surviving corporation. Unless the demand for appraisal is properly withdrawn by the stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party within 60 days after the effective time of the merger, no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any Celleration stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the court deems just. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the merger consideration for his, her or its shares of Celleration common stock.

 

Within 120 days after the effective time of the merger, but not thereafter, either the surviving corporation or any Celleration stockholder who has complied with the requirements of Section 262 of the DGCL and is entitled to appraisal rights under Section 262 of the DGCL may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of Celleration common stock held by all stockholders entitled to appraisal. Upon the filing of such a petition by a Celleration stockholder, service of a copy of such petition shall be made upon the surviving corporation. Alliqua has no present intent to cause Celleration to file such a petition and has no obligation to cause such a petition to be filed, and Celleration stockholders should not assume that the surviving corporation will file a petition. Accordingly, the failure of a Celleration stockholder to file such a petition within the period specified could nullify his, her or its previous written demand for appraisal. In addition, within 120 days after the effective time of the merger, any Celleration stockholder who has properly filed a written demand for appraisal and who did not submit a written consent adopting the Merger Agreement, upon written request, will be entitled to receive from the surviving corporation, a statement setting forth the aggregate number of shares of Celleration common stock for which a written consent adopting the Merger Agreement was not submitted and with respect to which demands for appraisal have been received, and the aggregate number of holders of such shares. The statement must be mailed within ten days after such written request has been received by the surviving corporation or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. A person who is the beneficial owner of shares of Celleration common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition for appraisal or request from the surviving corporation such statement.

 

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If a petition for appraisal is duly filed by a Celleration stockholder and a copy of the petition is served upon the surviving corporation, then the surviving corporation will be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all Celleration stockholders who have demanded an appraisal of their shares of Celleration common stock and with whom agreements as to the value of their shares of Celleration common stock have not been reached. After notice to Celleration stockholders who have demanded appraisal, if such notice is ordered by the Delaware Court of Chancery, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition and to determine those stockholders who have complied with Section 262 of the DGCL and who have become entitled to the appraisal rights provided by Section 262 of the DGCL. The Delaware Court of Chancery may require Celleration stockholders who have demanded payment for their shares of Celleration common stock to submit their stock certificates to the Delaware Register in Chancery for notation of the pendency of the appraisal proceedings, and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 

After determination of the Celleration stockholders entitled to appraisal of their shares of Celleration common stock, the Delaware Court of Chancery will appraise the shares of Celleration common stock, determining their fair value as of the effective time of the merger after taking into account all relevant factors exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. When the fair value has been determined, the Delaware Court of Chancery will direct the payment of such value upon surrender by those stockholders of the Celleration stock certificates representing their shares of Celleration common stock. Unless the court in its discretion determines otherwise for good cause shown, interest from the effective time of the merger through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the merger and the date of payment of the judgment.

 

No representation is made as to the outcome of the appraisal of fair value as determined by the court and Celleration stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the merger consideration. Moreover, neither Celleration nor Alliqua anticipates offering more than the merger consideration to any stockholder exercising appraisal rights and Celleration and Alliqua reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262 of the DGCL, the “fair value” of a share of Celleration common stock is less than the per share merger consideration.

 

In determining “fair value,” the court is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger and that throw any light on future prospects of the merged corporation. Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion that does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” In addition, Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenting stockholder’s exclusive remedy.

 

Costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and imposed upon the surviving corporation and the Celleration stockholders participating in the appraisal proceeding by the Delaware Court of Chancery, as it deems equitable in the circumstances. Each Celleration stockholder seeking appraisal is responsible for his, her or its attorneys’ and expert witness expenses, although, upon the application of a Celleration stockholder, the Delaware Court of Chancery could order all or a portion of the expenses incurred by any Celleration stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, to be charged pro rata against the value of all shares of Celleration common stock entitled to appraisal. Any Celleration stockholder who has duly demanded appraisal in compliance with Section 262 of the DGCL will not, after the effective time of the merger, be entitled to vote shares of Celleration common stock subject to that demand for any purpose or to receive payments of dividends or any other distributions with respect to those shares of Celleration common stock, other than with respect to payments as of a record date prior to the effective time of the merger. However, if no petition for appraisal is filed within 120 days after the effective time of the merger, or if a Celleration stockholder otherwise fails to perfect his, her or its appraisal rights, successfully withdraws his, her or its demand for appraisal or loses his, her or its right to appraisal, then the right of that Celleration stockholder to appraisal will cease and that Celleration stockholder will only be entitled to receive the merger consideration for his, her or its shares of Celleration common stock pursuant to the Merger Agreement.

 

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FAILING TO FOLLOW PROPER STATUTORY PROCEDURES WILL RESULT IN LOSS OF YOUR APPRAISAL RIGHTS. In view of the complexity of Section 262 of the DGCL, Celleration stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

 

Pursuant to the terms of the Merger Agreement, it is a condition to Alliqua and Merger Sub’s obligations to complete the merger that holders of no more than 7.5% of the outstanding shares of Celleration common stock and Series AA preferred stock immediately prior to the effective time of the merger, shall have exercised, or remain entitled to exercise, appraisal rights pursuant to Section 262 of the DGCL with respect to such shares of Celleration common stock and Series AA preferred stock.

 

Listing of Alliqua Common Stock

 

Alliqua common stock is currently listed on the NASDAQ Capital Market under the symbol “ALQA.” Pursuant to the Merger Agreement, Alliqua has agreed to obtain approval for listing on the NASDAQ Capital Market of the shares of Alliqua common stock to be issued to Celleration equity holders in the merger. In addition, under the Merger Agreement, each party’s obligation to complete the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the merger, of various conditions, including that Alliqua must have caused such shares of Alliqua common stock to be approved for listing on the NASDAQ Capital Market, subject only to official notice of issuance as of the closing of the merger.

 

Restrictions on Sales of Shares of Alliqua Common Stock Received in the Merger

 

The shares of Alliqua common stock to be issued in connection with the merger will be registered under the Securities Act of 1933, as amended, and will be freely transferable, except for shares issued to any Celleration equity holder who may be deemed to be an “affiliate” of Alliqua for purposes of Rule 144 under the Securities Act of 1933, as amended. Persons who may be deemed to be affiliates of Alliqua include individuals or entities that control, are controlled by, or are under common control with, Alliqua and may include the executive officers, directors and significant stockholders of Alliqua.

 

In addition, simultaneously with the execution of the Merger Agreement, certain Celleration 5% stockholders, officers, and directors entered into voting agreements with Alliqua, pursuant to which such holders agreed not to, except in limited circumstances, sell or transfer, shares of Alliqua common stock received in the merger for a period of 180 days after the effective time of the merger. For further information on the terms of the voting agreements, see “Ancillary Agreements---Voting Agreements” beginning on page [    •    ] of this joint proxy and consent solicitation statement/prospectus.

 

Debt Financing

 

Alliqua expects to finance the upfront cash portion of the merger consideration and other expenses of the merger through a combination of cash resources, including available cash on Alliqua’s balance sheet and third-party debt financing consisting of a new senior, secured term loan facility in the aggregate amount of $15.5 million that Perceptive has committed to provide pursuant to the terms and conditions of the Commitment Letter, as amended, and the Credit Agreement, each of which is filed as an exhibit to the registration statement, of which this joint proxy and consent solicitation statement/prospectus forms a part.

 

On March 10, 2015, Alliqua and Perceptive amended the Commitment Letter to extend the expiration time of Perceptive’s commitments and agreements under the Commitment Letter to 5:00 p.m., New York time, on May 31, 2015, unless Alliqua extends the outside date of the Merger Agreement in accordance with its terms, in which case such expiration time would automatically extend with the extension of the outside date to July 31, 2015. Accordingly, Perceptive’s commitments and agreements with respect to the senior, secured term loan facility described in the Commitment Letter, as amended, will automatically terminate at the amended expiration time, after any applicable extension thereof, if the conditions precedent set forth in the Credit Agreement described below have not been satisfied.

 

In addition, on March 10, 2015, Alliqua, each of its subsidiaries and Perceptive agreed on the definitive form of Credit Agreement, which the parties have signed and agreed to hold in escrow pending release upon the satisfaction of certain conditions precedent to Perceptive’s obligation to fund the term loan set forth in the Credit Agreement prior to the amended expiration time. These conditions include, among other things:

· the substantially concurrent consummation of the merger on the terms and conditions set forth in the Merger Agreement;
· the receipt by Perceptive of a promissory note evidencing the full amount of the loan and related loan documentation evidencing the security interests granted therein, a five-year warrant to purchase 750,000 shares of Alliqua’s common stock, certain financial statements, documentation for the perfection of security interests, various closing certificates and opinions of counsel to Alliqua;
· Alliqua’s payment of all fees due and payable to Perceptive under the Credit Agreement as of the closing date of the merger;
· The truth and accuracy of Alliqua’s representations and warranties contained in the Credit Agreement;
· The absence of events or circumstances that would reasonably be expected to have a material adverse effect on the results of operation, business or financial condition of Alliqua or Celleration, subject to certain exceptions; and
· miscellaneous other closing conditions that are customary for credit facilities and transactions of this type.

 

The terms and conditions set forth in the Credit Agreement are expected to supersede and supplant the terms of the Debt Financing contemplated by the Commitment Letter. The Credit Agreement will provide for a senior secured term loan in a single borrowing to Alliqua on the closing date of the merger in the principal amount of approximately $15.5 million (or such lesser amount requested by Alliqua in writing at least three days prior to the closing date of the merger). Pursuant to the terms of the Credit Agreement, the proceeds of the term loan will be available on the closing date of the merger, subject to the prior or substantially concurrent satisfaction of those certain conditions precedent described above, including the contemporaneous completion of the merger, and, if drawn, may only be used by Alliqua to finance the upfront cash portion of the purchase price in the merger and certain related expenses associated with the consummation thereof.

 

The obligations of Alliqua under the Credit Agreement will be guaranteed by each of its subsidiaries and secured by a first priority lien on all of the existing and after acquired tangible and intangible assets of Alliqua and its subsidiaries.

 

The full unpaid principal amount of the term loan will mature on the fourth anniversary of the closing date of the merger. Prior to maturity, on the last business day of each calendar month following the second anniversary of such closing date, Alliqua will be required to make monthly principal payments of $225,000,with any remaining unpaid balance of the term loan being payable in cash on the maturity date.

 

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The Credit Agreement will require Alliqua to prepay the outstanding principal amount of the term loan with 100% of the net cash proceeds received from specified asset sales and incurrences of borrowed money indebtedness, subject to certain exceptions. Alliqua will also incur an incremental fee for any repayments or prepayments other than the required monthly principal payments made prior to the third anniversary of the closing date. Alliqua will also be required to pay an exit fee when the term loan is paid in full equal to the greater of 1% of the outstanding principal balance immediately prior to the final payment and $100,000.

 

The term loan under the Credit Agreement will bear interest at a rate per annum equal to the sum of (i) the greater of LIBOR and 1%, plus (ii) an applicable margin of 9.75%, which will be increased by 4% per annum upon the occurrence and continuance of any event of default thereunder.

 

The Credit Agreement contains customary affirmative and negative covenants and events of default for a secured financing arrangement, including limitations on additional indebtedness, liens, asset sales and acquisitions, among others. In addition to other customary events of default, any termination of that certain License, Marketing and Development Agreement, dated November 14, 2013, by and between Alliqua and Anthrogenesis Corporation d/b/a Celgene Cellular Therapeutics, as amended, will constitute an event of default under the Credit Agreement.

 

The obligation of Alliqua and Merger Sub to complete the merger is conditioned upon, among other things, the funding of the Debt Financing in accordance with the terms of the Commitment Letter, as amended and finalized in the Credit Agreement. The obligation of Perceptive to provide the Debt Financing on such terms is also subject to a number of conditions precedent described above. There is a risk that these conditions will not be satisfied and the Debt Financing may not be funded when required. As of the date of this joint proxy and consent solicitation statement/prospectus, no alternative financing arrangements or alternative financing plans have been made in the event the Debt Financing described in this joint proxy and consent solicitation statement/prospectus is not available. As a result, failure to have the Debt Financing condition satisfied or waived by the outside date of the Merger Agreement could delay or prevent the closing of the merger and, in certain circumstances, could require Alliqua to pay Celleration a reverse termination fee of $3 million, less the amount of any bridge loan provided to Celleration (including any accrued and unpaid interest thereon).

 

For further information, see the sections titled “The Merger Agreement—Conditions to Completion of the Merger” and “Risk Factors” on pages [   •   ] and [   •   ], respectively, of this joint proxy and consent solicitation statement/prospectus.

 

Bridge Loan

 

Subject to the terms and conditions set forth in the Merger Agreement, in the event that Alliqua requires an extension of the outside date of the Merger Agreement beyond May 31, 2015 to the later date of July 31, 2015 due its inability to secure the Debt Financing described above or delays resulting from SEC comments to the registration statement, of which this joint proxy and consent solicitation statement/prospectus forms a part, Alliqua must provide Celleration with five business days’ prior written notice and a $1,000,000 bridge loan on or before May 15, 2015. The bridge loan would be payable upon and subject to the terms and conditions set forth in that certain promissory note in substantially the form agreed to by the parties and attached as an exhibit to the Merger Agreement. Under the terms of the note, interest would accrue at the rate of 6% per annum and the maturity date would be the earliest of October 31, 2015, the date that the Merger Agreement is terminated by Alliqua for a breach by Celleration and the date that an event of default has occurred and is continuing under the terms of the note.

 

The note contains an express set-off right in the event that a reverse termination fee is payable by Alliqua to Celleration pursuant to the terms of the Merger Agreement, which would allow Alliqua to pay the reverse termination fee net of the amounts due to Alliqua under the note and, consequently, cause the note to be satisfied in full and cancelled. The note also contains terms that require mandatory prepayments upon the occurrence of certain events any time after the termination or expiration of the Merger Agreement, including any additional indebtedness (other than certain permitted debt) incurred by Celleration, the issuance of any Celleration equity interests and any asset sale or settlement of any insurance claim or condemnation proceeding relating to any asset of Celleration. In addition, the note contains certain other covenants, restrictions and events of default that are customary for a note of this nature. For a more complete discussion of the parties’ termination rights and termination fees payable under the Merger Agreement, see the sections titled “The Merger Agreement — Termination of the Merger Agreement” beginning on page [   •   ] and “— Termination Fees” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

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THE MERGER AGREEMENT

 

The following describes certain aspects of the merger, including certain material provisions of the Merger Agreement. The following description of the Merger Agreement is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, which is attached to this joint proxy and consent solicitation statement/prospectus as Annex A and is incorporated by reference into this joint proxy and consent solicitation statement/prospectus. We urge you to read the Merger Agreement carefully and in its entirety, as it is the legal document governing the merger and the other transactions contemplated thereby.

 

The description of the Merger Agreement has been included to provide you with information regarding its terms. The Merger Agreement contains representations and warranties made by and to Alliqua, Celleration and Merger Sub as of specific dates. The statements embodied in those representations and warranties were made for purposes of that contract between the parties and are subject to qualifications and limitations agreed by the parties in connection with negotiating the terms of that contract. In addition, certain representations and warranties were made as of a specified date and may be subject to contractual standards of materiality different from those generally applicable to stockholders.

 

Form, Effective Time and Closing of Merger

 

The Merger Agreement provides that, at the effective time of the merger, Celleration will merge with and into Merger Sub, a wholly-owned subsidiary of Alliqua. Upon completion of the merger, the separate corporate existence of Celleration will cease and Merger Sub will continue as the surviving corporation.

 

The closing of merger will occur no later than the second business day after the satisfaction or waiver of all of the conditions to completion of the merger (other than conditions to be satisfied on the closing date), which conditions are described below under “—Conditions to Completion of the Merger” beginning on page [   •   ], or on such other date as Alliqua and Celleration may mutually agree. At the closing, Alliqua, Celleration and Merger Sub will cause a certificate of merger to be filed with the Secretary of State of the State of Delaware. The merger will become effective upon the filing of such certificate.

 

Directors and Officers of the Surviving Corporation

 

The directors and officers of Merger Sub immediately prior to the effective time of the merger will continue to be directors and officers of the surviving corporation immediately following the merger. The certificate of incorporation and bylaws of Merger Sub as in effect immediately prior to the effective time will also become the governing documents of the surviving corporation immediately following the merger until subsequently amended in accordance with their terms and applicable law, except that the name of the surviving corporation will be changed to “Celleration, Inc.”

 

Director Appointment to the Alliqua Board

 

Pursuant to the terms of the Merger Agreement, Alliqua has agreed to appoint Celleration’s president and chief executive officer, Mark Wagner, to the Alliqua board of directors as soon as practicable after the effective time. Subject to the closing of the merger, Alliqua expects to increase the number of directors on the Alliqua board of directors by one and, following the effective time of the merger, appoint Mark Wagner to fill the vacancy established by the newly created directorship, to serve until his successor has been duly elected or appointed and qualified or until his earlier death, resignation or removal in accordance with the certificate of incorporation and bylaws of Alliqua.

 

Effects of Merger

 

At the effective time of the merger, all shares of Celleration common stock owned by Alliqua, Merger Sub, Celleration or any of their subsidiaries or otherwise held in treasury of Celleration, will be cancelled and no payment will be made with respect to such shares.

 

All shares of Celleration common stock (excluding those certain shares owned by Alliqua, Merger Sub or Celleration (as treasury stock or otherwise) and any dissenting shares exercising appraisal rights under Section 262 of the DGCL) issued and outstanding immediately prior to the effective time will be cancelled and automatically converted into the right to receive a pro rata share of the merger consideration and the contingent consideration. In addition, all shares of Celleration Series AA preferred stock issued and outstanding immediately prior to the effective will be cancelled and automatically converted into the right to receive their respective per share liquidation preference, payable in equal amounts of cash and Alliqua Common Stock, plus a pro rata share of the merger consideration and the contingent consideration.

 

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Treatment of Celleration Stock Options and Warrants

 

At the effective time of the merger, each outstanding and unexercised Celleration stock option will be cancelled. Celleration has agreed to take any actions necessary to effect the foregoing cancellation and cause the Celleration, Inc. Amended and Restated 2002 Stock Option Plan to terminate at or prior to the effective time. Only certain holders of in-the-money options will be entitled to receive a pro rata share of the merger consideration and the contingent consideration, as determined by taking the product of (i) the number of shares underlying such in-the-money option and (ii) the excess of the closing per share merger consideration over the per share exercise price of such option.

 

Likewise, at the effective time, each agreement evidencing warrants to purchase shares of Celleration common stock that is outstanding and terminates in accordance with its terms upon closing will be cancelled, terminated and extinguished. Celleration and its designated stockholder representatives have agreed to use reasonable commercial efforts to effect the termination, cancellation and release of all outstanding and unexercised warrants prior to the effective time of the merger. In exchange for each cancelled Celleration warrant, holders will be entitled to receive a pro rata share of the merger consideration and the contingent consideration, as determined by taking the product of (i) the number of shares previously underlying such warrant and (ii) the excess of the closing per share merger consideration over the per share exercise price of such warrant. If the exercise price payable in respect of any warrant exceeds the per share merger consideration, no amount of merger consideration will be paid in exchange for its cancellation.

 

As soon as practicable, but no later than two business days, after the effective time, Celleration (or its designated stockholder representatives) will mail to each holder who has not exercised options or warrants prior to the closing an option and warrant termination agreement and release together with instructions for completing, executing and returning the agreement in exchange for the applicable portion of the merger consideration.

 

Merger Consideration

 

The merger consideration is generally payable in cash (without interest) and shares of Alliqua common stock and is in addition to the contingent consideration that may become payable upon the occurrence of certain events in the future in accordance with the terms and conditions of the Merger Agreement. Celleration equity holders will initially receive at closing, a pro rata amount of an aggregate purchase price of $30,415,000, payable in equal amounts of cash and shares of Alliqua common stock, as follows:

 

Ÿ3,168,229 shares of Alliqua common stock, minus (i) 208,333 shares to be deposited with the designated escrow agent to hold in escrow in order to secure certain indemnification obligations of the Celleration equity holders and (ii) the number of shares necessary to pay the liquidation preference to the holders of Celleration Series AA preferred stock; and

 

Ÿ$15,207,500, minus (i) the amount necessary to extinguish all outstanding indebtedness and unpaid transaction expenses of Celleration, (ii) the amount necessary to pay the liquidation preference to the holders of Celleration Series AA preferred stock, (iii) $100,000, or such greater amount as may be set forth in a notice sent by Celleration to Alliqua at least five days prior to the closing, to be used to pay certain expenses of Celleration’s stockholder representatives and (iv) $1,500,000 which will be deposited in escrow in order to secure certain post-closing adjustments to the purchase price and certain indemnification obligations of the Celleration equity holders.

 

The initial aggregate purchase price (and as a result, the aggregate merger consideration) reflects an amount equal to three and one-half times the actual revenue generated by Celleration for the 2014 fiscal year as reported in the Celleration audited financial statements for the year ended December 31, 2014 and is subject to certain customary working capital adjustments.

 

The aggregate merger consideration will be allocated among Celleration in accordance with their respective pro rata share. The precise amount of the merger consideration to be paid to the Celleration equity holders will not be known until shortly before the effective time of the merger and will vary, depending on the amount of the aggregate adjusted merger consideration and the number of shares of Celleration common stock and of Celleration Series AA preferred stock, Celleration in-the-money stock options and Celleration in-the-money warrants outstanding immediately prior to the effective time of the merger. In addition to the right of the holders of Celleration Series AA preferred stock to participate in the merger consideration, they will also receive $10,500,000 as a liquidation preference, payable in equal amounts of cash and shares of Alliqua common stock.

 

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Post-Closing Adjustment

 

Following the closing of the merger, Alliqua and Celleration stockholder representatives will determine any adjustment to the purchase price based on the variance of the final closing working capital calculation to the working capital amount estimated by Celleration five days prior to closing. If the final closing working capital amount, as calculated by Alliqua within 60 days of the closing of the merger, exceeds the estimated working capital amount by more than $100,000, Alliqua will pay the difference by depositing a cash amount with the exchange agent for distribution to Celleration equity holders. Conversely, if the estimated working capital amount exceeds the final closing working capital amount by more than $100,000, the exchange agent will release and disburse to Alliqua the adjustment amount from the cash amount held in escrow. No adjustment will be made for either party unless the variance to the estimated working capital calculation exceeds $100,000.

 

Contingent Consideration

 

Alliqua has agreed to pay contingent consideration to Celleration equity holders upon the occurrence of certain events in the future, on the terms and conditions set forth in the Merger Agreement. The contingent consideration includes the following:

 

·subject to and contingent on the receipt of NICE Approval, 20% of the incremental net sales recognized from the acquired MIST products for the fiscal years ending December 31, 2016, 2017 and 2018 in excess of the net sales for the twelve calendar months immediately prior to receipt of the NICE Approval, payable in cash;

 

·upon receipt of such NICE Approval, shares of Alliqua common stock with an aggregate value of $500,000 (the “MIST Shares”); and

 

·three and one-half times the incremental revenue generated from the acquired Celleration products for each of the fiscal years ending December 31, 2015 and 2016 in excess of the respective revenue targets for each year, payable in equal amounts of cash and shares of Alliqua common stock (the “Earn-Out Shares”); the revenue target for the 2015 fiscal year shall be revenue set forth on Celleration’s audited financial statements for the fiscal year ended December 31, 2014; the revenue target with respect to the 2016 fiscal year shall be the greater of (i) the revenue target for the 2015 fiscal year and (ii) the revenue generated for the 2015 fiscal year.

 

The number of Alliqua shares that Celleration equity holders will be entitled to receive as the Earn-Out Shares and MIST Shares will be calculated by dividing the dollar amount of such payment by a forty-five trading day moving average of the VWAP of the Alliqua common stock on the NASDAQ Capital Market as of the applicable reference date. However, the maximum number of shares of Alliqua common stock to be paid as Earn-Out Shares and MIST Shares shall not exceed 9,500,000 aggregate shares; provided that (i) the aggregate cash consideration paid shall not exceed 60% of the total consideration paid to the Celleration equity holders in connection with the merger and (ii) Alliqua shall use commercially reasonable efforts to issue the Celleration equity holders more than 9,500,000 shares of Alliqua common stock in the event that the Celleration equity holders are entitled to additional contingent consideration in excess of the 60% cash threshold pursuant to the terms of the Merger Agreement. The contingent consideration payments are also subject to Alliqua’s right to setoff certain indemnification claims, as described below in “—Indemnification” on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

In addition, if a change of control occurs or Alliqua disposes of substantially all of the Celleration assets during the 2015 or 2016 fiscal year, Celleration equity holders will have the option of retaining their rights to the contingent consideration or receiving a one-time cash payment equal to $49,500,000 reduced by the amount of the purchase price and by the value of any contingent consideration payments paid prior to such event.

 

Indemnification Escrow Fund

 

At the closing of the merger, a portion of the aggregate purchase price consisting of $1,500,000 in cash and 208,333 shares of Alliqua common stock will be held back and deposited in escrow with the designated escrow agent in order to secure post-closing adjustments to the purchase price and certain indemnification obligations of the Celleration equity holders for up to eighteen months after the closing of the merger (the “Indemnification Escrow Fund”).

 

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Subject to the terms set forth in the Merger Agreement and that certain related escrow agreement to be entered into with the escrow agent prior to closing (the “Escrow Agreement”), twelve months after the closing date of the merger, the escrow agent will release and disburse to Celleration equity holders a pro rata amount of cash from the Indemnification Escrow Fund equal to $750,000 (or the remaining balance of cash available in the escrow account, if less than $750,000), reduced by the amount of any indemnification claims made by Alliqua for losses prior to such date.

 

Upon the termination of the Indemnification Escrow Fund eighteen months after the closing date pursuant to the terms of the Escrow Agreement, all remaining amounts (cash and shares of Alliqua common stock) in the Indemnification Escrow Fund not subject to any indemnification claims made by Alliqua will be released and paid to Celleration equity holders in accordance with their respective pro rata share. For more information, see the section below titled “—Indemnification” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Dissenting Shares

 

The Merger Agreement provides that a Celleration stockholder may exercise appraisal rights available under Section 262 of the DGCL, a copy of which is attached to this joint proxy and consent solicitation statement/prospectus as Annex D. The shares of Celleration common stock held by holders who have properly exercised appraisal rights will not be converted into the right to receive the merger consideration discussed above, but will instead be entitled to such rights as are granted by Section 262 of the DGCL. See the section titled “The Merger—Appraisal Rights” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

Exchange Procedures

 

Prior to the effective time, Alliqua will appoint an exchange agent reasonably acceptable to Celleration to act as the exchange agent in the merger. As promptly as practicable, but no later than two business days, after the effective time of the merger, the exchange agent will mail to each former Celleration stockholder a letter of transmittal and instructions for use in effecting the surrender of Celleration stock certificates in exchange for the applicable portion of the merger consideration. Within two business days after receipt of a surrendered stock certificate, together with a letter of transmittal duly completed and validly executed in accordance with the instructions provided, the exchange agent will deliver to the holder a new certificate representing the whole number of shares of Alliqua common stock and cash amount that such holder is entitled to receive as part of the merger consideration in exchange for the surrendered certificate. Alliqua shall provide a letter of transmittal upon request prior to the effective time of the merger to any Celleration stockholder who is to receive in excess of $1 million in merger consideration. Any such Celleration stockholder who returns the letter of transmittal to the exchange agent prior to closing shall receive the merger consideration payable to such stockholder on the closing date. In addition, within two business after receipt of an option and warrant termination agreement duly completed and validly executed in accordance with its instructions, the exchange agent will deliver to the holder a certificate representing the whole number of shares of Alliqua common stock and cash amount that such holder is entitled to receive as part of the merger consideration in exchange for the cancelled in-the-money option or warrant, as applicable.

 

Celleration equity holders entitled to receive a portion of the merger consideration will also be entitled to receive their pro rata share of any amounts that may be payable in the future from the contingent consideration at the respective time and subject to the contingencies specified for each payment. For more information about the contingent consideration, see the section above titled “—Contingent Consideration” beginning on page [   •   ] of this joint proxy and consent solicitation statement/prospectus.

 

Fractional Shares

 

Alliqua will not issue fractional shares of Alliqua common stock in the merger. As a result, Celleration equity holders will receive cash for any fractional share of Alliqua common stock that they would otherwise be entitled to receive in the merger. After the merger is completed, Celleration equity holders will have only the right to receive the merger consideration, any cash in lieu of such fractional shares of Alliqua common stock and any future contingent consideration that may be paid to such holders, or, in the case of Celleration stockholders that properly exercise and perfect appraisal rights, the right to receive the fair market value for such shares, and will no longer have any rights as Celleration stockholders, including voting or other rights.

 

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Adjustments

 

If a change in the outstanding shares of capital stock of Alliqua occurs prior to the effective time of the merger by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, stock dividend or any similar event, the merger consideration and any other amounts payable pursuant to the Merger Agreement will be appropriately adjusted to reflect such change.

 

Withholding Rights

 

Each of the exchange agent, Alliqua, Merger Sub and the surviving corporation will be entitled to deduct and withhold from, or cause the exchange agent to deduct and withhold from any of the merger consideration otherwise payable to any person pursuant to the Merger Agreement such amounts as it may be required to deduct and withhold with respect to payments under any provision of tax laws. All amounts so deducted or withheld and paid over to the applicable governmental authority will be treated for all purposes of the Merger Agreement as having been paid to the holder in respect of which such deduction and withholding was made.

 

Lost Certificates

 

If a Celleration stock certificate has been lost, stolen or destroyed, the holder of such certificate must deliver an affidavit of that fact and agree to indemnify Alliqua and the exchange agent against any claim for the lost certificate prior to receiving any merger consideration.

 

Representations and Warranties

 

The Merger Agreement contains representations and warranties made by Celleration to Alliqua and Merger Sub and by Alliqua and Merger Sub to Celleration. The representations and warranties described below and included in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates, are solely for the benefit of Alliqua, Merger Sub and Celleration, may be subject to limitations, qualifications or exceptions agreed upon by the parties, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between Alliqua and Celleration rather than establishing matters as facts, and may be subject to standards of materiality that differ from those standards relevant to investors. You should not rely on the representations, warranties, covenants or any description thereof as characterizations of the actual state of facts or condition of Alliqua, Merger Sub, Celleration or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by Alliqua. The representations and warranties and other provisions of the Merger Agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this joint proxy and consent solicitation statement/prospectus and in the documents incorporated by reference into this joint proxy and consent solicitation statement/prospectus. See "Where You Can Find More Information."

 

Celleration made a number of representations and warranties to Alliqua and Merger Sub in the Merger Agreement, including representations and warranties relating to the following matters:

 

·organization, corporate power, qualifications to do business and good standing in each applicable jurisdiction;

 

·authorization and board approval to enter into and carry out its obligations under the Merger Agreement;

 

·absence of certain breaches, violations or conflicts arising out of the execution or performance of the Merger Agreement or completion of the merger;

 

·governmental approvals or consents required to complete the merger;

 

·capitalization and capital structure;

 

·absence of subsidiaries;

 

·financial statements;

 

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·absence of undisclosed liabilities;

 

·absence of certain changes or events since December 31, 2014;

 

·disclosure of certain material contracts and absence of breaches of such contracts;

 

·title to assets and real property;

 

·intellectual property rights and absence of third party claims;

 

·customers and suppliers related matters;

 

·insurance;

 

·absence of litigation or outstanding governmental orders;

 

·compliance with applicable laws, permits and governmental contracts;

 

·environmental matters;

 

·employee benefits and employment related matters;

 

·absence of related party transactions;

 

·disclosure regarding banks and power of attorney;

 

·compliance with other regulatory matters;

 

·product and service warranties related matters;

 

·no brokers’ fees;

 

·compliance with foreign corrupt practices, anti-bribery and other similar laws;

 

·inapplicability of state takeover statutes to merger and the other transactions contemplated by the Merger Agreement; and

 

·information supplied for inclusion in this joint proxy and consent solicitation statement/prospectus and the registration statement of which this document is a part.

 

Alliqua and Merger Sub made a number of representation and warranties to Celleration, including those related to the following matters:

 

·organization, corporate power, qualifications to do business and good standing in each applicable jurisdiction;

 

·authorization to enter into and carry out obligations under the Merger Agreement;

 

·absence of certain breaches, violations or conflicts arising out of the execution or performance of the Merger Agreement or completion of the merger;

 

·governmental approvals or consents required to complete the merger;

 

·capitalization and capital structure;

 

·no prior business operations conducted by Merger Sub;

 

·brokers’ fees;

 

·binding Commitment Letter for a $15.5 million Debt Financing and sufficient funds to consummate the transactions contemplated by the Merger Agreement;

 

·SEC filings, financial statements and compliance with the Sarbanes-Oxley Act;

 

·internal accounting controls and disclosure controls and procedures;

 

·information supplied for inclusion in this joint proxy and consent solicitation statement/prospectus and registration statement of which this document is a part;

 

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·opinion of financial advisor;

 

·compliance with applicable laws, permits and governmental contracts;

 

·pending or threatened legal proceedings;

 

·absence of breaches, default or required consents for filed contracts; and

 

·taxes and tax returns.

 

Certain representations and warranties in the Merger Agreement are qualified as to "materiality," “knowledge” or "material adverse effect." For purposes of the Merger Agreement, a "material adverse effect," when used in reference to Celleration, means any event, occurrence, fact, condition, circumstance or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, condition (financial or otherwise) or assets of Celleration or (ii) the ability of Celleration to consummate the transactions contemplated by the Merger Agreement on a timely basis. However, with respect to (i) in the foregoing sentence, no event, occurrence, fact, condition or change will be considered a “material adverse effect” to the extent that it arises out of or is attributable to:

 

·general economic or political conditions;

 

·conditions generally affecting the industries in which Celleration operates;

 

·changes in financial or securities markets in general;

 

·any outbreak, escalation or worsening of armed hostilities, terrorism or acts of war (whether or not declared);

 

·changes in applicable laws or accounting rules, including GAAP;

 

·any actions required or permitted by the Merger Agreement, except those certain sections related to obtaining governmental approvals and consents; or

 

·the public announcement, pendency or completion of the transactions contemplated by the Merger Agreement.

 

Except that, with respect to the first four bullets above, such changes will be considered in determining whether a material adverse effect has occurred, or could reasonably occur, to the extent that it has a disproportionate effect on Celleration as compared to other companies operating in the same industries.

 

Covenants and Agreements

 

Conduct of Business Prior the Completion of the Merger

 

Celleration has agreed that, prior to the closing of the merger, it will conduct its business in the ordinary course consistent with past practice and maintain and preserve intact its current organization, business and franchises as well as the rights, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with Celleration. In addition, Celleration has agreed, until the closing date, it will, among other things:

 

·preserve and maintain all permits;

 

·pay debts, taxes and other obligations when due;

 

·maintain properties and assets owned, operated or used by it in the same condition as they were on the date of the Merger Agreement, subject to reasonable wear and tear;

 

·continue in full force and effect without modification of any insurance policies, except as otherwise required by law;

 

·defend and protect its properties and assets from infringement or usurpation;

 

·perform all obligations, in all material respects, under existing material contracts relating to or affecting its properties, assets or business;

 

·maintain its books and records in accordance with past practice;

 

·comply in all material respects with applicable laws;

 

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·not form any subsidiaries; and

 

·not take or permit any action that would cause or give rise to any of the adverse changes, events or conditions described in certain representations and warranties as being absent (referred to herein as the absent conditions).

 

With respect to the absent conditions described immediately above, Celleration has represented that, since December 31, 2014, other than in the ordinary course of business consistent with past practice, there has not been, with respect to Celleration, any:

 

·event, occurrence or development that has had or could reasonably be expected to have, individually or in the aggregate, a material adverse effect on Celleration;

 

·amendment to Celleration’s charter documents;

 

·split, combination or reclassification of any shares of its capital stock;

 

·issuance, sale or other disposition of any of its capital stock (other than upon exercise of options outstanding as of the date of the Merger Agreement in accordance with their terms), or grant of any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its capital;

 

·declaration or payment of any dividends or distributions on or in respect of any of its capital stock or redemption, purchase or acquisition of its capital stock;

 

·material change in any method of accounting or accounting practice of Celleration for tax or book purposes, except as required by GAAP or as disclosed in the notes to its financial statements;

 

·material change in Celleration’s cash management practices and its policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

 

·entry into any contract that would constitute a material contract (as defined in the Merger Agreement);

 

·incurrence, assumption or guarantee of any indebtedness for borrowed money except unsecured current obligations and liabilities incurred in the ordinary course of business consistent with past practice;

 

·transfer, assignment, sale or other disposition of any of the assets shown or reflected in the Balance Sheet or cancellation of any debts or entitlements;

 

·transfer, assignment or grant of any license or sublicense of any material rights under or with respect to any intellectual property (“IP”) or IP agreements of Celleration;

 

·material damage, destruction or loss (whether or not covered by insurance) to its property;

 

·any capital investment in, or any loan to, any other person;

 

·acceleration, termination, material modification to or cancellation of any material contract (including, but not limited to, any material contract) to which Celleration is a party or bound by;

 

·any material capital expenditures in excess of $50,000 in the aggregate;

 

·imposition of any material encumbrance upon any of Celleration’s properties, capital stock or assets, tangible or intangible;

 

·(i) grant of any bonuses, other than as provided for in any written agreements, required by law or consistent with past practice, (ii) any material increase in the base salary of any officer or employee of Celleration; or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, director, independent contractor or consultant except as may be required under the terms of the Merger Agreement;

 

·hiring or promoting any person as or to (as the case may be) an officer without the express consent of Alliqua;

 

·adoption, modification or termination, of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant, other than termination for cause, (ii) benefit plan or (iii) collective bargaining or other agreement with a union, in each case whether written or oral;

 

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·any loan to (or forgiveness of any loan to), or entry into any other transaction with, any of Celleration’s stockholders or current or former directors, officers and employees;

 

·entry into a new line of business or abandonment or discontinuance of existing lines of business;

 

·make or agree to any material change in the commercial terms (i.e. pricing, rebates, payment terms, etc.) with any customer;

 

·except for the merger, adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy law or consent to the filing of any bankruptcy petition against it under any similar law;

 

·purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $25,000, individually (in the case of a lease, per annum) or $100,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of inventory or supplies in the ordinary course of business consistent with past practice;

 

·acquisition by merger or consolidation with, or by purchase of a substantial portion of the assets or stock of, or by any other manner, any business or any Person or any division thereof;

 

·action by Celleration to make, change or rescind any tax election, amend any tax return or take any position on any tax return, take any action, omit to take any action or enter into any other transaction that would have the effect of increasing the tax liability of Alliqua or the surviving corporation in respect of any post-closing tax period; or

 

·any contract to do any of the foregoing, or any act or omission that would result in any of the foregoing.

 

Director and Officer Indemnification and Insurance

 

The Merger Agreement provides that for a period of six years after the effective time of the merger, Alliqua and the surviving corporation will indemnify, defend and hold harmless all present and former directors and officers of Celleration against all losses, claims, damages, liabilities, judgments and fines arising out of acts or omissions occurring prior to the effective time of the merger, to the fullest extent permitted under applicable law. In addition, prior to the closing of the merger, Celleration must purchase a tail insurance policy for directors and officers with a claims period of at least six years from the effective time of the merger and with at least the same coverage, amount and favorable terms as its existing policies for claims arising out of events occurring prior to the effective time. The Merger Agreement provides that Celleration must fully pay for the tail insurance policy and that neither Alliqua nor the surviving corporation will be obligated to pay any premiums or other amounts in respect of such insurance.

 

Resignation of Celleration Directors and Officers

 

Prior to the effective time of the merger, Celleration must cause each of its officers and directors to deliver a letter effecting their resignation from their position as an officer and/or director immediately prior to the effective time.

 

Regulatory Matters and Notice of Certain Events

 

Each party has agreed to make all filings and submissions (including those under the HSR Act) required under law as promptly as possible. Celleration and Alliqua have also agreed to use commercially reasonable efforts to (i) obtain all consents, authorizations, orders and approvals from governmental authorities that are necessary for the performance of their respective obligations under the Merger Agreement and (ii) give all notices to and obtain all consents from certain identified third parties.

 

The parties have also agreed to furnish each other with information in connection with, and in advance of, any filing, submission or appearance made by or on behalf of either party to any governmental authority regarding to the transactions contemplated by the Merger Agreement. Furthermore, each party must provide notice to the other party for events or circumstances that could reasonably result in a material adverse effect and receipt of any notice from a third party for required consents or from any governmental authority in connection with the transactions contemplated by the Merger Agreement.

 

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Registration and Stockholder Approvals

 

Alliqua and Celleration have agreed to cause this joint proxy and consent solicitation statement/prospectus to be mailed to Alliqua stockholders and Celleration equity holders promptly after the registration statement on Form S-4, of which this joint proxy and consent solicitation statement/prospectus is a part, is declared effective, and to otherwise take all lawful action to solicit approval of their respective stockholders, either by written consent or by holding a special meeting of the stockholders.

 

Celleration has agreed to solicit, by written consent, the adoption and approval of the Merger Agreement by the affirmative vote of a majority of the issued and outstanding shares of Celleration common stock and Celleration Series AA preferred stock, voting together on an as converted basis, and a majority of the issued and outstanding shares of Celleration Series AA preferred stock, voting as a separate class. To the extent that any Celleration stockholder has not consented to or voted for the adoption of the Merger Agreement, Celleration must prepare and mail an appraisal notice in accordance with Section 262 of the DGCL.

 

Similarly, Alliqua has agreed to solicit, by holding a special meeting of the Alliqua stockholders, approval of the share issuances pursuant to the Merger Agreement by the affirmative vote required under applicable NASDAQ rules. Alliqua also agreed to submit to NASDAQ a listing application covering the shares of Alliqua common stock to be issued in the merger and to use its commercially reasonable efforts to have the shares approved for listing on the NASDAQ Capital Market.

 

Assistance with Financing

 

Celleration has agreed to use its reasonable best efforts to assist Alliqua in obtaining the necessary Debt Financing to consummate the merger by furnishing, upon the reasonable request of Alliqua, the information requested by lenders or other related parties in connection with the Debt Financing, including without limitation, all historical financial and other pertinent historical information and all financial statements expressly required by the Commitment Letter. For more information on the terms of the Debt Financing, see the section titled “The Merger—Debt Financing” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

Celleration will also use reasonable best efforts, at Alliqua’s sole expense, to provide information that Alliqua may reasonably request in connection with the completion of any private offering memorandums or other disclosure documents and the preparation of pro forma and other financial information that comply with Regulation S-X for purposes of any reports or other filings (including this joint proxy and consent solicitation statement/prospectus and the registration statement of which this document is a part) made pursuant to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

 

Agreement Not to Solicit Other Offers (“No Shop”)

 

The Merger Agreement generally restricts Celleration’s ability to solicit alternative acquisition proposals from third parties. However, Celleration may, on the terms and subject to the conditions of the Merger Agreement, respond to an unsolicited written acquisition proposal that constitutes, or that the Celleration board of directors determines would reasonably be expected to lead to, a “superior proposal,” and if the Celleration board of directors determines in good faith that the failure to take such action could reasonably likely result in a breach of its fiduciary duties; provided that Celleration has notified Alliqua within 48 hours of the receipt of such acquisition proposal.

 

Furthermore, at any time prior to obtaining Celleration’s required stockholder approval, the Celleration board of directors may (after determining in good faith that there is a superior proposal and a fiduciary duty to act in accordance with the terms of the Merger Agreement) withdraw or change its recommendation in favor of the current Merger Agreement and merger in response to the superior proposal and/or terminate the Merger Agreement in order to enter into a definitive agreement with respect to the superior proposal, but only if (i) it has given Alliqua at least five business days’ prior written notice of its intention to take such action, (ii) during the five-day notice period, it negotiates in good faith with Alliqua to match the other offer so that it is no longer considered a superior proposal and (iii) at the end of the five-day period, Celleration’s board of directors maintains its determination that the other offer is still a superior proposal. If Celleration terminates the Merger Agreement to accept a superior proposal, it must pay Alliqua a termination fee of $4 million.

 

The Merger Agreement defines an “acquisition proposal” as any inquiry, contract, proposal or offer, whether or not in writing, from any person (other than Alliqua or its subsidiaries) relating to any of the following alternative transactions:

 

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·merger, share exchange, tender offer for capital stock, recapitalization, consolidation or other business combination transaction directly or indirectly involving Celleration;

 

·direct or indirect acquisition of any business segment of Celleration;

 

·proposal for the issuance or sale by Celleration of 15% or more of its voting stock; or

 

·direct or indirect acquisition of beneficial ownership of 15% or more of voting stock.

 

The Merger Agreement defines “superior proposal” as a bona fide written “acquisition proposal” (with 15% as used in that definition increased to 50%) that Celleration’s board of directors determines in good faith (after consultation with its legal and financial advisors), taking into account all legal, financial, regulatory and other aspects of the proposal and the person making the proposal (i) is more favorable from a financial point of view to Celleration stockholders than the current transaction contemplated by the Merger Agreement (taking into account any adjustment to the terms and conditions proposed in writing by Alliqua in response to such proposal), (ii) contains conditions reasonably capable of timely satisfaction, (iii) is not subject to any financing contingency or financing is already then committed and (iv) will result in total consideration of $45,000,000 or more paid at the initial closing, excluding any post-closing or future payments (with any portion payable in equity being subject to independent third party valuation).

 

Indemnification

 

The Merger Agreement provides that the representations and warranties contained therein (other than certain representations and warranties that survive indefinitely or for the applicable statute of limitations) will survive for a period of 18 months after the closing of the merger, during which the parties may seek indemnification for any breaches thereof; provided, however, that no party may seek recovery of any indemnification claim until the aggregate amount of all losses incurred as a result of the other party’s breach exceeds $250,000, and an indemnifying party will only be liable to pay for losses in excess of that amount.

 

Any indemnification claims for losses payable to Alliqua will be satisfied as follows: (i) first, from the cash in the Indemnification Escrow Fund, (ii) then from the shares of Alliqua common stock held in the Indemnification Escrow Fund and (iii) to the extent the losses recoverable by Alliqua exceed the amounts available in the Indemnification Escrow Fund, by offset against any payments of contingent consideration. Alliqua’s right to setoff certain indemnification claims against the contingent consideration will be applied, first, up to an aggregate cash amount of $1,500,000, then up to an aggregate number of shares of Alliqua common stock with a fair market value of $1,000,000.

 

The Indemnification Escrow Fund will terminate 18 months after the closing date of the merger pursuant to the terms of the Escrow Agreement. Upon termination, all remaining amounts (including cash and shares of Alliqua common stock) in the Indemnification Escrow Fund not subject to any indemnification claims made by Alliqua will be released and disbursed to Celleration equity holders in accordance with their pro rata share. For more information on payments disbursed from the Indemnification Escrow Fund, see the section titled “The Merger Agreement—Post-Closing and Contingent Payments” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

Conditions to Completion of the Merger

 

Each party’s respective obligations to complete the merger are subject to the satisfaction or waiver of the following conditions:

 

·the approval of the Merger Agreement by Celleration stockholders and the approval of the issuance of Alliqua common stock in the merger by Alliqua stockholders;

 

·the submission of all filings pursuant to the HSR Act (if any) and the expiration or termination of the related statutory waiting period;

 

·the absence of any legal restraint or governmental order that would prevent or prohibit the completion of the merger and the other transactions contemplated by the Merger Agreement;

 

·the receipt of all required consents, authorizations, orders and approvals from government authorities;

 

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·the effectiveness of the registration statement of which this joint proxy and consent solicitation statement/prospectus is a part with respect to the Alliqua common stock to be issued in the merger, which shall not be the subject of any stop order; and

 

·the authorization for listing the shares of Alliqua common stock to be issued as part of the merger consideration on the NASDAQ Capital Market, subject to official notice of issuance.

 

The obligation of Alliqua and Merger Sub to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

Ÿcertain of Celleration’s representations and warranties will be true in all respects, to the extent qualified by materiality or material adverse effect, and others will be true in all material respects as of the date of the Merger Agreement and closing, except for those otherwise qualified as to a specified date;

 

Ÿthe performance, in all material respects, by Celleration of its covenants and agreements required to be performed or complied with prior to or on the closing date of the merger;

 

Ÿno action commenced against any party, injunction or restraining order issued by a governmental authority, in effect, that would prevent or prohibit the closing of the merger or transaction contemplated by the Merger Agreement;

 

Ÿreceipt by, and delivery to, Alliqua at or prior to closing of all required approvals, consents and waivers from Celleration and all closing deliverables from Celleration;

 

Ÿthe Debt Financing shall have been funded in accordance with the terms of Alliqua’s Commitment Letter;

 

Ÿno more than 7.5% of the total outstanding shares of Celleration common stock and Series AA preferred stock as of immediately prior to the effective time have exercised, or remain entitled to exercise, statutory appraisal rights pursuant to Section 262 of the DGCL; and

 

Ÿsince December 31, 2013, the absence of any material adverse effect on Celleration or any event, state of facts or circumstances that individually or in the aggregate, with or without the lapse of time, would likely result in a material adverse effect on Celleration. For a more complete discussion on what constitutes a material adverse effect on Celleration, see the section titled “The Merger Agreement—Representations and Warranties” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

The obligation of Celleration to complete the merger is subject to the satisfaction or waiver of the following additional conditions:

 

Ÿcertain of the representations and warranties of Alliqua and Merger Sub will be true in all respects, to the extent qualified by materiality or material adverse effect, and others will be true in all material respects as of the date of the Merger Agreement and closing, except for those otherwise qualified as to a specified date;

 

Ÿthe performance, in all material respects, by Alliqua and Celleration of their covenants and agreements required to be performed or complied with prior to or on the closing date of the merger;

 

Ÿno injunction or restraining order issued by a governmental authority, in effect, that would prevent or prohibit the closing of the merger or transaction contemplated by the Merger Agreement; and

 

Ÿreceipt by, and delivery to, Celleration at or prior to closing of all required approvals, consents and waivers from Alliqua and all closing deliverables from Alliqua.

 

Termination of the Merger Agreement

 

The Merger Agreement can be terminated at any time prior to the closing of the merger by mutual written consent, or by either party in the following circumstances:

 

·if any law or other final and non-appealable governmental order makes the consummation of the merger illegal or otherwise prohibits, restrains or enjoins the transactions contemplated by the Merger Agreement;

 

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·if either party fails to obtain the requisite approval of its respective stockholders at the special meeting or by written consent, as applicable; provided, that if such termination by Alliqua is a result of Alliqua failing to obtain the requisite vote of its stockholders, Alliqua must pay the required reverse termination fee to Celleration prior to or concurrent with termination, as described below under “—Termination Fees”;

 

·if the other party has breached or is in breach of any representation, warranty, covenant or agreement, which would prevent any closing condition from being satisfied and such breach is not cured within ten days after written notice of such breach;

 

·if it becomes apparent that any of the closing conditions have not been or will not be fulfilled by the Outside Date (as defined below), absent any failure to perform by the terminating party; or

 

·if the merger is not completed by May 31, 2015; provided, that Alliqua may extend that date to July 31, 2015 (the later of such dates, the “Outside Date’) with five business days’ prior written notice to Celleration.

 

With respect to the extension of the Outside Date, Alliqua may only extend (i) for delays related to the financing contingency or SEC comments to the registration statement of which this joint proxy and consent solicitation statement/prospectus is a part and (ii) if Alliqua has provided Celleration with a $1,000,000 bridge loan on or before May 15, 2015. For more information on the terms of the bridge loan, see the section titled “The Merger—Bridge Loan” beginning on page [   •   ].

 

In addition, Celleration may terminate the Merger Agreement in the following circumstances:

 

·if it has received a superior proposal and complied with its obligations pursuant to the no-shop covenant and its board of directors has approved the termination of the Merger Agreement and promptly enters into a definitive agreement to implement the superior proposal; provided, that Celleration must pay the required termination fee to Alliqua prior to or concurrent with termination, as described below under “—Termination Fees”; or

 

·if Alliqua fails to fulfill the Debt Financing condition by the Outside Date (including any extension), provided that all other mutual closing conditions have been fulfilled and Celleration is not otherwise in breach.

 

Effect of Termination

 

If the Merger Agreement is terminated, it will become void, except that (i) each party will remain liable for any fraud or material breach occurring prior to such termination and (ii) certain designated provisions of the Merger Agreement will survive the termination, including those relating to payment of fees and expenses and the confidential treatment of information.

 

Termination Fees

 

Celleration is required to pay a termination fee of $4 million if Celleration terminates the Merger Agreement in order to accept a superior proposal.

 

Alliqua is also required to pay a reverse termination fee of $3 million, less any amounts for the bridge loan to Celleration (including any accrued and unpaid interest thereon), if the Merger Agreement is terminated by (i) Alliqua or Celleration for Alliqua’s failure to obtain the required approval of Alliqua stockholders at the special meeting or (ii) Celleration for Alliqua’s failure to fulfill the Debt Financing condition to secure funding in accordance the terms of the Commitment Letter.

 

Miscellaneous Provisions

 

Expenses

 

Except as otherwise described in this joint proxy and consent solicitation statement/prospectus, each party will be responsible for all costs and expenses incurred by it in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement; provided, however, that Alliqua and Celleration have agreed to be equally responsible for all fees, costs and expenses in connection with any filings required pursuant to the HSR Act and the filing, printing and mailing of the registration statement of which this joint proxy and consent solicitation statement/prospectus is a part.

 

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Amendment, Modification or Waiver

 

Subject to applicable law, the parties may amend the Merger Agreement by written agreement at any time prior to the effective time of the merger. However, after the required approval of the merger by the stockholders of Celleration is obtained, there may not be, without further approval of Celleration stockholders, any amendment to the Merger Agreement that requires further approval of the stockholders under applicable law.

 

At any time prior to the effective time of the merger, each party, to the extent legally allowed, may extend the time for the performance of any of the obligations or other acts of the other party; waive any inaccuracies in the representations and warranties of the other party; and waive compliance by the other party with any of the agreements and conditions contained in the Merger Agreement.

 

ANCILLARY AGREEMENTS

 

Voting Agreement

 

The following summary describes the material provisions of the voting agreements entered into by Alliqua and certain beneficial owners of Celleration common stock and Series AA preferred stock. This summary does not purport to be complete and is qualified in its entirety by reference to the form of voting agreement attached to this joint proxy and consent solicitation statement/prospectus as Annex B. We urge you to read carefully the entire form of voting agreement.

 

Simultaneously with the execution of the Merger Agreement, certain 5% stockholders, directors and executive officers of Celleration, collectively representing approximately 83% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and 81% of the outstanding shares of Celleration Series AA preferred stock as of February 2, 2015, entered into voting agreements with Alliqua. Pursuant to the terms and conditions of the voting agreements, each holder agreed to execute and deliver a written consent with respect to all shares of Celleration common stock and Celleration Series AA preferred stock owned by them as of the applicable record date, if requested by Celleration, in favor of the adoption and approval of the Merger Agreement and the merger or, if applicable, to vote such shares in favor of the same proposal at a meeting of Celleration stockholders called for such purpose, each granting a proxy and power of attorney that will be coupled with an interest and will be irrevocable prior to the termination of the voting agreements in accordance with their terms. The holders also agreed to vote against or, in the case of a written consent, to withhold their consent from any competing action, proposal, transaction or agreement that (i) would result in a breach of any obligation of Celleration under the Merger Agreement or the holder under the voting agreement and (ii) would impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the merger or the fulfillment of any party’s conditions under the Merger Agreement or otherwise change the voting rights of any class of shares of Celleration.

 

The voting agreements contain certain other covenants, including, among other things, the waiver of appraisal or dissenters’ rights with respect to the merger and a general prohibition on the transfer, sale, offer, exchange, pledge or other disposition or encumbrance of any shares of Celleration common stock or Celleration Series AA preferred stock owned or subsequently acquired by them during the term of the voting agreements. The voting agreements also contain a lock-up provision, pursuant to which the holders have agreed not to sell shares of Alliqua common stock received in merger for a period of 180 days after the effective time of the merger.

 

The voting agreements (other than certain provisions such as the lock-up agreement which will survive for 180 days after the effective time of the merger) will terminate on the earlier to occur of the effective time of the merger and the termination of the Merger Agreement in accordance with its terms.

 

As of the close of business on the Celleration record date, approximately [ • ]% of the outstanding shares of Celleration common stock and Celleration Series AA preferred stock, on an as converted basis, and [ • ]% of the outstanding shares of Celleration Series AA preferred stock are subject to the voting agreements.

 

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COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION

 

Alliqua’s common stock has been listed on the NASDAQ Capital Market under the symbol “ALQA” since January 28, 2014. Prior to that date, it was quoted on the OTCQB over-the-counter marketplace.

 

The following table sets forth, for the period of 2014 commencing January 28, 2014, the high and low closing prices per share of Alliqua common stock, as reported on the NASDAQ Capital Market and for 2013 and the period of 2014 ending on January 27, 2014, the high and low bid prices of Alliqua common stock as reported on the OTCQB. The quotations reflect inter-dealer prices, without retail markup, markdown, or commissions, and may not represent actual transactions. All 2013 quotations are adjusted for the 1-for-43.75 reverse stock split of Alliqua common stock that occurred on November 18, 2013. Alliqua has never paid cash dividends on its common stock and has no intention to do so in the foreseeable future.

 

There is no established public trading market for Celleration common stock, and Celleration has not declared any dividends during the periods set forth in the table below.

 

   Alliqua Common Stock   Celleration Common Stock 
  High   Low   High   Low 
NASDAQ Capital Market                
2014                    
Fourth Quarter  $5.30   $3.89    N/A    N/A 
Third Quarter  $6.07   $4.62    N/A    N/A 
Second Quarter  $8.49   $5.50    N/A    N/A 
January 28, 2014 to March 31, 2014  $9.16   $7.86    N/A    N/A 
                     
OTCQB                    
2014                    
January 1, 2014 to January 27, 2014  $10.02   $6.99    N/A    N/A 
2013                    
Fourth Quarter  $8.44   $2.63    N/A    N/A 
Third Quarter  $3.94   $3.06    N/A    N/A 
Second Quarter  $3.94   $2.63    N/A    N/A 
First Quarter  $4.38   $1.75    N/A    N/A 

 

Celleration stockholders are urged to obtain current market quotations for Alliqua common stock and to review carefully the other information contained in this joint proxy and consent solicitation statement/prospectus or incorporated by reference into this joint proxy and consent solicitation statement/prospectus. See “Where you Can Find More Information” beginning on page [ • ] of this joint proxy and consent solicitation statement/prospectus.

 

The following table sets forth the closing sale prices per share of Alliqua common stock on February 2, 2015, the last full trading day immediately preceding the public announcement of the Merger Agreement, and on [ • ], 2015, the latest practicable date prior to the date of this joint proxy and consent solicitation statement/prospectus.

 

   Alliqua
Common Stock
   Celleration
Common Stock
 
February 2, 2014  $5.01    N/A 
[   •   ], 2015   $ [    •    ]    N/A 

 

As of [ • ], 2015, the latest practicable date prior to the date of this joint proxy and consent solicitation statement/prospectus, there were approximately [ • ] holders of record of Alliqua common stock and [ • ] holders of record of Celleration common stock.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On February 2, 2014, Alliqua entered into the Merger Agreement with Celleration, Merger Sub and certain representatives of Celleration stockholders, pursuant to which Celleration will merge with and into Merger Sub, with Merger Sub continuing as the surviving corporation and an indirect wholly owned subsidiary of Alliqua, on the terms and conditions set forth in the Merger Agreement. The transactions contemplated by the Merger Agreement have not yet been consummated.

 

The following unaudited pro forma condensed combined financial statements are derived from the separate historical financial statements of Alliqua and Celleration after giving effect to the proposed merger, and are based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined balance sheet as of December 31, 2014 is presented as if the merger had been completed on December 31, 2014. The unaudited pro forma condensed combined statement of operations for the year ended December 31