DEFM14A 1 ny20017467x2_defm14a.htm DEFM14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12
Karuna Therapeutics, Inc.
(Name of Registrant as Specified In Its Charter)

N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee paid previously with preliminary materials.

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

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February 5, 2024
Dear Stockholders:
You are cordially invited to attend a special meeting of the stockholders of Karuna Therapeutics, Inc. (“Karuna”). The special meeting will be held online on March 12, 2024 at 9:00 a.m., Eastern Time (the “special meeting”). You may attend the meeting virtually via the internet at https://www.virtualshareholdermeeting.com/KRTX2024SM, where you will be able to vote electronically and submit questions. You will need the 16-digit control number, which is located on your proxy card or in the instructions accompanying your proxy materials, to attend the special meeting. You will not be able to attend the meeting in person.
At the special meeting, Karuna stockholders will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of December 22, 2023 (as amended or modified from time to time, the “merger agreement”), among Karuna, Bristol-Myers Squibb Company (“Bristol-Myers Squibb”), and Miramar Merger Sub Inc., a wholly owned subsidiary of Bristol-Myers Squibb (“Merger Sub”). Subject to the terms and conditions of the merger agreement, Merger Sub will be merged with and into Karuna, the separate existence of Merger Sub will cease, and Karuna will survive the merger as a wholly owned subsidiary of Bristol-Myers Squibb (the “merger”).
If the merger is completed, Karuna stockholders will have the right to receive $330.00 in cash, without interest and subject to any applicable withholding taxes, for each share of common stock, par value $0.0001 per share, of Karuna (“Karuna common stock”), other than cancelled shares and dissenting shares (each as defined in the accompanying proxy statement), that they own immediately prior to the effective time of the merger, which represents a premium of approximately 53.4% over Karuna’s closing stock price on December 21, 2023, the last trading day prior to the announcement of the merger agreement. Approval of the proposal to adopt the merger agreement requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Karuna common stock entitled to vote as of the close of business on the record date (as defined in the accompanying proxy statement).
Karuna common stock is listed on the Nasdaq Global Market (“Nasdaq”) under the symbol “KRTX”. The closing price of Karuna common stock on Nasdaq on February 2, 2024, the latest practicable date before the printing of the accompanying proxy statement, was $314.88 per share.
The Karuna board of directors (the “Karuna Board”) has reviewed and considered the terms and conditions of the merger and unanimously (a) determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of Karuna and its stockholders, and declared it advisable to enter into the merger agreement with Bristol-Myers Squibb and Merger Sub providing for the merger in accordance with the DGCL (as defined in the accompanying proxy statement), (b) approved the merger agreement and the transactions contemplated thereby in accordance with the DGCL and (c) adopted a resolution recommending that the merger agreement be adopted by Karuna stockholders. The Karuna Board made its determination after consultation with its outside legal counsel and its financial advisors and consideration of various factors, as more fully described in the accompanying proxy statement.
The Karuna Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement.
At the special meeting, stockholders will also be asked to vote on (a) a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Karuna to its named executive officers based on or otherwise relating to the merger, as required by the rules adopted by the U.S. Securities and Exchange Commission (the “named executive officer merger-related compensation proposal”), and (b) a proposal to adjourn the special meeting from time to time, if necessary or appropriate, as determined in good faith by the Karuna Board, including for the purpose of soliciting additional votes for the approval of the merger

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proposal if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement by Karuna stockholders (the “adjournment proposal”). The Karuna Board unanimously recommends that you vote “FOR” each of these proposals.
The Karuna Board is soliciting your proxy to ensure that a quorum is present and that your shares are represented and voted at the special meeting and any postponement or adjournment thereof.
If your shares are held in “street name,” you should instruct your broker, bank or other nominee how to vote your shares on each proposal in accordance with your voting instruction form.
The merger cannot be completed unless Karuna stockholders adopt the merger agreement. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the special meeting online, please submit a proxy to vote your shares as promptly as possible to ensure that your shares may be represented and voted at the special meeting. If you receive more than one proxy card because you own shares registered in different names or addresses, each proxy should be submitted. If you attend the special meeting and vote online, your online vote will revoke any proxy previously submitted. If you fail to both return your proxy and attend the special meeting online, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the adoption of the merger agreement. Similarly, if you hold your shares in “street name” and fail to instruct your broker, bank or other nominee how to vote your shares, your shares will not be counted for purposes of determining whether a quorum is present and will have the same effect as a vote “AGAINST” the adoption of the merger agreement.
The obligations of Karuna, Bristol-Myers Squibb and Merger Sub to complete the merger are subject to the satisfaction or waiver of certain conditions. The accompanying proxy statement contains detailed information about Karuna, the special meeting, the merger agreement, the merger, the named executive officer merger-related compensation proposal and the adjournment proposal. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement and incorporated therein by reference. Karuna urges you to, and you should, read the entire proxy statement carefully, including the merger agreement and the other annexes and the documents referred to or incorporated by reference in the accompanying proxy statement. You may obtain additional information about Karuna from documents it has filed with the U.S. Securities and Exchange Commission.
If you have any questions or need assistance voting your shares of Karuna common stock, please contact Okapi Partners LLC, Karuna’s proxy solicitor, by calling (877) 274-8654 (toll-free) or (212) 297-0720 (banks and brokers).
 
Sincerely,
 
 
 
/s/ Bill Meury
 
 
 
Bill Meury
President, Chief Executive Officer, and Director
Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the merger, passed upon the merits of the merger agreement or the merger or determined if the accompanying proxy statement is accurate or complete. Any representation to the contrary is a criminal offense.
The accompanying proxy statement is dated February 5, 2024 and, together with the enclosed form of proxy card, is first being mailed to Karuna stockholders on or about February 5, 2024.

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Karuna Therapeutics, Inc.
99 High Street, Floor 26
Boston, Massachusetts
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DATE & TIME
March 12, 2024 at 9:00 a.m., Eastern Time
PLACE
The special meeting of stockholders (the “special meeting”) of Karuna Therapeutics, Inc. (“Karuna”) will be held online at https://www.virtualshareholdermeeting.com/KRTX2024SM. You will not be able to attend the meeting in person.
 
 
ITEMS OF BUSINESS
• To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of December 22, 2023 (as amended or modified from time to time, the “merger agreement”), among Karuna, Bristol-Myers Squibb Company (“Bristol-Myers Squibb”) and Miramar Merger Sub Inc., a wholly owned subsidiary of Bristol-Myers Squibb (“Merger Sub”) (the “merger proposal”), pursuant to which, subject to the terms and conditions set forth therein, Merger Sub will be merged with and into Karuna, the separate corporate existence of Merger Sub will cease, and Karuna will survive the merger as a wholly owned subsidiary of Bristol-Myers Squibb (the “merger”); a copy of the merger agreement is attached to the accompanying proxy statement as Annex A and is incorporated therein by reference;

• To consider and vote on a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Karuna to its named executive officers that is based on or otherwise relates to the merger (the “named executive officer merger-related compensation proposal”); and

• To consider and vote on a proposal to adjourn the special meeting from time to time, if necessary or appropriate, as determined in good faith by the Karuna board of directors (the “Karuna Board”), including for the purpose of soliciting additional votes for the approval of the merger proposal if there are insufficient votes at the time of the special meeting to approve the merger proposal (the “adjournment proposal”).
 
 
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of common stock, par value $0.0001 per share, of Karuna (“Karuna common stock”), at the close of business on January 26, 2024 (the “record date”) are entitled to notice of, and to vote at, the special meeting and at any adjournment of the special meeting. Each share of Karuna common stock will be entitled to one vote.
 
 
VOTING BY PROXY
Your vote is very important, regardless of the number of shares you own. The Karuna Board is soliciting your proxy to ensure that a quorum is present and that your shares are represented and voted at the special meeting. For information on submitting your proxy over the internet, by telephone or by

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mailing back the traditional proxy card (no extra postage is needed for the provided envelope if mailed in the U.S.), please see the attached proxy statement and enclosed proxy card. If you later decide to vote online at the special meeting, information on revoking your proxy prior to the special meeting is also provided.
 
 
RECOMMENDATIONS
The Karuna Board unanimously recommends that you vote:

• “FOR” the merger proposal;

• “FOR” the named executive officer merger-related compensation proposal; and

• “FOR” the adjournment proposal.
 
 
APPRAISAL
Record holders and beneficial owners of shares of Karuna common stock who do not vote in favor of the merger proposal will have the right to seek appraisal of the fair value of their shares of Karuna common stock, as determined in accordance with Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”), if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all the requirements of Delaware law, including Section 262 of the DGCL, which are summarized in the accompanying proxy statement. Section 262 of the DGCL is reproduced in its entirety in Annex C to the accompanying proxy statement and is incorporated therein by reference. A copy of Section 262 may also be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING ONLINE, PLEASE SUBMIT A PROXY TO VOTE YOUR SHARES OVER THE INTERNET OR BY TELEPHONE PURSUANT TO THE INSTRUCTIONS CONTAINED IN THESE MATERIALS OR COMPLETE, DATE, SIGN AND RETURN A PROXY CARD AS PROMPTLY AS POSSIBLE TO ENSURE THAT YOUR SHARES MAY BE REPRESENTED AND VOTED AT THE SPECIAL MEETING. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE SUBMITTED. IF YOU ATTEND THE SPECIAL MEETING AND VOTE ONLINE, YOUR ONLINE VOTE WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED. IF YOU FAIL TO BOTH RETURN YOUR PROXY AND ATTEND THE SPECIAL MEETING ONLINE, YOUR SHARES WILL NOT BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS PRESENT AT THE SPECIAL MEETING AND WILL HAVE THE SAME EFFECT AS A VOTE “AGAINST” THE ADOPTION OF THE MERGER AGREEMENT. SIMILARLY, IF YOU HOLD YOUR SHARES IN “STREET NAME” AND FAIL TO INSTRUCT YOUR BROKER, BANK OR OTHER NOMINEE HOW TO VOTE YOUR SHARES, YOUR SHARES WILL NOT BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS PRESENT AND WILL HAVE THE SAME EFFECT AS A VOTE “AGAINST” THE ADOPTION OF THE MERGER AGREEMENT.
Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement.
If you are a beneficial owner of shares held by a broker, bank or other nominee and you wish to vote in person at the online special meeting, you must bring to the online special meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote in person at the online special meeting.
In order to vote online and examine the list of the stockholders entitled to vote at the special meeting, you will need to log onto https://www.virtualshareholdermeeting.com/KRTX2024SM and enter the 16-digit control number, which is located on your proxy card or in the instructions accompanying your proxy materials. If your

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shares of Karuna common stock entitled to vote are registered directly in your name, you are considered the holder of record with respect to such shares of Karuna common stock and you have the right to attend the special meeting and vote online. If your shares of Karuna common stock entitled to vote are held in a brokerage account or by a bank or other nominee, you are the beneficial owner of such Karuna common stock. As such, in order to vote online at the special meeting, you must follow the instructions provided by your bank, brokerage firm or nominee.
The proxy statement of which this notice forms a part provides a detailed description of the merger, the merger agreement, the named executive officer merger-related compensation proposal and the adjournment proposal, and provides specific information concerning the special meeting. Karuna urges you to read the proxy statement, including any documents incorporated therein by reference, and its annexes carefully and in their entirety. If you have any questions concerning the merger or the proxy statement, would like additional copies of the proxy statement or need help voting your shares of Karuna common stock, please contact Karuna’s proxy solicitor, Okapi Partners LLC.
 
By Order of the Karuna Board,
 
 
 
/s/ Mia Kelley
 
 
 
Mia Kelley
 
General Counsel and Secretary
Boston, Massachusetts
February 5, 2024

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SUMMARY TERM SHEET
This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the merger and the other matters being considered at the special meeting of Karuna stockholders. Karuna urges you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents referenced in this proxy statement. For additional information on Karuna included in documents incorporated by reference into this proxy statement, see the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 98. Page references are included in this summary to direct you to a more complete description of the topics presented below.
Certain Definitions
As used in this proxy statement, unless otherwise noted or the context requires otherwise:
“Karuna” refers to Karuna Therapeutics, Inc., a Delaware corporation;
“Bristol-Myers Squibb” refers to Bristol-Myers Squibb Company, a Delaware corporation;
“Merger Sub” refers to Miramar Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Bristol-Myers Squibb that was formed solely for the purpose of entering into a merger agreement and engaging in transactions of the nature contemplated by the merger agreement;
“Karuna common stock” refers to the common stock, par value $0.0001 per share, of Karuna;
“Karuna Board” refers to the board of directors of Karuna;
“merger” refers to the merger of Merger Sub with and into Karuna with the separate corporate existence of Merger Sub ceasing and Karuna surviving as a wholly owned subsidiary of Bristol-Myers Squibb;
“merger agreement” refers to the Agreement and Plan of Merger, dated as of December 22, 2023, by and among Karuna, Bristol-Myers Squibb and Merger Sub, as amended or modified from time to time, a copy of which is attached as Annex A to this proxy statement and which is incorporated by reference herein; and
Karuna, following the completion of the merger, is sometimes referred to in this proxy statement as the “surviving corporation.”
The Parties
Karuna (see page 25)
Karuna Therapeutics, Inc.
99 High Street, 26th Floor
Boston, Massachusetts 02110
(857) 449-2244
Karuna is a biopharmaceutical company driven to discover, develop and deliver transformative medicines for people living with psychiatric and neurological conditions. At Karuna, we understand there is a need for differentiated and more effective treatments that can help patients navigate the challenges presented by serious mental illness. Utilizing our extensive knowledge of neuroscience, we are harnessing the untapped potential of the brain in pursuit of novel pathways to develop medicines that make meaningful differences in peoples’ lives.
The Karuna common stock is traded on Nasdaq under the ticker symbol “KRTX”.
Karuna’s principal executive offices are located at 99 High Street, 26th Floor, Boston, Massachusetts 02110 and Karuna’s telephone number is (857) 449-2244. Karuna’s corporate web address is www.karunatx.com. The information provided on Karuna’s website is not part of this proxy statement and is not incorporated in this proxy statement by reference or by any other reference to Karuna’s website provided in this proxy statement.
Additional information about Karuna is contained in its public filings with the U.S. Securities and Exchange Commission (the “SEC”), which filings are incorporated by reference herein. See the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 98.
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Bristol-Myers Squibb (see page 25)
Bristol-Myers Squibb Company
Route 206 & Province Line Road
Princeton, New Jersey 08540
(609) 252-4621
Bristol-Myers Squibb was incorporated under the laws of the State of Delaware in August 1933 under the name Bristol-Myers Company, as successor to a New York business started in 1887. In 1989, Bristol-Myers Company changed its name to Bristol-Myers Squibb Company as a result of a merger. Bristol-Myers Squibb is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases on a global basis, primarily in the following therapeutic areas: oncology, hematology, immunology, cardiovascular and neuroscience.
Bristol-Myers Squibb’s common stock, par value $0.10, is listed on the New York Stock Exchange under the symbol “BMY”.
Merger Sub (see page 25)
Miramar Merger Sub Inc.
c/o Bristol-Myers Squibb Company
Route 206 & Province Line Road
Princeton, New Jersey 08540
(609) 252-4621
Merger Sub is a wholly owned subsidiary of Bristol-Myers Squibb and was formed on April 14, 2023, solely for the purpose of engaging in transactions of the nature contemplated by the merger agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the merger agreement.
The Special Meeting
Date, Time and Place (see page 26)
The special meeting is scheduled to be held online via live audio webcast at https://www.virtualshareholdermeeting.com/KRTX2024SM on March 12, 2024 at 9:00 a.m., Eastern Time. The special meeting will be held in a virtual meeting format only, with no physical in-person meeting.
Purpose of the Meeting (see page 26)
At the special meeting, Karuna stockholders will be asked to consider and vote on the following proposals:
a proposal to adopt the merger agreement (the “merger proposal”), which is further described in the sections of this proxy statement entitled “The Merger Proposal (Proposal 1)” and “The Merger Agreement,” beginning on pages 31 and 63, respectively; a copy of the merger agreement is attached to this proxy statement as Annex A and is incorporated herein by reference;
a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Karuna to its named executive officers that is based on or otherwise relates to the merger (the “named executive officer merger-related compensation proposal”), which is further described in the sections of this proxy statement entitled “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger” and “Advisory Vote On Named Executive Officer Merger-Related Compensation Proposal (Proposal 2),” beginning on pages 52 and 88, respectively; and
a proposal to adjourn the special meeting, from time to time, if necessary or appropriate, as determined in good faith by the Karuna Board, including for the purpose of soliciting additional votes for the approval of the merger proposal if there are insufficient votes at the time of the special meeting to approve the merger proposal (the “adjournment proposal”), which is further described in the section of this proxy statement entitled “Adjournment Proposal (Proposal 3),” beginning on page 89.
The Karuna Board has reviewed and considered the terms and conditions of the proposed merger. After consultation with its outside legal counsel and its financial advisors and after consideration of various factors, as
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more fully described in this proxy statement, the Karuna Board unanimously (a) determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Karuna and its stockholders, and declared it advisable to enter into the merger agreement, in each case in accordance with the DGCL (as defined in the accompanying proxy statement), (b) approved the merger agreement and the transactions contemplated thereby in accordance with the DGCL and (c) adopted a resolution recommending that the merger agreement be adopted by Karuna stockholders. Certain factors considered by the Karuna Board in reaching its decision to adopt the merger agreement can be found in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Recommendation of the Karuna Board and Reasons for the Merger,” beginning on page 40.
The Karuna Board unanimously recommends that Karuna stockholders vote “FOR” the merger proposal, “FOR” the named executive officer merger-related compensation proposal and “FOR” the adjournment proposal.
The affirmative vote of holders of a majority of the outstanding shares of Karuna common stock entitled to vote as of the close of business on the record date to adopt the merger agreement at the special meeting is a condition to the completion of the merger. If Karuna stockholders fail to approve the merger proposal, the merger will not occur.
Record Date; Stockholders Entitled to Vote (see page 27)
Only holders of record of Karuna common stock at the close of business on January 26, 2024, the record date for the special meeting (the “record date”), will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting.
Holders of record of Karuna common stock are entitled to one vote for each share of Karuna common stock they own of record at the close of business on the record date. At the close of business on the record date, there were 38,119,463 shares of Karuna common stock issued and outstanding, held by approximately five holders of record.
Quorum (see page 27)
Under Karuna’s bylaws, the presence, in person or represented by proxy, at the special meeting of a majority of the issued and outstanding shares of Karuna common stock entitled to vote thereat at the close of business on the record date will constitute a quorum. There must be a quorum for business (other than the adjournment proposal) to be conducted at the special meeting. If a quorum is not present, the presiding officer at the special meeting may adjourn the special meeting from time to time until a quorum is present. Failure of a quorum to be represented at the special meeting will necessitate an adjournment of the special meeting and may subject Karuna to additional expense.
If you attend the special meeting or if you submit (and do not thereafter revoke) a proxy by duly executing and returning a proxy card or by telephone or through the internet, even if you abstain from voting, your shares of Karuna common stock will be counted for purposes of determining whether a quorum is present at the special meeting. In the event that a quorum is not present at the special meeting or additional votes must be solicited to adopt the merger agreement, the meeting may be adjourned or postponed to solicit additional proxies.
Required Vote (see page 27)
The approval of the merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Karuna common stock entitled to vote as of the close of business on the record date.
Assuming a quorum is present, approval of the named executive officer merger-related compensation proposal (on a non-binding basis) requires the affirmative vote of the holders of a majority of the shares of Karuna common stock present in person or represented by proxy at the online special meeting and entitled to vote thereon.
Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Karuna common stock present in person or represented by proxy at the online special meeting and entitled to vote thereon.
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Voting at the Special Meeting (see page 28)
If your shares are registered directly in your name with Karuna’s transfer agent, you are considered a “stockholder of record.” Stockholders of record can vote their shares of Karuna common stock in the following four ways:
By Internet. Access the website of Karuna’s tabulator, Broadridge Financial Solutions, Inc., at: www.proxyvote.com, using the voter control number printed on the furnished proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your internet vote cannot be completed and you will receive an error message. If you vote on the internet, you may also request electronic delivery of future proxy materials.
By Telephone. Call 1-800-690-6903 toll-free from the U.S., U.S. territories and Canada, and follow the instructions on the enclosed proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your telephone vote cannot be completed.
By Mail. Complete and mail a proxy card in the enclosed postage prepaid envelope to Broadridge Financial Solutions, Inc. Your proxy will be voted in accordance with your instructions. If you return your proxy card but do not specify how you want your shares voted on any particular matter, they will be voted in accordance with the recommendations of the Karuna Board. If you are mailed or otherwise receive or obtain a proxy card or voting instruction form, and you choose to vote by telephone or by internet, you do not have to return your proxy card or voting instruction form.
By Internet at the Online Special Meeting. Visit https://www.virtualshareholdermeeting.com/KRTX2024SM and enter the 16-digit control number located on your proxy card or in the instructions accompanying your proxy materials.
Even if you plan to attend the special meeting, you are encouraged to submit a proxy in advance by internet, telephone or mail to ensure that your shares will be represented and voted at the special meeting if you later decide not to attend the special meeting. Telephone and internet facilities for the submission of a proxy to vote shares will be available 24 hours a day and will close at 11:59 p.m. Eastern Time on March 11, 2024. Proxy cards must be received no later than March 11, 2024 in order to ensure that your shares are voted.
If your shares are held by your broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name” and you will receive a form from your broker, bank or other nominee seeking instruction from you as to how your shares should be voted. You should instruct your broker, bank or other nominee how to vote your shares on each proposal in accordance with your voting instruction form. If you beneficially own your shares and receive a voting instruction form, you can vote by following the instructions on your voting instruction form. Please refer to information from your bank, broker or other nominee on how to submit voting instructions.
You may revoke your proxy at any time prior to the vote at the special meeting by (a) sending a written statement to that effect to Karuna’s Secretary, (b) submitting another proxy to vote by internet or telephone, (c) submitting a properly signed proxy card with a later date, or (d) attending the special meeting and voting online. Attendance at the special meeting will not, in and of itself, result in the revocation of a proxy or cause your shares of Karuna common stock to be voted. If you hold shares in “street name,” you may submit new voting instructions by contacting your bank, broker or other nominee.
Karuna recommends that you submit a proxy to vote your shares as soon as possible, even if you are planning to attend the special meeting to ensure that your shares are represented and voted at the meeting and so that the vote count will not be delayed.
Abstentions and Broker Non-Votes (see page 27)
At the special meeting, abstentions will be counted as present for purposes of determining whether a quorum exists. Abstaining from voting will have the same effect as a vote “AGAINST” the merger proposal. Abstaining from voting on the named executive officer merger-related compensation proposal or the adjournment proposal will not be considered a vote cast on, and will have no effect on, the named executive officer merger-related compensation proposal or the adjournment proposal.
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If no instruction as to how to vote is given (including no instruction to abstain from voting) in an executed, duly returned and not revoked proxy, the proxy will have the same effect as a vote “FOR” the merger proposal, the named executive officer merger-related compensation proposal and the adjournment proposal.
Broker non-votes are shares held in “street name” by brokers, banks and other nominees that are present or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares how to vote on a particular proposal and such broker, bank or other nominee does not have discretionary voting power on such proposal. Because under Nasdaq rules brokers, banks and other nominees holding shares in “street name” do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Karuna common stock held in “street name” does not give voting instructions to the broker, bank or other nominee, then those shares will not be counted as present in person or by proxy at the online special meeting. As the vote to approve the merger proposal is based on the total number of shares of Karuna common stock outstanding at the close of business on the record date, not just the shares that are counted as present in person or by proxy at the online special meeting, if you fail to issue voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the merger proposal. If you fail to issue voting instructions to your broker, bank or other nominee, it will have no effect on the outcome of the named executive officer merger-related compensation proposal or the adjournment proposal.
Solicitation of Proxies (see page 29)
The Karuna Board is soliciting your proxy, and Karuna will bear the cost of soliciting proxies. Okapi Partners LLC has been retained to assist with the solicitation of proxies. Okapi Partners LLC will be paid approximately $50,000, plus certain additional per-service fees, and will be reimbursed for certain fees and expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of shares of Karuna common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by Okapi Partners LLC or, without additional compensation, by certain of Karuna’s directors, officers and employees.
Adjournment (see page 30)
In addition to the merger proposal and the named executive officer merger-related compensation proposal, Karuna stockholders are also being asked to approve the adjournment proposal, which will enable the adjournment of the special meeting from time to time, if necessary and appropriate, as determined in good faith by the Karuna Board, including for the purpose of soliciting additional votes in favor of the merger proposal. If a quorum is not present, the presiding officer at the special meeting may adjourn the special meeting from time to time until a quorum is present. If the adjournment is for more than 30 days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. In addition, the special meeting could be postponed before it commences, subject to the terms of the merger agreement. If the special meeting is adjourned or postponed, stockholders who have already submitted their proxies will be able to revoke them at any time prior to the final vote on the proposals. If you return a proxy and do not indicate how you wish to vote on the adjournment proposal, your shares will be voted in favor of the adjournment proposal.
The Merger
The rights and obligations of the parties to the merger agreement are governed by the specific terms and conditions of the merger agreement and not by any summary or other information in this proxy statement. Therefore, the information in this proxy statement regarding the merger agreement and the merger is qualified in its entirety by reference to the merger agreement, a copy of which is attached as Annex A to this proxy statement and is incorporated herein by reference. You are encouraged to read the merger agreement carefully and in its entirety because it is the principal legal agreement that governs the merger.
Structure of the Merger (see page 31)
Subject to the terms and the conditions of the merger agreement and in accordance with the DGCL, if the merger is completed, then at the effective time of the merger (the “effective time”), Merger Sub will merge with
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and into Karuna, the separate corporate existence of Merger Sub will cease, and Karuna will continue as the surviving corporation and a wholly owned subsidiary of Bristol-Myers Squibb.
Merger Consideration (see page 31)
Upon the terms and subject to the conditions of the merger agreement, at the effective time, Karuna stockholders will have the right to receive $330.00 in cash, without interest and subject to any applicable withholding taxes (the “merger consideration”), for each share of Karuna common stock that they own that is issued and outstanding immediately prior to the effective time of the merger (other than (a) shares of Karuna common stock owned by Bristol-Myers Squibb or Merger Sub or any other wholly owned subsidiary of Bristol-Myers Squibb immediately prior to the effective time and shares of Karuna common stock owned by Karuna immediately prior to the effective time, including shares of Karuna common stock held in treasury by Karuna, and in each case not held on behalf of third parties (collectively, the “cancelled shares”) and (b) shares of Karuna common stock that are issued and outstanding immediately prior to the effective time and that are held by holders who have not voted such shares of Karuna common stock in favor of the adoption of the merger agreement and who are entitled to, and have properly demanded, appraisal rights with respect thereto in accordance with Section 262 of the DGCL, have complied in all respects with Section 262 of the DGCL and have not effectively withdrawn such demand (collectively, “dissenting shares”)). After the merger is completed, holders of shares of Karuna common stock will have only the right to receive a cash payment in respect of their shares of Karuna common stock, and will no longer have any rights as Karuna stockholders, including voting or other rights.
Any cancelled shares outstanding as of immediately prior to the effective time will be cancelled at the effective time.
Treatment of Karuna Equity Awards and Karuna ESPP (see page 31)
The merger agreement provides that outstanding equity-based awards (collectively, the “Karuna equity awards”) under the (a) Karuna Therapeutics, Inc. 2019 Stock Option and Incentive Plan and (b) Karuna Therapeutics, Inc. 2009 Stock Incentive Plan, as each may be amended from time to time (collectively, the “Karuna stock plans”), will be treated as set forth below.
Options. Immediately prior to the effective time, each outstanding and unexercised option to purchase shares of Karuna common stock (“Karuna Option”), whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, become immediately vested and be cancelled and will entitle the holder of such Karuna Option to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to such Karuna Option multiplied by (b) the excess, if any, of $330.00 over the per share exercise price of such Karuna Option, less applicable taxes.
Restricted Stock Units. Immediately prior to the effective time, each outstanding restricted stock unit (“Karuna RSU”), whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, be immediately vested and be cancelled and will entitle the holder of such Karuna RSU to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to the Karuna RSU multiplied by (b) $330.00, less applicable taxes.
Any consideration payable in respect of the Karuna Options and Karuna RSUs will be paid through the payroll system or payroll provider (to the extent applicable) of the surviving corporation as promptly as reasonably practicable following the closing date, but in no event later than the second regularly scheduled payroll date following the closing date. Notwithstanding the foregoing, if any payment owed to a holder of Karuna Options or Karuna RSUs cannot be made through the surviving corporation’s payroll system or payroll provider, then the surviving corporation will issue a check for such payment to such holder as soon as practicable following the closing date.
Special rules govern the treatment of Karuna RSUs that are intended to be granted following the entry into the Merger Agreement, as further discussed in the section of this proxy statement entitled “The Merger Agreement—Employee Matters” beginning on page 77.
Treatment of ESPP. At or prior to the effective time, Karuna, the Karuna Board and the compensation committee of the Karuna Board, as applicable, will unanimously adopt any resolutions and take any actions
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necessary to terminate the Karuna Therapeutics, Inc. 2019 Employee Stock Purchase Plan, as may be amended from time to time (the “Karuna ESPP”). No offering period has ever commenced under the Karuna ESPP.
Recommendation of the Karuna Board (see page 40)
The Karuna Board has reviewed and considered the terms and conditions of the proposed merger. After consultation with its outside legal counsel and its financial advisors and after consideration of various factors, as more fully described in this proxy statement, the Karuna Board unanimously (a) determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Karuna and its stockholders, and declared it advisable to enter into the merger agreement, in each case in accordance with the DGCL (as defined in the accompanying proxy statement), (b) approved the merger agreement and the transactions contemplated thereby in accordance with the DGCL and (c) adopted a resolution recommending that the merger agreement be adopted by Karuna stockholders. Certain factors considered by the Karuna Board in reaching its decision to adopt the merger agreement can be found in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Recommendation of the Karuna Board and Reasons for the Merger” beginning on page 40.
The Karuna Board unanimously recommends that Karuna stockholders vote:
“FOR” the merger proposal;
“FOR” the named executive officer merger-related compensation proposal; and
“FOR” the adjournment proposal.
Opinion of Karuna’s Financial Advisor (see page 46)
Goldman Sachs & Co. LLC (“Goldman Sachs”) rendered its oral opinion to the Karuna Board (which was subsequently confirmed by delivery of Goldman Sachs’ written opinion dated as of December 22, 2023) that, as of the date of the opinion and based upon and subject to the factors and assumptions set forth therein, the $330.00 in cash per share of Karuna common stock to be paid to the holders (other than Bristol-Myers Squibb and its affiliates) of shares of Karuna common stock pursuant to the merger agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated December 22, 2023, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. The summary of Goldman Sachs’ opinion contained in this proxy statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Karuna Board in connection with its consideration of the merger. Goldman Sachs’ opinion is not a recommendation as to how any holder of shares of Karuna common stock should vote with respect to the merger or any other matter. Pursuant to an engagement letter between Karuna and Goldman Sachs, Karuna has agreed to pay Goldman Sachs a transaction fee of approximately $117 million, $5 million of which became payable upon the announcement of the merger, and the remainder of which is contingent upon consummation of the merger.
Interests of Karuna’s Executive Officers and Directors in the Merger (see page 52)
In considering the recommendation of the Karuna Board that Karuna stockholders vote to approve the merger proposal, Karuna stockholders should be aware that certain directors and executive officers of Karuna may have interests in the proposed merger that are different from, or in addition to, the interests of Karuna stockholders generally and which may create potential conflicts of interest. The Karuna Board was aware of these interests and considered them when it adopted the merger agreement and approved the merger.
These interests include:
Karuna’s executive officers are entitled to severance protections and benefits under their employment agreements in the event of a termination of employment without “cause” or a resignation for “good reason” within 12 months following the completion of the merger (and for Bill Meury only, any such termination during the three-month period prior to the completion of the merger);
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pursuant to the merger agreement, immediately prior to the effective time, Karuna Options and Karuna RSUs held by Karuna’s executive officers and members of the Karuna Board will fully vest and be cancelled and cashed out based on the merger consideration;
Karuna may enter into agreements with any executive officer who is a disqualified individual (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)) providing that, to the extent that any payment or benefit pursuant to the merger would be subject to the excise tax under Section 4999 of the Code, Karuna will provide a tax gross-up to such disqualified individual so that such disqualified individual will retain, on an after tax basis, 100% of the amount that such disqualified individual would have received in connection with the merger if Section 4999 of the Code did not apply; provided that the aggregate amount of the tax gross-ups that Karuna may provide under the terms of such agreements may not exceed $15 million; and
the provision of indemnification, the advancement of expenses, exculpation and insurance arrangements pursuant to the merger agreement and Karuna’s certificate of incorporation and bylaws, and performance under indemnification agreements between Karuna and its directors and executive officers.
These interests are discussed in more detail in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger,” beginning on page 52.
Financing of the Merger (see page 58)
The merger is not conditioned on any financing arrangements or contingencies. Bristol-Myers Squibb and Merger Sub have represented in the merger agreement that Bristol-Myers Squibb will have available to it (and will make available to Merger Sub in a timely manner) sufficient funds required to make all payments contemplated by the merger agreement to be made by Bristol-Myers Squibb, Merger Sub or the surviving corporation as of the effective time and to pay all fees and expenses incurred in connection with the transactions contemplated by the merger agreement that are payable by Bristol-Myers Squibb or Merger Sub in accordance with the terms of the merger agreement.
Antitrust Review Required for the Merger (see page 58)
As further discussed in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Antitrust Review Required for the Merger” beginning on page 58, completion of the merger is conditioned upon (i) the expiration or early termination of (a) the waiting period (and any extension thereof) applicable to the consummation of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), and the receipt of any required approvals thereunder, and, (b) any voluntary agreement with a governmental entity entered into by Karuna, Bristol-Myers Squibb or Merger Sub not to consummate the merger, and (ii) the receipt of each other consent, approval or clearance with respect to, or termination or expiration of any applicable waiting period (and any extensions thereof) imposed under, any antitrust laws with respect to the merger as specified in the disclosure letter. Under the merger agreement and subject to certain limitations, each of Karuna and Bristol-Myers Squibb has agreed to use their respective reasonable best efforts to, among other things, consummate the merger as soon as reasonably practicable.
Under the HSR Act, the merger may not be completed until notifications have been filed with and certain information has been furnished to the Antitrust Division of the Department of Justice (the “Antitrust Division”) and the Federal Trade Commission (the “FTC”) and all statutory waiting period requirements have been satisfied and any required approvals thereunder have been obtained. Karuna and Bristol-Myers Squibb filed notifications with the Antitrust Division and the FTC on January 9, 2024. On February 2, 2024, Bristol-Myers Squibb, in consultation with Karuna, voluntarily withdrew its notification with the Antitrust Division and the FTC, effective as of February 8, 2024, in order to provide the Antitrust Division and the FTC with additional time to review the transaction. Bristol-Myers Squibb currently intends to re-file its notification with the Antitrust Division and the FTC on February 12, 2024.
While Karuna has no reason to believe it will not be possible to complete the antitrust reviews in a timely manner, there is no certainty that these reviews will be completed within the period of time contemplated by the merger agreement or that the completion of any of such reviews would not be conditioned upon actions that would be materially adverse to Karuna or Bristol-Myers Squibb, or that a challenge to the merger will not be made.
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Material U.S. Federal Income Tax Consequences of the Merger (see page 93)
The exchange of Karuna common stock for cash pursuant to the merger generally will be a taxable transaction for U.S. federal income tax purposes. You should read the section of this proxy statement entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 93. The tax consequences of the merger to you will depend on your particular circumstances. You should consult your tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Appraisal Rights (see page 60)
Pursuant to Section 262 of the DGCL, dissenting Karuna stockholders will be entitled to seek appraisal of their shares of Karuna common stock in connection with the merger under Section 262 of the DGCL. The “fair value” of such shares as determined by the Delaware Court of Chancery could be greater than, the same as, or less than the merger consideration.
The right to seek appraisal will be lost if a Karuna stockholder votes FOR the merger agreement. Abstaining or voting against the merger agreement, however, is not in itself sufficient to perfect appraisal rights because additional actions must also be taken to perfect such rights. To exercise appraisal rights, Karuna stockholders who wish to exercise the right to seek an appraisal of their shares of Karuna common stock must advise Karuna by submitting a written demand for appraisal to Karuna prior to the taking of the vote on the merger agreement at the online special meeting, and must otherwise strictly follow the applicable procedures and requirements prescribed by Section 262 of the DGCL. A person having a beneficial interest in shares of Karuna common stock held of record in the name of another person, such as a bank, broker or other nominee, may perfect appraisal rights in such person’s name if such beneficial owner continuously owns such shares through the effective time and otherwise satisfies the requirements applicable to Karuna stockholders of record under Section 262(a) of the DGCL. In addition, the beneficial owner must (a) reasonably identify in his, her or its demand the holder of record of the shares of Karuna common stock for which the demand is made, (b) provide documentary evidence of such beneficial owner’s beneficial ownership and a statement that such documentary evidence is a true and correct copy of what it purports to be and (c) provide an address at which such beneficial owner consents to receive notices given by Karuna and to be set forth on the verified list of persons who have demanded appraisal for their shares pursuant to Section 262(f) of the DGCL. In addition, under Section 262 of the DGCL, the Delaware Court of Chancery will dismiss any appraisal proceedings as to all Karuna stockholders who have perfected their appraisal rights unless (a) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of Karuna common stock or (b) the value of the merger consideration multiplied by the total number of shares of Karuna common stock entitled to appraisal exceeds $1 million. In view of the complexity of Section 262 of the DGCL, Karuna stockholders that may wish to pursue appraisal rights are urged to consult their legal and financial advisors.
For a more complete description of the right of Karuna stockholders to dissent, Karuna stockholders should read the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Appraisal Rights” beginning on page 60.
Expected Timing of the Merger
Karuna expects to complete the merger during the first half of 2024. The merger is subject to antitrust review and various other conditions, however, and it is possible that factors outside of the control of Karuna or Bristol-Myers Squibb could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the special meeting and the completion of the merger. Karuna expects to complete the merger promptly following the receipt of all required clearances and approvals and the satisfaction or, to the extent permitted, waiver of the other conditions to the consummation of the merger.
Non-Solicitation of Acquisition Proposals (see page 72)
From December 22, 2023 until the effective time or, if earlier, the valid termination of the merger agreement in accordance with its terms, Karuna will not, and will cause its subsidiaries not to, and will direct its and their respective representatives not to, directly or indirectly:
initiate, solicit, propose, knowingly assist, knowingly encourage (including by way of furnishing information) or knowingly take any action to facilitate any inquiry, proposal, indication of interest or
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offer regarding, or that constitutes or could reasonably be expected to lead to, any acquisition proposal (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—Non-Solicitation of Acquisition Proposals” beginning on page 72);
engage in, continue or otherwise participate in any discussions with or negotiations relating to, or furnish any non-public information to any person (other than Bristol-Myers Squibb, Merger Sub or their representatives) in connection with, any acquisition proposal or any inquiry, proposal, indication of interest or offer that could reasonably be expected to lead to any acquisition proposal (other than to state that the terms of this provision prohibit such discussions or negotiations);
approve, endorse or recommend, or propose publicly to approve, endorse or recommend, any acquisition proposal;
negotiate, execute or enter into any merger agreement, acquisition agreement or other similar definitive agreement, or any letter of intent, commitment, agreement in principle or similar agreement, for any acquisition proposal or that could reasonably be expected to lead to any acquisition proposal or any contract or commitment requiring Karuna to abandon, terminate or fail to consummate the merger and the other transactions contemplated thereby (other than an acceptable confidentiality agreement (as defined in the merger agreement));
take any action to exempt any person (other than Bristol-Myers Squibb, Merger Sub or their affiliates) from the restrictions on “business combinations” or similar provision contained in any takeover law, Karuna’s certificate of incorporation or Karuna’s bylaws or grant a waiver under Section 203 of the DGCL; or
resolve, propose or agree to do any of the foregoing; provided that any determination or action by the Karuna Board that is permitted pursuant to the terms of the merger agreement shall not be deemed to be a breach or violation of the merger agreement.
Notwithstanding anything to the contrary in the merger agreement, Karuna or the Karuna Board may:
comply with its disclosure obligations to its stockholders under applicable law or the rules and policies of Nasdaq, take and disclose to its stockholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act of 1934, as amended (the “Exchange Act”), make a “stop-look-and-listen” communication to Karuna stockholders pursuant to Rule 14d-9(f) under the Exchange Act or make any legally required disclosure to stockholders with regard to the transactions contemplated by the merger agreement or an acquisition proposal; provided, that the Karuna Board may not make a change of recommendation (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—Non-Solicitation of Acquisition Proposals” beginning on page 72) except to the extent otherwise permitted by the merger agreement;
prior to (but not after) obtaining the company requisite vote (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—Non-Solicitation of Acquisition Proposals” beginning on page 72): (a) engage in any communications, negotiations or discussions with any person or group of persons and their respective representatives who has made an unsolicited bona fide acquisition proposal after December 22, 2023 in circumstances not involving a breach of the merger agreement (which negotiations or discussions need not be solely for clarification purposes) and (b) provide access to Karuna’s or any of its subsidiaries’ properties, books and records and provide information or data in response to a request therefor by a person who has made an unsolicited bona fide acquisition proposal after December 22, 2023 in circumstances not involving a breach of the merger agreement, in each case, if the Karuna Board (i) has determined in good faith, after consultation with its outside legal counsel and its financial advisor(s), that, based on the information then available, such acquisition proposal constitutes or would reasonably be expected to constitute, result in or lead to a superior proposal and that failure to engage in such communications, negotiations or discussions or failure to provide such access would be inconsistent with the directors’ fiduciary duties under applicable law and (ii) has received from the person who has made such acquisition proposal an executed acceptable confidentiality agreement; provided that (A) Karuna shall provide to Bristol-Myers Squibb and Merger Sub any non-public information or data that is provided to any person given such access that was not previously made available to Bristol-Myers Squibb or Merger Sub prior to or substantially concurrently with the time it is provided to such person, (B) Karuna shall promptly (and in any event within 24 hours) provide to Bristol-Myers Squibb a copy of any such applicable confidentiality agreement and shall not terminate, waive, amend, release or fail to enforce any such
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acceptable confidentiality agreement and (C) Karuna shall promptly (and in any event within 24 hours) notify Bristol-Myers Squibb if it makes any determination described in the forgoing clause (i) or takes any initial actions set forth in the forgoing clauses (a) or (b);
make a change of recommendation in accordance with the applicable provisions of the merger agreement described below; or
resolve, authorize, commit or agree to do any of the foregoing (only to the extent such actions would be permitted pursuant to the applicable provisions in the merger agreement described above).
Notwithstanding anything in the merger agreement to the contrary, prior to the time, but not after, the company requisite vote is obtained, if an unsolicited bona fide acquisition proposal that did not result from a breach of the merger agreement is received by Karuna and that has not been withdrawn, and the Karuna Board determines in good faith, after consultation with its outside legal counsel and its financial advisor(s), that such acquisition proposal would, if consummated, constitute a superior proposal, then the Karuna Board may, if the Karuna Board has determined in good faith after consultation with its financial advisors and outside legal counsel, that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law, (a) effect a change of recommendation or (b) terminate the merger agreement pursuant to the merger agreement in order to enter into a definitive written agreement providing for such superior proposal; provided, however, that Karuna pays to Bristol-Myers Squibb the termination payment of $490 million required to be paid pursuant to the merger agreement as described under “The Merger Agreement—Termination Fees” beginning on page 86; provided further, Karuna shall provide notice to Bristol-Myers Squibb as specified in the merger agreement and comply with the applicable provisions thereunder as described in the section entitled “The Merger Agreement—Other Covenants and Agreements—Non-Solicitation of Acquisition Proposals” beginning on page 72.
Prior to the time, but not after, the company requisite vote is obtained, other than as described in the immediately preceding paragraph, the Karuna Board may effect a change of recommendation if, and only if, (a) an intervening event (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—Non-Solicitation of Acquisition Proposals” beginning on page 72) has occurred, and (b) prior to taking such action, the Karuna Board has determined in good faith, after consultation with its outside legal counsel and its financial advisor(s), that failure to take such action in response to such intervening event would be inconsistent with the directors’ fiduciary duties under applicable law; provided, however, Karuna shall provide notice to Bristol-Myers Squibb as specified in the merger agreement and comply with the applicable provisions thereunder as described in the section entitled “The Merger Agreement—Other Covenants and Agreements—Non-Solicitation of Acquisition Proposals” beginning on page 72.
Conditions to the Closing of the Merger (see page 83)
The respective obligations of each of Karuna, Bristol-Myers Squibb and Merger Sub to consummate the merger are subject to the satisfaction (or written waiver by Karuna and Bristol-Myers Squibb (to the extent permitted by applicable law)) at or prior to the effective time of the following conditions:
Karuna shall have obtained the company requisite vote;
no governmental entity of competent jurisdiction shall have enacted or promulgated any law, statute, rule, regulation, executive order, decree, ruling, judgment, injunction or other order (whether temporary, preliminary or permanent) to prohibit, restrain, enjoin or make illegal the consummation of the merger that remains in effect; and
the waiting period (and any extension thereof) applicable to the consummation of the merger under the HSR Act shall have expired or been earlier terminated and any required approvals thereunder shall have been obtained, any voluntary agreement with a governmental entity entered into by the parties to the merger agreement in accordance with the merger agreement not to consummate the merger shall have expired or been terminated, and each other consent, approval or clearance with respect to, or termination or expiration of any applicable waiting period (and any extensions thereof) imposed under, any antitrust laws with respect to the merger as specified in the disclosure letter shall have been obtained, shall have been received or deemed to have been received or shall have terminated or expired, as the case may be.
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The respective obligations of Bristol-Myers Squibb and Merger Sub to effect the merger are also subject to the satisfaction (or written waiver by Bristol-Myers Squibb (to the extent permitted by applicable law)) at or prior to the effective time of the following conditions:
certain representations and warranties of Karuna in the merger agreement must be true and correct as of December 22, 2023 and as of the effective time as though made on and as of such date (except to the extent that any such representation or warranty expressly is made as of an earlier date, in which case such representation and warranty must be true and correct as of such specified date) in the manner described in the section entitled “The Merger Agreement—Conditions to the Closing of the Merger” beginning on page 83;
Karuna must have performed in all material respects the obligations, and complied in all material respects with the agreements and covenants, required to be performed by, or complied with by, it under the merger agreement at or prior to the effective time;
since December 22, 2023, no material adverse effect shall have occurred; and
Bristol-Myers Squibb must have received a certificate signed by an executive officer of Karuna certifying that each of the conditions set forth in the preceding three bullet points have been satisfied.
The obligations of Karuna to effect the merger are also subject to the satisfaction or (to the extent permitted by applicable law) written waiver by Karuna at or prior to the effective time of the following conditions:
certain representations and warranties of Bristol-Myers Squibb and Merger Sub in the merger agreement must be true and correct as of December 22, 2023 and as of the effective time as though made on and as of such date (except to the extent that any such representation or warranty expressly is made as of an earlier date, in which case such representation and warranty must be true and correct as of such specified date) in the manner described in the section entitled “The Merger Agreement—Conditions to the Closing of the Merger” beginning on page 83;
each of Bristol-Myers Squibb and Merger Sub must have performed in all material respects the obligations, and complied in all material respects with the agreements and covenants, required to be performed by or complied with by it under the merger agreement at or prior to the effective time; and
Karuna will have received a certificate signed by an executive officer of Bristol-Myers Squibb, certifying that each of the conditions set forth in the preceding two bullet points have been satisfied.
Termination (see page 84)
The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time, whether before or after the company requisite vote is obtained (except as otherwise expressly noted), as follows:
by mutual written consent of Karuna and Bristol-Myers Squibb;
by Karuna or Bristol-Myers Squibb if any court or other governmental entity of competent jurisdiction shall have issued a final order, decree, judgment, injunction or ruling or taken any other final action permanently restraining, enjoining or otherwise prohibiting or making illegal the consummation of the merger and such order, decree, judgment, injunction, ruling or other action is or shall have become final and non-appealable (a “restraint”); provided that the right to terminate the merger agreement pursuant to this provision shall not be available to the party seeking to terminate if any action of such party (or, in the case of Bristol-Myers Squibb, of Merger Sub) or the failure of such party (or, in the case of Bristol-Myers Squibb, of Merger Sub) to perform any of its obligations under the merger agreement required to be performed at or prior to the effective time has been the primary cause of or primarily resulted in such restraint;
by either Karuna or Bristol-Myers Squibb if the effective time shall not have occurred on or before 5:00 p.m. (New York time) on December 23, 2024 (as such date may be extended as described below, the “end date”); provided, however, that if any of the certain conditions set forth in the merger agreement relating to antitrust laws and required consent have not been satisfied or waived on or prior to such date but all other conditions to closing set forth in the merger agreement have been satisfied (other than those conditions that by their nature are to be satisfied at closing, so long as such conditions are reasonably capable of being satisfied if the closing were to occur on the end date) or waived, the end date shall automatically and without the need for any further action by any person
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become 5:00 p.m. (New York Time) on June 23, 2025 (and all references to the end date in the merger agreement shall be as so extended); provided that the right to terminate the merger agreement pursuant to this provision shall not be available to the party seeking to terminate if any action of such party (or, in the case of Bristol-Myers Squibb, of Merger Sub) or the failure of such party (or, in the case of Bristol-Myers Squibb, of Merger Sub) to perform any of its obligations under the merger agreement required to be performed at or prior to the effective time has been the primary cause of or primarily resulted in the failure of the effective time to occur on or before the end date;
by either Karuna or Bristol-Myers Squibb if the company requisite vote shall not have been obtained at the special meeting duly or at any adjournment or postponement thereof, in each case, at which a vote on the adoption of the merger agreement was taken;
by written notice from Karuna:
if there shall have been a breach of any representation, warranty, covenant or agreement on the part of Bristol-Myers Squibb or Merger Sub contained in the merger agreement, such that certain of Karuna’s closing conditions to consummate the merger would not be satisfied and such breach is not curable in a manner sufficient to allow the satisfaction of such conditions or, if curable, is not cured in a manner sufficient to allow the satisfaction of such conditions prior to the earlier of (a) 30 days after written notice thereof is given by Karuna to Bristol-Myers Squibb or (b) the end date; provided that Karuna shall not have the right to terminate the merger agreement pursuant to this provision if Karuna is then in breach of any of its covenants or agreements contained in the merger agreement such that certain of Bristol-Myers Squibb or Merger Sub’s conditions to consummate the merger as set forth in the merger agreement would not be satisfied; or
prior to obtaining the company requisite vote, in order to enter into a definitive agreement providing for a superior proposal substantially concurrently with such termination, subject to and in accordance with Karuna and the Karuna Board having complied with the terms and conditions of the merger agreement related to non-solicitation and change of recommendation with respect to such superior proposal and acquisition proposal that was a precursor thereto; provided that Karuna pays the company termination payment at or prior to the time of such termination in accordance with the merger agreement (it being understood that Karuna may enter into such definitive agreement simultaneously with such termination of the merger agreement);
by written notice from Bristol-Myers Squibb if:
there shall have been a breach of any representation, warranty, covenant or agreement on the part of Karuna contained in the merger agreement, such that certain of Bristol-Myers Squibb’s and Merger Sub’s closing conditions to consummate the merger would not be satisfied and such breach is not curable in a manner sufficient to allow the satisfaction of such conditions or, if curable, is not cured in a manner sufficient to allow the satisfaction of such conditions prior to the earlier of (a) 30 days after written notice thereof is given by Bristol-Myers Squibb to Karuna or (b) the end date; provided that Bristol-Myers Squibb shall not have the right to terminate the merger agreement pursuant to this provision if Bristol-Myers Squibb or Merger Sub is then in breach of any of its covenants or agreements contained in the merger agreement such that certain of Karuna’s closing conditions to consummate the merger as set forth in the merger agreement would not be satisfied; or
prior to obtaining the company requisite vote, if the Karuna Board shall have made, prior to obtaining the company requite vote, a change of recommendation.
Termination Fee (see page 86)
Karuna must pay to Bristol-Myers Squibb a termination fee of $490 million in the event that:
the merger agreement is terminated by Karuna to accept a superior proposal;
the merger agreement is terminated by Bristol-Myers Squibb in response to a change of recommendation; or
the merger agreement is terminated by either Bristol-Myers Squibb or Karuna because the merger has not been consummated by the end date or the company requisite vote has not been obtained upon a vote taken at the special meeting or any postponement or adjournment thereof at which a vote on the adoption of the merger agreement was taken, or by Bristol-Myers Squibb because Karuna breaches
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certain of the representations, warranties, covenants or agreements of the merger agreement such that Bristol-Myers Squibb’s closing conditions would not be satisfied and, if curable, Karuna fails to timely cure such breach, and in each case, (a) an acquisition proposal shall have been made to Karuna, an acquisition proposal shall have been made directly to Karuna’s stockholders, or an acquisition proposal shall have otherwise become publicly known, in each case, after December 22, 2023 and prior to the taking of a vote to approve the merger agreement at the special meeting or any postponement or adjournment thereof (or, if earlier, prior to the termination of the merger agreement), and, in each case, such acquisition proposal shall have not been withdrawn prior to such termination (in the case of termination for failure to consummate the merger by the end date or breach by Karuna of certain representations, warranties, covenants) or prior to the taking of a vote to approve the merger agreement (in the case of termination for failure to obtain the company requisite vote) and (b) within 12 months after such termination, Karuna enters into a definitive agreement with respect to such acquisition proposal (which is subsequently consummated) or shall have consummated such acquisition proposal (with references to “20% or more” in the definition of acquisition proposal deemed to be references to “more than 50%” for purposes of this paragraph).
Bristol-Myers Squibb must pay to Karuna a termination fee of $600 million in the event that:
the merger agreement is terminated (a) due to a restraint arising in connection with any antitrust laws, or (b) due to failure to close by the end date and, at the time of such termination, (i) any of the conditions to closing relating to antitrust laws or consents has not been satisfied or waived and (ii) all other conditions to closing set forth in the merger agreement have been satisfied or waived.
If either Karuna or Bristol-Myers Squibb fail to pay any termination fee described above, as applicable, within the specified time period, Karuna or Bristol-Myers Squibb, as applicable, will be required to reimburse the other party’s reasonable out-of-pocket costs and expenses incurred in connection with any suit taken to collect payment of such amounts in which the other party prevails. Neither Karuna or Bristol-Myers Squibb will be required to pay the applicable termination fee on more than one occasion.
Expenses Generally (see page 86)
Except as provided in the merger agreement, each party will bear its own expenses in connection with the merger and the transactions contemplated by the merger agreement. Filing fees incurred in connection with obtaining any consents or making any filings under any antitrust laws will be borne by Bristol-Myers Squibb. Out-of-pocket expenses incurred in connection with the filing, printing and mailing of this proxy statement will be shared equally by Bristol-Myers Squibb and Karuna.
Specific Performance (see page 87)
The parties to the merger agreement are entitled (in addition to any other remedy to which they may be entitled in law or equity) to an injunction, specific performance or other equitable relief to prevent breaches or threatened breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement.
Indemnification of Directors and Officers; Insurance (see page 81)
Pursuant to the terms of the merger agreement, Karuna’s directors and executive officers will be entitled to certain ongoing indemnification, expense advancement and insurance arrangements. See the section entitled “The Merger Agreement–Indemnification of Directors and Officers; Insurance” beginning on page 81 for a description of such ongoing arrangements.
Delisting and Deregistration of Karuna Common Stock (see page 60)
As promptly as reasonably practicable following the completion of the merger, Karuna common stock will be delisted from Nasdaq and deregistered under the Exchange Act.
Market Prices of Karuna Common Stock (see page 90)
The closing sales price of Karuna common stock on February 2, 2024, the latest practicable date before the printing of this proxy statement, was $314.88 per share. The closing sales price of Karuna common stock on Nasdaq on December 21, 2023, the last trading day prior to the announcement of the execution of the merger agreement, was $215.19 per share. You are urged to obtain current market quotations for Karuna common stock when considering whether to approve the merger proposal.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following are brief answers to certain questions that you may have regarding the merger, the special meeting and the proposals being considered at the special meeting. Karuna urges you to carefully read the remainder of this proxy statement because the information in this section does not provide all of the information that might be important to you with respect to the merger and the special meeting. Additional important information is also contained in the annexes attached to this proxy statement and the documents referred to or incorporated by reference into this proxy statement.
Q.
Why am I receiving these proxy materials?
A.
On December 22, 2023, Karuna entered into a merger agreement providing for the merger of Merger Sub with and into Karuna, pursuant to which the separate corporate existence of Merger Sub will cease and Karuna will survive the merger as a wholly owned subsidiary of Bristol-Myers Squibb. A copy of the merger agreement is attached to this proxy statement as Annex A and is incorporated by reference herein. In order to complete the merger, Karuna stockholders must vote to adopt the merger agreement. The approval of the merger proposal by Karuna stockholders is a condition to the consummation of the merger. See the section of this proxy statement entitled “The Merger Agreement—Conditions to the Closing of the Merger” beginning on page 83. You are receiving this proxy statement in connection with the solicitation by Karuna of proxies of Karuna stockholders in favor of the merger proposal.
You are also being asked to vote on a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by Karuna to its named executive officers that is based on or otherwise relates to the merger and on a proposal to adjourn the special meeting, from time to time, if necessary or appropriate, as determined in good faith by the Karuna Board, including for the purpose of soliciting additional votes for the approval of the merger proposal if there are insufficient votes at the time of the special meeting to approve the merger proposal.
This proxy statement, which you should read carefully, contains important information about the merger, the merger agreement, the special meeting and the matters to be voted on thereat. The enclosed materials allow you to submit a proxy to vote your shares without attending the special meeting and to ensure that your shares are represented and voted at the special meeting.
Your vote is very important. Even if you plan to attend the special meeting, you are encouraged to submit a proxy as soon as possible.
Q.
What is the proposed transaction?
A.
If the merger proposal is approved by Karuna stockholders and the other conditions to the consummation of the merger contained in the merger agreement are satisfied or waived, Merger Sub will merge with and into Karuna. Karuna will be the surviving corporation in the merger and will become privately held as a wholly owned subsidiary of Bristol-Myers Squibb.
Q.
What will I receive in the merger if it is completed?
A.
Under the terms of the merger agreement, if the merger is completed, you will be entitled to receive $330.00 in cash, without interest and subject to any applicable withholding taxes, for each share of Karuna common stock you own (other than cancelled shares and dissenting shares) immediately prior to the effective time of the merger, which represents a premium of approximately 53.4% over Karuna’s closing stock price on December 21, 2023, the last trading day prior to the announcement of the execution of the merger agreement. For example, if you own 100 shares of Karuna common stock (other than cancelled shares and dissenting shares) immediately prior to the effective time of the merger, you will be entitled to receive $33,000.00 in cash in exchange for such shares, without interest and subject to any applicable withholding taxes. You will not be entitled to receive shares in the surviving corporation or in Bristol-Myers Squibb.
Q.
Where and when is the special meeting, and who may attend?
A.
The special meeting will be held online via live audio webcast at https://www.virtualshareholdermeeting.com/KRTX2024SM on March 12, 2024 at 9:00 a.m., Eastern Time.
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You will need the 16-digit control number, which is located on your proxy card or in the instructions accompanying your proxy materials, to be able to vote or ask questions during the special meeting. If you are a Karuna stockholder as of the record date (or a proxy thereof), you should enter your control number and follow the prompt to log in.
Online check-in will begin at 8:45 a.m., Eastern Time on March 12, 2024 and you should allow ample time for the online check-in proceedings. Technicians will be standing by and ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the special meeting log-in page.
Q.
Why is the special meeting a virtual, online meeting?
A.
For the convenience of Karuna stockholders, employees and directors, the special meeting will be a virtual meeting of stockholders where stockholders will participate by accessing a website using the internet. There will not be a physical meeting location. Karuna has designed the online special meeting to provide the same rights and opportunities to participate as stockholders would have at an in-person meeting, including the right to vote and ask questions through the virtual meeting platform.
Q.
Who can vote at the special meeting?
A.
All Karuna stockholders of record as of the close of business on January 26, 2024, the record date for the special meeting, are entitled to receive notice of, attend and vote at the special meeting or any adjournment thereof. Each share of Karuna common stock is entitled to one vote on all matters that come before the meeting. At the close of business on the record date, there were 38,119,463 shares of Karuna common stock issued and outstanding, held by approximately five holders of record.
Q.
What matters will be voted on at the special meeting?
A.
At the special meeting, you will be asked to consider and vote on the following proposals:
the merger proposal;
the named executive officer merger-related compensation proposal; and
if necessary or appropriate, as determined in good faith by the Karuna Board, including because there are insufficient votes at the time of the special meeting to approve the merger proposal, the adjournment proposal.
Q.
What is the position of the Karuna Board regarding the merger?
A.
The Karuna Board has reviewed and considered the terms and conditions of the proposed merger. After consultation with its outside legal counsel and its financial advisors and after consideration of various factors, as more fully described in this proxy statement, the Karuna Board unanimously (a) determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Karuna and its stockholders, and declared it advisable to enter into the merger agreement, in each case in accordance with the DGCL (as defined in the accompanying proxy statement), (b) approved the merger agreement and the transactions contemplated thereby in accordance with the DGCL and (c) adopted a resolution recommending that the merger agreement be adopted by Karuna stockholders. Certain factors considered by the Karuna Board in reaching its decision to adopt the merger agreement can be found in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Recommendation of the Karuna Board and Reasons for the Merger” beginning on page 40.
Q.
How does the Karuna Board recommend that I vote on the proposals?
A.
Karuna’s Board unanimously recommends that you vote:
“FOR” the merger proposal;
“FOR” the named executive officer merger-related compensation proposal; and
“FOR” the adjournment proposal.
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Q.
What vote is required to approve the merger proposal?
A.
The merger proposal will be approved if stockholders holding a majority of the outstanding shares of Karuna common stock entitled to vote as of the close of business on the record date vote “FOR” the proposal.
Q.
What vote is required to approve the named executive officer merger-related compensation proposal (on a non-binding, advisory basis) and the adjournment proposal?
A.
Assuming a quorum is present, the named executive officer merger-related compensation proposal will be approved if the holders of a majority in voting power of the shares of Karuna common stock present in person or represented by proxy at the special meeting and entitled to vote thereon vote “FOR” the named executive officer merger-related compensation proposal.
The adjournment proposal will be approved if holders of a majority in voting power of the shares of Karuna common stock present in person or represented by proxy at the special meeting and entitled to vote thereon vote “FOR” the adjournment proposal.
Q.
Do you expect the merger to be taxable to Karuna stockholders?
A.
The exchange of Karuna common stock for cash in the merger generally will be a taxable transaction for U.S. federal income tax purposes. You should read the section of this proxy statement entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 93. The tax consequences of the merger to you will depend on your particular circumstances. You should consult your tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Q.
What other effects will the merger have on Karuna?
A.
If the merger is completed, Karuna common stock will be delisted from Nasdaq and deregistered under the Exchange Act, and Karuna will no longer be required to file periodic reports with the SEC with respect to Karuna common stock, in each case in accordance with applicable law, rules and regulations. Following the completion of the merger, Karuna common stock will no longer be publicly traded and you will no longer have any interest in Karuna’s future earnings or growth. In addition, each share of Karuna common stock (other than cancelled shares and dissenting shares) you hold immediately prior to the effective time of the merger will represent only the right to receive $330.00 in cash, without interest and subject to any applicable withholding taxes. Karuna will also become a wholly owned subsidiary of Bristol-Myers Squibb at the effective time.
Q.
When is the merger expected to be completed?
A.
Assuming timely satisfaction of necessary closing conditions, including the approval by Karuna stockholders of the merger proposal, the parties to the merger agreement expect to complete the merger during the first half of 2024. The merger is subject to antitrust review and various other conditions, however, and it is possible that factors outside of the control of Karuna or Bristol-Myers Squibb could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the special meeting and the completion of the merger. Karuna expects to complete the merger promptly following the receipt of all required clearances and approvals and the satisfaction or, to the extent permitted, waiver of the other conditions to the consummation of the merger.
Q.
What happens if the merger is not completed?
A.
If the merger proposal is not approved by Karuna stockholders, or if the merger is not completed for any other reason, Karuna stockholders will not receive any payment for their shares of Karuna common stock in connection with the merger. Instead, Karuna will remain an independent public company and shares of Karuna common stock will continue to be listed and traded on Nasdaq. Karuna may be required to pay Bristol-Myers Squibb a termination fee of $490 million if the merger agreement is terminated under certain specified circumstances pursuant to the terms of the merger agreement. Bristol-Myers Squibb may be required to pay a termination fee of $600 million to Karuna if the merger agreement is terminated under
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certain specified circumstances pursuant to the terms and conditions of the merger agreement. See the section of this proxy statement entitled “The Merger Agreement—Termination Fees” beginning on page 86 for a discussion of the circumstances under which Karuna will be required to pay a termination fee.
Q.
How are Karuna’s directors and executives intending to vote?
A.
As of January 26, 2024, the directors and executive officers of Karuna (either directly or through their affiliates), collectively, beneficially owned and were entitled to vote 1,593,089 shares of Karuna common stock, representing approximately 4.2% of the shares of Karuna common stock outstanding on that date. Karuna currently expects that these directors and executive officers will vote such shares of Karuna common stock in favor of the foregoing proposals, although none of them has entered into any agreement obligating them to do so.
Q.
Do any of Karuna’s directors or executive officers have interests in the merger that may differ from or be in addition to my interests as a stockholder?
A.
Yes. In considering the recommendation of the Karuna Board with respect to the merger proposal, you should be aware that Karuna’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Karuna’s stockholders generally. The Karuna Board was aware of and considered these differing or additional interests, to the extent such interests existed at the time, among other matters, in evaluating and negotiating the merger agreement and the merger, and in unanimously recommending that the merger agreement be adopted by Karuna stockholders. See the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger.”
Q.
Why am I being asked to consider and vote on the named executive officer merger-related compensation proposal?
A.
SEC rules require Karuna to seek the approval of its stockholders on a non-binding, advisory basis with respect to certain payments that will or may be made to Karuna’s named executive officers in connection with the merger. Approval of the named executive officer merger-related compensation proposal is not required to complete the merger.
Q.
Who is soliciting my vote? Who will pay for the cost of this proxy solicitation?
A.
The Karuna Board is soliciting your proxy, and Karuna will bear the cost of soliciting proxies.
Okapi Partners LLC has been retained to assist with the solicitation of proxies. Okapi Partners LLC will be paid approximately $50,000, plus certain additional per-service fees, and will be reimbursed for certain fees and expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of shares of Karuna common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by Okapi Partners LLC or, without additional compensation, by certain of Karuna’s directors, officers and employees.
Q.
What do I need to do now? If I am going to attend the special meeting, should I still submit a proxy?
A.
Carefully read and consider the information contained in and incorporated by reference into this proxy statement, including the attached annexes. Whether or not you expect to attend the special meeting online, Karuna requests that you submit a proxy to vote your shares as promptly as possible to ensure that your shares may be represented and voted at the special meeting.
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Q.
How do I vote if my shares are registered directly in my name?
A.
If your shares are registered directly in your name with Karuna’s transfer agent, you are considered a “stockholder of record.” Stockholders of record can vote their shares of Karuna common stock in the following four ways:
By Internet. Access the website of Karuna’s tabulator, Broadridge Financial Solutions, Inc., at: www.proxyvote.com, using the voter control number printed on the furnished proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your internet vote cannot be completed and you will receive an error message. If you vote on the internet, you may also request electronic delivery of future proxy materials.
By Telephone. Call 1-800-690-6903 toll-free from the U.S., U.S. territories and Canada, and follow the instructions on the enclosed proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your telephone vote cannot be completed.
By Mail. Complete and mail a proxy card in the enclosed postage prepaid envelope to Broadridge Financial Solutions, Inc. Your proxy will be voted in accordance with your instructions. If you return your proxy card but do not specify how you want your shares voted on any particular matter, they will be voted in accordance with the recommendations of the Karuna Board. If you are mailed or otherwise receive or obtain a proxy card or voting instruction form, and you choose to vote by telephone or by internet, you do not have to return your proxy card or voting instruction form.
By Internet at the Online Special Meeting. Visit https://www.virtualshareholdermeeting.com/KRTX2024SM and enter the 16-digit control number located on your proxy card or in the instructions accompanying your proxy materials.
Even if you plan to attend the special meeting, you are encouraged to submit a proxy in advance by internet, telephone or mail to ensure that your shares will be represented and voted at the special meeting if you later decide not to attend the special meeting. Telephone and internet facilities for the submission of a proxy to vote shares will be available 24 hours a day and will close at 11:59 p.m., Eastern Time on March 11, 2024. Proxy cards must be received no later than March 11, 2024 in order to ensure that your shares are voted.
Q.
How do I vote if my shares are held in the name of my broker, bank or other nominee?
A.
If your shares are held by your broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name” and you will receive a form from your broker, bank or other nominee seeking instruction from you as to how your shares should be voted. You should instruct your broker, bank or other nominee how to vote your shares on each proposal in accordance with your voting instruction form. If you beneficially own your shares and receive a voting instruction form, you can vote by following the instructions on your voting instruction form. Please refer to information from your bank, broker or other nominee on how to submit voting instructions.
Q.
What is a proxy?
A.
A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of Karuna common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of Karuna common stock is called a “proxy card.”
Q:
If a stockholder gives a proxy, how are the shares voted?
A.
Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way you indicate. When submitting a proxy by mail, internet or telephone, you may specify whether your shares would be voted “FOR” or “AGAINST” or to abstain from voting on all, some or none of the proposals to come before the special meeting.
If you properly sign and return your proxy card or submit your proxy by telephone or through the internet but do not include instructions on how your shares should be voted on a matter, the shares represented by
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your properly signed proxy will be voted as recommended by the Karuna Board with respect to the merger proposal, the named executive officer merger-related compensation proposal and the adjournment proposal and, accordingly, will have the same effect as a vote “FOR” each such proposal.
Q.
Can I change or revoke my proxy after it has been submitted?
A.
Yes. You can change or revoke your proxy at any time before the final vote at the special meeting. If you are the stockholder of record, you may change or revoke your proxy by:
sending a written statement to that effect to Karuna’s Secretary, which statement must be received no later than March 11, 2024;
submitting a new proxy by internet or telephone at a later time before the closing of those voting facilities at 11:59 p.m. (Eastern Time) on March 11, 2024;
submitting a properly signed proxy card with a later date; or
attending the special meeting and voting online.
If you hold shares in “street name,” you may submit new voting instructions by contacting your bank, broker or other nominee. You may also change your vote or revoke your proxy in person at the online special meeting.
If you submit a proxy or provide instructions to vote your shares and do not thereafter revoke such proxy or change such instructions in accordance with one of the methods set forth above, your shares will be represented and voted at the special meeting in accordance with your instructions.
Q.
How many shares of Karuna common stock must be present to constitute a quorum for the meeting? What if there is no quorum?
A.
Under Karuna’s bylaws, the presence, in person or represented by proxy, at the special meeting of a majority of the issued and outstanding shares of Karuna common stock entitled to vote thereat at the close of business on the record date will constitute a quorum. There must be a quorum for business (other than the adjournment proposal) to be conducted at the special meeting. If a quorum is not present, the presiding officer at the special meeting may adjourn the special meeting from time to time until a quorum is present. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement of the special meeting and may subject Karuna to additional expense.
If the adjournment is for more than 30 days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting.
As of the close of business on the record date, there were 38,119,463 shares of Karuna common stock outstanding. Accordingly, holders of record of at least 19,059,732 shares of Karuna common stock must be present or represented by proxy at the special meeting to constitute a quorum.
Q.
What if I abstain from voting on any proposal?
A.
If you attend the special meeting or if you submit (and do not thereafter revoke) a proxy by duly executing and returning a proxy card, by telephone or through the internet, even if you abstain from voting, your shares of Karuna common stock will still be counted for purposes of determining whether a quorum is present at the special meeting. If you abstain from voting at the meeting or mark “ABSTAIN” on your proxy card or otherwise indicate that you are abstaining from voting when you submit your proxy by telephone or through the internet, your abstention from voting will have the same effect as a vote “AGAINST” the merger proposal. Abstaining from voting on the named executive officer merger-related compensation proposal or the adjournment proposal will not be considered a vote cast on, and will have no effect on, the named executive officer merger-related compensation proposal or the adjournment proposal.
Q.
Will my shares be voted if I do not sign and return my proxy card, submit a proxy to vote by telephone or over the internet or attend and vote in person at the online special meeting?
A.
If you are a stockholder of record of Karuna and you do not attend the special meeting, sign and return your proxy card by mail, or submit your proxy by telephone or over the internet, your shares will not be voted at
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the special meeting and will not be counted as present for purposes of determining whether a quorum exists. The failure to submit a proxy or otherwise attend and vote your shares at the special meeting will have no effect on the outcome of the named executive officer merger-related compensation proposal (assuming that a quorum exists) or the adjournment proposal. The vote to approve the merger proposal, however, is based on the total number of shares of Karuna common stock outstanding as of the close of business on the record date, not just the shares that are counted as present in person or by proxy at the online special meeting. As a result, if you fail to submit a proxy or otherwise vote your shares at the special meeting, it will have the same effect as a vote “AGAINST” the merger proposal.
You will have the right to receive the merger consideration if the merger proposal is approved and the merger is completed even if your shares are not voted at the special meeting. If your shares are not voted at the special meeting, however, it will have the same effect as a vote “AGAINST” the merger proposal.
Q.
What is a broker non-vote?
A.
Broker non-votes are shares held in “street name” by brokers, banks and other nominees that are present or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares how to vote on a particular proposal and such broker, bank or other nominee does not have discretionary voting power on such proposal. Because, under Nasdaq rules, brokers, banks and other nominees holding shares in “street name” do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Karuna common stock held in “street name” does not give voting instructions to the broker, bank or other nominee, then those shares will not be counted as present in person or by proxy at the online special meeting. As a result, it is expected that there will not be any broker non-votes in connection with any of the three proposals described in this proxy statement.
The failure to issue voting instructions to your broker, bank or other nominee will have no effect on the outcome of the named executive officer merger-related compensation proposal (assuming that a quorum exists) or adjournment proposal. The vote to approve the merger proposal, however, is based on the total number of shares of Karuna common stock outstanding at the close of business on the record date, not just the shares that are counted as present in person or by proxy at the online special meeting. As a result, if you fail to issue voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the merger proposal.
Q.
Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?
A.
No. Because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares held in “street name” will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card (or submit a proxy by telephone or through the internet) for each of those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.
Q.
Am I entitled to exercise appraisal rights under the DGCL instead of receiving the merger consideration for my shares of Karuna common stock?
A.
Yes, in certain circumstances. If the merger is completed, dissenting Karuna stockholders will be entitled to seek appraisal of their shares of Karuna common stock in connection with the merger under Section 262 of the DGCL. This means that holders of shares of Karuna common stock are entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of Karuna common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest on the amount determined to be the fair value, if any, as determined by the court (or, in certain circumstances described below, on the difference between the amount determined to be the fair value and the amount paid to each Karuna stockholder entitled to appraisal prior to the entry of judgment in the appraisal proceeding). Holders of shares of Karuna common stock who wish to seek appraisal of their shares are in any
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case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process. The requirements under Section 262 of the DGCL for exercising appraisal rights are described in additional detail in this proxy statement, and Section 262 of the DGCL regarding appraisal rights is attached to this proxy statement as Annex C and incorporated into this proxy statement by reference. A copy of Section 262 may also be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262. Failure to comply with the provisions of Section 262 of the DGCL in a timely and proper manner may result in the loss of appraisal rights. For more information, please see the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Appraisal Rights” beginning on page 60.
Q.
What happens if I transfer my shares of Karuna common stock before the completion of the merger?
A.
If you transfer your shares of Karuna common stock before the merger is completed, you will lose your right to receive the merger consideration or to exercise appraisal rights with respect to such shares. In order to receive the merger consideration in respect of any shares, you must hold such shares of Karuna common stock through the completion of the merger.
Q.
Should I send in my evidence of ownership now?
A.
No. After the merger is completed, if you are a stockholder of record and hold your shares of Karuna common stock in certificated form, you will receive transmittal materials from the paying agent for the merger with detailed written instructions for exchanging your shares of Karuna common stock for the consideration to be paid to former Karuna stockholders in connection with the merger. If you are a stockholder of record and hold your shares of Karuna common stock in book-entry form, only if required by the paying agent will you receive transmittal materials from the paying agent for the merger with detailed written instructions for exchanging your shares of Karuna common stock for the consideration to be paid to former Karuna stockholders in connection with the merger. If you are the beneficial owner of shares of Karuna common stock held in “street name,” you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of such shares.
Q.
What does it mean if I get more than one proxy card or voting instruction card?
A.
If your shares are registered differently or are held in more than one account, you will receive more than one proxy card or voting instruction card. Please complete and return all of the proxy cards or voting instruction cards you receive (or submit each of your proxies over the internet or by telephone) to ensure that all of your shares are voted.
Q.
What is householding and how does it affect me?
A.
The SEC’s proxy rules permit companies and intermediaries, such as brokers, to satisfy delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement to those stockholders. This process, which is commonly referred to as “householding,” provides cost savings for companies. Karuna has adopted “householding” and delivered a single copy of the proxy materials to multiple stockholders who share the same address, unless Karuna has received contrary instructions from one or more of such stockholders. This procedure reduces printing costs, mailing costs and fees. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, Karuna will deliver promptly a separate copy of the proxy materials to any stockholder at a shared address to which Karuna delivered a single copy of any of these materials. This request may be submitted by contacting Karuna Therapeutics, Inc., 99 High Street, 26th Floor, Boston, Massachusetts 02110, (857) 449-2244, Attention: Mia Kelley, General Counsel and Secretary. Karuna will deliver those documents to such stockholder promptly upon receiving the request. Any such stockholder may also contact the Secretary using the above contact information if he or she would like to receive separate proxy statements and annual reports in the future. If you are receiving multiple copies of our annual reports and proxy statements, you may request householding in the future by contacting our Secretary.
A number of brokerage firms with account holders who are Karuna stockholders household proxy materials, delivering a single set of proxy materials to multiple stockholders sharing an address, unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they
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will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if your household is receiving multiple copies of these documents and you wish to request that future deliveries be limited to a single copy, please notify your broker.
Q.
What will the holders of outstanding Karuna equity awards receive in the merger?
A.
The merger agreement provides that outstanding Karuna equity awards will be treated as set forth below.
Options. Immediately prior to the effective time, each Karuna Option, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, become immediately vested and be cancelled and will entitle the holder of such Karuna Option to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to such Karuna Option multiplied by (b) the excess, if any, of $330.00 over the per share exercise price of such Karuna Option, less applicable taxes.
Restricted Stock Units. Immediately prior to the effective time, each Karuna RSU, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, be immediately vested and be cancelled and will entitle the holder of such Karuna RSU to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to the Karuna RSU multiplied by (b) $330.00, less applicable taxes.
The treatment of Karuna equity awards is described in more detail in the section of this proxy statement entitled “The Merger Agreement—Treatment of Karuna Equity Awards and Karuna ESPP” beginning on page 64.
Special rules govern the treatment of Karuna RSUs that are intended to be granted following the entry into the Merger Agreement, as further discussed in the section of this proxy statement entitled “The Merger Agreement—Employee Matters” beginning on page 77.
Q.
When will Karuna announce the voting results of the special meeting, and where can I find the voting results?
A.
Karuna intends to announce the preliminary voting results at the special meeting, and will report the final voting results of the special meeting in a Current Report on Form 8-K filed with the SEC within four business days after the meeting. All reports that Karuna files with the SEC are publicly available when filed.
Q:
Where can I find more information about Karuna?
A:
You can find more information about Karuna from various sources described in the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 98.
Q:
Who can help answer my other questions?
A:
If you have questions about the merger, require assistance in submitting your proxy or voting your shares, or need additional copies of this proxy statement or the enclosed proxy card, please contact Okapi Partners LLC, which is acting as the proxy solicitor for Karuna in connection with the merger, or Karuna.
Okapi Partners LLC
1212 Avenue of the Americas, 17th Floor
New York, New York 10036
Shareholders may call toll free: (877) 274-8654
Banks and Brokers may call collect: (212) 297-0720
or
Karuna Therapeutics, Inc.
99 High Street, 26th Floor
Boston, Massachusetts 02110
Attention: Mia Kelley, General Counsel and Secretary
If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Forward-looking statements are made based upon management’s current expectations and beliefs and are not guarantees of future performance. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. These factors include, among others: completion of the merger is subject to various risks and uncertainties related to, among other things, its terms, timing, structure, benefits, costs and completion; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; risks related to the disruption of management’s attention from Karuna’s ongoing business operations due to the merger; the effect of the announcement of the merger on Karuna’s relationships with its customers, suppliers and other third parties, as well as its operating results and business generally; the potential difficulties in employee retention as a result of the merger; the risk that the merger agreement may be terminated in circumstances that may require Karuna to pay Bristol-Myers Squibb a termination fee; the outcome of any legal proceedings that may be instituted against Karuna and others related to the merger agreement or the transactions contemplated thereby; the fact that, if the merger is completed, stockholders will forgo the opportunity to realize the potential long term value of the successful execution of Karuna’s current strategy as an independent company; required approvals to complete the merger by our stockholders and the receipt of certain regulatory approvals, to the extent required, and the timing and conditions for such approvals; the stock price of Karuna prior to the consummation of the merger; and the risk that the stock price of Karuna may decline significantly if the merger is not completed; the possibility that Bristol-Myers Squibb could, at a later date, engage in unspecified transactions, including restructuring efforts, special dividends or the sale of some or all of Karuna’s assets to one or more purchasers, that could conceivably produce a higher aggregate value than that available to stockholders in the merger; the inability to consummate the merger within the anticipated time period, or at all, due to any reason, including the failure to satisfy the closing conditions to the merger; our limited operating history; our ability to obtain necessary funding; our ability to generate positive clinical trial results for our product candidates; risks inherent in clinical development; the timing and scope of regulatory approvals; changes in laws and regulations to which we are subject; competitive pressures; our ability to identify additional product candidates; risks relating to business interruptions; and other risks set forth under the heading “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2022 and in our subsequent filings with the SEC. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Our actual results could differ materially from the results described in or implied by such forward looking statements. Forward-looking statements speak only as of the date hereof, and, except as required by law, we undertake no obligation to update or revise these forward-looking statements.
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THE PARTIES TO THE MERGER
Karuna
Karuna Therapeutics, Inc.
99 High Street, 26th Floor
Boston, Massachusetts 02110
(857) 449-2244
Karuna is a biopharmaceutical company driven to discover, develop, and deliver transformative medicines for people living with psychiatric and neurological conditions. At Karuna, we understand there is a need for differentiated and more effective treatments that can help patients navigate the challenges presented by serious mental illness. Utilizing our extensive knowledge of neuroscience, we are harnessing the untapped potential of the brain in pursuit of novel pathways to develop medicines that make meaningful differences in peoples’ lives.
The Karuna common stock is traded on Nasdaq under the ticker symbol “KRTX”.
Karuna’s principal executive offices are located at 99 High Street, 26th Floor, Boston, Massachusetts 02110, and Karuna’s telephone number is (857) 449-2244. Karuna’s corporate web address is www.karunatx.com. The information provided on Karuna’s website is not part of this proxy statement and is not incorporated in this proxy statement by reference or by any other reference to Karuna’s website provided in this proxy statement.
Additional information about Karuna is contained in its public filings with the SEC, which filings are incorporated by reference herein. See the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 98.
Bristol-Myers Squibb
Bristol-Myers Squibb Company
Route 206 & Province Line Road
Princeton, New Jersey 08540
(609) 252-4621
Bristol-Myers Squibb was incorporated under the laws of the State of Delaware in August 1933 under the name Bristol-Myers Company, as successor to a New York business started in 1887. In 1989, Bristol-Myers Company changed its name to Bristol-Myers Squibb Company as a result of a merger. Bristol-Myers Squibb is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases on a global basis, primarily in the following therapeutic areas: oncology, hematology, immunology, cardiovascular and neuroscience.
Bristol-Myers Squibb’s common stock, par value $0.10, is listed on the New York Stock Exchange under the symbol “BMY”.
Merger Sub
Miramar Merger Sub Inc.
c/o Bristol-Myers Squibb Company
Route 206 & Province Line Road
Princeton, New Jersey 08540
(609) 252-4621
Merger Sub is a wholly owned subsidiary of Bristol-Myers Squibb and was formed on April 14, 2023, solely for the purpose of engaging in transactions of the nature contemplated by the merger agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the merger agreement.
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THE SPECIAL MEETING
This proxy statement is being provided to Karuna stockholders as part of a solicitation by the Karuna Board for proxies for use at the special meeting, to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement of the special meeting.
Date, Time and Place
The special meeting is scheduled to be held online via live audio webcast at https://www.virtualshareholdermeeting.com/KRTX2024SM on March 12, 2024 at 9:00 a.m., Eastern Time. The special meeting will be held in a virtual meeting format only, with no physical in-person meeting.
Purpose of the Special Meeting
At the special meeting, Karuna stockholders will be asked to consider and vote on the following proposals:
the merger proposal, which is further described in the sections of this proxy statement entitled “The Merger Proposal (Proposal 1)” and “The Merger Agreement,” beginning on pages 31 and 63, respectively; a copy of the merger agreement is attached to this proxy statement as Annex A and is incorporated herein by reference;
the named executive officer merger-related compensation proposal, which is further described in the sections of this proxy statement entitled “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger” and “Advisory Vote On Named Executive Officer Merger-Related Compensation Proposal (Proposal 2)” beginning on pages 52 and 88, respectively; and
the adjournment proposal, which is further described in the section of this proxy statement entitled “Adjournment Proposal (Proposal 3)” beginning on page 89.
The adoption of the merger agreement by the affirmative vote of holders of a majority of the outstanding shares of Karuna common stock entitled to vote as of the close of business on the record date is a condition to the completion of the merger. If Karuna stockholders fail to approve the merger proposal, the merger will not occur.
The vote on the named executive officer merger-related compensation proposal is a vote separate and apart from the vote to approve the merger proposal. Accordingly, a stockholder may vote to approve the merger proposal and vote not to approve the named executive officer merger-related compensation proposal, and vice versa. Because the vote on the named executive officer merger-related compensation proposal is only advisory in nature, it will not be binding on Karuna, Bristol-Myers Squibb or the surviving corporation. Accordingly, because Karuna is contractually obligated to pay such merger-related compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the merger proposal is approved, regardless of the outcome of the advisory vote.
Other than the matters described above, Karuna does not expect a vote to be taken on any other matters at the special meeting or any adjournment or postponement thereof, and Karuna has agreed in the merger agreement that no other matters (other than customary procedural matters) shall be brought before the special meeting.
Recommendation of the Karuna Board
The Karuna Board has reviewed and considered the terms and conditions of the proposed merger. After consultation with its outside legal counsel and its financial advisors and after consideration of various factors, as more fully described in this proxy statement, the Karuna Board unanimously (a) determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Karuna and its stockholders, and declared it advisable to enter into the merger agreement, in each case in accordance with the DGCL (as defined in the accompanying proxy statement), (b) approved the merger agreement and the transactions contemplated thereby in accordance with the DGCL and (c) adopted a resolution recommending that the merger agreement be adopted by Karuna stockholders. Certain factors considered by the Karuna Board in making its decision to adopt the merger agreement are more fully described in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Recommendation of the Karuna Board and Reasons for the Merger” beginning on page 40.
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The Karuna Board unanimously recommends that Karuna stockholders vote “FOR” the merger proposal, “FOR” the named executive officer merger-related compensation proposal and “FOR” the adjournment proposal.
Record Date; Stockholders Entitled to Vote
Only holders of record of Karuna common stock at the close of business on January 26, 2024, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting.
Holders of record of Karuna common stock are entitled to one vote for each share of Karuna common stock they own of record at the close of business on the record date. At the close of business on the record date, there were 38,119,463 shares of Karuna common stock issued and outstanding, held by approximately five holders of record.
Quorum
Under Karuna’s bylaws, the presence, in person or represented by proxy, at the special meeting of a majority of the issued and outstanding shares of Karuna common stock entitled to vote thereat at the close of business on the record date will constitute a quorum. There must be a quorum for business (other than the adjournment proposal) to be conducted at the special meeting. If a quorum is not present, the presiding officer at the special meeting may adjourn the special meeting from time to time until a quorum is present. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement of the special meeting and may subject Karuna to additional expense.
If you attend the special meeting or if you submit (and do not thereafter revoke) a proxy by duly executing and returning a proxy card or by telephone or through the internet, even if you abstain from voting, your shares of Karuna common stock will be counted for purposes of determining whether a quorum is present at the special meeting. In the event that a quorum is not present at the special meeting or additional votes must be solicited to adopt the merger agreement, the meeting may be adjourned or postponed to solicit additional proxies.
Required Vote
The approval of the merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Karuna common stock entitled to vote as of the close of business on the record date.
Assuming a quorum is present, approval of the named executive officer merger-related compensation proposal (on a non-binding basis) requires the affirmative vote of the holders of a majority of the shares of Karuna common stock present in person or represented by proxy at the online special meeting and entitled to vote thereon.
Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Karuna common stock present in person or represented by proxy at the online special meeting and entitled to vote thereon.
Abstentions and Broker Non-Votes
An abstention occurs when a stockholder attends a meeting, either in person or by proxy, but abstains from voting. At the special meeting, abstentions will be counted as present for purposes of determining whether a quorum exists. Abstaining from voting will have the same effect as a vote “AGAINST” the merger proposal. Abstaining from voting on the named executive officer merger-related compensation proposal or the adjournment proposal will not be considered a vote cast on, and will have no effect on, the named executive officer merger-related compensation proposal or the adjournment proposal.
If no instruction as to how to vote is given (including no instruction to abstain from voting) in an executed, duly returned and not revoked proxy, the proxy will have the same effect as a vote “FOR” the merger proposal, the named executive officer merger-related compensation proposal and the adjournment proposal.
Broker non-votes are shares held in “street name” by brokers, banks and other nominees that are present or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares how to vote on a particular proposal and such broker, bank or
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other nominee does not have discretionary voting power on such proposal. Because, under Nasdaq rules, brokers, banks and other nominees holding shares in “street name” do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement, if a beneficial owner of shares of Karuna common stock held in “street name” does not give voting instructions to the broker, bank or other nominee, then those shares will not be counted as present in person or by proxy at the online special meeting. As the vote to approve the merger proposal is based on the total number of shares of Karuna common stock outstanding at the close of business on the record date, not just the shares that are counted as present in person or by proxy at the online special meeting, if you fail to issue voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the merger proposal. If you fail to issue voting instructions to your broker, bank or other nominee, it will have no effect on the outcome of the named executive officer merger-related compensation proposal or the adjournment proposal.
Failure to Vote
If you are a stockholder of record and you do not attend the special meeting, sign and return your proxy card by mail or submit your proxy by telephone or over the internet, your shares will not be voted at the special meeting, will not be counted as present in person or by proxy at the online special meeting and will not be counted as present for purposes of determining whether a quorum exists.
As discussed above, under Nasdaq rules, brokers and other record holders do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement. Accordingly, if you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other nominee, your shares will not be voted at the special meeting and will not be counted as present in person or by proxy at the online special meeting or counted as present for purposes of determining whether a quorum exists.
A failure to vote will have no effect on the outcome of the named executive officer merger-related compensation proposal (assuming a quorum exists) or the adjournment proposal. The vote to approve the merger proposal, however, is based on the total number of shares of Karuna common stock outstanding at the close of business on the record date, not just the shares that are counted as present in person or by proxy at the online special meeting. As a result, if you fail to vote your shares, it will have the same effect as a vote “AGAINST” the merger proposal.
Voting at the Special Meeting
If your shares are registered directly in your name with Karuna’s transfer agent, you are considered a “stockholder of record.” Stockholders of record can vote their shares of Karuna common stock in the following four ways:
By Internet. Access the website of Karuna’s tabulator, Broadridge Financial Solutions, Inc., at: www.proxyvote.com, using the voter control number printed on the furnished proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your internet vote cannot be completed and you will receive an error message. If you vote on the internet, you may also request electronic delivery of future proxy materials.
By Telephone. Call 1-800-690-6903 toll-free from the U.S., U.S. territories and Canada, and follow the instructions on the enclosed proxy card. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your telephone vote cannot be completed.
By Mail. Complete and mail a proxy card in the enclosed postage prepaid envelope to Broadridge Financial Solutions, Inc. Your proxy will be voted in accordance with your instructions. If you return your proxy card but do not specify how you want your shares voted on any particular matter, they will be voted in accordance with the recommendations of the Karuna Board. If you are mailed or otherwise receive or obtain a proxy card or voting instruction form, and you choose to vote by telephone or by internet, you do not have to return your proxy card or voting instruction form.
By Internet at the Online Special Meeting. Visit https://www.virtualshareholdermeeting.com/KRTX2024SM and enter the 16-digit control number located on your proxy card or in the instructions accompanying your proxy materials.
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Even if you plan to attend the special meeting, you are encouraged to submit a proxy in advance by internet, telephone or mail to ensure that your shares will be represented and voted at the special meeting if you later decide not to attend the special meeting. Telephone and internet facilities for the submission of a proxy to vote shares will be available 24 hours a day and will close at 11:59 p.m., Eastern Time on March 11, 2024. Proxy cards must be received no later than March 11, 2024 in order to ensure that your shares are voted.
If your shares are held by your broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name” and you will receive a form from your broker, bank or other nominee seeking instruction from you as to how your shares should be voted. You should instruct your broker, bank or other nominee how to vote your shares on each proposal in accordance with your voting instruction form. If you beneficially own your shares and receive a voting instruction form, you can vote by following the instructions on your voting instruction form. Please refer to information from your bank, broker or other nominee on how to submit voting instructions.
Stockholders who are entitled to vote at the special meeting (and their duly appointed proxies) may attend the special meeting. You will need the 16-digit control number, which is located on your proxy card or in the instructions accompanying your proxy materials to be able to vote or ask questions during the special meeting and to be able to examine the list of the stockholders entitled to vote at the special meeting during the special meeting. If you are a Karuna stockholder as of the record date (or a proxy thereof), you should enter your control number and follow the prompt to log in.
Online check-in will begin at 8:45 a.m., Eastern Time on March 12, 2024 and you should allow ample time for the online check-in proceedings. Technicians will be standing by and ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the special meeting log-in page.
Revocation of Proxies
You can change or revoke your proxy at any time before the final vote at the special meeting. If you are the stockholder of record, you may change or revoke your proxy by:
sending a written statement to that effect to Karuna’s Secretary, which statement must be received no later than March 11, 2024;
submitting a new proxy by internet or telephone at a later time before the closing of those voting facilities at 11:59 p.m. (Eastern Time) on March 11, 2024;
submitting a properly signed proxy card with a later date; or
attending the special meeting and voting online.
If you hold shares in “street name,” you may submit new voting instructions by contacting your bank, broker or other nominee. You may also change your vote or revoke your proxy in person at the online special meeting.
If you submit a proxy or provide instructions to vote your shares and do not thereafter revoke such proxy or change such instructions in accordance with one of the methods set forth above, your shares will be represented and voted at the special meeting in accordance with your instructions.
Solicitation of Proxies
The Karuna Board is soliciting your proxy, and Karuna will bear the cost of soliciting proxies. Okapi Partners LLC has been retained to assist with the solicitation of proxies. Okapi Partners LLC will be paid approximately $50,000, plus certain additional per-service fees, and will be reimbursed for certain fees and expenses for these and other advisory services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of shares of Karuna common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by Okapi Partners LLC or, without additional compensation, by certain of Karuna’s directors, officers and employees.
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Adjournment
In addition to the merger proposal and the named executive officer merger-related compensation proposal, Karuna stockholders are also being asked to approve the adjournment proposal, which will enable the adjournment of the special meeting from time to time, if necessary or appropriate, as determined in good faith by the Karuna Board, including for the purpose of soliciting additional votes in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to approve the merger proposal. If a quorum is not present, the presiding officer at the special meeting may adjourn the special meeting from time to time until a quorum is present. If the adjournment is for more than 30 days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. In addition, the special meeting could be postponed before it commences, subject to the terms of the merger agreement. If the special meeting is adjourned or postponed, stockholders who have already submitted their proxies will be able to revoke them at any time prior to the final vote on the proposals. If you return a proxy and do not indicate how you wish to vote on the adjournment proposal, your shares will be voted in favor of the adjournment proposal.
The Karuna Board unanimously recommends a vote “FOR” the adjournment proposal, if necessary or appropriate, to solicit additional proxies.
Other Information
You should not send documents representing Karuna common stock with the proxy card. If the merger is completed, the paying agent for the merger will send you transmittal materials and instructions for exchanging your shares of Karuna common stock for the consideration to be paid to former Karuna stockholders in connection with the merger.
Questions
If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact Okapi Partners LLC, Karuna’s proxy solicitor, by calling (877) 274-8654 (toll-free) or (212) 297-0720 (banks and brokers).
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THE MERGER PROPOSAL
(PROPOSAL 1)
Karuna stockholders are being asked to approve a proposal to adopt the merger agreement, pursuant to which, subject to the terms and conditions set forth therein, Merger Sub will be merged with and into Karuna, the separate corporate existence of Merger Sub will cease, and Karuna will survive the merger as a wholly owned subsidiary of Bristol-Myers Squibb.
The affirmative vote of holders of a majority of the outstanding shares of Karuna common stock entitled to vote as of the close of business on the record date to adopt the merger agreement at the special meeting is a condition to the completion of the merger. If Karuna stockholders fail to approve the merger proposal, the merger will not occur.
The Karuna Board unanimously recommends that Karuna stockholders vote “FOR” the merger proposal.
The discussion of the merger in this proxy statement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and is hereby incorporated by reference into this proxy statement.
Structure of the Merger
Subject to the terms and conditions of the merger agreement and in accordance with the DGCL, if the merger is completed, then at the effective time, Merger Sub will merge with and into Karuna, the separate corporate existence of Merger Sub will cease, and Karuna will survive the merger as a wholly owned subsidiary of Bristol-Myers Squibb.
Merger Consideration
Upon the terms and subject to the conditions of the merger agreement, at the effective time, Karuna stockholders will have the right to receive $330.00 in cash, without interest and subject to any applicable withholding taxes, for each share of Karuna common stock that they own that is issued and outstanding immediately prior to the effective time of the merger (other than cancelled shares and dissenting shares). After the merger is completed, Karuna stockholders will have only the right to receive a cash payment in respect of their shares of Karuna common stock, and will no longer have any rights as Karuna stockholders, including voting or other rights.
Any cancelled shares outstanding as of immediately prior to the effective time will be cancelled at the effective time.
Treatment of Karuna Equity Awards and Karuna ESPP
The merger agreement provides that outstanding Karuna equity awards will be treated as set forth below.
Options. Immediately prior to the effective time, each Karuna Option, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, become immediately vested and be cancelled and will entitle the holder of such Karuna Option to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to such Karuna Option multiplied by (b) the excess, if any, of $330.00 over the per share exercise price of such Karuna Option, less applicable taxes.
Restricted Stock Units. Immediately prior to the effective time, each Karuna RSU, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, be immediately vested and be cancelled and will entitle the holder of such Karuna RSU to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to the Karuna RSU multiplied by (b) $330.00, less applicable taxes.
Any consideration payable in respect of the Karuna Options and Karuna RSUs will be paid through the payroll system or payroll provider (to the extent applicable) of the surviving corporation as promptly as reasonably practicable following the closing date, but in no event later than the second regularly scheduled payroll date following the closing date. Notwithstanding the foregoing, if any payment owed to a holder of
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Karuna Options or Karuna RSUs cannot be made through the surviving corporation’s payroll system or payroll provider, then the surviving corporation will issue a check for such payment to such holder as soon as practicable following the closing date.
Special rules govern the treatment of Karuna RSUs that are intended to be granted following the entry into the Merger Agreement, as further discussed in the section of this proxy statement entitled “The Merger Agreement—Employee Matters” beginning on page 77.
Treatment of ESPP. At or prior to the effective time, Karuna, the Karuna Board and the compensation committee of the Karuna Board, as applicable, will unanimously adopt any resolutions and take any actions necessary to terminate the Karuna ESPP. No offering period has ever commenced under the Karuna ESPP.
Effects on Karuna if the Merger Is Not Completed
If the merger proposal is not approved by Karuna stockholders or if the merger is not completed for any other reason, Karuna stockholders will not receive any payment for their shares in connection with the merger. Instead, Karuna will remain an independent public company and shares of Karuna common stock will continue to be listed and traded on Nasdaq. In addition, if the merger is not completed, Karuna expects that management will operate Karuna’s business in a manner similar to that in which it is being operated today and that Karuna stockholders will continue to be subject to the same risks and opportunities to which they are currently subject, including, without limitation, risks related to the competitive industry in which Karuna operates and adverse economic conditions.
Furthermore, if the merger is not completed, and depending on the circumstances that would have caused the merger not to be completed, it is likely that the price of Karuna common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of Karuna common stock would return to the price at which it trades as of the date of this proxy statement.
Accordingly, if the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of Karuna common stock. If the merger proposal is not approved by Karuna stockholders or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to Karuna will be offered or that Karuna’s business, prospects or results of operation will not be adversely impacted.
Further, upon termination of the merger agreement, under certain specified circumstances, Karuna may be required to pay a termination fee of $490,000,000 to Bristol-Myers Squibb pursuant to the terms and conditions of the merger agreement. Upon termination of the merger agreement, under certain specified circumstances, Bristol-Myers Squibb may be required to pay a termination fee of $600,000,000 to Karuna pursuant to the terms and conditions of the merger agreement. See the section of this proxy statement entitled “The Merger Agreement—Termination Fees” beginning on page 86 for a discussion of the circumstances under which Karuna will be required to pay a termination fee.
Background of the Merger
The Karuna Board and Karuna’s senior management regularly review and assess Karuna’s operations and financial performance, industry conditions and related developments as they may impact Karuna’s long-term strategic plans and objectives with the goal of maximizing stockholder value. The Karuna Board and Karuna’s senior management have, from time to time, considered various strategic alternatives, including the continued execution of Karuna’s strategy as a stand-alone public company, the pursuit of various partnerships, collaborations or licensing arrangements, or the possible sale of Karuna to, or combination of Karuna with, a third party.
In furtherance of its consideration of these types of potential strategic alternatives, the Karuna Board and Karuna’s senior management have discussed a number of such alternatives with representatives of Goldman Sachs from time to time. Karuna has periodically consulted with representatives of Goldman Sachs for a number of reasons that include Goldman Sachs’ experience and expertise as a financial advisor in a wide variety of transactions, and its qualifications and experience advising, and familiarity with, companies operating in the biopharmaceutical industry in particular. In connection with the process that led to the proposed transaction, Karuna discussed such matters with representatives of Goldman Sachs throughout the course of the events described below. Karuna has also worked with Simpson Thacher & Bartlett LLP, Karuna’s outside legal counsel
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(“Simpson Thacher”), in connection with the evaluation of potential financial and strategic alternatives. Karuna discussed various matters and the process that led to the proposed transaction with representatives of Simpson Thacher throughout the course of the events described below.
From time to time over the past several years, members of Karuna’s senior management have had discussions regarding Karuna’s business with representatives of other industry participants, including a large multinational pharmaceutical company referred to herein as Party A, Bristol-Myers Squibb, and other large multinational pharmaceutical companies, regarding potential licensing transactions with Karuna relating to certain markets outside the United States. None of these discussions with Party A or Bristol-Myers Squibb developed beyond a preliminary stage.
In connection with exploratory discussions regarding a potential licensing transaction relating to certain markets outside the United States, in January of 2023 Karuna entered into a confidentiality agreement with Bristol-Myers Squibb. The parties met in January 2023 to discuss the potential licensing transaction. Following this meeting, Karuna from time to time shared limited non-public information with Bristol-Myers Squibb in response to certain requests. These discussions with Bristol-Myers Squibb did not develop beyond a preliminary stage.
On March 20, 2023, the Company announced positive topline results from its Phase 3 EMERGENT-3 trial evaluating the efficacy, safety, and tolerability of KarXT (xanomeline-trospium) in adults with schizophrenia and that the Company was on track to submit a New Drug Application (NDA) to the U.S. Food & Drug Administration (FDA) in mid-2023, with a potential launch in the second half of 2024, if approved.
On April 28, 2023, a representative of Bristol-Myers Squibb contacted Mr. Meury to discuss Karuna generally. The discussions were introductory in nature.
Following this discussion, on May 15, 2023, Mr. Meury, Andrew Miller, Karuna’s Founder and President of Research and Development, and the then-current chief financial officer of Karuna met with representatives of Bristol-Myers Squibb. The meeting consisted of a discussion of Karuna generally and was introductory in nature. No terms of any potential transaction were discussed at the meeting, and the discussions between the parties at such time did not develop beyond a preliminary stage.
On June 20, 2023, the Karuna Board held an in-person meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, the Karuna Board discussed with representatives of Karuna’s management and its advisors the biopharmaceutical industry, the strategic landscape and recent developments in the industry, and the possibility for interest from potential acquirors of Karuna following the submission by Karuna of its NDA to the FDA for KarXT for the treatment of schizophrenia, which was expected to occur in the third quarter of 2023. Representatives of Simpson Thacher reviewed with the directors their fiduciary duties under applicable law, including in the event the Karuna Board were to receive inquiries regarding, or otherwise consider pursuing, a potential change in control transaction. At this meeting, Karuna’s senior management presented to the Karuna Board the financial forecasts described under “The Merger Proposal (Proposal 1)—Certain Financial Projections” beginning on page 50 of this proxy statement prepared by Karuna’s senior management based on management’s reasonable best estimates, judgments and assumptions with respect to Karuna’s future financial performance, which we refer to as the “Financial Projections.” The Karuna Board reviewed and discussed with management the estimates, judgments and assumptions reflected in the Financial Projections.
On September 28, 2023, Karuna announced the submission of its NDA to the FDA for KarXT (xanomeline-trospium) for the treatment of schizophrenia.
On October 3, 2023, representatives of a large multinational pharmaceutical company, referred to herein as Party A, contacted Mr. Meury to suggest a meeting the following week.
On October 11, 2023, Mr. Meury and Dr. Miller met with representatives of Party A, including the chief executive officer of Party A. At the meeting, the chief executive officer of Party A provided Mr. Meury with a written indication of interest to acquire Karuna for a specified amount of cash per share (the “Initial Party A Proposal”), subject to due diligence. On the previous trading day, October 10, 2023, the closing price of Karuna
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common stock was $175.94 per share. The Initial Party A Proposal represented a significant premium to this closing price. Mr. Meury informed the representatives of Party A that he would share the Initial Party A Proposal with the Karuna Board. At the meeting, representatives of Party A requested to commence a due diligence review process for a potential acquisition of Karuna by Party A.
On October 17, 2023, the Karuna Board held an in-person meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, the Karuna Board discussed with representatives of Karuna’s management and its advisors the recent discussions with Party A, the Initial Party A Proposal, Party A’s request to conduct due diligence to evaluate a potential acquisition of Karuna and potential next steps. Representatives of Simpson Thacher reviewed with the directors their fiduciary duties under applicable law and the regulatory landscape associated with Party A as well as the industry more broadly. Karuna’s senior management reviewed with the Karuna Board the Financial Projections, which remained unchanged since the June 20, 2023 meeting at which the Karuna Board had previously reviewed and discussed the Financial Projections. The Karuna Board approved the Financial Projections. Representatives of Goldman Sachs reviewed with the Karuna Board Goldman Sachs’ preliminary financial analysis of the Initial Party A Proposal based upon the Financial Projections. Upon consultation with Karuna’s management and its advisors, the Karuna Board instructed Karuna’s management and representatives of Goldman Sachs to coordinate with Party A and its advisors on a targeted due diligence process of Karuna by Party A, in order to confirm Party A’s interest in a potential transaction while limiting the risk that the confidential discussions would leak publicly. Following the meeting, at the instruction of the Karuna Board, representatives of Goldman Sachs engaged with representatives of Party A to coordinate such due diligence process.
On October 19, 2023, Party A sent a draft confidentiality and standstill agreement to Karuna.
On October 20, 2023, Party A entered into a confidentiality and standstill agreement with Karuna, which included standstill provisions that fell away upon the announcement of the proposed transaction. Later that day, Karuna provided Party A and its representatives with access to certain non-public information in a virtual data room. On October 24, 2023, representatives of Party A met virtually with representatives of Karuna and its advisors for management meetings and due diligence discussions. Over the subsequent weeks, representatives of Party A and its outside advisors engaged in a due diligence review process to evaluate a potential transaction with Karuna, and representatives of Karuna continued to participate in due diligence calls and to make available certain non-public information in a virtual data room.
On October 31, 2023, representatives of Party A’s outside legal counsel contacted representatives of Simpson Thacher to discuss the ongoing due diligence process as well as the process for drafting and negotiating definitive agreements for a potential transaction.
On November 3, 2023, representatives of Party A informed representatives of Goldman Sachs that Party A was making progress with its ongoing due diligence review process and expected to be able to confirm its interest in a potential transaction expeditiously. Representatives of Goldman Sachs relayed such information to Karuna.
On November 3, 2023, the Karuna Board held a telephonic meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, representatives of Karuna’s management and representatives of Goldman Sachs updated the Karuna Board on the progress of Party A’s due diligence review process, noting that Party A and its advisors were moving expeditiously and that Party A had signaled the desire to continue its review for a few more weeks before being able to confirm its interest in moving forward with a potential transaction. Representatives of Simpson Thacher informed the Karuna Board about the discussions with Party A’s outside legal counsel with respect to the draft of a potential merger agreement. Members of the Karuna Board discussed with representatives of Karuna’s management and its advisors the terms of a potential transaction and preliminary views on timing and closing certainty. The Karuna Board also discussed with Karuna’s management and its advisors the risks and potential benefits of contacting other potential acquirors of Karuna, including the risk of leaks and market rumors that could be disruptive to interactions with Party A and disruptive to Karuna’s employees and operations. Following discussion with Karuna’s management and its advisors, the Karuna Board determined to defer any such potential additional outreach.
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On November 7, 2023, Chris Boerner, chief executive officer of Bristol-Myers Squibb, contacted Mr. Meury to suggest a meeting that week. Prior to this outreach by Dr. Boerner, there had been no substantive communication between representatives of Karuna and representatives of Bristol-Myers Squibb since their initial introductory discussion in May of 2023.
On November 9, 2023, Mr. Meury and Dr. Boerner met. At the meeting, Dr. Boerner informed Mr. Meury that Bristol-Myers Squibb may be interested in exploring the possibility of a transaction involving Karuna. No specific transaction terms were discussed at the meeting. Dr. Boerner requested that Bristol-Myers Squibb be provided with certain limited, non-confidential information to inform its evaluation of its potential interest in a transaction with Karuna.
On November 10, 2023, the Karuna Board held a telephonic meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, Mr. Meury updated the Karuna Board on his meeting with Dr. Boerner. Representatives of Goldman Sachs discussed with the Karuna Board the status of Party A’s ongoing due diligence review process and the expected timing of a confirmation of Party A’s interest in a potential transaction. Following discussion with Karuna’s management and its advisors, the Karuna Board instructed Karuna’s management to coordinate certain limited discussions with Bristol-Myers Squibb with respect to the limited non-confidential information requested by Bristol-Myers Squibb.
Between November 20, 2023 and November 22, 2023, representatives of Party A and its advisors conducted certain site visits as part of Party A’s ongoing due diligence review process.
Between November 22, 2023 and November 28, 2023, representatives of Karuna engaged in two preliminary discussions of certain limited non-confidential information with representatives of Bristol-Myers Squibb.
On December 6, 2023, AbbVie announced the proposed acquisition of Cerevel, a developer of drugs for neurological conditions and a company with certain characteristics reasonably comparable to Karuna. The announcement resulted in certain market speculations with respect to possible implications for Karuna.
On December 8, 2023, the chief executive officer of Party A called Mr. Meury and confirmed Party A’s desire to proceed with a potential acquisition of Karuna, reaffirmed the terms of the Initial Party A Proposal, informed Mr. Meury that Party A could complete its confirmatory due diligence review process expeditiously, and suggested that Karuna and Party A engage in the negotiation of a definitive merger agreement in the meantime. Mr. Meury stated that he would report this meeting to the Karuna Board and noted that, as discussed at the outset of Party A’s due diligence process, the parties would still have to discuss the economic terms of any potential transaction. Later that day, representatives of Party A contacted representatives of Goldman Sachs to reiterate the message provided by the chief executive officer of Party A, which representatives of Goldman Sachs relayed to the Karuna Board at its next meeting. On the previous trading day, December 7, 2023, the closing price of Karuna common stock was $206.25 per share. The Initial Party A Proposal continued to represent a significant premium to this closing price.
Also on December 8, 2023, Dr. Boerner contacted Mr. Meury to suggest a meeting on December 12, 2023.
On December 9, 2023, the Karuna Board held a telephonic meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, Mr. Meury updated the Karuna Board on his discussions with the chief executive officer of Party A, including Mr. Meury’s statement that the parties would still have to negotiate the economic terms of any potential acquisition of Karuna by Party A. Representatives of Simpson Thacher discussed with the Karuna Board and Karuna’s management the terms of a proposed draft merger agreement, including the regulatory covenants, the conditions to closing, the terms of the no-shop provisions, the termination fee proposed in the merger agreement to be payable in the event that Karuna terminated the merger agreement to accept a superior proposal, among other events, the reverse termination fee proposed in the merger agreement to be payable by Party A if the merger agreement was terminated in certain circumstances in connection with a failure to obtain regulatory approval, the remedies available to Karuna in the event that closing conditions were satisfied but Party A did not consummate the closing, and the termination rights available to Karuna and Party A under the proposed merger
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agreement. The Karuna Board instructed Karuna’s management and its advisors to continue facilitating Party A’s confirmatory due diligence review process and to engage in negotiations of the terms of a merger agreement with Party A, while deferring the negotiation on price with Party A for a short period of time while the confirmatory due diligence process commenced.
At this meeting, the Karuna Board also discussed with Karuna’s management and its advisors the risks and potential benefits of conducting limited outreach to other potential acquirors of Karuna, including the risk of leaks and market rumors that could be disruptive to interactions with Party A and disruptive to Karuna employees and operations. Representatives of Goldman Sachs discussed with the Karuna Board other potential acquirors of Karuna, including Bristol-Myers Squibb and other parties that had participated in discussions with Karuna in prior years, and identified two large multinational pharmaceutical companies (in addition to Bristol-Myers Squibb) as the parties that representatives of Goldman Sachs expected to be the most likely to be interested in a potential acquisition of Karuna at this time, and most likely to be able to proceed expeditiously towards a potential transaction if interested. Following discussion with Karuna’s management and its advisors, the Karuna Board instructed representatives of Goldman Sachs to determine, through ordinary course discussions with representatives of each such large multinational pharmaceutical company, the potential interest of each such large multinational pharmaceutical company, respectively, in a potential transaction with Karuna.
On December 11, 2023, Mr. Meury discussed with the chief executive officer of Party A the confirmatory due diligence review process and next steps. No terms of the potential transaction were discussed during this call.
On December 12, 2023, Mr. Meury met with Dr. Boerner. At this meeting, Dr. Boerner provided Mr. Meury with a verbal indication of interest for the acquisition of Karuna at a per share consideration consisting of $320.00 in cash plus a contingent value right instrument (the “Initial Bristol-Myers Squibb Proposal”). The consideration reflected in the proposal was in excess of the valuation represented by the Initial Party A Proposal. Dr. Boerner sent a letter memorializing these terms to Mr. Meury later that day.
Later that day, representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher had a discussion with Mr. Meury and Christopher Coughlin, the chairman of the Karuna Board, regarding Bristol-Myers Squibb’s offer. Mr. Coughlin directed the management team and its advisors to engage with Bristol-Myers Squibb on its due diligence review of Karuna. That same day, Messrs. Meury and Coughlin updated the members of the Karuna Board regarding these events.
During the course of the next several days, at the instruction of the Karuna Board, representatives of Goldman Sachs held separate ordinary course discussions concerning a number of topics with representatives of each of the two large multinational pharmaceutical companies identified to the Karuna Board at its December 9, 2023 meeting. During the course of these discussions, among other topics that were discussed, each such large multinational pharmaceutical company indicated that it was not interested in a potential strategic transaction with Karuna at such time.
Also on December 12, 2023, representatives of Simpson Thacher sent a draft merger agreement to representatives of Party A.
On December 13, 2023, Mr. Meury had a call with Dr. Boerner to indicate that Karuna would engage with Bristol-Myers Squibb on its due diligence review of Karuna. Mr. Meury also indicated to Dr. Boerner that Karuna was already engaged in advanced discussions with another party and that Bristol-Myers Squibb would need to proceed expeditiously if it was in fact interested in pursuing a potential transaction. Mr. Meury did not provide any detail regarding the other party or the discussions therewith, and no terms of a potential transaction with Bristol-Myers Squibb were discussed.
Also on December 13, 2023, at the instruction of Karuna, representatives of Goldman Sachs had a call with representatives of Gordon Dyal & Co., financial advisor to Bristol-Myers Squibb (“Gordon Dyal & Co.”) to coordinate Bristol-Myers Squibb’s due diligence review of Karuna.
On December 13, 2023, representatives of Simpson Thacher sent a draft confidentiality and standstill agreement to representatives of Covington & Burling LLP (“Covington”), outside legal counsel to Bristol-Myers Squibb.
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Also on December 13, 2023, Mr. Meury and Dr. Boerner participated in a phone conversation to discuss the diligence process and timing of a potential transaction.
On December 14, 2023, Bristol-Myers Squibb entered into a confidentiality and standstill agreement with Karuna, which included standstill provisions that fell away upon the announcement of a proposed transaction. The confidentiality and standstill agreement did not supersede the confidentiality agreement between the parties previously entered into in January of 2023, but conflicts between the agreements would be resolved in favor of the December 14, 2023 confidentiality and standstill agreement.
Following execution of this confidentiality and standstill agreement, Karuna provided Bristol-Myers Squibb and its representatives with access to non-public information in a virtual data room. The materials provided in the data room were substantially the same as the materials provided to Party A. In addition, representatives of Simpson Thacher sent a draft merger agreement to representatives of Covington, reflecting the same terms as the draft merger agreement that had been provided to Party A.
On December 15, 2023, senior management of Bristol-Myers Squibb and its advisors met in New York with senior management of Karuna and its advisors for due diligence discussions. Prior to the meeting, Bristol-Myers Squibb, through a team of senior internal representatives, including members of its senior management, and its outside advisors, conducted an extensive initial review on its own of Karuna’s publicly available information, and of diligence materials made available in the data room beginning on December 14, 2023 to Bristol-Myers Squibb in order to inform the discussions on December 15, 2023. Over the course of the following days, Bristol-Myers Squibb engaged in an extensive due diligence review process with respect to a potential acquisition of Karuna, and representatives of Karuna continued to participate in due diligence calls and to make available certain non-public information in a virtual data room. No terms of a potential transaction were discussed during these meetings.
On December 17, 2023, the Karuna Board held a telephonic meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, Mr. Meury updated the Karuna Board on his discussions with the chief executive officer of Party A and with Dr. Boerner. Karuna’s management and representatives of Goldman Sachs updated the Karuna Board on the status of discussions with Party A and Bristol-Myers Squibb and the status of the due diligence review process conducted by both parties. Representatives of Goldman Sachs updated the Karuna Board on the discussions with representatives of the two large multinational pharmaceutical companies identified to the Karuna Board at its December 9, 2023 meeting, and the Karuna Board discussed with Karuna’s management and its advisors certain advantages and disadvantages of any additional outreach to other potential transaction participants, particularly in light of the fact that Karuna was now in receipt of indications of interest from two highly experienced potential acquirors at attractive valuations and that the recent acquisition of Cerevel had caused market speculation. Representatives of Karuna’s management and representatives of Goldman Sachs informed the Karuna Board that Bristol-Myers Squibb had commenced a significant due diligence process involving a large number of representatives of Bristol-Myers Squibb and its advisors, including members of senior management of Bristol-Myers Squibb, and that Bristol-Myers Squibb appeared to be willing and able to proceed expeditiously in light of Bristol-Myers Squibb’s understanding that Karuna was already engaged in advanced discussions with another party. Representatives of Karuna’s management and representatives of Goldman Sachs informed the Karuna Board that Party A had signaled a willingness to complete a transaction in the near term, and both parties had committed to providing comments to the draft merger agreement within a few days. Representatives of Simpson Thacher reminded the directors of their fiduciary duties under applicable law. During the meeting, the Karuna Board reminded Mr. Meury to, and to cause management to, continue to refrain from engaging in any discussions with potential counterparties with respect to any post-closing employment or compensation.
At this meeting, the Karuna Board also discussed with Karuna’s management and its advisors the subject of informing Party A of the fact that Karuna had received an indication of interest from another party. Following discussion with Karuna’s management and its advisors, the Karuna Board instructed Mr. Meury to notify the chief executive officer of Party A that Karuna had received a credible indication of interest from another party, which the Karuna Board was evaluating.
Following the meeting, on December 17, 2023, Mr. Meury reached out to the chief executive officer of Party A to set up a call on the following day.
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Early in the morning on December 18, 2023, Mr. Meury called the chief executive officer of Party A to inform him that Karuna had received a credible indication of interest from another party, which the Karuna Board was evaluating.
Also on December 18, 2023, representatives of Party A conducted certain site visits as part of the completion of Party A’s confirmatory due diligence review process.
In addition, on December 18, 2023, representatives of Goldman Sachs had a call with representatives of Citi Bank, N.A., financial advisor to Bristol-Myers Squibb (“Citi”), and representatives of Gordon Dyal & Co. Representatives of Gordon Dyal & Co. indicated that Bristol-Myers Squibb’s diligence was progressing expeditiously. Representatives of Goldman Sachs relayed such information to Karuna’s management. Later on December 18, 2023, Dr. Boerner called Mr. Meury. Dr. Boerner reiterated that Bristol-Myers Squibb’s diligence was progressing expeditiously.
From December 18, 2023 through the announcement of the proposed transaction, representatives of Karuna’s management, representatives of Goldman Sachs and representatives of Simpson Thacher had numerous discussions with Mr. Meury and Mr. Coughlin and kept Mr. Meury and Mr. Coughlin apprised of all material developments. Throughout this period, Mr. Meury and Mr. Coughlin updated the other members of the Karuna Board from time to time of all material developments.
On December 19, 2023, the chief financial officer of Party A notified representatives of Goldman Sachs that Party A was prepared to enter into a transaction to acquire Karuna expeditiously, which Goldman Sachs relayed to the Karuna Board at its next meeting. In addition, representatives of counsel to Party A submitted a markup of the draft merger agreement to representatives of Simpson Thacher.
Also on December 19, 2023, Dr. Boerner notified Mr. Meury that Bristol-Myers Squibb reaffirmed its indication of interest to acquire Karuna for consideration of $320.00 per share in cash plus a contingent value right instrument, the term of which was extended moderately (the “Revised Bristol-Myers Squibb Proposal”). Dr. Boerner also indicated that Bristol-Myers Squibb was prepared to enter into a transaction to acquire Karuna expeditiously. In addition, representatives of Covington submitted a markup of the draft merger agreement to representatives of Simpson Thacher.
Later in the day on December 19, 2023, representatives of Goldman Sachs, Simpson Thacher and Karuna’s management discussed potential next steps with Mr. Meury and Mr. Coughlin. Following discussion, it was determined that both Party A and Bristol-Myers Squibb would be asked to submit their respective best and final proposals, and be prepared to finalize all transaction documents on December 21, 2023, for consideration by the Karuna Board.
Following such discussions, Mr. Meury called the chief executive officer of Party A and requested Party A to submit its best and final proposal, together with transaction documents Party A would be prepared to execute, on December 21, 2023 and be in a position to sign a definitive agreement promptly following close of the market on December 21, 2023. Mr. Meury did not provide price guidance, and informed the chief executive officer of Party A that Party A would need to put its best offer forward with respect to both price and certainty in its proposed merger agreement in order to be competitive, and that the party providing the bid representing the lower value to Karuna’s stockholders should not expect an opportunity to improve its bid.
Also on December 19, 2023, representatives of Simpson Thacher provided draft disclosure schedules to representatives of counsel to Party A and representatives of Covington. Representatives of Simpson Thacher continued to negotiate the terms of the draft disclosure schedules with representatives of Party A’s outside legal counsel through December 21, 2023 and with representatives of Covington through December 22, 2023, respectively.
On December 20, 2023, at the instruction of Karuna’s management, representatives of Goldman Sachs had separate calls with representatives of Party A, representatives of Gordon Dyal & Co. and representatives of Citi, respectively, to communicate the request that each of Party A and Bristol-Myers Squibb submit its best and final proposal, together with transaction documents it would be prepared to execute, on December 21, 2023 and be in a position to sign a definitive agreement promptly following close of the market on December 21, 2023. At the instruction of Karuna’s management, representatives of Goldman Sachs did not provide price guidance to either party, and, also at the instruction of Karuna’s management, representatives of Goldman Sachs informed Party A and Bristol-Myers Squibb that they would need to put their best offer forward with respect to both price and
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certainty in their proposed merger agreement in order to be competitive, and that the party providing the bid representing the lower value to Karuna’s stockholders should not expect to receive a call back or an opportunity to improve its bid. Mr. Meury spoke separately with the chief executive officer of Party A and to Dr. Boerner to discuss this process further.
Also on December 20, 2023, at the instruction of Karuna’s management, representatives of Simpson Thacher sent markups of the draft merger agreement to representatives of counsel to Party A and representatives of Covington.
Also on December 20, 2023, Karuna entered into an engagement letter with Goldman Sachs in connection with the proposed transaction.
In the afternoon of December 21, 2023, the Karuna Board held a telephonic meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, representatives of Karuna’s legal and financial advisors updated the Karuna Board with respect to the developments over the past several days. Representatives of Goldman Sachs reviewed with the Karuna Board Goldman Sachs’ preliminary financial analysis of the Initial Party A Proposal and the Revised Bristol-Myers Squibb Proposal. Prior to the meeting, representatives of Goldman Sachs had provided to the Karuna Board, in writing, disclosure of relationships between Goldman Sachs and its affiliates on the one hand, and Karuna, Bristol-Myers Squibb and Party A, respectively, on the other hand. The Karuna Board considered the Initial Party A Proposal and the Revised Bristol-Myers Squibb Proposal and the risks and potential benefits of a potential transaction as compared to Karuna’s long-term strategic plan as an independent public company and the risks associated with executing such plan.
At this meeting, representatives of Simpson Thacher then reviewed with the Karuna Board their fiduciary duties under applicable law and the terms of the draft merger agreements proposed by Party A and Bristol-Myers Squibb, respectively, and informed the Karuna Board that the draft merger agreements submitted to each of Party A and Bristol-Myers Squibb were on substantially the same terms. Karuna’s senior management reviewed with the Karuna Board the Financial Projections, which remained unchanged except for an immaterial update since the October 17, 2023 meeting at which the Karuna Board had approved the Financial Projections.
At this meeting, representatives of Karuna’s management and representatives of Goldman Sachs informed the Karuna Board that each of Party A and Bristol-Myers Squibb had been instructed to submit its best and final proposal later that day, and to be in a position to finalize all transaction documents and sign a definitive agreement promptly thereafter and, in any event, prior to the opening of the market on December 22, 2023. The Karuna Board, upon consultation with its advisors, determined to adjourn the meeting and resume it later on December 21, 2023 to evaluate the parties’ respective best and final proposals and determine whether to approve a potential transaction.
Later in the afternoon on December 21, 2023, Party A submitted a final proposal for the acquisition of Karuna for all-cash consideration that was meaningfully in excess of the Initial Party A Proposal (the “Final Party A Proposal”), and Bristol-Myers Squibb submitted its final proposal for the acquisition of Karuna for all-cash consideration of $330.00 per share, which did not contemplate any contingent value rights or other contingent consideration (the “Final Bristol-Myers Squibb Proposal”). The per share all-cash purchase price contained in the Final Bristol-Myers Squibb Proposal exceeded the per share all-cash purchase price contained in the Final Party A Proposal and therefore constituted the highest valuation offered for Karuna stockholders.
Concurrently with submission of the proposals, each of Party A and Bristol-Myers Squibb also submitted markups of the merger agreement.
Following receipt of the final proposals, later on December 21, 2023, the Karuna Board resumed its telephonic meeting with representatives of Karuna’s management and representatives of Goldman Sachs and Simpson Thacher in attendance. At the meeting, representatives of Goldman Sachs and Simpson Thacher updated the Karuna Board on the final proposals received from Bristol-Myers Squibb and Party A, and the terms of the draft merger agreements proposed by Bristol-Myers Squibb and Party A, respectively, and informed the Karuna Board that all open issues with respect to the terms of a potential transaction with either of the two parties had been resolved and definitive documentation was ready to be finalized and executed. The Karuna Board discussed with its legal and financial advisors that the all-cash merger consideration contemplated by the Final
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Bristol-Myers Squibb Proposal was higher than the all-cash merger consideration contemplated by the Final Party A Proposal, that both proposals were otherwise on substantially the same terms, and that both Bristol-Myers Squibb and Party A stood ready in a position to enter into a transaction with Karuna promptly following the meeting.
At the meeting, representatives of Goldman Sachs then reviewed with the Karuna Board Goldman Sachs’ financial analysis of the potential transaction based upon the Financial Projections approved and provided by the Karuna Board for Goldman Sachs’ use. Following further discussion, representatives of Goldman Sachs then rendered an oral opinion to the Karuna Board (which was subsequently confirmed by delivery of Goldman Sachs’ written opinion dated as of December 22, 2023), that, as of the date of the opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in Goldman Sachs’ written opinion, it was Goldman Sachs’ opinion that, the $330.00 in cash per share of Karuna common stock to be paid to the holders (other than Bristol-Myers Squibb and its affiliates) of shares of Karuna common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The written opinion is attached to this proxy statement as Annex B. The Karuna Board considered that, aside from their interests as Karuna stockholders, Karuna’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of other Karuna stockholders generally, as described in more detail in “The Merger Proposal (Proposal 1)—Interests of Karuna Executive Officers and Directors in the Merger” beginning on page 52 of this proxy statement.
After further discussion and deliberation, the Karuna Board unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of Karuna and its stockholders, and declared it advisable to enter into the merger agreement with Bristol-Myers Squibb and Merger Sub providing for the merger in accordance with the DGCL, (ii) approved the merger agreement and the transactions contemplated thereby in accordance with the DGCL and (iii) adopted a resolution recommending that the merger agreement be adopted by Karuna stockholders.
Following the meeting of the Karuna Board, at the direction of the Karuna Board, representatives of Goldman Sachs notified representatives of Bristol-Myers Squibb and its financial advisors that the Karuna Board had adopted resolutions approving the transaction with Bristol-Myers Squibb. Over the next several hours, representatives of Covington and Simpson Thacher finalized the merger agreement and disclosure schedules. In the morning on December 22, 2023, Karuna and Bristol-Myers Squibb both executed the merger agreement and announced the execution of the merger agreement.
Recommendation of the Karuna Board and Reasons for the Merger
The Karuna Board recommends that you vote “FOR” the merger proposal.
At a meeting of the Karuna Board held on December 21, 2023, the Karuna Board, acting in consultation with its outside legal counsel and financial advisors, unanimously (a) determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of Karuna and its stockholders, and declared it advisable to enter into the merger agreement with Bristol-Myers Squibb and Merger Sub providing for the merger in accordance with the DGCL, (b) approved the merger agreement and the transactions contemplated thereby in accordance with the DGCL and (c) adopted a resolution recommending that the merger agreement be adopted by Karuna stockholders.
When you consider the Karuna Board’s recommendation, you should be aware that Karuna’s directors may have interests in the merger that may be different from, or in addition to, the interests of Karuna stockholders generally. These interests are described in the section entitled “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger”.
Factors the Karuna Board Considered Supporting the Approval of the Merger
In the course of reaching its decision, the Karuna Board consulted with Karuna’s management and financial and legal advisors, reviewed a significant amount of information and considered a number of potentially positive factors that it believed supported its decision, including, among others, the following (not necessarily in order of relative importance):
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Per share merger consideration. The Karuna Board considered the $330.00 per share in cash to be paid as merger consideration in relation to (a) the Karuna Board’s estimate of the current and future value of Karuna as an independent entity and (b) the market price of Karuna’s common stock described in the bullet immediately below.
Premium. The Karuna Board considered that the $330.00 per share in cash to be paid as merger consideration was an attractive value for the shares of Karuna common stock and represented:
a premium of 53.4% based on the closing price per share of Karuna common stock of $215.19 on December 21, 2023;
a premium of 37.4% based on the highest closing trading price per share of Karuna common stock of $240.22 for the 52-week period ending on December 21, 2023;
a premium of 65.1% based on the volume-weighted average price of $199.85 per share of Karuna common stock reported for the 30-trading day period ending on December 21, 2023;
a premium of 76.7% based on the volume-weighted average price of $186.80 per share of Karuna common stock reported for the 60-trading day period ending on December 21, 2023; and
a premium of 79.2% based on the volume-weighted average price of $184.18 per share of Karuna common stock reported for the 90-trading day period ending on December 21, 2023.
Cash consideration. The Karuna Board considered the fact that the merger consideration would be paid solely in cash, which enables Karuna’s stockholders to realize value that has been created at Karuna, in comparison to the risks and uncertainty that would be inherent in remaining an independent public company or engaging in a transaction in which all or a portion of the consideration is payable in stock. The Karuna Board weighed the certainty of realizing a compelling value for shares of Karuna common stock by virtue of the merger against the uncertain prospect that the trading value for Karuna common stock would approach the merger consideration in the foreseeable future, as well as the risks and uncertainties associated with its business.
Strategic alternatives. The Karuna Board considered the potential values, benefits, risks and uncertainties facing Karuna stockholders associated with possible strategic alternatives to the merger (including potential alternative acquisitions and scenarios involving the possibility of remaining independent), and the timing and likelihood of accomplishing such alternatives. The Karuna Board also considered its alternatives in light of the risks associated with remaining an independent, standalone company. The Karuna Board considered these alternatives as compared to the risks and benefits of the proposed merger.
Fairness opinion. The Karuna Board considered the financial analyses presentation by Goldman Sachs and the oral opinion of Goldman Sachs rendered to the Karuna Board (which was subsequently confirmed by delivery of Goldman Sachs’ written opinion dated as of December 22, 2023) that, as of the date of the opinion and based upon and subject to the factors and assumptions set forth therein, the $330.00 in cash per share of Karuna common stock to be paid to the holders (other than Bristol-Myers Squibb and its affiliates) of shares of Karuna common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The Goldman Sachs opinion is more fully described in “The Merger Proposal (Proposal 1)—Opinion of Karuna’s Financial Advisor” and the full text of such opinion is attached to this proxy statement as Annex B.
Highest value reasonably obtainable. The Karuna Board believed the merger consideration of $330.00 per share of Karuna common stock represented the highest value reasonably obtainable for Karuna common stock for the foreseeable future, taking into account the business, operations, product development and commercialization risks, business strategy, assets, liabilities and general financial condition of Karuna. The Karuna Board also considered the progress and the outcome of Karuna’s negotiations with Bristol-Myers Squibb, including the increase in the cash consideration offered by Bristol-Myers Squibb from the time of its initial expression of interest to the end of negotiations, Bristol-Myers Squibb’s willingness to abandon a CVR for a higher non-contingent per share cash payment, a number of changes in the terms and conditions of the merger agreement from the initial markup of the merger agreement from Bristol-Myers Squibb that were more favorable to Karuna,
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Karuna’s negotiations with representatives of Party A and the fact that the Final Bristol-Myers Squibb Proposal constituted a higher valuation than Party A’s final proposal, and the outcomes of Goldman Sachs’ ordinary course discussions, held at the direction of the Karuna Board, with the two large multinational pharmaceutical companies that the Karuna Board believed, in consultation with representatives of Goldman Sachs, to be the most likely to be interested in a potential acquisition of Karuna at this time and able to proceed expeditiously towards a potential transaction if interested. Further, the Karuna Board believed, based on its negotiations with Bristol-Myers Squibb, that the merger consideration was the highest price per share that Bristol-Myers Squibb was willing to pay and that the merger agreement contained the most favorable terms to Karuna to which Bristol-Myers Squibb was willing to agree.
Karuna’s current condition. The Karuna Board considered information with respect to its financial condition, results of operations, competitive position and business strategy, on both a historical and prospective basis, as well as current industry, regulatory, economic and market conditions, trends and cycles.
Karuna’s future prospects. The Karuna Board considered Karuna’s future prospects if it were to remain independent, including the competitive landscape and the business, financial and execution risks, its relationships with suppliers, collaborators and employees, and the risks associated with continued independence discussed below.
Product development and commercialization risks. The Karuna Board considered the uncertain nature of the development of pharmaceutical products to treat psychiatric and neurological conditions, acknowledging that product candidates may fail to reach the market for several reasons, including: clinical trial results may show the product candidates to be less effective than expected or have an unacceptable safety or tolerability profile; uncertainties inherent in the product development process (including with respect to the timing of results and whether such results will be predictive of future results); and failure to receive the necessary regulatory approvals or a delay in receiving such approvals, which, among other things, may be caused by unexpected safety or manufacturing issues. In addition, the Karuna Board considered the fact that Karuna has limited prior marketing, sales and distribution experience and capabilities, and, if Karuna’s product candidates receive regulatory approval, Karuna would need to develop or access such capabilities within the United States and globally, which it may fail to do successfully or at reasonable cost, along with the risks related to competition, market acceptance, pricing and reimbursement and other factors affecting the revenues and profitability of product candidates generally.
Risks associated with continued independence. While the Karuna Board remained supportive of Karuna’s strategic plan and optimistic about its prospects on a standalone basis, it also considered the risks associated with operating as a standalone company, including, but not limited to, the following (not necessarily in order of relative importance) and those discussed in Karuna’s public filings with the SEC (see “Where You Can Find Additional Information” beginning on page 98 of this proxy statement):
Karuna’s programs are all in the clinical, preclinical or discovery stage and if Karuna is unable to successfully develop, obtain regulatory approval and ultimately commercialize its product candidates, or experiences significant delays in doing so, Karuna’s business will be materially harmed;
Preclinical and clinical development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical studies and early clinical trials are not necessarily predictive of future results; Karuna’s product candidates may not have favorable results in clinical trials, if any, or receive regulatory approvals on a timely basis, if at all;
Any difficulties or delays in the commencement or completion, or termination or suspension, of Karuna’s ongoing or planned clinical trials, or any failure of third-party manufacturers to comply with manufacturing regulations, could result in increased costs to Karuna, delay or limit Karuna’s ability to generate revenue and adversely affect Karuna’s commercial prospects;
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Karuna’s limited operating history, the fact that Karuna has incurred significant operating losses since its inception and expects to incur significant losses for the foreseeable future, and the fact that Karuna may not be able to generate sufficient revenue to achieve and maintain profitability;
Karuna may require substantial additional financing to achieve its goals, which may cause stockholder dilution and certain other challenges, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force Karuna to delay, limit, reduce or terminate its product discovery and development programs, commercialization efforts or other operations;
Karuna has entered into, and may in the future seek to enter into, collaborations, licenses and other similar arrangements and may not be successful in doing so, and even if successful, Karuna may relinquish valuable rights and may not realize the benefits of such relationships;
Karuna relies on third parties to assist in conducting many of its clinical trials, and these third parties may not perform satisfactorily;
Even if Karuna’s product candidates are approved by the FDA, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, in which case Karuna may not generate significant revenues or become profitable;
Karuna faces significant competition, and if Karuna’s competitors develop product candidates more rapidly than Karuna does or their product candidates are more effective and/or safe, Karuna’s ability to develop and successfully commercialize products may be adversely affected;
If Karuna is unable to obtain and maintain patent protection for any product or technology it may develop, or if the scope of the patent protection obtained is not sufficiently broad, Karuna’s competitors could develop and commercialize products similar or identical to Karuna’s, and Karuna’s ability to successfully commercialize any product candidates it may develop may be adversely affected;
Karuna may not be able to protect its intellectual property and proprietary rights throughout the world;
If Karuna fails to comply with its obligations under its intellectual property licenses, if the licenses are terminated or if disputes regarding these licenses arise, Karuna could lose significant rights that are important to its business; and
The current state of the U.S. and global economies, increased volatility resulting from macroeconomic factors such as interest rates and inflation, escalating political and global trade tensions, and the current and potential impact in both the near term and long term on the biopharmaceutical industry and the future commercialization efforts required with respect to Karuna’s products or product candidates that may become approved for sale, including the numerous risks, costs and uncertainties associated with research, development and commercialization of Karuna’s pipeline programs.
Economic conditions. The Karuna Board considered the current state of the economy, equity and debt financing markets for biotechnology companies and uncertainty surrounding forecasted economic conditions both in the near term and the long term, which could reduce its ability to finance its ongoing operations or reduce or delay its profitability.
Merger agreement. The Karuna Board considered, in consultation with its counsel, the terms of the merger agreement, including:
the representations, warranties and covenants of the parties, the conditions to the parties’ obligations to complete the merger and their ability to terminate the merger agreement;
the fact that the consummation of the merger is not conditioned on any financing arrangements or contingencies;
the fact that Karuna has sufficient operating flexibility to conduct its business in the ordinary course between the execution of the merger agreement and the consummation of the merger;
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the fact that the definition of “material adverse effect” has a number of customary exceptions and is generally a very high standard as applied by courts;
the right of Karuna and the Karuna Board to effect a change of recommendation or terminate the merger agreement in order to enter into a definitive written agreement providing for a superior proposal prior to obtaining the Karuna stockholder approval if the Karuna Board determines in good faith, after consultation with its outside legal counsel and its financial advisor(s) that such acquisition proposal constitutes a superior proposal and that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law, subject to certain notice requirements and “matching rights” in favor of Bristol-Myers Squibb and payment to Bristol-Myers Squibb of a termination fee of $490 million;
the belief of the Karuna Board that, although the termination fee provisions might have the effect of discouraging competing third-party proposals, such provisions are customary for transactions of this type, and its belief that the $490 million termination fee was reasonable in the context of comparable transactions and the likelihood that a fee of such size would not be a meaningful deterrent to alternative acquisition proposals;
the Karuna Board’s right to change its recommendation prior to obtaining the Karuna stockholder approval if an intervening event has occurred and the Karuna Board has determined in good faith, after consultation with its outside legal counsel and its financial advisor(s), that failure to take such action in response to such intervening event would be inconsistent with the directors’ fiduciary duties under applicable law, subject to certain notice requirements and “matching rights” in favor of Bristol-Myers Squibb;
Karuna’s ability, under certain circumstances, to furnish information to and conduct negotiations with a third party, if the Karuna Board has determined in good faith, after consultation with its outside legal counsel and its financial advisor(s), that the third party has made a competing proposal that constitutes or could reasonably be expected to lead to a superior proposal and that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law;
Bristol-Myers Squibb’s obligation to pay to Karuna a termination fee of $600 million in the event that the merger agreement is terminated (a) due to a restraint arising in connection with any antitrust laws, or (b) due to failure to close by the end date and, at the time of such termination, (i) any of the conditions to closing relating to antitrust laws or consents has not been satisfied or waived and (ii) all other conditions to closing set forth in the merger agreement have been satisfied or waived; and
Karuna’s right, under specified circumstances, to specifically enforce Bristol-Myers Squibb’s obligations under the merger agreement.
Financing. The Karuna Board considered the fact that the merger is not conditioned on any financing arrangements or contingencies and that Bristol-Myers Squibb and Merger Sub have represented in the merger agreement that Bristol-Myers Squibb will have available to it (and will make available to Merger Sub in a timely manner) sufficient funds required to make all payments contemplated by the merger agreement to be made by Bristol-Myers Squibb, Merger Sub or the surviving corporation as of the effective time and to pay all fees and expenses incurred in connection with the transactions contemplated by the merger agreement that are payable by Bristol-Myers Squibb or Merger Sub in accordance with the terms of the merger agreement.
Likelihood of consummation. The Karuna Board considered the likelihood that the merger would be completed, in light of, among other things, the conditions to the merger and the absence of a financing condition, the relative likelihood of obtaining required antitrust approval, and the remedies available to Karuna under the merger agreement, as well as the commitment by Bristol-Myers Squibb to use reasonable best efforts, subject to certain limitations, to consummate the merger as soon as reasonably practicable.
Bristol-Myers Squibb’s reputation. The Karuna Board considered that Bristol-Myers Squibb is a creditworthy entity with substantial assets, and considered Bristol-Myers Squibb’s reputation in the
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pharmaceutical industry, its financial capacity to complete an acquisition of this size and its prior track record of completing acquisitions, which the Karuna Board believed supported the conclusion that a transaction with Bristol-Myers Squibb could be completed efficiently and in an orderly manner.
Appraisal rights. The Karuna Board considered the fact that stockholders and beneficial owners who do not vote to adopt the merger agreement and who comply with the requirements of Section 262 of the DGCL will have the right to dissent from the merger and to demand appraisal of the fair value of their shares under the DGCL.
Board’s independence and comprehensive review process. The Karuna Board considered the fact that the Karuna Board consisted of a majority of independent directors who unanimously approved the transaction following extensive discussions with Karuna’s management team, representatives of its legal and financial advisors, and also took into consideration the financial expertise and industry expertise held by a number of directors.
Stockholders’ ability to reject the merger. The Karuna Board considered the fact that the merger is subject to the adoption of the merger agreement by a majority in voting power of the outstanding shares of Karuna common stock as of the close of business on the record date.
Other Factors Considered by the Karuna Board.
In the course of reaching its decision, the Karuna Board also considered and balanced against the potential benefits of the merger a number of potentially adverse factors with respect to the merger and the other transactions contemplated by the merger agreement including, among others, the following (not necessarily in the order of relative importance):
Participation in future gains. The Karuna Board considered the fact that Karuna will no longer exist as an independent public company and Karuna stockholders will forgo any future increase in Karuna’s value that might result from its possible growth as an independent company or the success of any of Karuna’s product candidates. The Karuna Board was optimistic about its prospects on a standalone basis, but concluded that the premium reflected in the merger consideration constituted fair compensation for the loss of the potential stockholder benefits that could be realized by its strategic plan, particularly on a risk-adjusted basis and in light of the achievability of its Financial Projections.
Regulatory risk. The Karuna Board considered the risk that the completion of necessary antitrust review, which is beyond Karuna’s control, may be delayed, conditioned or denied. In this regard, the Karuna Board particularly considered the risk that governmental antitrust entities may require certain remedies and that Bristol-Myers Squibb would not be required to agree to such remedies (see “The Merger Agreement—Efforts to Consummate the Merger”). The Karuna Board also considered that Bristol-Myers Squibb may be required to pay a termination fee of $600 million to Karuna if the merger agreement is terminated under certain specified circumstances relating to the failure to obtain required antitrust approvals pursuant to the terms and conditions of the merger agreement.
Risks associated with a failure to consummate the merger. The Karuna Board considered the fact that there can be no assurance that all conditions to the parties’ obligations to consummate the merger will be satisfied and as a result the possibility that the merger might not be completed. The Karuna Board noted the fact that, if the merger is not completed, (a) it will have incurred significant risk, transaction expenses and opportunity costs, including the possibility of disruption to its operations, diversion of management and employee attention, employee attrition and a potentially negative effect on its business and supplier and collaborator relationships, (b) depending on the circumstances that caused the merger not to be completed, it is likely that the price of the Karuna common stock will decline, potentially significantly, and (c) the market’s perception of Karuna and its product candidates could be adversely affected.
Risks associated with the announcement and pendency of the merger. The Karuna Board considered the risk that the announcement and pendency of the merger could cause substantial harm to Karuna’s business relationships or relationships with its employees, or may divert management and employee attention away from the day-to-day operation of its business. The Karuna Board also considered its ability to attract and retain key personnel while the proposed merger is pending and the potential adverse effects on its financial results as a result of that disruption.
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Restrictions on the operation of its business. The Karuna Board considered the restrictions on the conduct of its business prior to the completion of the merger, including restrictions on realizing certain business opportunities or taking certain actions with respect to its operations it would otherwise take absent the pending merger.
Non-solicitation provision. The Karuna Board considered the fact that the merger agreement precludes Karuna from actively soliciting alternative proposals.
Termination fee. The Karuna Board considered the possibility that the $490 million termination fee payable to Bristol-Myers Squibb in certain circumstances might have the effect of discouraging alternative acquisition proposals or reducing the price of such proposals.
Tax treatment. The Karuna Board considered the fact that any gains arising from the receipt of the merger consideration would generally be taxable to Karuna stockholders that are U.S. holders for U.S. federal income tax purposes.
Stockholder litigation. The Karuna Board considered the impact on Karuna of potential stockholder litigation in connection with the merger.
Transaction costs. The Karuna Board considered the fact that Karuna has incurred and will continue to incur significant transaction costs and expenses in connection with the merger, regardless of whether the merger is consummated.
Potential differing interests of directors and officers. The Karuna Board considered that, aside from their interests as Karuna stockholders, Karuna’s directors and officers have interests in the merger that may be different from, or in addition to, the interests of other Karuna stockholders generally. See “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger” beginning on page 52 of this proxy statement.
Other risks. The Karuna Board considered the types and nature of the risks and uncertainties set forth in Kauna’s Annual Report on Form 10-K for fiscal year ended December 31, 2022, subsequent quarterly reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023 under Item 1A “Risk Factors” and current reports on Form 8-K.
While the Karuna Board considered potentially positive and potentially negative factors, the Karuna Board concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the Karuna Board unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Karuna and its stockholders.
The foregoing discussion is not intended to be an exhaustive list of the information and factors considered by the Karuna Board in its consideration of the merger, but includes the material positive factors and material negative factors considered by the Karuna Board in that regard. In view of the number and variety of factors, the Karuna Board did not find it practicable to, nor did it attempt to, make specific assessments of, quantify, or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, individual members of the Karuna Board may have given different weights to different factors. Based on the totality of the information presented, the Karuna Board collectively reached the unanimous decision to authorize and approve the execution, delivery and performance of the merger agreement and the transactions contemplated thereby, including the merger, in light of the factors described above and other factors that the members of the Karuna Board felt were appropriate.
Portions of this explanation of Karuna’s reasons for the merger and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”
Opinion of Karuna’s Financial Advisor
Goldman Sachs rendered its oral opinion to the Karuna Board (which was subsequently confirmed by delivery of Goldman Sachs’ written opinion dated as of December 22, 2023) that, as of the date of the opinion and based upon and subject to the factors and assumptions set forth therein, the $330.00 in cash per share of Karuna common stock to be paid to the holders (other than Bristol-Myers Squibb and its affiliates) of shares of Karuna common stock pursuant to the merger agreement was fair from a financial point of view to such holders.
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The full text of the written opinion of Goldman Sachs, dated December 22, 2023, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. The summary of Goldman Sachs’ opinion contained in this proxy statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Karuna Board in connection with its consideration of the merger. Goldman Sachs’ opinion is not a recommendation as to how any holder of shares of Karuna common stock should vote with respect to the merger or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
the merger agreement;
annual reports to Karuna stockholders and Annual Reports on Form 10-K of Karuna for the three years ended December 31, 2022;
Karuna’s Registration Statement on Form S-1, including the prospectus contained therein, dated November 18, 2019, relating to an offering of the shares of Karuna common stock;
certain interim reports to Karuna stockholders and Quarterly Reports on Form 10-Q of Karuna;
certain publicly available research analyst reports for Karuna;
certain other communications from Karuna to its stockholders; and
certain internal financial analyses and forecasts for Karuna and certain analyses related to the expected utilization by Karuna of certain net operating loss carryforwards and tax credits, each as prepared by the management of Karuna and approved for Goldman Sachs’ use by Karuna (as further described in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Certain Financial Projections,” beginning on page 50), which we refer to as “Financial Projections”.
Goldman Sachs also held discussions with members of the senior management of Karuna regarding their assessment of the past and current business operations, financial condition and future prospects of Karuna; reviewed the reported price and trading activity for the shares of Karuna common stock; compared certain financial and stock market information for Karuna with similar information for certain other companies, the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the biotechnology industry; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.
For purposes of rendering its opinion, Goldman Sachs, with Karuna’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed, with Karuna’s consent, that the Financial Projections were reasonably prepared on a basis reflecting the best then available estimates and judgments of the management of Karuna. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Karuna or any of its subsidiaries and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.
Goldman Sachs’ opinion does not address the underlying business decision of Karuna to engage in the merger or the relative merits of the merger as compared to any strategic alternatives that may be available to Karuna; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Bristol-Myers Squibb and its affiliates) of shares of Karuna common stock, as of the date of the opinion, of the $330.00 in cash per share of Karuna common stock to be paid to such holders pursuant to the merger agreement. Goldman Sachs does not express any view on, and its opinion does not address, any other term or aspect of the merger agreement or the merger
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or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Karuna; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Karuna, or class of such persons, in connection with the merger, whether relative to the $330.00 in cash per share of Karuna common stock to be paid to the holders (other than Bristol-Myers Squibb and its affiliates) of shares of Karuna common stock pursuant to the merger agreement or otherwise. Goldman Sachs’ opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of its opinion and Goldman Sachs assumes no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. In addition, Goldman Sachs does not express any opinion as to the prices at which the shares of Karuna common stock will trade at any time or as to the potential effects of volatility in the credit, financial and stock markets on Karuna, Bristol-Myers Squibb, or the merger, or as to the impact of the merger on the solvency or viability of Karuna or Bristol-Myers Squibb or the ability of Karuna or Bristol-Myers Squibb to pay their respective obligations when they come due. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.
The following is a summary of the material financial analyses delivered by Goldman Sachs to the Karuna Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 21, 2023, the last trading day before the public announcement of the merger, and is not necessarily indicative of current market conditions.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices and volumes for Karuna for the one-year period ended December 21, 2023. In addition, Goldman Sachs analyzed the $330.00 in cash per share of Karuna common stock to be paid to holders of shares of Karuna common stock pursuant to the merger agreement in relation to the (a) closing price per share of Karuna common stock on December 21, 2023, the last trading day before the public announcement of the merger, (b) the 52-week high closing trading price per share of Karuna common stock as of December 21, 2023, (c) the median analyst price per share target as of December 21, 2023, (d) the volume weighted average price (the “VWAP”) of the shares of Karuna common stock for the preceding 30-trading day period ending December 21, 2023, (e) the VWAP of the shares of Karuna common stock for the preceding 60-trading day period ending December 21, 2023, and (f) the VWAP of the shares of Karuna common stock for the preceding 90-trading day period ending December 21, 2023.
This analysis indicated that the price per share to be paid to Karuna stockholders pursuant to the merger agreement represented:
a premium of 53.4% based on the closing price per share of Karuna common stock of $215.19 on December 21, 2023;
a premium of 37.4% based on the highest closing trading price per share of Karuna common stock of $240.22 for the 52-week period ending on December 21, 2023;
a premium of 22.7% based on the median analyst price target of $269.00 per share of Karuna common stock as of December 21, 2023;
a premium of 65.1% based on the VWAP of $199.85 of the shares of Karuna common stock for the 30-trading day period ending on December 21, 2023;
a premium of 76.7% based on the VWAP of $186.80 of the shares of Karuna common stock for the 60-trading day period ending on December 21, 2023; and
a premium of 79.2% based on the VWAP of $184.18 of the shares of Karuna common stock for the 90-trading day period ending on December 21, 2023.
Illustrative Discounted Cash Flow Analysis
Using the Financial Projections, Goldman Sachs performed an illustrative discounted cash flow analysis on Karuna to derive a range of illustrative present values per share of Karuna common stock. Using the mid-year
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convention for discounting cash flows and discount rates ranging from 12.0% to 14.0%, reflecting estimates of Karuna’s weighted average cost of capital, Goldman Sachs discounted to present value as of September 30, 2023 (a) estimates of unlevered free cash flow for Karuna for the fourth quarter of the fiscal year 2023 and the fiscal years 2024 through 2048 as reflected in the Financial Projections and (b) a range of illustrative terminal values for Karuna, which were calculated by applying a perpetuity growth rate of 1.0%, to a terminal year estimate of the unlevered free cash flow to be generated by Karuna, as reflected in the Financial Projections. The perpetuity growth rate was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Financial Projections and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs derived such discount rates by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including Karuna’s target capital structure weightings, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for Karuna, as well as certain financial metrics for the United States financial markets generally.
Goldman Sachs derived ranges of illustrative enterprise values for Karuna by adding the ranges of present values it derived above. Goldman Sachs then added from the range of illustrative enterprise values it derived for Karuna the amount of Karuna’s net cash as of September 30, 2023, as provided by and approved for Goldman Sachs’ use by the management of Karuna to derive a range of illustrative equity values for Karuna. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of Karuna as of December 20, 2023, as provided by and approved for Goldman Sachs’ use by the management of Karuna, using the treasury stock method, to derive a range of illustrative present values per share ranging from $213.89 to $257.33.
Premia Paid Analysis
Goldman Sachs reviewed and analyzed, using publicly available information, the acquisition premia for acquisition transactions announced from January 1, 2018 through December 21, 2023 involving a public company in the biopharmaceutical industry as the target where the disclosed enterprise values for the transaction were between approximately $8 billion and $15 billion. For the entire period, using publicly available information, Goldman Sachs calculated the median, mean, minimum, 25th percentile, 75th percentile and maximum premiums of the price paid in the 11 transactions relative to the target’s last undisturbed closing stock price prior to announcement of the respective transaction. This analysis indicated a median premium of 73%, mean premium of 70%, minimum premium of 36%, 25th percentile premium of 62%, 75th percentile premium of 84% and maximum premium of 95% across the period. Using this analysis, Goldman Sachs applied a reference range of illustrative premiums of 36% to 95% to the undisturbed closing price per share of Karuna common stock of $215.19 as of December 21, 2023 and calculated a range of implied equity values per share of Karuna common stock of $292.66 to $419.62.
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Karuna or Bristol-Myers Squibb or the contemplated merger.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Karuna Board as to the fairness from a financial point of view to the holders (other than Bristol-Myers Squibb and its affiliates) of the shares of Karuna common stock of the $330.00 in cash per share of Karuna common stock to be paid to such holders pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Karuna, Bristol-Myers Squibb, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The $330.00 in cash per share of Karuna common stock was determined through arm’s-length negotiations between Karuna and Bristol-Myers Squibb and was approved by the Karuna Board. Goldman Sachs provided
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advice to Karuna during these negotiations. Goldman Sachs did not, however, recommend any specific consideration to Karuna or the Karuna Board or that any specific amount of consideration constituted the only appropriate consideration for the merger.
As described elsewhere in this proxy, Goldman Sachs’ opinion to the Karuna Board was one of many factors taken into consideration by the Karuna Board in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.
Goldman Sachs and its affiliates are engaged in advisory, underwriting, lending and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Karuna, Bristol-Myers Squibb, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the merger contemplated by the merger agreement. Goldman Sachs acted as financial advisor to Karuna in connection with, and participated in certain of the negotiations leading to, the merger. Goldman Sachs has provided certain financial advisory and/or underwriting services to Karuna and/or its affiliates from time to time for which Goldman Sachs Investment Banking has received, and may receive, compensation, including having acted as book runner with respect to an offering of the shares of Karuna common stock in August 2022 and March 2023. During the two-year period ended December 22, 2023, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by Goldman Sachs Investment Banking to Karuna and/or its affiliates of approximately $24 million. Goldman Sachs also has provided certain financial advisory and/or underwriting services to Bristol-Myers Squibb and/or its affiliates from time to time for which Goldman Sachs Investment Banking has received, and may receive, compensation, including having acted as book runner with respect to an investment grade offering and tender offer of Bristol-Myers Squibb in February 2022; acted as book runner with respect to an investment grade tender offer of Bristol-Myers Squibb in March 2022, and acted as co-manager with respect to an investment grade bond offering of Bristol-Myers Squibb in October 2023. During the two-year period ended December 22, 2023, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by Goldman Sachs Investment Banking to Bristol-Myers Squibb and/or its affiliates of approximately $10 million. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to Karuna, Bristol-Myers Squibb and their respective affiliates for which Goldman Sachs Investment Banking may receive compensation.
The Karuna Board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated December 20, 2023, Karuna engaged Goldman Sachs to act as its financial advisor in connection with the merger. The engagement letter between Karuna and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $117 million, $5 million of which became payable at announcement of the merger, and the remainder of which is contingent upon consummation of the merger. In addition, Karuna has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
Certain Financial Projections
Karuna does not as a matter of course, publicly disclose projections as to its future financial results. Karuna’s senior management prepared and provided to the Karuna Board at its meeting on October 17, 2023, certain non-public financial forecasts based on management’s reasonable best estimates, judgments and assumptions with respect to Karuna’s future financial performance at the time such forecasts were prepared, which were updated to reflect certain immaterial changes and provided to the Karuna Board at its meeting on December 21, 2023, as further described in the section of this proxy statement entitled “The Merger Proposal (Proposal 1)—Background of the Merger,” beginning on page 32, and which we refer to as the “Financial Projections”. The Financial Projections were approved and provided by the Karuna Board for Goldman Sachs’ use for purposes of its financial analyses summarized above under “The Merger Proposal (Proposal 1)—Opinion
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of Karuna’s Financial Advisor.” Goldman Sachs expressed no view or opinion as to these financial projections or the assumptions on which they were based. A summary of the Financial Projections is set forth below:
Financial Projections (Risk-Adjusted) ($ in millions)
 
Fiscal Year Ending December 31,
 
2023
2024
2025
2026
2027
2028
2029
2030
2031
Revenue
$0
$22
$152
$517
$1,001
$1,607
$2,432
$2,996
$3,689
Gross Profit
$0
$22
$141
$474
$860
$1,438
$2,166
$2,668
$3,452
Net Operating Profit After Tax
($294)
($424)
($300)
$21
$299
$669
$1,042
$1,334
$1,804
Unlevered Free Cash Flow(1)
($299)
($414)
($306)
($12)
$277
$616
$994
$1,286
$1,742
 
Fiscal Year Ending December 31,
 
2032
2033
2034
2035
2036
2037
2038
2039
2040
Revenue
$4,419
$5,086
$5,725
$6,329
$6,950
$7,520
$8,070
$6,865
$2,794
Gross Profit
$4,128
$4,735
$5,311
$5,872
$6,471
$7,028
$7,543
$6,420
$2,623
Net Operating Profit After Tax
$2,212
$2,577
$2,919
$3,250
$3,593
$3,927
$4,227
$3,549
$1,298
Unlevered Free Cash Flow
$2,150
$2,509
$2,849
$3,182
$3,525
$3,877
$4,172
$3,554
$1,274
 
Fiscal Year Ending December 31,
 
2041
2042
2043
2044
2045
2046
2047
2048
Revenue
$2,532
$2,501
$2,547
$2,552
$2,567
$2,050
$1,506
$1,315
Gross Profit
$2,381
$2,354
$2,399
$2,405
$2,418
$1,947
$1,430
$1,250
Net Operating Profit After Tax
$1,155
$1,137
$1,160
$1,160
$1,165
$923
$655
$561
Unlevered Free Cash Flow
$1,128
$1,109
$1,137
$1,151
$1,159
$920
$654
$560
(1)
“Unlevered Free Cash Flow” refers to Net Operating Profit After Tax, less capital expenditures and changes in net working capital, plus depreciation and amortization. Unlevered Free Cash Flow excludes free cash flow benefits from net operating losses.
The Financial Projections were not prepared with a view to public disclosure or with a view toward compliance with SEC rules and are included in this proxy statement only because the Financial Projections were approved and provided by the Karuna Board to Goldman Sachs for purposes of its financial analyses summarized above under “The Merger Proposal (Proposal 1)—Opinion of Karuna’s Financial Advisor.” The Financial Projections were not prepared with a view to compliance with generally accepted accounting principles as applied in the United States (“GAAP”), the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The Financial Projections were prepared by, and are the responsibility of, Karuna’s management. KPMG LLP (“KPMG”) has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the Financial Projections and, accordingly, KPMG does not express an opinion or any other form of assurance with respect thereto. The KPMG report incorporated by reference in this proxy statement relates to Karuna’s previously issued financial statements. It does not extend to the Financial Projections and should not be read to do so. The Financial Projections were prepared solely for internal use of Karuna and are subjective in many respects. Karuna has made no representations to Bristol-Myers Squibb or Merger Sub, in the merger agreement or otherwise, concerning any projected financial information, including the Financial Projections.
The Financial Projections are forward-looking statements. Although this summary of the Financial Projections is presented with numerical specificity, the Financial Projections reflect numerous variables, assumptions and estimates as to future events made by Karuna’s management that it believed were reasonable at the time the Financial Projections were prepared, taking into account the relevant information available to management at the time and presented as of the time of the preparation, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Karuna on a stand alone basis as described above and subject to certain assumptions and limitations. Such variables, assumptions and estimates are inherently uncertain and many of which are beyond the control of Karuna’s management. Although Karuna’s management believes there is a reasonable basis for the Financial Projections, Karuna cautions shareholders that future results could be materially different from the Financial Projections. Because the
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Financial Projections cover multiple years, by their nature, they become less predictive with each successive year. This information is not fact and should not be relied upon as being necessarily indicative of actual future results. Important factors that may affect actual results and cause the Financial Projections not to be achieved include, among other things, Karuna’s limited operating history, Karuna’s ability to obtain necessary funding, Karuna’s ability to generate positive clinical trial results for the product candidates, risks inherent in clinical development, the timing and scope of regulatory approvals, changes in laws and regulations to which Karuna is subject, competitive pressures, Karuna’s ability to identify additional product candidates and risks relating to business interruptions. The Financial Projections are subject to estimates and assumptions in many respects and, as a result, subject to interpretation. These estimates and assumptions may prove inaccurate for any number of reasons, including general economic conditions, competition and other risks. For information on factors that may cause Karuna’s future results to materially vary, see the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements.”
In addition, the Financial Projections do not take into account any circumstances or events occurring after the date that they were prepared and do not give effect to the merger. Because the Financial Projections were developed on a stand alone basis without giving effect to the merger, they do not reflect any divestitures or other restrictions that may be imposed in connection with the receipt of any necessary governmental or regulatory approvals, any synergies realized as a result of the merger or any changes to Karuna’s operations or strategy that may be implemented after completion of the merger. As a result, there can be no assurance that the Financial Projections will be realized, and actual results may be materially better or worse than those contained in the Financial Projections. The inclusion of this information should not be regarded as an indication that the Karuna Board, Karuna, Goldman Sachs, Bristol-Myers Squibb, Merger Sub, Bristol-Myers Squibb’s representatives or affiliates or any other recipient of this information considered, or now considers, the Financial Projections to be necessarily predictive of actual future results. The summary of the Financial Projections is not included in this proxy statement in order to induce any stockholder to vote in favor of the merger proposal or any of the other proposals to be voted on at the special meeting.
Except to the extent required by applicable federal securities laws, Karuna does not intend, and expressly disclaims any responsibility, to update or otherwise revise the Financial Projections to reflect circumstances existing after the date when Karuna prepared the Financial Projections or to reflect the occurrence of future events or changes in general economic or industry conditions, even in the event that any of the assumptions underlying the Financial Projections are shown to be in error. By including in this document a summary of certain financial projections, neither Karuna nor any of its representatives or advisors (including Goldman Sachs) nor Bristol-Myers Squibb or its representatives or affiliates makes any representation to any person regarding the ultimate performance of Karuna or the surviving corporation compared to the information contained in such financial forecasts and should not be read to do so.
Certain of the measures included in the Financial Projections may be considered non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Karuna may not be comparable to similarly titled amounts used by other companies. The non-GAAP financial measures were relied upon by Goldman Sachs at the direction of the Karuna Board for purposes of its financial analyses and opinion and by the Karuna Board in connection with its consideration of the merger. Financial measures provided to a financial advisor in connection with a business combination transaction are excluded from the definition of non-GAAP financial measures and therefore are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of non-GAAP financial measures were not relied upon by Goldman Sachs for purposes of its financial analyses and opinion or by the Karuna Board in connection with its consideration of the merger. Karuna has not provided reconciliations of the non-GAAP financial measures included in these projections to the comparable GAAP measure due to the lack of reasonably accessible or reliable comparable GAAP measures for these measures and the inherent difficulty in forecasting and quantifying the measures that are necessary for such reconciliation. Accordingly, a reconciliation of the financial measures is not included herein.
Interests of Karuna’s Executive Officers and Directors in the Merger
In considering the recommendation of the Karuna Board that you vote to approve the merger proposal, you should be aware that, aside from their interests as Karuna stockholders, Karuna’s directors and executive officers
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may have interests in the merger that are different from, or in addition to, the interests of Karuna stockholders generally, which may create potential conflicts of interest. These interests are described in more detail below and, with respect to the named executive officers of Karuna, are quantified in the “Golden Parachute Compensation” table below. The Karuna Board was aware of these interests and considered them when it adopted the merger agreement and approved the merger. The calculations set forth herein are based on the outstanding Karuna equity awards as of December 31, 2023.
Karuna’s named executive officers are Bill Meury (President and Chief Executive Officer), Steven Paul, M.D. (former President and Chief Executive Officer, former President of Research and Development and Chief Scientific Officer), Jason Brown (Chief Financial Officer), Troy Ignelzi (former Chief Financial Officer), Andrew Miller, Ph.D. (President of Research and Development), Stephen Brannan, M.D. (Chief Medical Officer) and Charmaine Lykins (former Chief Commercial Officer) (the “named executive officers,” and together with William Kane (Chief Commercial Officer), the “executive officers”).
With respect to Karuna’s executive officers, these interests are described in more detail below, assuming the merger occurs and, where applicable, the executive officer experiences a qualifying termination of employment on April 30, 2024:
cash severance payments and other termination benefits following a qualifying termination of employment, pursuant to the terms of each named executive officer’s employment agreement, in an estimated aggregate amount of $6,237,063 for all named executive officers;
accelerated vesting and cancelling and cashing out of Karuna Options and Karuna RSUs held by the named executive officers, in the aggregate amount of $77,791,993, based on awards outstanding at December 31, 2023 that are expected to be unvested as of April 30, 2024, for all named executive officers, based on the price per share of Karuna common stock of $330.00; and
the provision of indemnification, the advancement of expenses, exculpation and insurance arrangements pursuant to the merger agreement and Karuna’s certificate of incorporation and bylaws, With respect to non-employee members of the Karuna Board, these interests relate to the impact of the transaction on the directors’ outstanding Karuna equity awards and the provision of indemnification, the advancement of expenses, exculpation and insurance arrangements pursuant to the merger agreement and Karuna’s certificate of incorporation and bylaws, which reflect that such directors may be subject to claims arising from their service on the Karuna Board, subject in all respects to the limitations set forth in the merger agreement.
Treatment of Director and Executive Officer Common Stock
As is the case for any stockholder of Karuna, Karuna’s directors and executive officers will receive $330.00 per share in cash, without interest, and less any applicable withholding taxes, for each share of Karuna common stock that they own at the effective time. For information regarding beneficial ownership of Karuna common stock by each of Karuna’s current directors, Karuna’s named executive officers and all directors and executive officers as a group, see the section of this proxy statement entitled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 91.
Treatment of Director and Executive Officer Equity Awards
As described in the section of this proxy statement entitled “The Merger Agreement—Treatment of Karuna Equity Awards and Karuna ESPP” beginning on page 31, the merger agreement provides that each Karuna Option and Karuna RSU will be treated as set forth below.
Options. Immediately prior to the effective time, each Karuna Option, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, become immediately vested and be cancelled and will entitle the holder of such Karuna Option to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to such Karuna Option multiplied by (b) the excess, if any, of $330.00 over the per share exercise price of such Karuna Option, less applicable taxes.
Restricted Stock Units. Immediately prior to the effective time, each Karuna RSU, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part
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of the holder thereof, be immediately vested and be cancelled and will entitle the holder of such Karuna RSU to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to the Karuna RSU multiplied by (b) $330.00, less applicable taxes.
Special rules govern the treatment of Karuna RSUs that are intended to be granted following the entry into the Merger Agreement, as further discussed in the section of this proxy statement entitled “The Merger Agreement—Employee Matters” beginning on page 77.
Payments for Unvested Equity Awards
The following table sets forth the amounts that each of Karuna’s directors, named executive officers and all other executive officers would receive with respect to unvested Karuna Options and Karuna RSUs assuming the completion of the merger occurs on April 30, 2024. The numbers set forth below do not attempt to forecast any grants, additional issuances, dividends, additional deferrals or forfeitures of equity-based awards following December 31, 2023. The calculations set forth in the table below are based on outstanding Karuna equity awards as of December 31, 2023 and the merger consideration of $330.00. Depending on when the effective time occurs, certain Karuna equity awards shown in the table below may vest in accordance with their terms.
Estimated Payments for Unvested Equity Awards Table
Executive Officers and Directors
Aggregate
Amount
Payable
for Unvested
Karuna
Options
($)(1)
Aggregate
Amount
Payable
for Unvested
Karuna RSUs
($)(2)
Directors
 
 
Christopher Coughlin
175,739
326,700
James Healy, M.D., Ph.D.
175,739
326,700
Jeffrey Jonas, M.D.
175,739
326,700
Laurie Olson
175,739
326,700
Atul Pande, M.D.
175,739
326,700
Denice Torres
175,739
326,700
David Wheadon, M.D.
175,739
326,700
Executive Officers
 
 
Bill Meury
5,931,671
6,282,210
Steven Paul, M.D.
26,481,200
2,821,500
Jason Brown
4,353,407
2,362,140
Troy Ignelzi
Andrew Miller, Ph.D.
13,990,000
3,105,960
Stephen Brannan, M.D.
10,323,195
2,140,710
Charmaine Lykins
William Kane
3,095,008
2,913,240
(1)
This amount includes the estimated value that each executive officer or director would receive in respect of unvested Karuna Options based on the merger consideration and the assumed closing of the merger on April 30, 2024 on a “single-trigger” basis, pursuant to the terms of the merger agreement solely as a result of the closing of the merger.
(2)
This amount includes the estimated value that each executive officer or director would receive in respect of unvested Karuna RSUs based on the merger consideration and the assumed closing of the merger on April 30, 2024 on a “single-trigger” basis, pursuant to the terms of the merger agreement solely as a result of the closing of the merger.
Severance Benefits
Each currently employed executive officer is eligible for severance benefits in specified circumstances, as set forth in each such executive officer’s employment agreement. If any of the executive officers are terminated by Karuna without “cause” or resign for “good reason” (each as defined in the employment agreements), subject
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to the execution and effectiveness of a separation agreement, including a general release of claims in favor of Karuna, the executive officers are entitled to receive (a) an amount equal to 12 months (18 months in the case of Mr. Meury) of the executive officer’s base salary, payable in substantially equal installments over 12 months (18, in the case of Mr. Meury) following the executive officer’s termination of employment, (b) the executive officer’s pro-rated target bonus, (c) if the executive officer elects continuation of health coverage under COBRA, continued health coverage at the active employees’ rate until the earlier of 12 months (18 months in the case of Mr. Meury) following the executive officer’s termination or the end of the executive officer’s COBRA health continuation period (or in the case of Mr. Meury, the date he becomes eligible for group medical benefits with another employer, if earlier), and (d) for Mr. Meury only, acceleration of vesting of all time-based stock options and other stock-based awards that would have vested in the 18 months following his termination.
In addition, in lieu of the payments and benefits described in the preceding paragraph, in the event that any of the executive officers are terminated by Karuna without cause or resign for good reason, in either case within 12 months following a “change in control” (as defined in the employment agreements) (or for Mr. Meury only, any such termination during the three-month period prior to a change in control), subject to the execution and effectiveness of a separation agreement, including a general release of claims in favor of Karuna, the executive officers are entitled to receive (a) an amount equal to 1.5 times (2 times in the case of Mr. Meury) the sum of the executive officer’s base salary plus the executive officer’s target bonus for the year, payable within 60 days of the executive officer’s date of termination, (b) full acceleration of vesting of all time-based stock options and other stock-based awards held by the executive officer on the termination date, and (c) if the executive officer elects continuation of health coverage under COBRA, continued health coverage at the active employees’ rate until the earlier of 18 months (24 months in the case of Mr. Meury) following the executive officer’s termination of employment or the executive officer’s COBRA health continuation period (or in the case of Mr. Meury, the date he becomes eligible for group medical benefits with another employer).
Each executive officer’s employment agreement provides that if the payments or benefits payable to the executive officers in connection with a change in control would be subject to the excise tax on golden parachutes imposed under Section 4999 of the Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to such executive officer. However, Karuna and any executive officer who is a “disqualified individual” (as defined in Section 280G of the Code) may enter into tax gross-up agreements, as further discussed in the section entitled “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger—280G Mitigation Actions and Tax Gross-Up Arrangements” beginning on page 56.
Indemnification and Insurance
Pursuant to the terms of the merger agreement, Karuna’s directors and executive officers will be entitled to certain ongoing indemnification, expense advancement and insurance arrangements. See the section entitled “The Merger Agreement–Indemnification of Directors and Officers; Insurance” beginning on page 81 for a description of such ongoing arrangements.
Continuation of Employee Compensation and Benefit Levels
For a period of at least 12 months following the effective time, Bristol-Myers Squibb agreed to provide, or cause the surviving corporation to provide, to each employee of Karuna and its subsidiaries who continues to be employed by the surviving corporation (“continuing employees”) (a) a salary, wage, target bonus opportunity and commissions opportunity that, in the aggregate, are no less favorable than the salary, wage, target bonus opportunity and commissions opportunity that were provided, in the aggregate, to continuing employees immediately prior to the effective time; provided, however, that in no event shall any continuing employee’s salary be reduced from such continuing employee’s salary in effect immediately prior to the effective time and provided, further, subject to the Karuna disclosure letter, (b) employee benefits (other than severance and termination benefits) that are substantially comparable in the aggregate to, in the discretion of Bristol-Myers Squibb, (i) those provided to such continuing employee by Karuna (or, if applicable, any of its subsidiaries) immediately prior to the effective time under any Karuna employee benefit plan in effect as of the date of the merger agreement (each, a “Karuna plan”) (other than under any defined benefit pension, post-employment welfare, nonqualified deferred compensation, severance and termination, retention, change in control, or similar compensation or benefits, equity or equity-based incentive plans or arrangements or employee stock purchase plans (the “specified arrangements”)), (ii) those provided to such similarly situated employees of Bristol-Myers
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Squibb or its affiliates (other than the specified arrangements), or (iii) a combination of (i) and (ii), and (c) severance and termination benefits that are no less favorable than the severance and termination benefits set forth on the Karuna disclosure letter.
With respect to Karuna’s fiscal year during which the effective time occurs, Bristol-Myers Squibb agreed to honor and assume, or cause the surviving corporation to honor and assume, all annual cash bonus plans of Karuna (and any cash incentive opportunities granted thereunder) in accordance with their terms as in effect immediately prior to the effective time (on a pro-rated basis for the portion of the fiscal year prior to the effective time). With respect to any performance metrics applicable to such annual cash bonus plans for the portion of the fiscal year prior to the effective time, Bristol-Myers Squibb agreed to calculate, or cause the surviving corporation to calculate, performance based on the greater of (x) actual performance, calculated in a manner substantially consistent with the past practice of Karuna, and (y) target level performance. Following the effective time, continuing employees will participate in an annual cash bonus program sponsored by Bristol-Myers Squibb, and such bonuses will be paid to the continuing employees in accordance with the terms of Bristol-Myers Squibb’s cash bonus program, provided that amounts paid to such continuing employees will be no less than target level (on a pro-rated basis for the portion of Bristol-Myers Squibb’s fiscal year following the effective time).
Other Interests
As of the date of this proxy statement, other than the arrangements discussed in this proxy statement, none of Karuna’s executive officers have entered into any agreement with Bristol-Myers Squibb regarding employment with, compensation from, or equity participation or reinvestment in, the surviving corporation or Bristol-Myers Squibb on a going-forward basis following the completion of the merger. However, Bristol-Myers Squibb (or its representatives) and some or all of Karuna’s executive officers may from time to time have discussions with respect to, or enter into, such arrangements.
280G Mitigation Actions and Tax Gross-Up Arrangements
Karuna may, in consultation with Bristol-Myers Squibb, take certain actions before the effective time to mitigate the amount of potential “excess parachute payments” for “disqualified individuals” (each as defined in Section 280G of the Code). Prior to the execution of the merger agreement, Karuna approved (a) the accelerated payout in 2023 of annual cash bonuses that would otherwise have been paid in 2024 for its executive officers and (b) accelerated vesting of certain Karuna RSUs for Messrs. Meury and Kane, in each case, to mitigate the amount of the executive officer’s potential excess parachute payments.
Karuna may also enter into agreements with each disqualified individual providing that, to the extent that any payment or benefit pursuant to the merger would be subject to the excise tax under Section 4999 of the Code, Karuna will provide a tax gross-up to such disqualified individual so that such disqualified individual will retain, on an after tax basis, 100% of the amount that such disqualified individual would have received in connection with the merger if Section 4999 of the Code did not apply; provided that the aggregate amount of the tax gross-ups that Karuna may provide under the terms of such agreements may not exceed $15 million.
New Equity Awards
Karuna intends to grant additional RSUs, including to its executive officers, following the entry into the Merger Agreement, as further discussed in the section of this proxy statement entitled “The Merger Agreement—Employee Matters” beginning on page 77. No such awards have been granted as of the date hereof.
Success Bonus Program
Karuna may establish a cash-based success bonus program in the aggregate amount of up to $5 million to promote retention and to incentivize efforts to consummate the closing of the merger, pursuant to which executive officers could, but are not expected to, participate. No awards under such program have been granted to executive officers as of the date hereof. See the section of this proxy statement entitled “The Merger Agreement—Employee Matters” beginning on page 77.
Potential Merger-Related Payments to Named Executive Officers
The following table sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for Karuna’s named executive officers based on the merger, assuming that (a) the merger is completed on April 30, 2024, (b) each named executive officer experiences a qualifying termination of
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employment immediately following the completion of the merger, (c) each named executive officer’s base salary rate, target annual bonus and benefits levels remain unchanged from those in effect as of the date of this proxy statement, (d) each named executive officer’s Karuna equity awards remain unchanged as of December 31, 2023 and (e) the merger consideration is $330.00 per share. The actual amounts payable would depend on the date of termination, the manner of the termination and the terms of the agreements in effect at such time. The calculations in the table below neither include amounts that Karuna’s named executive officers were already entitled to receive or were vested in as of the date of this proxy statement, nor do they include amounts under contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation in favor of the named executive officers and are available generally to all the salaried employees of Karuna. Additionally, the calculations do not reflect any possible reductions under the Section 280G modified net cutback provisions described above in the section entitled “The Merger Proposal (Proposal 1)—Interests of Karuna’s Executive Officers and Directors in the Merger—Severance Benefits” on page 54. These amounts do not include any amounts payable in respect of any issuances or forfeitures of Karuna equity awards that may be made or occur after December 31, 2023 and prior to the completion of the merger, and do not reflect any Karuna equity awards that have vested or are expected to vest in accordance with their terms prior to the completion of the merger. As a result of the foregoing assumptions, which may or may not actually occur or be accurate on the relevant date, including the assumptions described in the footnotes to the table, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set forth below.
Golden Parachute Compensation
Name
Cash
($)(1)
Equity
($)(2)
Pension/
NQDC
($)
Perquisites
/Benefits
($)(3)
Tax
Reimbursement
($)(4)
Other
($)(5)
Total
($)(6)
Bill Meury
2,625,000
12,213,881
47,620
14,886,501
Steven Paul, M.D.(7)
29,302,700
29,302,700
Jason Brown
1,098,375
6,715,547
35,715
7,849,637
Troy Ignelzi(8)
Andrew Miller, Ph.D.
1,260,000
17,095,960
35,715
18,391,675
Stephen Brannan, M.D.
1,109,250
12,463,905
25,388
13,598,543
Charmaine Lykins(9)
(1)
This amount includes the estimated total cash severance payments that may be provided by Karuna upon a termination without cause or resignation for good reason in either case within 12 months following a change in control (or for Mr. Meury only, any such termination during the three month period prior to a change in control), subject to the execution and effectiveness of a separation agreement, including a general release of claims in favor of Karuna, and includes an amount equal to 1.5 times (2 times in the case of Mr. Meury) the sum of the executive officer’s base salary plus the executive officer’s target bonus for the year, payable within 60 days of the executive officer’s date of termination. All components of the cash severance amount are “double-trigger” (i.e., they are contingent upon a qualifying termination of employment during the applicable change in control period).
(2)
This amount includes the estimated value of unvested Karuna Options and Karuna RSUs, the vesting of which would be accelerated immediately prior to the effective time, pursuant to the merger agreement. The value set forth in the “Equity” column in the table above attributable to each type of accelerated Karuna equity award held by Karuna’s named executive officers is “single-trigger” (i.e., they vest and become payable solely as a result of the closing of the merger). The estimated amount of each component is set forth in the table below.
Name
Karuna Options
($)
Karuna RSUs
($)
Bill Meury
5,931,671
6,282,210
Steven Paul, M.D.
26,481,200
2,821,500
Jason Brown
4,353,407
2,362,140
Andrew Miller, Ph.D.
13,990,000
3,105,960
Stephen Brannan, M.D.
10,323,195
2,140,710
(3)
This amount includes the estimated value of health and welfare benefits that may be provided by Karuna upon a termination without cause or resignation for good reason in either case within 12 months following a change in control (or for Mr. Meury only, any such termination during the three month period prior to a change in control), subject to the execution and effectiveness of a separation agreement, including a general release of claims in favor of Karuna, and includes an amount equal to, if the executive officer elects continuation of health coverage under COBRA, continued health coverage at the active employees’ rate until the earlier of 18 months (24 months in the case of Mr. Meury) following the executive officer’s termination of employment or the executive officer’s COBRA health continuation period (or in the case of Mr. Meury, the date he becomes eligible for group medical benefits with another employer). Such benefits are “double-trigger” (i.e., they are contingent upon a qualifying termination of employment during the applicable change in control period). None of the named executive officers have any perquisites that would be paid out upon a qualifying termination following completion of the merger.
(4)
Karuna has no current obligation to any named executive officer to offset golden parachute excise taxes under the Code or to reimburse the named executive officer for related taxes.
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(5)
None of the named executive officers have any other benefits that would be paid out upon a qualifying termination following completion of the merger.
(6)
Includes the aggregate dollar value of the sum of all estimated amounts reported in the preceding columns.
(7)
Steven Paul, M.D. resigned as Chief Scientific Officer and President of Research and Development on January 16, 2024 and is no longer entitled to any severance benefits. Dr. Paul will continue to serve as a member of the Karuna Board and as a member of Karuna’s scientific advisory board.
(8)
Troy Ignelzi was an executive officer during fiscal year 2023. Mr. Ignelzi departed the Company effective September 29, 2023 and is not entitled to any compensation in connection with the merger.
(9)
Charmaine Lykins was an executive officer during fiscal year 2023. Ms. Lykins departed the Company effective January 5, 2023 and is not entitled to any compensation in connection with the merger.
Financing of the Merger
The merger is not conditioned on any financing arrangements or contingencies. Bristol-Myers Squibb and Merger Sub have represented in the merger agreement that Bristol-Myers Squibb will have available to it (and will make available to Merger Sub in a timely manner) sufficient funds required to make all payments contemplated by the merger agreement to be made by Bristol-Myers Squibb, Merger Sub or the surviving corporation as of the effective time and to pay all fees and expenses incurred in connection with the transactions contemplated by the merger agreement that are payable by Bristol-Myers Squibb or Merger Sub in accordance with the terms of the merger agreement.
Antitrust Review Required for the Merger
Under the merger agreement and subject to certain limitations, each of Karuna and Bristol-Myers Squibb has agreed to use their respective reasonable best efforts to, among other things, consummate the merger as soon as reasonably practicable. Completion of the merger is conditioned upon (i) the expiration or early termination of (a) the waiting period (and any extension thereof) applicable to the consummation of the merger under the HSR Act, and the receipt of any required approvals thereunder, and, (b) any voluntary agreement with a governmental entity entered into by Karuna, Bristol-Myers Squibb or Merger Sub not to consummate the merger, and (ii) the receipt of each other consent, approval or clearance with respect to, or termination or expiration of any applicable waiting period (and any extensions thereof) imposed under, any antitrust laws with respect to the merger as specified in the disclosure letter.
United States Antitrust
Under the HSR Act, the merger may not be completed until notifications have been filed with and certain information has been furnished to the Antitrust Division and the FTC and all statutory waiting period requirements have been satisfied and any required approvals thereunder have been obtained. Karuna and Bristol-Myers Squibb filed notifications with the Antitrust Division and the FTC on January 9, 2024. On February 2, 2024, Bristol-Myers Squibb, in consultation with Karuna, voluntarily withdrew its notification with the Antitrust Division and the FTC, effective as of February 8, 2024, in order to provide the Antitrust Division and the FTC with additional time to review the transaction. Bristol-Myers Squibb currently intends to re-file its notification with the Antitrust Division and the FTC on February 12, 2024.
At any time before or after the completion of the merger, the Antitrust Division, the FTC or foreign antitrust authorities could take action under the U.S. or foreign antitrust laws, including seeking to prevent the merger, to rescind the merger or to clear the merger subject to the divestiture of assets of Karuna or Bristol-Myers Squibb or subject to other remedies. In addition, U.S. state attorneys general could take action under the antitrust laws as they deem necessary or desirable in the public interest, including without limitation seeking to enjoin the completion of the transactions or permitting completion subject to the divestiture of assets of Karuna or Bristol-Myers Squibb or other remedies. Private parties may also seek to take legal action under the antitrust laws under some circumstances. There can be no assurance that a challenge to the transactions on antitrust grounds will not be made or, if such challenge is made, that it would not be successful.
General
Under the merger agreement and subject to certain limitations, Karuna and Bristol-Myers Squibb have both agreed to use their reasonable best efforts to complete the merger, including obtaining any requisite antitrust approval, as soon as reasonably practicable. With respect to any approvals relating to antitrust laws, Karuna and Bristol-Myers Squibb have also agreed to (a) consult and cooperate in all respects with each other in connection
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with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party, (b) subject to applicable law, furnish to the other party as promptly as reasonably practicable all information required for any application or other filing to be made by the other party pursuant to any applicable law in connection with the transactions contemplated by the merger agreement, (c) promptly notify the other party of any substantive communication received by the FTC or DOJ or any other governmental entity and of any substantive communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated thereby and, subject to applicable law, furnish the other party promptly with copies of all correspondence, filings and communications between them and the FTC, the DOJ or any other governmental entity with respect to the transactions contemplated by the merger agreement, (d) respond as promptly as reasonably practicable to any inquiries received from, and supply as promptly as reasonably practicable any additional information or documentation that may be requested by the FTC, the DOJ or by any other governmental entity in respect of such registrations, declarations and filings or such transactions, and (e) permit the other party to review any substantive communication given by it to, and consult with each other in advance, and consider in good faith the other party’s reasonable comments in connection with, any filing, notice, application, submission, communication, meeting or conference with, the FTC, the DOJ or any other governmental entity or, in connection with any proceeding by a private party, with any other person. No party shall independently participate in any substantive meeting or communication with any governmental entity in respect of any such filings, investigation or other inquiry without giving the other parties sufficient prior notice of the meeting and, to the extent permitted by such governmental entity, the opportunity to attend or participate in such substantive meeting or communication. Without limiting the foregoing, neither Bristol-Myers Squibb nor any member of the Bristol-Myers Squibb group shall withdraw any filing made under the HSR Act or other applicable antitrust law or refile such filing, in each case, except with the prior written consent of Karuna (such consent not to be unreasonably withheld, conditioned or delayed).
In no event, however, will Bristol-Myers Squibb be required to, and Karuna, without the prior written consent of Bristol-Myers Squibb, will not and will not agree to, take steps to (a) resolve, avoid, or eliminate impediments or objections, if any, that may be asserted with respect to the transactions contemplated by the merger agreement under any antitrust law or (b) avoid the entry of, effect the dissolution of, and have vacated, modified, suspended, eliminated, lifted, reversed or overturned, any decree, decision, determination, order or judgment entered or issued, or that becomes reasonably foreseeable to be entered or issued, that would, or would reasonably be expected to, prevent, restrain, enjoin, prohibit, make unlawful, restrict or delay the consummation of the contemplated transactions, including (i) proposing, negotiating, committing to, agreeing to and effecting, by consent decree, hold separate orders or otherwise, the sale, lease, divesture, disposition, or license (or holding separate pending such disposition) of any assets, operations, rights, product lines, licenses, properties, products, rights, services or businesses of Bristol-Myers Squibb, or Karuna or its subsidiaries or any interest therein, (ii) otherwise taking or committing or agreeing to restrictions or actions that after the effective time would limit Bristol-Myers Squibb’s or Karuna’s or its subsidiaries’ freedom of action or operations with respect to, or its or their ability to retain, any assets, operations, rights, product lines, licenses, properties, products, rights, services or businesses of Bristol-Myers Squibb or Karuna or its subsidiaries or any interest or interests therein or (iii) agreeing to enter into, modify or terminate existing contractual relationships, contractual rights or contractual obligations, and promptly effecting the sale, lease, license, divestiture, disposal and holding separate of, assets, operations, rights, product lines, licenses, properties, products, rights, services or businesses of Bristol-Myers Squibb or Karuna or its subsidiaries or any interest or interests therein and the entry into agreements with, and submission to orders of, the relevant governmental entity giving effect thereto or to such restrictions or actions.
While Karuna has no reason to believe it will not be possible to complete the antitrust reviews in a timely manner, there is no certainty that these reviews will be completed within the period of time contemplated by the merger agreement or that the completion of any of such reviews would not be conditioned upon actions that would be materially adverse to Karuna or Bristol-Myers Squibb, or that a challenge to the merger will not be made. If a challenge is made, the results of such challenge cannot be predicted. Private parties or U.S. state attorneys general may also bring actions under the antitrust and other laws under certain circumstances. Further, antitrust reviews do not constitute an endorsement or recommendation of the merger.
Material U.S. Federal Income Tax Consequences of the Merger
The exchange of Karuna common stock for cash in the merger generally will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder (as defined in the section of this proxy statement entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 93) whose shares of Karuna
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common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares at the time of the exchange. Gain or loss will be determined separately for each block of shares of Karuna common stock (i.e., shares of Karuna common stock acquired at the same cost in a single transaction). The determination of the actual tax consequences of the merger to a holder of Karuna common stock will depend on the holder’s specific situation.
The tax consequences of the merger to you will depend on your particular circumstances. You should read the section of this proxy statement entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 93 and consult your tax advisors regarding the U.S. federal income tax consequences of the merger to you in your particular circumstances, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Delisting and Deregistration of Karuna Common Stock
As promptly as reasonably practicable following the completion of the merger, the Karuna common stock currently listed on Nasdaq will cease to be listed on Nasdaq and will be deregistered under the Exchange Act.
Appraisal Rights
General
Under the DGCL, Karuna stockholders have the right to demand appraisal and to receive payment in cash for the fair value of their shares of Karuna common stock as determined by the Delaware Court of Chancery, together with interest, if any, as determined by the Delaware Court of Chancery, in lieu of the merger consideration, subject to the requirements and limitations set forth in Section 262 of the DGCL described herein. These rights are known as appraisal rights. Karuna stockholders of record and beneficial owners electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL in order to perfect their rights. Strict compliance with the statutory procedures is required to perfect appraisal rights under Delaware law. This section is intended as a brief summary of the material provisions of Delaware law pertaining to appraisal rights. The following discussion, however, is not a complete summary of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which is attached to this proxy statement as Annex C and incorporated into this proxy statement by reference. A copy of Section 262 may also be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262. Failure to comply strictly with the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights. The following discussion does not constitute any legal or other advice, nor does it constitute a recommendation as to whether or not a Karuna stockholder of record or beneficial owner should exercise his, her or its right to seek appraisal under Section 262 of the DGCL.
Subject to certain exceptions specified in Section 262 of the DGCL and summarized below, holders of record, and beneficial owners, of shares of Karuna common stock who: (a) submit a written demand for appraisal of such person’s shares to Karuna prior to the vote on the merger agreement; (b) have not consented to or otherwise voted in favor of the merger agreement or otherwise withdrawn, lost or waived appraisal rights; (c) continuously are the record holders or beneficial holders, as applicable, of such shares through the effective time; and (d) otherwise comply with the applicable procedures and requirements set forth in Section 262 of the DGCL will be entitled to have their shares appraised by the Delaware Court of Chancery and receive payment in cash of the “fair value” of such shares (as determined by the Delaware Court of Chancery, exclusive of any element of value arising from the accomplishment or expectation of the merger) as of the completion of the merger instead of the merger consideration. Any such Karuna stockholder of record or beneficial holder awarded “fair value” for the holder’s shares by the court would receive payment of that fair value in cash, together with interest, if any, in lieu of the right to receive the merger consideration. It is possible that any such “fair value” as determined by the Delaware Court of Chancery may be more or less than, or the same as the merger consideration.
Section 262 of the DGCL requires that Karuna stockholders for whom appraisal rights are available be notified not less than 20 days before the special meeting. Either a copy of Section 262 of the DGCL or information directing Karuna stockholders to a publicly available electronic resource at which Section 262 of the DGCL may be accessed without subscription or cost must be included with such notice.
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This proxy statement constitutes our notice to Karuna stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262 of the DGCL, which is attached to this proxy statement as Annex C and incorporated into this proxy statement by reference. A copy of Section 262 may also be accessed without subscription or cost at the following publicly available website: https://delcode.delaware.gov/title8/c001/sc09/index.html#262. Karuna stockholders of record and beneficial owners who wish to exercise appraisal rights or who wish to preserve the right to do so should review the following summary and the applicable statutory provisions carefully. Failure to comply with the procedures of Section 262 of the DGCL in a timely and proper manner will result in the loss of appraisal rights. In addition, the Delaware Court of Chancery will dismiss appraisal proceedings in respect of Karuna unless certain stock ownership conditions are satisfied by Karuna stockholders of record and beneficial owners seeking appraisal. Because of the complexity of the procedures for exercising the right to seek appraisal, Karuna stockholders of record and beneficial owners who wish to exercise appraisal rights are urged to consult with their own legal and financial advisors in connection with compliance under Section 262 of the DGCL. A Karuna stockholder of record or beneficial owner who loses, waives or otherwise fails to properly exercise his, her or its appraisal rights will be entitled to receive the merger consideration.
How to Exercise and Perfect Your Appraisal Rights
If you are a Karuna stockholder of record or a beneficial holder and wish to exercise the right to seek an appraisal of your shares of Karuna common stock, you must satisfy each of the following conditions:
You must deliver to Karuna a written demand for appraisal before the vote on approval of the merger agreement at the special meeting. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against the merger agreement. Voting against or failing to vote for the merger agreement by itself does not constitute a demand for appraisal within the meaning of Section 262 of the DGCL. The demand must reasonably inform us of the identity of the Karuna stockholder of record or beneficial holder and the intention of such holder to demand appraisal of his, her or its shares. A failure by such holder to make a written demand for appraisal before the vote with respect to the merger agreement is taken will constitute a waiver of appraisal rights.
In the case of a Karuna stockholder of record, you must not vote in favor of, or consent in writing to, the merger agreement. A vote in favor of the merger agreement, by proxy submitted by mail, over the internet or by telephone, will constitute a waiver of your appraisal rights in respect of the shares so voted and will nullify any previously filed written demands for appraisal. A proxy which does not contain voting instructions will, unless revoked, be voted in favor of the merger agreement. Therefore, a Karuna stockholder who submits a proxy and who wishes to exercise appraisal rights must instruct the proxy to vote against the merger agreement or abstain from voting on the merger agreement. In the case of a beneficial owner, you must not instruct your broker, bank or other nominee to vote your share(s), or abstain from voting, in favor of the merger agreement;
You must continuously hold or beneficially own, as applicable, shares of Karuna common stock from the date of making the demand through the effective time. You will lose your appraisal rights if you transfer the shares before the effective time; and
You must otherwise comply with the requirements of Section 262 of the DGCL, including the requirement that you, another Karuna stockholder who has complied with the requirements of Section 262 or Karuna must file a petition in the Delaware Court of Chancery requesting a determination of the fair value of the shares within 120 days after the effective time. Karuna is under no obligation to file any petition and has no present intention of doing so.
If you fail to comply with any of these conditions and the merger is completed, you will be entitled to receive the merger consideration, but you will have no appraisal rights with respect to your shares of Karuna common stock.
In addition, because shares of Karuna common stock are listed on a national securities exchange and is expected to continue to be listed on such exchange immediately prior to the consummation of the merger, the Delaware Court of Chancery will dismiss appraisal proceedings as to all shares of Karuna common stock, unless (a) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of Karuna common
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stock eligible for appraisal or (b) the value of the merger consideration for such total number of shares entitled to appraisal exceeds $1 million (collectively, the “ownership thresholds”). At least one of the ownership thresholds must be met in order for Karuna stockholders to be entitled to seek appraisal with respect to such shares of Karuna common stock.
In the case of a record holder of shares of Karuna common stock, voting, via the internet during the special meeting or by proxy, against, abstaining from voting on or failing to vote on the merger agreement will not constitute a written demand for appraisal as required by Section 262 of the DGCL. The written demand for appraisal is in addition to and separate from any proxy or vote. If you want to exercise your appraisal rights, you must not vote your shares of Karuna common stock via the internet during the special meeting or by proxy in favor of the merger agreement.
In the case of a beneficial owner of shares of Karuna common stock, brokers, banks and other nominees that hold shares in “street name” for their customers do not have discretionary authority to vote those shares on the merger agreement without specific voting instructions from the beneficial owner on such proposal, but such brokers, banks or other nominees will vote such shares as instructed if the beneficial owner provides such instructions. If a beneficial owner of shares of Karuna common stock held in “street name” instructs such person’s broker, bank or other nominee to vote such person’s shares in favor of the merger agreement, and does not revoke such instruction prior to the vote on the merger agreement, then such shares will be voted in favor of the merger agreement, and it will constitute a waiver of such beneficial owner’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, if you are a beneficial owner of shares of Karuna common stock who wishes to exercise appraisal rights, you must either not provide any instructions to your broker, bank or other nominee how to vote on the merger agreement or instruct such broker, bank or other nominee to vote against the merger agreement or abstain from voting on such proposal.
Who May Exercise Appraisal Rights
A holder of record or beneficial owner of shares of Karuna common stock issued and outstanding immediately prior to the effective time may assert appraisal rights for the shares of Karuna common stock held of record or beneficially in that holder’s name. A demand for appraisal must be executed by or on behalf of the Karuna stockholder of record or beneficial owner, as applicable, and must reasonably inform Karuna of the identity of the Karuna stockholder of record or beneficial owner and that the Karuna stockholder intends to demand appraisal of his, her or its shares of Karuna common stock. In addition, in the case of a demand for appraisal made by a beneficial owner, the demand must (a) reasonably identify the holder of record of the shares for which the demand is made, (b) provide documentary evidence of such beneficial owner’s beneficial ownership and a statement that such documentary evidence is a true and correct copy of what it purports to be and (c) provide an address at which such beneficial owner consents to receive notices given by Karuna and to be set forth on the verified list of persons who have demanded appraisal for their shares pursuant to Section 262(f) of the DGCL. A holder of record, such as a bank, broker or other nominee, who holds shares of Karuna common stock as a nominee or intermediary for others, may exercise his, her or its right of appraisal with respect to the shares 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 as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the holder of record.
If you elect to exercise appraisal rights under Section 262 of the DGCL, you should mail or deliver a written demand to:
Karuna Therapeutics, Inc.
Attention: Mia Kelley, General Counsel and Secretary
99 High Street, 26th Floor
Boston, Massachusetts 02110
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THE MERGER AGREEMENT
The following discussion sets forth the principal terms of the merger agreement, a copy of which is attached as Annex A to this proxy statement and is incorporated by reference herein. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this discussion, which is summary by nature. This discussion is not complete and is qualified in its entirety by reference to the complete text of the merger agreement. You are encouraged to read the merger agreement carefully in its entirety, as well as this proxy statement and any documents incorporated by reference herein, before making any decisions regarding the merger.
Explanatory Note Regarding the Merger Agreement
The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. Factual disclosures about Karuna contained in this proxy statement or in Karuna’s public reports filed with the SEC may supplement, update or modify the factual disclosures about Karuna contained in the merger agreement and described in this summary. The representations, warranties and covenants made in the merger agreement by Karuna, Bristol-Myers Squibb and Merger Sub were qualified and subject to important limitations agreed to by Karuna, Bristol-Myers Squibb and Merger Sub in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party prove to be untrue, due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, and were not intended by the parties to the merger agreement to be a characterization of the actual state of facts or condition of Karuna, Bristol-Myers Squibb or Merger Sub, except as expressly stated in the merger agreement. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC, and in some cases were qualified by disclosures that were made by Karuna to Bristol-Myers Squibb and Merger Sub, which disclosures are not reflected in the merger agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement or in the public filings made by Karuna with the SEC.
Additional information about Karuna may be found elsewhere in this proxy statement and Karuna’s other public filings. See “Where You Can Find Additional Information” beginning on page 98 of this proxy statement.
When the Merger Becomes Effective
The closing of the merger will take place at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017, or remotely by exchange of documents and signatures (or their electronic counterparts), at 9:00 a.m. (New York City time) on the third business day after the satisfaction or (to the extent permitted by applicable law) waiver of the conditions set forth in the merger agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or (to the extent permitted by applicable law) waiver of such conditions), unless another time or place is agreed to in writing by Karuna and Bristol-Myers Squibb.
At the closing, Karuna and Bristol-Myers Squibb will cause the merger to be consummated by filing a certificate of merger with respect to the merger (the “certificate of merger”), to be executed, acknowledged and filed with the Secretary of State of the State of Delaware in accordance with Section 251 of the DGCL and shall make all other filings or recordings required under the DGCL to consummate the merger. The merger shall become effective at the time when the certificate of merger has been duly filed with the Secretary of State of the State of Delaware or at such later time as may be agreed by Karuna and Bristol-Myers Squibb in writing and specified in the certificate of merger in accordance with the DGCL.
Structure of the Merger; Directors and Officers
Upon the terms and conditions of the merger agreement, at the effective time, Merger Sub will merge with and into Karuna and the separate corporate existence of Merger Sub will cease, with Karuna continuing as the surviving corporation. At the effective time, (i) the certificate of incorporation of Karuna, as in effect
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immediately prior to the effective time, shall be amended and restated in its entirety, and, as so amended and restated, shall be the certificate of incorporation of the surviving corporation, until thereafter amended and (ii) without any further action on the part of Karuna or Merger Sub, the bylaws of Merger Sub as in effect immediately prior to the effective time, shall be the bylaws of the surviving corporation (except that references therein to the name of Merger Sub shall be replaced by references to Karuna).
The board of directors of the surviving corporation immediately following the effective time shall consist of the members of the board of directors of Merger Sub at the effective time, until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the bylaws of the surviving corporation and applicable law. The officers of Karuna at the effective time will be the initial officers of the surviving corporation and will hold office until their respective successors are duly elected or appointed and qualified, or until their earlier death, resignation or removal, in accordance with the surviving corporation’s certificate of incorporation and bylaws and applicable law.
Effect of the Merger on Karuna Common Stock
At the effective time, each share of Karuna common stock issued and outstanding immediately prior to the effective time (other than cancelled shares and dissenting shares) will be converted into the right to receive the merger consideration. From and after the effective time, such Karuna common stock will no longer be outstanding and will automatically be cancelled, and will cease to exist, and each holder of certificates or book-entry shares, which immediately prior to the effective time represented such Karuna common stock, will cease to have any rights with respect thereto, except the right to receive, upon surrender of such certificates or book-entry shares, the merger consideration. Each cancelled share will cease to be outstanding, will be cancelled, and no consideration or payment will be delivered in exchange for such shares.
Treatment of Karuna Equity Awards and Karuna ESPP
The merger agreement provides that outstanding Karuna equity awards will be treated as set forth below.
Options. Immediately prior to the effective time, each Karuna Option, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, become immediately vested and be cancelled and will entitle the holder of such Karuna Option to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to such Karuna Option multiplied by (b) the excess, if any, of $330.00 over the exercise price per share of Karuna common stock of such Karuna Option, less applicable taxes.
Restricted Stock Units. Immediately prior to the effective time, each Karuna RSU, whether granted under a Karuna stock plan or otherwise, will, automatically and without any required action on the part of the holder thereof, be immediately vested and be cancelled and will entitle the holder of such Karuna RSU to receive, at or promptly after the effective time, a one-time lump sum cash payment, without interest, equal to (a) the total number of shares of Karuna common stock subject to the Karuna RSU multiplied by (b) $330.00, less applicable taxes.
Any consideration payable in respect of the Karuna Options and Karuna RSUs will be paid through the payroll system or payroll provider (to the extent applicable) of the surviving corporation as promptly as reasonably practicable following the closing date, but in no event later than the second regularly scheduled payroll date following the closing date. Notwithstanding the foregoing, if any payment owed to a holder of Karuna Options or Karuna RSUs cannot be made through the surviving corporation’s payroll system or payroll provider, then the surviving corporation will issue a check for such payment to such holder as soon as practicable following the closing date.
Special rules govern the treatment of Karuna RSUs that are intended to be granted following the entry into the Merger Agreement, as further discussed in the section of this proxy statement entitled “The Merger Agreement—Employee Matters” beginning on page 77.
Treatment of ESPP. At or prior to the effective time, Karuna, the Karuna Board and the compensation committee of the Karuna Board, as applicable, will unanimously adopt any resolutions and take any actions necessary to terminate the Karuna ESPP, as may be amended from time to time. No offering period has ever commenced under the Karuna ESPP.
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Payment for Karuna Common Stock
At or promptly following the effective time, Bristol-Myers Squibb will deposit, or cause to be deposited, with a paying agent designated by Bristol-Myers Squibb with Karuna’s prior approval (which approval will not be unreasonably conditioned, withheld or delayed), cash in an amount sufficient to pay the aggregate merger consideration except that, with respect to any dissenting shares, Bristol-Myers Squibb will not be required to deposit or cause to be deposited with the paying agent funds sufficient to pay the per share merger consideration that would be payable in respect of such dissenting shares if such dissenting shares were not dissenting shares.
Promptly after the effective time (and in any event within three business days after the effective time), the surviving corporation will cause the paying agent to mail or otherwise provide to each holder of record of certificates that immediately prior to the effective time represented outstanding shares of Karuna common stock and each holder of record of shares of Karuna common stock held in book-entry form (other than cancelled shares and dissenting shares) (a) transmittal materials, including a letter of transmittal, which will specify that delivery of certificates will be effected, and risk of loss and title to the certificates will pass only upon delivery of the certificates (or effective affidavits in lieu thereof in accordance with the merger agreement and a duly completed and validly executed letter of transmittal with respect to such certificates to the paying agent, or, in the case of book-entry shares, only upon delivery of an “agent’s message,” or such other evidence, if any, of the book-entry transfer as the paying agent may reasonably request) to the paying agent and will be in a form and have such other provisions as Karuna and Bristol-Myers Squibb may reasonably agree, and (b) instructions for effecting the surrender of the certificates or book-entry shares, as applicable, in exchange for cash in an amount equal to the per share merger consideration multiplied by the number of shares of Karuna common stock previously represented by such certificates.
Following the effective time, upon surrender of a certificate (or an effective affidavit of loss in lieu thereof) for cancellation to the paying agent, together with such letter of transmittal duly completed and validly executed in accordance with the instructions thereto, the holder of such certificate will be entitled to receive in exchange therefor as promptly as reasonably practicable after such surrender following the effective time, a cash payment in an amount equal to the per share merger consideration multiplied by the number of shares of Karuna common stock previously represented by such certificate and the certificate (or affidavit of loss in lieu thereof) so surrendered will be cancelled. Each book-entry share representing shares of Karuna common stock (other than cancelled shares and dissenting shares) will be entitled to receive, and Bristol-Myers Squibb will cause the paying agent to pay and deliver in exchange therefor as promptly as reasonably practicable after the paying agent’s receipt of an “agent’s message” or such other evidence, if any, as the paying agent may reasonably request following the effective time, a cash payment in an amount equal to the per share merger consideration multiplied by the number of shares of Karuna common stock previously represented by such book-entry share. The paying agent will accept such certificates (or affidavits of loss in lieu thereof) and make such payments and deliveries with respect to book-entry shares upon compliance with such reasonable terms and conditions as the paying agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. No interest will be paid or accrued for the benefit of holders of the certificates or book-entry shares on any amount payable upon the surrender or delivery thereof.
Representations and Warranties
The merger agreement contains representations and warranties made by Karuna to Bristol-Myers Squibb and Merger Sub and by Bristol-Myers Squibb and Merger Sub to Karuna. Certain of the representations and warranties in the merger agreement are subject to materiality or material adverse effect qualifications (that is, they will not be deemed to be inaccurate or incorrect unless their failure to be true or correct (a) is material, (b) would result in a material adverse effect on the party making such representation or warranty or (c) would have a material adverse effect on the ability to consummate, or prevent the consummation of, the transactions). In addition, certain of the representations and warranties in the merger agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue, inaccurate or incorrect as a result of matters of which certain individuals from the party making the representation (who are specified in qualifying the “knowledge” of such party for purposes of the merger agreement) did not have actual knowledge or reasonably would have been expected to have knowledge of after making reasonable inquiry of their direct reports, in the case of Karuna, or actual knowledge of, in the case of Bristol-Myers Squibb or Merger Sub. Furthermore, each of the representations and warranties is subject to the qualifications set forth on the disclosure letter delivered to Bristol-Myers Squibb by Karuna in connection with the merger agreement (the
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“disclosure letter”), in the case of certain representations and warranties made by Karuna, as well as the reports of Karuna filed with or furnished to the SEC during the period from January 1, 2022 through December 21, 2023 (excluding any disclosures set forth under the captions “Risk Factors” or “Forward-Looking Statements” and in any other section to the extent they are cautionary, predictive or forward-looking in nature).
In the merger agreement, Karuna has made representations and warranties to Bristol-Myers Squibb and Merger Sub regarding:
organization, good standing, authority and qualification to conduct its business and that of its subsidiaries;
organizational documents;
capitalization;
corporate authority and power with respect to the execution, delivery and performance of the merger agreement;
the consent of and filings with governmental entities needed in connection with Karuna’s execution, delivery and performance of the merger agreement or the consummation of the merger and the other transactions contemplated by the merger agreement;
the absence of violations of, or conflicts with, Karuna’s or its subsidiaries’ organizational documents, applicable law and certain contracts as a result of the execution, delivery and performance of the merger agreement and the consummation of the merger and the other transactions contemplated by the merger agreement;
compliance with certain laws and regulations (including possession of, and compliance with, licenses required to conduct Karuna’s business);
the proper filing of reports with the SEC since January 1, 2022 (including the accuracy of the information contained in those reports) and the compliance with applicable listing and corporate governance rules and regulations of Nasdaq;
the compliance with GAAP with respect to financial statements included in or incorporated by reference in its SEC filings;
certain disclosure controls and procedures and internal controls over financial reporting;
the absence of certain undisclosed liabilities or “off balance sheet arrangements”;
certain material contracts;
conduct of business in the ordinary course from December 31, 2022 through December 22, 2023;
the absence of any event that has had or would be reasonably expected to have, individually or in the aggregate, a material adverse effect on Karuna from December 31, 2022 through December 22, 2023;
the absence of any action taken by Karuna between December 31, 2022 and December 22, 2023 that would require certain consents by Bristol-Myers Squibb if taken after December 22, 2023;
absence of certain litigation and governmental orders;
labor and employment matters affecting Karuna or its subsidiaries, including Karuna’s benefit plans;
insurance;
real property;
tax matters;
information supplied by Karuna in connection with the proxy statement issued in connection with the special meeting;
intellectual property, data and information security and data privacy;
environmental matters;
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healthcare regulatory matters;
the opinion of Karuna’s financial advisor;
brokers and finders;
inapplicability to the merger of state or federal takeover statutes and anti-takeover provisions in Karuna’s organizational documents;
affiliate transactions; and
the absence of other representations and warranties by Bristol-Myers Squibb or Merger Sub.
In the merger agreement, Bristol-Myers Squibb and Merger Sub have made representations and warranties to Karuna regarding:
organization, good standing, authority and qualification to do business;
corporate authority and power with respect to the execution, delivery and performance of the merger agreement;
the consent of and filings with governmental entities needed in connection with the execution, delivery and performance of the merger agreement or the consummation of the merger and the other transactions contemplated by the merger agreement;
the absence of violations of, or conflicts with, Bristol-Myers Squibb’s or Merger Sub’s organizational documents, applicable law and certain contracts as a result of Bristol-Myers Squibb’s or Merger Sub’s execution, delivery and performance of the merger agreement by Bristol-Myers Squibb and Merger Sub, the consummation of the merger and the other transactions contemplated by the merger agreement;
absence of certain litigation and governmental orders;
operation and ownership of Merger Sub;
information supplied by Bristol-Myers Squibb and Merger Sub in connection with the proxy statement issued in connection with the special meeting;
brokers and finders;
the availability of sufficient funds to make all payments contemplated by the merger agreement and pay all fees and expenses incurred in connection with the transactions contemplated by the merger agreement that are payable by Bristol-Myers Squibb or Merger Sub;
Bristol-Myers Squibb’s ownership of Karuna common stock;
the absence of certain voting requirements;
the absence of other representations and warranties by Karuna; and
Bristol-Myers Squibb’s and Merger Sub’s access to information regarding Karuna.
For purposes of the merger agreement, a “material adverse effect” on Karuna means any event, development, change, effect or occurrence (“effect”) that, individually or in the aggregate with all other effects, has a material adverse effect on (a) or with respect to the assets, business, results of operation or financial condition of Karuna and its subsidiaries taken as a whole or (b) Karuna’s ability to consummate, or prevents the consummation of, the transactions contemplated by the merger agreement, including the merger, by the end date, provided that for purposes of the preceding clause (a), no effects relating to, arising out of or in connection with or resulting from any of the following shall be deemed, either alone or in combination with any of the following, to constitute or contribute to a material adverse effect or be taken into account in determining whether a material adverse effect has occurred or would reasonably be expected to occur:
general conditions, changes or developments in the economy or the financial, debt, capital, credit or securities markets or political, business, legislative or regulatory conditions in the United States or elsewhere in the world, including as a result of changes in geopolitical conditions, including changes in interest rates or exchange rates, supply chain disruptions, or any suspension of trading in securities on any securities exchange;
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general conditions, changes or developments in the industries in which Karuna or its subsidiaries operate or where Karuna’s products or services are researched, developed, tested, manufactured, labeled, packaged, distributed or sold;
changes in any applicable laws or regulations or applicable accounting regulations or principles or interpretation or enforcement thereof after December 22, 2023;
any epidemic, pandemic or other outbreak of illness or disease or public health event (including worsening of COVID-19 or any changes, after December 22, 2023, in COVID-19 measures or changes, after December 22, 2023, in the interpretation, implementation or enforcement thereof);
the execution and delivery of the merger agreement or the public announcement or pendency of the merger or other transactions contemplated by the merger agreement, including any adverse impact thereof on relationships, contractual or otherwise, with customers, lessors, suppliers, vendors, investors, lenders, partners, distributors, financing sources, contractors, officers, directors or employees of Karuna and its subsidiaries, any transaction litigation (as defined in the merger agreement) or the performance of the merger agreement and the transactions contemplated by the merger agreement, including compliance with the covenants set forth therein and any action taken or omitted to be taken by Karuna at the written request of Bristol-Myers Squibb or Merger Sub;
any actions expressly required under the merger agreement, including to obtain any approval or authorization under applicable antitrust or competition or other laws for the consummation of the merger;
any action taken (or not taken) by Karuna or any of its subsidiaries (i) that is required to be taken (or not to be taken) by the merger agreement and for which Karuna shall have requested in writing Bristol-Myers Squibb’s consent to permit its non-compliance and Bristol-Myers Squibb shall not have granted such consent or (ii) at the written request of Bristol-Myers Squibb, which action taken (or not taken) is not required under the terms of the merger agreement;
any hurricane, cyclone, tornado, earthquake, flood, tsunami, wildfire, natural or man-made disaster, act of God or other comparable events or outbreak or escalation of hostilities or war (whether or not declared), military actions or any act of sabotage, terrorism, civil unrest, civil disobedience, national emergency or national or international political or social conditions (including, in each case, any escalation or worsening of any of the foregoing);
any decline in the market price or trading volume of the shares or the credit rating of Karuna (provided that this exception shall not prevent or otherwise affect a determination that any effect underlying such change has resulted in, or contributed to, a material adverse effect if not otherwise falling within the first through eighth exceptions listed above and the tenth exception listed below);
any failure by Karuna to meet any published analyst estimates or expectations of Karuna’s revenue, earnings or other financial performance or results of operations for any period, in and of itself, or any failure by Karuna to meet its internal or published projections, budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations, in and of itself (provided that this exception shall not prevent or otherwise affect a determination that the effect underlying such failure has resulted in, or contributed to, a material adverse effect if not otherwise falling within the first through ninth exceptions listed above); and
except in the cases of the first through fourth and eighth exceptions listed above, to the extent that Karuna and its subsidiaries, taken as a whole, are disproportionately adversely affected thereby as compared with other participants of comparable size in the industries in which Karuna and its subsidiaries operate (in which case solely the incremental disproportionate adverse impact or impacts may be taken into account in determining whether there has been or would reasonably be expected to be a material adverse effect).
Conduct of Business Pending the Merger
The merger agreement provides that, subject to certain exceptions in the disclosure letter, during the period from December 22, 2023 to the effective time (or, if earlier, the date, if any, on which the merger agreement is terminated by its terms) and except as required or expressly provided by the merger agreement, as required by applicable laws, or
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as required by or to the extent commercially reasonable in response to any COVID-19 measures (so long as Karuna keeps Bristol-Myers Squibb reasonably informed of, and to the extent reasonably practicable, consults with Bristol-Myers Squibb prior to the taking of any material action with respect to such COVID-19 measures) or except as approved in writing by Bristol-Myers Squibb (which approval may not be unreasonably withheld, conditioned or delayed), (a) Karuna will and will cause its subsidiaries to, conduct the business of Karuna and its subsidiaries in the ordinary and usual course of business consistent in all material respects with past practice and use commercially reasonable efforts to preserve substantially intact its business organization and material business relationships, to preserve existing relationships with employees, governmental entities, customers, suppliers, licensors, licensees, creditors, lessors and other persons with whom Karuna and its subsidiaries have material business relationships, and (b) Karuna will not and will cause each of its subsidiaries not to:
amend or otherwise change Karuna’s certificate of incorporation or bylaws or the applicable governing instruments of any subsidiary of Karuna;
(i) form any subsidiary, (ii) make any acquisition of any person (whether by merger, consolidation or acquisition of stock or substantially all of the assets) or of any rights or assets material to Karuna and its subsidiaries, or (iii) make any investment in any interest in, any person, corporation, partnership, or other business organization or division thereof, except, in each case of (ii) and (iii), (A) purchases of inventory, components, raw materials, ingredients, drug products or supplies and other assets, in each case, in the ordinary course of business, (B) any investments in wholly owned subsidiaries of Karuna and (C) incidental contracts (as defined in the merger agreement), or (iv) enter into any joint venture, collaboration, partnership, limited liability company or similar arrangement;
grant, issue, sell, encumber, pledge or dispose of (or authorize the grant, issuance, sale or disposition of) any shares of capital stock, voting securities or other ownership interest, or any puts, calls, options, warrants, convertible securities or other rights or commitments of any kind to acquire or receive any shares of capital stock, any voting securities or other ownership interest, of Karuna or any of its subsidiaries, except for (i) the issuance of shares of Karuna common stock upon the exercise, vesting or settlement of Karuna Options and Karuna RSUs outstanding as of December 22, 2023 as required by the terms thereof (as in effect as of December 22, 2023) or (ii) any issuance, sale or disposition to Karuna or a wholly owned subsidiary of Karuna by any wholly owned subsidiary of Karuna;
reclassify, combine, split, subdivide, redeem, purchase or otherwise acquire any shares of capital stock of Karuna except for (i) the acquisition of shares of Karuna common stock tendered by directors or employees in connection with a cashless exercise of Karuna Options or in order to pay taxes in connection with the exercise of Karuna Options or (ii) the settlement of any Karuna RSUs pursuant to the terms of the applicable Karuna stock plans (as in effect as of December 22, 2023), or reclassify, combine, split or subdivide any capital stock or other ownership interests of any of Karuna’s wholly owned subsidiaries;
create or incur any lien (other than certain permitted liens) on any material assets of Karuna or its subsidiaries or on any Company IP (as defined in the merger agreement), other than the grant of any incidental contract;
make any loans, advances or capital contributions to, or investments in, any person (other than (i) to or in Karuna or any of its wholly owned subsidiaries, (ii) advances to directors, employees and consultants for travel and other business related expenses in the ordinary course of business consistent with past practice and in compliance with Karuna’s policies related thereto, (iii) advances of expenses as required under Karuna’s certificate of incorporation or Karuna’s bylaws or (iv) upfront payments for services to be provided or products to be supplied to the extent required under any material contract (as defined in the merger agreement) as of December 22, 2023);
sell, assign, spin-off, transfer or otherwise dispose of (whether by merger, consolidation or disposition of stock or assets or otherwise) any person, corporation, partnership or other business organization or division thereof or otherwise sell, assign, spin-off, (sub)license, lease, allow to expire, transfer or dispose of any material assets, rights or properties or any material Company IP to any person other than Karuna or any of its wholly owned subsidiaries other than (i) with respect to material Company IP, grants of incidental contracts, (ii) sales, dispositions or licensing of equipment or inventory and other tangible assets that are obsolete or no longer useful on the conduct of the business of Karuna and
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its subsidiaries in the ordinary course of business consistent with past practice or pursuant to existing contracts made available to Bristol-Myers Squibb, (iii) assignments of leases or sub-leases, in each case, in the ordinary course of business, (iv) sales of marketable securities for cash management purposes in the ordinary course of business consistent with past practice, or (v) transactions among Karuna and its wholly owned subsidiaries or among Karuna’s wholly owned subsidiaries;
declare, set aside, make or pay, or set a record date for, any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock (except for any dividend or distribution by a wholly owned subsidiary of Karuna to Karuna or any wholly owned subsidiary of Karuna);
make or authorize any payment of, or accrual or commitment for, capital expenditures, except any such expenditure (i) within the thresholds set forth in the disclosure letter, (ii) paid by any wholly owned subsidiary of Karuna to Karuna or to any other wholly owned subsidiary of Karuna or (iii) as otherwise set forth in the disclosure letter;
other than in connection with any other transaction otherwise permitted by the interim operating covenants, enter into any contract that would have been a material contract had it been entered into prior to the merger agreement, materially amend, materially modify, or terminate any material contract or waive, release, compromise or assign any material rights or claims thereunder other than (i) expirations and renewals of any such contract in the ordinary course of business consistent with past practice in accordance with the terms thereof, (ii) the entry in the ordinary course of business consistent with past practice into contracts (A) that are incidental contracts or (B) for the acquisition of supplies, raw materials or inventory or (iii) any agreement among Karuna and its wholly owned subsidiaries or among Karuna’s wholly owned subsidiaries;
except for intercompany loans between Karuna and any of its wholly owned subsidiaries or between any wholly owned subsidiaries of Karuna, incur, amend, refinance or prepay any indebtedness, or assume, guarantee, become liable for or endorse the obligations of any person (other than a subsidiary of Karuna), in each case, other than (i) indebtedness for borrowed money incurred in the ordinary course of business under lines of credit existing as of December 22, 2023, (ii) guarantees by Karuna or any wholly owned subsidiary of Karuna of indebtedness of Karuna or any other wholly owned subsidiary of Karuna, (iii) indebtedness incurred in connection with a refinancing or replacement of existing indebtedness (but in all cases which refinancing or replacement shall not increase the aggregate amount of indebtedness permitted to be outstanding thereunder and in each case on customary commercial terms consistent in all material respects with or more beneficial than the indebtedness being refinanced or replaced), (iv) indebtedness incurred pursuant to letters of credit, performance bonds or other similar arrangements in the ordinary course of business consistent with past practice, (v) interest, exchange rate and commodity swaps, options, futures, forward contracts and similar derivatives or other hedging contracts (A) not entered for speculative purposes, (B) entered into in the ordinary course and (C) which can be terminated on 90 days or less notice without penalty or (vi) indebtedness incurred among Karuna and its subsidiaries or among Karuna’s subsidiaries;
make any material change in any accounting principles, except as required to conform to changes in statutory or regulatory accounting rules or GAAP or regulatory requirements with respect thereto;
except as contemplated by the merger agreement, as permitted under the Karuna disclosure letter, as required under the written terms of a Karuna plan in effect as of the date of the merger agreement or as otherwise required by applicable law, (i) establish, adopt, enter into, terminate or amend any Karuna plan (or any plan, program, policy, contract, arrangement or agreement that would be a Karuna plan if it were in existence on the date of the merger agreement) or waive any of Karuna’s rights to terminate or amend any of the foregoing, (ii) increase the compensation or benefits of any Karuna director or any current or former officer or employee of Karuna or its subsidiaries (the “Karuna employees”), (iii) accelerate the vesting, funding or payment of any compensation or benefits under any provision of any Karuna plan (or any plan, program, policy, contract, arrangement or agreement that would be a Karuna plan if it were in existence on the date of the merger agreement) or reduce any exercise or purchase price of Karuna Options, (iv) grant any severance or termination pay to any Karuna employee not provided for under any Karuna plan, (v) establish, adopt, enter into, amend or terminate any
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employment, consulting or severance agreement or arrangement with any of Karuna’s present or former directors, or Karuna employees, except for offers of employment or promotions in the ordinary course of business consistent with past practice or in connection with a replacement hiring, to the extent permitted by the Karuna disclosure letter, (vi) grant any equity or equity-based awards, or (vii) loan or advance any money or any other property to any of Karuna’s present or former directors, or any Karuna employee;
hire or terminate (other than for cause) any Karuna employee or independent contractor with an annual base salary or annual base compensation (as applicable) in excess of $400,000 or waive or release any noncompetition, nonsolicitation, noninterference, nondisparagement, nondisclosure or other material restrictive covenant obligation of any current or former Karuna employee or independent contractor of Karuna;
commence any offering or offering period under the Karuna ESPP;
other than as required by applicable law, (i) make any change to any method of tax accounting or change any annual tax accounting period, (ii) make (other than in the ordinary course of business), revoke or change any tax election, (iii) file an amended tax return, (iv) surrender any claim for a refund of taxes, (v) enter into any closing agreement with respect to any taxes, (vi) waive or extend the statute of limitations with respect to any tax claim or assessment (other than automatic waivers or extensions obtained in the ordinary course of business) or (vii) settle or compromise any tax liability, in each case which would be considered material to Karuna and its subsidiaries taken as a whole;
other than as required by applicable law, (i) enter into any collective bargaining agreement with any labor organization or other representative of any company employees or (ii) recognize or certify any labor union, labor organization, works council or group of employees as the bargaining representative for any employees of Karuna or its subsidiaries;
implement any employee layoffs, plant closings or other actions which would trigger the notification requirements of the WARN Act;
other than any transaction litigation settled or compromised in accordance with the merger agreement, commence, settle or compromise any action (or any threatened action), other than the commencement of any action or settlements or compromises that (i) involve solely the payment of monetary damages by Karuna and its subsidiaries of not more than $500,000 individually or $2,000,000 in the aggregate (assuming the payment in full of all future fixed or contingent payments), (ii) do not involve the imposition of any material non-monetary obligation on Karuna or any of its subsidiaries and (iii) do not relate to any actual or potential violation of any criminal law; provided that any settlement or compromise in respect of dissenting shares shall be subject to the terms of the merger agreement;
make any material and adverse change to any publicly posted privacy policy or privacy notice of Karuna or any of its subsidiaries, except as required to comply with applicable law;
adopt or implement any stockholder rights plan or similar arrangement;
fail to maintain in full force and effect in any material respect the existing insurance policies of Karuna unless such insurance policies are renewed or replaced with comparable insurance policies;
adopt a plan or agreement of complete or partial liquidation or dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any of Karuna or any of its subsidiaries;
(i) extend, amend, condition, restrict, waive, cancel, abandon, withdraw, fail to renew, permit to lapse (other than statutory lapses at the end of the applicable statutory term), modify or otherwise alter any rights in or to any material Company IP in a manner that is adverse to Karuna or any of its subsidiaries; (ii) fail to diligently prosecute any material patent application or to maintain any issued patent, in each case, owned by Karuna or any of its subsidiaries or fail to diligently prosecute or maintain any material Company IP as to which Karuna or any of its subsidiaries controls the prosecution or maintenance thereof, as applicable; (iii) fail to renew (to the extent renewable at the option of Karuna) or to terminate any contract under which any materially in-licensed intellectual property is licensed to Karuna or any of its subsidiaries or (iv) disclose to any person other than a wholly owned subsidiary of Karuna or Bristol-Myers Squibb or any of its affiliates or representatives,
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other than under a confidentiality agreement or other legally binding confidentiality undertaking, any trade secrets or other material confidential information of Karuna or any of its subsidiaries relating to the Karuna’s products or business or that is included in the Company IP in a way that results in loss of confidentiality or trade secret protection thereon, except for any such disclosures made as a result of publication of a patent application filed by Karuna or any of its subsidiaries or in connection with any required regulatory filing; or
agree, authorize or commit to do any of the foregoing actions.
The merger agreement also provides that from December 22, 2023 until the earlier of the effective time and the valid termination of the merger agreement, Karuna will, to the extent reasonably practicable and permissible under applicable law, (a) provide Bristol-Myers Squibb with a reasonable opportunity to review the material portions of any applications or filings to be made with the FDA or any other governmental entity, and any material correspondence or other material communication proposed to be submitted or otherwise transmitted to the FDA or any other governmental entity or any of its subsidiaries, with respect to Karuna’s product candidates or clinical activities, (b) consult with Bristol-Myers Squibb in connection with any proposed meeting with the FDA or any other governmental entity relating to Karuna’s product candidates or clinical activities, and (c) keep Bristol-Myers Squibb reasonably informed of any material communication (written or oral) with or from the FDA or any other governmental entity regarding Karuna’s product candidates or clinical activities.
Notwithstanding the above, nothing contained in the merger agreement gives Bristol-Myers Squibb or Merger Sub the right to control or direct Karuna’s or its subsidiaries’ operations prior to the effective time and nothing contained in the merger agreement gives Karuna the right to control or direct Bristol-Myers Squibb’s, Merger Sub’s or its subsidiaries’ operations prior to the effective time.
Other Covenants and Agreements
Access to Information
Subject to certain exceptions and limitations, from December 22, 2023 to the effective time, Karuna will, and will cause its subsidiaries, officers, directors, employees and representatives to, afford Bristol-Myers Squibb and its representatives reasonable access, consistent with applicable law, during normal business hours to Karuna’s and its subsidiaries’ officers, employees, contracts, books and records and properties, offices and other facilities.
Non-Solicitation of Acquisition Proposals
From December 22, 2023 until the effective time or, if earlier, the valid termination of the merger agreement in accordance with its terms, Karuna will not, and will cause its subsidiaries not to and will direct its and their respective representatives not to, directly or indirectly:
initiate, solicit, propose, knowingly assist, knowingly encourage (including by way of furnishing information) or knowingly take any action to facilitate any inquiry, proposal, indication of interest or offer regarding, or that constitutes or could reasonably be expected to lead to, an acquisition proposal;
engage in, continue or otherwise participate in any discussions with or negotiations relating to, or furnish any non-public information to any person (other than Bristol-Myers Squibb, Merger Sub or their representatives) in connection with, any acquisition proposal or any inquiry, proposal, indication of interest or offer that could reasonably be expected to lead to any acquisition proposal (other than to state that the terms of this provision prohibit such discussions or negotiations);
approve, endorse or recommend, or propose publicly to approve, endorse or recommend, any acquisition proposal;
negotiate, execute or enter into, any merger agreement, acquisition agreement or other similar definitive agreement, or any letter of intent, commitment, agreement in principle or similar agreement, for any acquisition proposal or that could reasonably be expected to lead to any acquisition proposal or any contract or commitment requiring Karuna to abandon, terminate or fail to consummate the merger and the other transactions contemplated thereby (other than an acceptable confidentiality agreement executed in accordance with the terms of the merger agreement);
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take any action to exempt any person (other than Bristol-Myers Squibb, Merger Sub or their affiliates) from the restrictions on “business combinations” or similar provision contained in any takeover law, Karuna’s certificate of incorporation or Karuna’s bylaws or grant a waiver under Section 203 of the DGCL; or
resolve, propose or agree to do any of the foregoing; provided that any determination or action by the Karuna Board that is permitted pursuant to the terms of the merger agreement shall not be deemed to be a breach or violation of the merger agreement.
Notwithstanding anything to the contrary in the merger agreement, Karuna and the Karuna Board may:
comply with its disclosure obligations to its stockholders under applicable law or the rules and policies of Nasdaq, take and disclose to its stockholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act, make a “stop-look-and-listen” communication to Karuna stockholders pursuant to Rule 14d-9(f) under the Exchange Act or make any legally required disclosure to stockholders with regard to the transactions contemplated by the merger agreement or an acquisition proposal; provided, that the Karuna Board may not make a change of recommendation (as defined below) except to the extent otherwise permitted by the merger agreement;
prior to (but not after) obtaining the company requisite vote: (a) engage in any communications, negotiations or discussions with any person or group of persons and their respective representatives who has made an unsolicited bona fide acquisition proposal after December 22, 2023 in circumstances not involving a breach of the merger agreement (which negotiations or discussions need not be solely for clarification purposes) and (b) provide access to Karuna’s or any of its subsidiaries’ properties, books and records and provide information or data in response to a request therefor by a person who has made an unsolicited bona fide acquisition proposal after December 22, 2023 in circumstances not involving a breach of the merger agreement, in each case, if the Karuna Board (i) has determined in good faith, after consultation with its outside legal counsel and its financial advisor(s), that, based on the information then available, such acquisition proposal constitutes or would reasonably be expected to constitute, result in or lead to a superior proposal and that failure to engage in such communications, negotiations or discussions or failure to provide such access would be inconsistent with the directors’ fiduciary duties under applicable law and (ii) has received from the person who has made such acquisition proposal an executed acceptable confidentiality agreement; provided that (A) Karuna shall provide to Bristol-Myers Squibb and Merger Sub any non-public information or data that is provided to any person given such access that was not previously made available to Bristol-Myers Squibb or Merger Sub prior to or substantially concurrently with the time it is provided to such person, (B) Karuna shall promptly (and in any event within 24 hours) provide to Bristol-Myers Squibb a copy of any such Applicable Confidentiality Agreement and shall not terminate, waive, amend, release or fail to enforce any such acceptable confidentiality agreement and (C) Karuna shall promptly (and in any event within 24 hours) notify Bristol-Myers Squibb of making any determination described in the forgoing clause (i) or taking any initial actions set force in the forgoing clause (a) or (b);
prior to (but not after) obtaining the company requisite vote: make a change of recommendation (only to the extent permitted by the applicable provisions of the merger agreement described below); or
resolve, authorize, commit or agree to do any of the foregoing (only to the extent such actions would be permitted pursuant to the applicable provisions in the merger agreement described above).
From December 22, 2023 until the effective time or, if earlier, the valid termination of the merger agreement in accordance with its terms, except to the extent not otherwise permitted under the terms of the merger agreement, neither the Karuna Board nor any committee thereof shall make a change of recommendation. Notwithstanding anything in the merger agreement to the contrary, prior to the time, but not after, the company requisite vote is obtained, if an unsolicited bona fide acquisition proposal that did not result from a breach of the merger agreement is received by Karuna and that has not been withdrawn, and the Karuna Board determines in good faith, after consultation with its outside legal counsel and its financial advisor(s) that such acquisition proposal would, if consummated, constitute a superior proposal, then the Karuna Board may, if the Karuna Board has determined in good faith after consultation with its financial advisors and outside legal counsel, that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law, (a) effect a change of recommendation or (b) terminate the merger agreement in accordance with the terms thereof in order
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to enter into a definitive written agreement providing for such superior proposal; provided, however, that Karuna pays to Bristol-Myers Squibb any termination payment required to be paid pursuant to the merger agreement (as described below); provided further, that, prior to taking such actions described in clauses (a) or (b) above:
Karuna must give Bristol-Myers Squibb a written notice four business days in advance (such period from the time Karuna gives notice until the end of the fourth business day immediately following the day on which Karuna delivered such notice), which notice shall set forth in writing that the Karuna Board intends to consider whether to take such action and include copies of or the material terms and conditions of the acquisition proposal that is the basis of the proposed action of the Karuna Board and the latest draft of any documentation being negotiated in connection with such acquisition proposal;
after giving such notice and prior to taking any action described in clauses (a) or (b) above, Karuna shall, and shall direct its representatives to, negotiate in good faith with Bristol-Myers Squibb (to the extent requested by Bristol-Myers Squibb), to enable Bristol-Myers Squibb to propose such revisions to the terms of the merger agreement as would cause such acquisition proposal to cease to be a superior proposal; and
at the end of the notice period, prior to and as a condition to taking any action described in clauses (a) or (b) above, the Karuna Board shall take into account in good faith any changes to the terms of the merger agreement proposed in writing by Bristol-Myers Squibb in response to the notice from Karuna and any other information offered by Bristol-Myers Squibb in response to such notice, and shall have determined in good faith after consultation with its outside legal counsel and its financial advisor(s) that such acquisition proposal continues to constitute a superior proposal and the failure to take such action described in clauses (a) or (b) above would be inconsistent with the directors’ fiduciary duties under applicable law, if such changes proposed in writing by Bristol-Myers Squibb (if any) were to be given effect. Any amendment or revision to the financial terms or other material amendment, revision or supplement to any acquisition proposal will be deemed to be a new acquisition proposal and require a new notice by Karuna with a notice period of three business days.
Notwithstanding anything in the merger agreement to the contrary, prior to the time, but not after, the company requisite vote is obtained, other than as provided in the provisions of the merger agreement related to non-solicitation, acquisition proposals and change of recommendation, the Karuna Board may effect a change of recommendation if, and only if, (a) an intervening event (as defined below) has occurred, and (b) prior to taking such action, the Karuna Board has determined in good faith, after consultation with its outside legal counsel and its financial advisor(s), that failure to take such action in response to such intervening event would be inconsistent with the directors’ fiduciary duties under applicable law; provided, however, that prior to effecting such change of recommendation, (i) Karuna shall give notice to Bristol-Myers Squibb four business days in advance, which notice shall include a reasonably detailed description of such intervening event, (ii) after giving such notice and prior to effecting a change of recommendation, Karuna shall, and shall direct its representatives to, negotiate in good faith with Bristol-Myers Squibb (to the extent requested by Bristol-Myers Squibb), to enable Bristol-Myers Squibb to propose revisions to the terms of the merger agreement and (iii) at the end of the notice period, prior to and as a condition to effecting a change of recommendation, the Karuna Board shall take into account in good faith any changes to the terms of the merger agreement proposed in writing by Bristol-Myers Squibb in response to the notice from Karuna and any other information offered by Bristol-Myers Squibb in response to such notice, and shall have determined in good faith after consultation with its outside legal counsel and its financial advisor(s) that (A) such intervening event remains in effect and (B) the failure to effect a change of recommendation in response to such intervening event would be inconsistent with the directors’ fiduciary duties under applicable law if such changes proposed in writing by Bristol-Myers Squibb (if any) were to be given effect. Any material change to the facts and circumstances relating to any intervening event for purposes of the merger agreement shall require new notice from Karuna with a notice period of three business days.
Karuna agrees that immediately following December 22, 2023, it shall promptly (and in any event within 24 hours, or, if first received on a Saturday, within 48 hours) give notice to Bristol-Myers Squibb in writing of the receipt of any acquisition proposal or any inquiry, proposal, indication of interest or offer regarding, or that could reasonably be expected to lead to, any acquisition proposal, including a copy of any inquiry, proposal, indication of interest, offer or acquisition proposal that are provided in writing (including any proposed term sheet, letter of intent, acquisition agreement, financing commitment or similar agreement with respect thereto),
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which notice shall include a copy or a summary of the material terms and conditions of, and the identity of the person making, such inquiry, proposal, indication of interest, offer or acquisition proposal, and thereafter shall keep Bristol-Myers Squibb informed of the status and material terms of any such inquiries, proposals, indications of interest or offers (including any material amendments or proposed material amendments thereto) and the status of, or any material developments, discussions or negotiations regarding, any such discussions or negotiations on a reasonably prompt basis (and, in any event, within 24 hours of any such material developments, discussions or negotiations). Karuna shall promptly upon receipt or delivery thereof (and in any event within 24 hours), provide Bristol-Myers Squibb with copies of all drafts and final versions of definitive agreements, including schedules and exhibits thereto relating to any such inquiry, proposal, indication of interest, offer or acquisition proposal, in each case, exchanged between Karuna or any of its representatives, on the one hand, and the person making such acquisition proposal or any of its representatives, on the other hand. Karuna shall substantially concurrently provide to Bristol-Myers Squibb any nonpublic information concerning Karuna provided to any other person in connection with any inquiry, proposal, indication of interest, offer or any acquisition proposal that was not previously provided to Bristol-Myers Squibb. Karuna agrees that it shall not enter into any confidentiality agreement with any person subsequent to December 22, 2023 which prohibits Karuna from providing information to Bristol-Myers Squibb as described above.
Karuna agrees that following December 22, 2023 it shall, and shall cause its subsidiaries and direct its and their respective representatives to, (a) immediately cease any solicitations, discussions or negotiations with any person (other than the parties to the merger agreement and their respective representatives) in connection with any inquiry, proposals, indications of interests or offers regarding, or that could reasonably be expected to lead to, an acquisition proposal, in each case that existed as of December 22, 2023, (b) promptly (and in any event within two business days) request each person (other than the parties to the merger agreement and their respective representatives) that has prior to December 22, 2023 executed a confidentiality agreement in connection with its consideration of acquiring Karuna to return or destroy all confidential information furnished to such person by or on behalf of it or any of its subsidiaries or its or their representatives prior to December 22, 2023 and (c) promptly (and in any event within 24 hours) terminate all physical and electronic data access previously granted to such persons. Notwithstanding anything to the contrary in the merger agreement, but subject to Karuna’s compliance with the non-solicitation and change of recommendation provisions of the merger agreement, Karuna may grant a waiver, amendment or release under any confidentiality or standstill agreement (or any confidentiality or standstill provision of any agreement) to the extent necessary to allow for a confidential acquisition proposal to be made to Karuna or the Karuna Board so long as (i) Karuna promptly notifies Bristol-Myers Squibb thereof (but not the identity of such counterparty) after granting any such waiver, amendment or release and (ii) the Karuna Board has determined in good faith after consultation with its financial advisors and outside legal counsel that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law.
The parties agreed that any violation of the foregoing restrictions by any subsidiary of Karuna or by any representative of Karuna or any subsidiary of Karuna acting in their authorized capacities on behalf of Karuna or any of its subsidiaries will be deemed to be a breach of the merger agreement by Karuna.
For purposes of the merger agreement, “acquisition proposal” means: any proposal or offer from any person or group of persons (other than Bristol-Myers Squibb, Merger Sub or their respective affiliates) relating to, in a single transaction or series of related transactions, (a) any direct or indirect acquisition, purchase, exclusive license from Karuna, joint venture, partnership, collaboration, revenue-sharing arrangement or similar transaction by any person or group (as defined under Section 13 of the Exchange Act) of KarXT or assets that constitute 20% or more of the net revenues, net income or enterprise value of the consolidated total assets (it being understood that total assets include equity securities of subsidiaries of Karuna) of Karuna and its subsidiaries, taken as a whole, (b) any direct or indirect acquisition or purchase or issuance resulting in any person or group (as defined under Section 13 of the Exchange Act) beneficially owning 20% or more of the total voting power of the equity securities of Karuna, (c) any tender offer or exchange offer that, if consummated, would result in any person or group (as defined under Section 13 of the Exchange Act) beneficially owning 20% or more of the total voting power of the equity securities of Karuna, or (d) any merger (including a reverse merger in which Karuna is the surviving corporation), reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Karuna or any subsidiary of Karuna
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whose business constitutes 20% or more of the net revenues, net income or enterprise value of the consolidated total assets (it being understood that total assets include equity securities of subsidiaries of Karuna) of Karuna and its subsidiaries, taken as a whole; in each case of clauses (a) through (d), other than the transactions contemplated by the merger agreement.
For purposes of the merger agreement, “intervening event” means: any event, development, change, effect or occurrence (but specifically excluding any acquisition proposal or superior proposal or any event, development, change, effect or occurrence resulting from or arising out of a breach of the merger agreement by Karuna) occurring after December 22, 2023, that has a material positive effect on the business, financial condition or results of operations of Karuna and its subsidiaries, taken as a whole, and that was not known by the Karuna Board on December 22, 2023 (or, if known, the consequences of which were not reasonably foreseeable by the Karuna Board as of December 22, 2023), which becomes known to Karuna or to the Karuna Board after December 22, 2023; provided that in no event shall (a) changes in the market price or trading volume of any securities of Karuna in and of itself or (b) Karuna exceeding any internal or published industry analyst projections or forecasts or estimates or revenues or earnings, in and of itself, constitute an intervening event (it being understood that, for purposes of clauses (a) and (b), the underlying causes of any such changes or developments may, if they are not otherwise excluded from the definition of “intervening event,” be taken into account in determining whether an intervening event has occurred).
For purposes of the merger agreement, “superior proposal” means: a bona fide and written acquisition proposal (except that (a) for purposes of the definition of “superior proposal,” the references to “20%” in the definition of acquisition proposal shall be deemed to be references to “80% or more” and (b) the references to “license,” “partnership,” “joint venture,” “collaboration” and “revenue-sharing arrangement” in the definition of acquisition proposal shall be disregarded and deemed deleted), that the Karuna Board, after consultation with its outside legal counsel and its financial advisor(s), in good faith determines (i) is reasonably likely to be consummated in accordance with its terms without undue delay and (ii) would, if consummated, result in a transaction that is more favorable from a financial point of view to Karuna stockholders than the transactions contemplated in the merger agreement, in each case (clauses (i) and (ii)) after taking into account all such factors and matters deemed relevant in good faith by the Karuna Board and all legal, financial (including the financing terms of any such proposal), regulatory and stockholder approval requirements, the sources, availability and terms of any financing, financing market conditions and the existence of any financing contingency, the likelihood of termination, the likely timing of closing, the identity of and any prior dealings with the person or persons making the proposal, timing or other aspects of such proposal and the transactions contemplated thereby and any other aspects considered relevant in good faith by the Karuna Board and after taking into account any changes to the terms of the merger agreement irrevocably offered in writing by Bristol-Myers Squibb in response to such superior proposal pursuant to, and in accordance with, the merger agreement.
For purposes of the merger agreement, “change of recommendation” means any of the following actions by the Karuna Board: (a) failure to include the recommendation that the merger agreement be adopted by Karuna stockholders in this proxy statement (the “recommendation”), (b) withdrawing, modifying, amending, qualifying or changing the recommendation, (c) failing to recommend in a Solicitation/Recommendation Statement on Schedule 14D-9 against any acquisition proposal that is a tender offer or exchange offer subject to Regulation 14D promulgated under the Exchange Act for outstanding shares of Karuna common stock (other than by Bristol-Myers Squibb or an affiliate of Bristol-Myers Squibb), in each case, within 10 business days after the commencement thereof, it being understood and agreed that, for all purposes of the merger agreement, a communication by the Karuna Board to Karuna stockholders in accordance with Rule 14d-9(f) of the Exchange Act shall not, in and of itself, be deemed to constitute a change of recommendation (so long as any such disclosure does not include any statement that constitutes, and does not otherwise constitute, a change of recommendation), (d) adopting, approving, recommending, submitting to Karuna stockholders or declaring advisable or making a recommendation other than a rejection of (or publicly proposing to adopt, approve, recommend, submit to Karuna stockholders or declare advisable or make any recommendation other than a rejection of) any acquisition proposal, (e) with respect to a tender offer or exchange offer subject to Regulation 14D promulgated under the Exchange Act for outstanding shares of Karuna common stock, failing to publicly reaffirm the recommendation within 10 business days of receiving a request from Bristol-Myers Squibb to provide such reaffirmation following a publicly announced acquisition proposal; provided that Bristol-Myers Squibb may deliver only three such requests with respect to any such acquisition proposal or (f) formally resolving to effect or publicly announce an intention or resolution to effect any of the foregoing.
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For the avoidance of doubt, none of (a) the determination by the Karuna Board that an acquisition proposal constitutes a superior proposal, (b) the taking of any action by Karuna, the Karuna Board or any of its representatives permitted by the applicable provisions of the merger agreement relating to Karuna’s non-solicitation obligations (c) the delivery by Karuna to Bristol-Myers Squibb of any notice contemplated by the applicable change of recommendation provisions, or (d) the public disclosure, in and of itself, of the items in clauses (a) through (c) if required by applicable law, will in and of itself constitute a change of recommendation.
For purposes of the merger agreement, “company requisite vote” means: the affirmative vote (in person or by proxy) of the holders of a majority of all of the outstanding shares of common stock at the special meeting, or any adjournment or postponement thereof, to adopt the merger agreement.
Company Stockholder Meeting and Related Actions
Karuna, acting through the Karuna Board (or a committee thereof), shall, as promptly as reasonably practicable following the date on which Karuna is made aware that the SEC will not review this proxy statement or has no further comments on this proxy statement, take all action required under the DGCL, Karuna’s certificate of incorporation, Karuna’s bylaws and the applicable requirements of Nasdaq to promptly and duly call, give notice of, convene and hold as promptly as reasonably practicable a meeting of its stockholders for the sole purpose of (a) approving and adopting the merger agreement and (b) if and only if required by the DGCL, Karuna’s certificate of incorporation, Karuna’s bylaws, and the applicable requirements of Nasdaq or otherwise mutually agreed, a vote upon other matters of the type customarily brought before a meeting of stockholders in connection with the approval of a merger or the transaction contemplated by a merger agreement (and not any other matters, including any acquisition proposal) (including any adjournment or postponement thereof); except that Karuna may postpone, recess or adjourn such meeting (and shall postpone, recess or adjourn if requested by Bristol-Myers Squibb (but in such case Karuna shall not be required to postpone, recess or adjourn the special meeting more than twice or more than twenty business days in the aggregate)) (i) to the extent required by law or fiduciary duty, (ii) to allow reasonable additional time to solicit additional proxies to the extent Karuna reasonably believes necessary in order to obtain company requisite vote, (iii) if as of the time for which the special meeting is originally scheduled (as set forth in the proxy statement) there are insufficient shares of Karuna common stock represented (either in person or by proxy) and voting to constitute a quorum necessary to conduct the business of the special meeting or (iv) to allow reasonable additional time for the filing and dissemination of any supplemental or amended disclosure which the Karuna Board has determined in good faith after consultation with outside counsel is necessary under applicable law or fiduciary duty and for such supplemental or amended disclosure to be disseminated and reviewed by Karuna stockholders prior to the special meeting. Karuna may not, however, without the prior written consent of Bristol-Myers Squibb (such consent not to be unreasonably withheld, conditioned or delayed), postpone, recess or adjourn the special meeting more than a total of three times pursuant to clauses (ii) or (iii) of the immediately preceding sentence, and no such postponement, recess or adjournment pursuant to clauses (ii) or (iii) of the immediately preceding sentence shall be, without the prior written consent of Bristol-Myers Squibb (such consent not to be unreasonably withheld, conditioned or delayed), for a period exceeding 20 business days.
Karuna, acting through the Karuna Board (or a committee thereof), is required to (a) include in the proxy statement the recommendation, and, subject to the consent of Goldman Sachs, the written opinion of Goldman Sachs and (b) use its reasonable best efforts to obtain the company requisite vote (it being understood that the Karuna Board will not be required to recommend in favor of the adoption of the merger agreement if a change of recommendation has been effected in accordance with the terms of the merger agreement); provided that the Karuna Board may make a change of recommendation in accordance with the terms and conditions of the merger agreement and, following such change of recommendation, may fail to use such reasonable efforts. Karuna will, upon the reasonable request of Bristol-Myers Squibb, provide Bristol-Myers Squibb with regular updates, and use commercially reasonable best efforts to provide updates at least on a daily basis on each of the last five business days prior to the date of the special meeting, with respect to the aggregate tally of the proxies received by Karuna with respect to the company requisite vote.
Employee Matters
For a period of at least 12 months following the effective time, Bristol-Myers Squibb has agreed to provide, or cause the surviving corporation to provide, to each continuing employee: (a) a salary, wage, target bonus opportunity and commissions opportunity that, in the aggregate, are no less favorable than the salary, wage,
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target bonus opportunity and commissions opportunity that were provided, in the aggregate, to such continuing employee immediately prior to the effective time; provided, however, that in no event shall any continuing employee’s salary be reduced from such continuing employee’s salary in effect immediately prior to the effective time and provided, further, subject to the Karuna disclosure letter, (b) employee benefits (other than severance and termination benefits) that are substantially comparable in the aggregate to, in the discretion of Bristol-Myers Squibb, (i) those provided to such continuing employee by Karuna (or, if applicable, any of its subsidiaries) immediately prior to the effective time under a Karuna plan (other than under any specified arrangements), (ii) those provided to such similarly situated employees of Bristol-Myers Squibb or its affiliates (other than any specified arrangements), or (iii) a combination of (i) and (ii), and (c) severance and termination benefits that are no less favorable than the severance and termination benefits set forth on the Karuna disclosure letter.
In addition, to the extent that Bristol-Myers Squibb modifies any coverage or benefit plan in which continuing employees participate, Bristol-Myers Squibb or its affiliates will use reasonable best efforts to (a) with respect to any group health plan of Bristol-Myers Squibb or its affiliates, waive or cause to be waived any pre-existing conditions, exclusions, limitations, actively-at-work requirements, and eligibility waiting periods under any group health plans of Bristol-Myers Squibb or its affiliates with respect to continuing employees and their eligible dependents, (b) with respect to any group health plan of Bristol-Myers Squibb or its affiliates, give each continuing employee credit for the plan year in which the effective time occurs towards applicable deductibles and annual out-of-pocket limits for medical expenses incurred prior to the effective time for which payment has been made and (c) to the extent that it would not result in a duplication of benefits and to the extent that such service was recognized under a similar Karuna plan, give each continuing employee service credit for such continuing employee’s employment with Karuna for purposes of eligibility to participate and vesting credit (but excluding eligibility for any defined benefit pension plan or any post-employment welfare benefits or benefit accrual under any defined benefit pension plan) under each applicable Bristol-Myers Squibb benefit plan as if such service had been performed with Bristol-Myers Squibb.
The Karuna disclosure letter provides that:
Karuna may make annual grants of Karuna equity awards for fiscal year 2024 in the ordinary course of business, in the form of time-based Karuna RSUs (the “2024 Karuna RSUs”). The 2024 Karuna RSUs will vest 25% on the first four anniversaries of the grant date, subject to continued employment on the vesting date; provided, however, in the event of a termination without cause or a resignation for good reason prior to the second anniversary of the closing date, 50% of the 2024 Karuna RSUs will become vested (including any portion that had previously vested). Notwithstanding the terms of the merger agreement, the 2024 Karuna RSUs will be converted at the effective time into cash awards equal to the product of (a) the total number of shares of Karuna common stock subject to the 2024 Karuna RSU immediately prior to the effective time and (b) $330.00, and such converted cash award will be subject to the same terms and conditions (including vesting) applicable to the 2024 Karuna RSUs, other than the form of settlement. The 2024 Karuna RSUs may have a grant date fair value of up to $88 million in the aggregate, and awards to any individual are also subject to a cap. Karuna may also make grants of Karuna equity awards to newly hired or promoted employees or to the extent necessary to retain other employees in the ordinary course of business. Any such awards will have the same terms and conditions as the 2024 Karuna RSUs and may have a grant date fair value of up to $37 million in the aggregate.
Karuna may establish a cash-based success bonus program in the aggregate amount of up to $5 million to promote retention and to incentivize efforts to consummate the closing of the merger, pursuant to which executive officers could, but are not expected to, participate. Any payments relating to the success bonus program will be payable immediately prior to the effective time or upon an earlier qualifying termination of employment. Allocations will be determined pursuant to terms mutually agreed to by and between Mr. Meury (or his designee) and the CEO of Bristol-Myers Squibb (or their designee), including reallocating any retention award (or unpaid portion thereof) that is forfeited by a participant to existing employees or new hires of Karuna or any of its subsidiaries.
Karuna may grant cash-based integration awards not to exceed $15 million in the aggregate and $200,000 with respect to any individual under a non-executive integration program to employees below
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the executive officer level. Fifty percent of any award will be paid at the effective time and 50% will be paid six months thereafter, subject to continued employment on such dates, provided that, any unpaid portion will be payable upon a termination without cause or a resignation for good reason.
With respect to Karuna’s fiscal year during which the effective time occurs, Bristol-Myers Squibb agreed to honor and assume, or cause the surviving corporation to honor and assume, all annual cash bonus plans of Karuna (and any cash incentive opportunities granted thereunder) in accordance with their terms as in effect immediately prior to the effective time (on a pro-rated basis for the portion of the fiscal year prior to the effective time). With respect to any performance metrics applicable to such annual cash bonus plans for the portion of the fiscal year prior to the effective time, Bristol-Myers Squibb agreed to calculate, or cause the surviving corporation to calculate, performance based on the greater of (x) actual performance, calculated in a manner substantially consistent with the past practice of Karuna, and (y) target level performance. Following the effective time, continuing employees will participate in an annual cash bonus program sponsored by Bristol-Myers Squibb, and such bonuses will be paid to the continuing employees in accordance with the terms of Bristol-Myers Squibb’s cash bonus program, provided that amounts paid to such continuing employees will be no less than target level (on a pro-rated basis for the portion of Bristol-Myers Squibb's fiscal year following the effective time).
Efforts to Consummate the Merger
Karuna, Bristol-Myers Squibb and Merger Sub will (and, in the case of Bristol-Myers Squibb, will cause each of its subsidiaries and controlled affiliates (collectively, the “Bristol-Myers Squibb group”) to) use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations or pursuant to any contract or agreement to cause the conditions to the closing of the merger to be satisfied as promptly as reasonably practicable and advisable (and in any event no later than the end date) and consummate the merger and the other transactions contemplated by the merger agreement as soon as reasonably practicable, including preparing and filing as promptly as reasonably practicable all documentation to effect all necessary notices, reports and other filings, and obtaining as promptly as reasonably practicable (and in any event no later than the end date) all actions or nonactions, waivers, consents, registrations, expirations or terminations of waiting periods, approvals, permits and authorizations necessary or advisable to be obtained from any third party or any governmental entity in order to consummate the transactions contemplated by the merger agreement and executing and delivering any additional instruments necessary to consummate the transactions contemplated by the merger agreement. In furtherance and not in limitation of the foregoing, each party to the merger agreement agrees to file, or cause to be filed, all appropriate Notification and Report forms pursuant to the HSR Act with respect to the transactions contemplated by the merger agreement as promptly as practicable and in any event within 10 business days of December 22, 2023 (unless otherwise agreed to by the parties to the merger agreement), and to file, or cause to be filed, any filing (or, for jurisdictions where submission of a draft prior to formal notification is appropriate, a draft thereof) required under any other applicable antitrust law, including any such filing or draft thereof listed in the Karuna disclosure letter with respect to the transactions contemplated by the merger agreement as promptly as practicable and in any event within thirty business days of December 22, 2023 (unless otherwise agreed to by the parties to the merger agreement), and to supply as promptly as reasonably practicable any additional information and documentary material that may be requested pursuant to the HSR Act or such other antitrust law and to take any and all other actions necessary, proper or advisable to cause the expiration or termination of the applicable waiting periods under the HSR Act or such other antitrust law as soon as practicable. Bristol-Myers Squibb will be solely responsible for and pay all filing fees payable to governmental entities under any antitrust law.
In connection with the efforts and obligations referenced in the paragraph above, each of Bristol-Myers Squibb and Merger Sub, on the one hand, and Karuna, on the other hand, will (a) consult and cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (b) subject to applicable law, furnish to the other party as promptly as reasonably practicable all information required for any application or other filing to be made by the other party pursuant to any applicable law in connection with the transactions contemplated by the merger agreement; (c) promptly notify the other party of any substantive communication received by such party from, or given by such party to, the Federal Trade Commission (the “FTC”), the Antitrust Division of the Department of Justice (the “DOJ”) or any other U.S. or foreign governmental entity and of any substantive communication received or given in connection with any proceeding by a private party, in each case regarding
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any of the transactions contemplated by the merger agreement and, subject to applicable law, furnish the other party promptly with copies of all correspondence, filings and communications between them and the FTC, the DOJ or any other governmental entity with respect to the transactions contemplated by the merger agreement; (d) respond as promptly as reasonably practicable to any inquiries received from, and supply as promptly as reasonably practicable any additional information or documentation that may be requested by the FTC, the DOJ or by any other governmental entity in respect of such registrations, declarations and filings or such transactions contemplated by the merger agreement; and (e) permit the other party to review any substantive communication given by it to, and consult with each other in advance, and consider in good faith the other party’s reasonable comments in connection with, any filing, notice, application, submission, communication, meeting or conference with the FTC, the DOJ or any other governmental entity or, in connection with any proceeding by a private party, with any other person. None of Karuna, Bristol-Myers Squibb or Merger Sub shall independently participate in any substantive meeting or communication with any governmental entity in respect of any such filings, investigation or other inquiry relating to the above without giving the other parties sufficient prior notice of the meeting and, to the extent permitted by such governmental entity, the opportunity to attend or participate in such substantive meeting or communication. Without limiting the foregoing, neither Bristol-Myers Squibb nor any member of the Bristol-Myers Squibb group shall withdraw any filing made under the HSR Act or other applicable antitrust law or refile such filing, in each case, except with the prior written consent of Karuna (such consent not to be unreasonably withheld, conditioned or delayed).
Notwithstanding anything to the contrary set forth in the merger agreement, in no event will Bristol-Myers Squibb or any other member of the Bristol-Myers Squibb group be required to, and Karuna, without the prior written consent of Bristol-Myers Squibb, will not and will not agree to, take steps to (a) resolve, avoid, or eliminate impediments or objections, if any, that may be asserted with respect to the transactions contemplated by the merger agreement under any antitrust law or (b) avoid the entry of, effect the dissolution of, and have vacated, modified, suspended, eliminated, lifted, reversed or overturned, any decree, decision, determination, order or judgment entered or issued, or that becomes reasonably foreseeable to be entered or issued, that would, or would reasonably be expected to, prevent, restrain, enjoin, prohibit, make unlawful, restrict or delay the consummation of the contemplated transactions, including (i) proposing, negotiating, committing to, agreeing to and effecting, by consent decree, hold separate orders or otherwise, the sale, lease, divesture, disposition, or license (or holding separate pending such disposition) of any assets, operations, rights, product lines, licenses, properties, products, rights, services or businesses of Bristol-Myers Squibb or any member of the Bristol-Myers Squibb group, or Karuna or its subsidiaries or any interest therein, (ii) otherwise taking or committing or agreeing to restrictions or actions that after the effective time would limit Bristol-Myers Squibb’s, any member of the Bristol-Myers Squibb group’s, or Karuna’s or its subsidiaries’ freedom of action or operations with respect to, or its or their ability to retain, any assets, operations, rights, product lines, licenses, properties, products, rights, services or businesses of Bristol-Myers Squibb, the Bristol-Myers Squibb group or Karuna or its subsidiaries or any interest or interests therein or (iii) agreeing to enter into, modify or terminate existing contractual relationships, contractual rights or contractual obligations, and promptly effecting the sale, lease, license, divestiture, disposal, and holding separate of assets, operations, rights, product lines, licenses, properties, products, rights, services or businesses of Bristol-Myers Squibb, the Bristol-Myers Squibb group, or Karuna or its subsidiaries or any interest or interests therein and the entry into agreements with, and submission to orders of, the relevant governmental entity giving effect thereto or to such restrictions or actions.
In the event that any administrative or judicial action or proceeding is instituted (or threatened to be instituted) by a governmental entity or private party challenging the merger or any other transaction contemplated by the merger agreement, or any other agreement contemplated by the merger agreement, (a) each party to the merger agreement shall, and Bristol-Myers Squibb shall cause each member of the Bristol-Myers Squibb group to, cooperate in all respects with each other and use its respective best efforts to contest and resist any such action or proceeding and to have vacated, modified, suspended, eliminated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prevents, restrains, enjoins, prohibits, makes unlawful, restricts or delays consummation of the transactions contemplated by the merger agreement and (b) Bristol-Myers Squibb and Merger Sub shall, and Bristol-Myers Squibb shall cause each member of the Bristol-Myers Squibb group to defend, at their cost and expense, any action or actions, whether judicial or administrative, in connection with the transactions contemplated by the merger agreement. Notwithstanding the foregoing, none of Karuna, Bristol-Myers Squibb or any other member of the Bristol-Myers Squibb group shall be required to agree to any term or take any action in connection with its
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foregoing obligations in the merger agreement that is not conditioned upon consummation of the merger. Except as set forth in the provisions of the merger agreement relating to closing conditions, obtaining any approval or consent from any Person pursuant to the merger agreement shall not be a condition to the obligations of the parties to consummate the transactions contemplated by the merger agreement.
Subject to the terms of the merger agreement, and subject to Bristol-Myers Squibb consulting with and considering in good faith the views and comments of Karuna, Bristol-Myers Squibb shall have the right to (a) direct, devise and implement the strategy for obtaining any necessary approval of, and for responding to any request from, or inquiry or investigation by (including directing the nature and substance of all such responses), and lead all meetings and communications (including any negotiations) with, any governmental entity in connection with any regulatory filings made under any applicable Law in connection with the transactions contemplated by the merger agreement and (b) control the defense and settlement of any investigation or proceeding relating to the transactions contemplated by the merger agreement.
Notwithstanding the foregoing, commercially or competitively sensitive information and materials of a party to the merger agreement will be provided to the other party on an outside counsel-only basis, while, to the extent feasible, making a version in which the commercial or competitively sensitive information has been redacted available to the other party. Materials provided to the other party or its counsel may be redacted to remove references (a) concerning the valuation of Karuna, (b) as necessary to comply with contractual arrangements, (c) as necessary to address reasonable attorney-client privilege or confidentiality concerns or (d) other competitively sensitive material.
Indemnification of Directors and Officers; Insurance
From and after the effective time through the sixth anniversary of the date on which the effective time occurs, each of Bristol-Myers Squibb and the surviving corporation agrees that it will indemnify and hold harmless each present (as of the effective time) and former director and officer of Karuna or any of its subsidiaries (in each case, when acting in such capacity), against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages, liabilities or awards paid in settlement incurred in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative and whether formal or informal, arising out of, relating to or in connection with the fact that such person is or was a director or officer of Karuna or any of its subsidiaries or serving in such capacity at the request thereof or any acts or omissions occurring or alleged to occur prior to the effective time in such person’s capacity as a director or officer of Karuna or any of its subsidiaries or serving in such capacity at the request thereof, whether asserted or claimed prior to, at or after the effective time, to the fullest extent that Karuna would have been permitted under Delaware law and its certificate of incorporation and bylaws in effect on December 22, 2023 to indemnify such person (and Bristol-Myers Squibb or the surviving corporation will advance expenses (including reasonable legal fees and expenses) incurred in the defense of any proceeding, including any expenses incurred in enforcing such person’s rights under the indemnification section of the merger agreement, regardless of whether indemnification with respect to or advancement of such expenses is authorized under the certificate of incorporation, the bylaws, or equivalent organizational documents, of Karuna or any of its subsidiaries; provided that the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification pursuant to this provision); provided further that any determination required to be made with respect to whether an officer’s or director’s conduct complies with the standards set forth under Delaware law and Karuna’s certificate of incorporation and bylaws will be made by independent counsel selected by the surviving corporation. In the event of any such proceeding (a) neither Bristol-Myers Squibb nor the surviving corporation will settle, compromise or consent to the entry of any judgment in any proceeding in which indemnification could be sought by such indemnified party hereunder, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability arising out of such proceeding or such indemnified party otherwise consents and (b) the surviving corporation will reasonably cooperate in the defense of any such matter. In the event any proceeding is brought against any indemnified party and in which indemnification could be sought by such indemnified party, (a) the surviving corporation will have the right to control the defense thereof after the effective time, (b) each indemnified party will be entitled to retain his or her own counsel, whether or not the surviving corporation will elect to control the defense of any such proceeding, (c) the surviving corporation will pay all reasonable fees and expenses of any counsel retained by an indemnified party promptly after statements therefor are received, whether or not the surviving corporation elects to control the defense of
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any such proceeding and (d) no indemnified party will be liable for any settlement effected without his or her prior express written consent. Any indemnified party wishing to claim indemnification under the merger agreement, upon learning of any proceeding, will promptly notify Bristol-Myers Squibb thereof; but the failure of such indemnified party to so notify will not relieve Bristol-Myers Squibb or the surviving corporation of any liability it may have to such indemnified party except to the extent such failure materially prejudices the indemnifying party. The provisions in the surviving corporation’s certificate of incorporation and bylaws with respect to indemnification, advancement of expenses and exculpation of former or present directors and officers will be no less favorable to such directors and officers than such provisions contained in Karuna’s certificate of incorporation and bylaws in effect as of December 22, 2023, which provisions will not be amended, repealed or otherwise modified for a period of six years after the effective time in any manner that would adversely affect the rights thereunder of any such individuals.
Karuna will purchase from insurance carriers with comparable credit ratings, no later than the effective time, a six-year prepaid “tail policy” providing at least the same coverage and amounts containing terms and conditions that are no less advantageous in the aggregate to the insured than the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by Karuna and its subsidiaries with respect to claims arising from facts or events that occurred at or before the effective time, including the transactions contemplated by the merger agreement, and from insurance carriers having at least an “A” rating by A.M. Best with respect to directors’ and officers’ liability insurance; provided, however, that after the effective time, Bristol-Myers Squibb and the surviving corporation will not be required to pay in the aggregate for such coverage under each such policy more than 300% of the last annual premium paid by Karuna prior to December 22, 2023 in respect of the coverage required to be obtained pursuant thereto under each such policy, but in such case shall purchase as much coverage as reasonably practicable for such amount. In the event Karuna elects to purchase such a “tail policy,” the surviving corporation will (and Bristol-Myers Squibb will cause the surviving corporation to) maintain such “tail policy” in full force and effect for at least six years from the effective time and continue to honor their respective obligations thereunder. If Karuna elects not to purchase such a “tail policy,” then Bristol-Myers Squibb shall maintain, or shall cause the surviving corporation to maintain, at no expense to the beneficiaries, in effect for at least six years from the effective time the current policies of the directors’ and officers’ liability insurance and fiduciary liability insurance maintained by Karuna (provided that Bristol-Myers Squibb may substitute therefor policies of at least the same coverage containing terms and conditions which are not less advantageous to any beneficiary thereof) with respect to matters existing or occurring at or prior to the effective time and from insurance carriers having at least an “A” rating by A.M. Best with respect to directors’ and officers’ liability insurance; provided, however, that after the effective time, Bristol-Myers Squibb and the surviving corporation will not be required to pay in the aggregate for such coverage under each such policy more than 300% of the last annual premium paid by Karuna prior to December 22, 2023 in respect of the coverage required to be obtained pursuant thereto under each such policy, but in such case shall purchase as much coverage as reasonably practicable for such amount. Bristol-Myers Squibb agrees to honor and perform under, and to cause the surviving corporation to honor and perform under, all indemnification agreements entered into by Karuna or any of its subsidiaries with any indemnified party that are set forth in the disclosure letter.
Miscellaneous Covenants
The merger agreement contains additional agreements among Karuna, Bristol-Myers Squibb and Merger Sub relating to, among other matters:
the filing by Karuna of this proxy statement with the SEC and cooperation in response to any comments from the SEC with respect to this proxy statement;
notification upon the occurrence of certain matters;
the coordination of and with respect to press releases and other public announcements or filings relating to the transactions;
actions necessary to cause Merger Sub and the surviving corporation to perform its obligations under the merger agreement;
the delisting of Karuna and of the shares of Karuna common stock from Nasdaq and the deregistration of Karuna common stock under the Exchange Act;
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anti-takeover statutes that become applicable to the transactions;
any stockholder transaction litigation brought against Karuna and/or its directors or its officers after December 22, 2023 and prior to the effective time relating to the merger agreement, the merger or any other transactions contemplated by the merger agreement;
dispositions prior to the effective time of Karuna common stock (including derivative securities with respect thereto) pursuant to the transactions contemplated by the merger agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Karuna to be exempt under Rule 16b-3 promulgated under the Exchange Act;
Karuna’s obligations to take certain actions to terminate the Equity Distribution Agreement, by and between Karuna, Goldman Sachs and SVB Securities LLC, dated as of June 21, 2023, prior to or at the effective time; and
other matters and actions set forth in the disclosure letter.
Conditions to the Closing of the Merger
The respective obligations of each of Karuna, Bristol-Myers Squibb and Merger Sub to consummate the merger are subject to the satisfaction (or written waiver by Karuna and Bristol-Myers Squibb (to the extent permitted by applicable law)) at or prior to the effective time of the following conditions:
Karuna shall have obtained the company requisite vote;
no governmental entity of competent jurisdiction shall have enacted or promulgated any law, statute, rule, regulation, executive order, decree, ruling, judgment, injunction or other order (whether temporary, preliminary or permanent) to prohibit, restrain, enjoin or make illegal the consummation of the merger that remains in effect; and
the waiting period (and any extension thereof) applicable to the consummation of the merger under the HSR Act shall have expired or been earlier terminated and any required approvals thereunder shall have been obtained, any voluntary agreement with a governmental entity entered into by the parties to the merger agreement in accordance with the merger agreement not to consummate the merger shall have expired or been terminated, and each other consent, approval or clearance with respect to, or termination or expiration of any applicable waiting period (and any extensions thereof) imposed under, any antitrust laws with respect to the merger as specified in the disclosure letter shall have been obtained, shall have been received or deemed to have been received or shall have terminated or expired, as the case may be.
The respective obligations of Bristol-Myers Squibb and Merger Sub to effect the merger are also subject to the satisfaction (or written waiver by Bristol-Myers Squibb (to the extent permitted by applicable law)) at or prior to the effective time of the following conditions:
certain representations and warranties of Karuna in the merger agreement made with respect to organization and qualification, organizational documents, capitalization, authority, opinions of financial advisor, brokers and takeover statutes must be true and correct (without giving effect to any “materiality,” “material adverse effect” or similar qualifiers contained in any such representations and warranties) in all material respects as of December 22, 2023 and as of the effective time as though made on and as of such date (except to the extent that any such representation or warranty expressly is made as of an earlier date, in which case such representation and warranty must be true and correct as of such specified date); certain other representations and warranties of Karuna in the merger agreement made with respect to capitalization must be true and correct in all respects as of December 22, 2023 and as of the effective time as though made on and as of such date (except to the extent that any such representation or warranty expressly is made as of an earlier date, in which case such representation and warranty must be true and correct as of such specified date) other than for issuances expressly permitted pursuant to the merger agreement and other than for inaccuracies that, in the aggregate, do not increase the aggregate consideration payable by Bristol-Myers Squibb pursuant to the merger agreement in more than a de minimis respect; certain representations and warranties of Karuna in the merger agreement made with respect to the absence of certain changes or events in respect of a material adverse effect must be true and correct in all respects as of December 22, 2023 and as of the
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effective time as though made on and as of such date; all other representations and warranties of Karuna in the merger agreement must be true and correct in all respects (without giving effect to any “materiality,” “material adverse effect” or similar qualifiers contained in any such representations and warranties) in each case as of December 22, 2023 and as of the effective time as though made on and as of such date (except to the extent that any such representation or warranty expressly is made as of an earlier date, in which case such representation and warranty must be true and correct as of such specified date), except where the failures of any such representations and warranties to be so true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect;
Karuna must have performed in all material respects the obligations, and complied in all material respects with the agreements and covenants, required to be performed by, or complied with by, it under the merger agreement at or prior to the effective time;
since December 22, 2023, no Material Adverse Effect shall have occurred; and
Bristol-Myers Squibb must have received a certificate signed by an executive officer of Karuna certifying that each of the conditions set forth in the preceding three bullet points have been satisfied.
The obligation of Karuna to effect the merger is also subject to the satisfaction (or written waiver by Karuna (to the extent permitted by applicable law)) at or prior to the effective time of the following condi