S-4 1 tm2025040-1_s4.htm S-4 tm2025040-1_s4 - none - 48.507722s
As filed with the Securities and Exchange Commission on August 4, 2020
Registration No. 333-      
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Liquidia Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware
2846
85-1710962
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
419 Davis Drive, Suite 100
Morrisville, North Carolina 27560
Telephone: (919) 328-4400
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Neal F. Fowler
Chief Executive Officer
Liquidia Technologies, Inc.
419 Davis Drive, Suite 100
Morrisville, North Carolina 27560
Telephone: (919) 328-4400
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Andrew P. Gilbert, Esq.
Scott A. Cowan, Esq.
DLA Piper LLP (US)
51 John F. Kennedy Parkway, Suite 120
Short Hills, New Jersey 07078
(973) 520-2550
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement is declared effective and all other conditions to the business combination described in the enclosed proxy statement/prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 14d-l(d) (Cross-Border Third-Party Tender Offer) ☐
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered(1)
Amount to be
registered
Proposed maximum
offering price
per share(3)
Proposed
maximum
aggregate
offering price
Amount of
registration fee
Common stock, $0.001 par value per share
40,897,666(2) N/A $ 216,553,141.47(4) $ 28,108.60
(1)
Liquidia Corporation (“Liquidia Corporation” or the “Registrant”) is filing this registration statement to register shares of its common stock, $0.001 par value per share, issuable to holders of common stock, par value $0.001 per share, of Liquidia Technologies, Inc. (“Liquidia Technologies”), in connection with the proposed merger of Gemini Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of the Registrant, with and into Liquidia Technologies (the “Liquidia Merger”).
(2)
The number of shares of Liquidia Corporation common stock to be registered is the maximum number of shares of Liquidia Corporation common stock that may be issued in connection with the Liquidia Merger, which is 40,897,666, which is the maximum number of shares of Liquidia Corporation common stock that may be issued in connection with the Liquidia Merger and which is the sum of (w) 37,749,890 shares of Liquidia Technologies common stock issued and outstanding as of July 15, 2020; (x) 2,902,471 shares of Liquidia Technologies common stock issuable upon the exercise of options outstanding as of July 15, 2020, (y) 106,274 shares of Liquidia Technologies common stock issuable upon the exercise of warrants outstanding as of July 15, 2020, and (z) 139,031 shares of Liquidia Technologies common stock issuable upon the vesting of restricted stock units outstanding as of July 15, 2020.
(3)
Not included pursuant to Rule 457(o).
(4)
Estimated solely for purposes of calculating the registration fee in accordance with Rules 457(c) and (f)(1) and the product obtained by multiplying (i) 40,897,666, which is the maximum number of shares of Liquidia Technologies common stock that may be cancelled in connection with the Liquidia Merger, by (ii) $5.295, which is the average of the high and low sale prices of a share of Liquidia Technologies common stock as reported on the Nasdaq Capital Market on July 30, 2020.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

The information in this proxy statement/prospectus is not complete and may be changed. Liquidia Corporation may not sell its securities pursuant to the proposed Merger Transaction until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY — Subject to Completion, dated August 4, 2020
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PROPOSED MERGER TRANSACTION — YOUR VOTE IS VERY IMPORTANT
To the stockholders of Liquidia Technologies, Inc.:
You are cordially invited to attend the special meeting of the stockholders of Liquidia Technologies, Inc., a Delaware corporation, which we refer to as Liquidia Technologies, which will be held at       , Eastern Time, on        , 2020. Due to concerns regarding the novel coronavirus, or COVID-19, pandemic and to protect the health and safety of our employees and stockholders, the special meeting will be a virtual meeting conducted solely online via live webcast and can be attended by visiting www.meetingcenter.io/         . If you plan to attend the meeting virtually on the Internet, you must register by following the instructions contained in the Voting Procedures section of this proxy statement/prospectus. In connection with the special meeting, you will be asked to consider and vote on certain stockholder proposals which are more fully described below and in the accompanying proxy statement/prospectus. Whether or not you plan to virtually attend the special meeting, we urge you to read the proxy statement/prospectus (and any documents exhibited to the proxy statement/prospectus or incorporated into the proxy statement/prospectus by reference) and consider such information carefully before voting. This is an important special meeting that affects your investment in Liquidia Technologies.
Liquidia Technologies has agreed to acquire RareGen, LLC, which we refer to as RareGen, under the terms of an Agreement and Plan of Merger, dated as of June 29, 2020, or the Merger Agreement. If this acquisition is completed, Liquidia Technologies and RareGen will become subsidiaries of a new holding company named Liquidia Corporation, which we refer to as HoldCo. We refer to the acquisition of RareGen by Liquidia Technologies, after which RareGen and Liquidia Technologies will operate as subsidiaries of HoldCo, pursuant to the Merger Agreement, as the Merger Transaction. We are proposing the Merger Transaction because we believe that the combined company will create more stockholder value than Liquidia Technologies could individually.
If the Merger Transaction is completed, (i) each share of our common stock, $0.001 par value per share, or Liquidia Technologies common stock, whether certificated or held in book-entry form, will automatically convert into one share of HoldCo common stock, $0.001 par value per share, or HoldCo common stock, (ii) each option and warrant to purchase a share of our common stock will entitle the holder to purchase one share of HoldCo common stock, and the exercise price per share will be identical to the Liquidia Technologies option or warrant, and (iii) each Liquidia Technologies restricted stock unit will entitle the holder to a HoldCo restricted stock unit, each to vest and settle into a share of HoldCo common stock.
If the Merger Transaction is completed, RareGen members will receive an aggregate of 6,166,666 shares of HoldCo common stock upon closing of the Merger Transaction, including 616,666 shares of HoldCo common stock which will be withheld from RareGen members to secure the indemnification obligations of RareGen members, which we refer to as the Holdback Shares. RareGen members will be entitled to receive, on a pro rata basis, any Holdback Shares remaining on March 31, 2022. Additionally, RareGen members shall be entitled to a pro rata portion of any RareGen cash at closing in excess of $1 million. RareGen members will also be entitled to receive a pro rata portion of up to an additional 2,708,333 shares of HoldCo common stock in the aggregate in 2022, based on the amount of 2021 net sales of the generic treprostinil product owned by Sandoz Inc., or Sandoz, which RareGen markets pursuant to a Promotion Agreement between the parties. For more information, see “Proposal 1 — The Merger Transaction: The Merger Consideration and Conversion of Securities” on page 110.
Upon closing of the Merger Transaction:

the holders of our common stock, options, warrants and restricted stock units (excluding, for this purpose, shares of HoldCo common stock to be received by current RareGen members, or known affiliates of RareGen members, who are holders of our common stock) will receive, in the aggregate, approximately 86.0% of the HoldCo common stock outstanding at the closing of the Merger Transaction on a fully diluted basis;


the holders of RareGen common units will receive, in the aggregate, approximately 14.1% of the HoldCo common stock outstanding at the closing of the Merger Transaction (with the contingent right to receive up to an additional approximately 6.3% of HoldCo common stock outstanding at the closing of the Merger Transaction based on the amount of 2021 net sales of the generic treprostinil product owned by Sandoz and marketed by RareGen) assuming, solely for this purpose, that the RareGen members receive all of the Holdback Shares.
We encourage you to read the section of this proxy statement/prospectus entitled “Proposal 1 — The Merger Transaction: The Merger Consideration and Conversion of Securities” beginning on page 110 carefully, as it explains how our and RareGen’s equity is converted into HoldCo common stock.
Our common stock is currently traded on the Nasdaq Capital Market under the trading symbol “LQDA.” RareGen common units are privately held and are not publicly traded. After the Merger Transaction, our common stock will no longer be traded on the Nasdaq Capital Market and HoldCo common stock is expected to be traded on the Nasdaq Capital Market under the trading symbol “LQDA” as the successor to Liquidia Technologies.
Our stockholders are also being asked to vote on certain other matters related to the Merger Transaction, including the approval of the Liquidia Corporation 2020 Long-Term Incentive Plan, which we refer to as the HoldCo 2020 Incentive Plan, the approval of the Liquidia Corporation 2020 Employee Stock Purchase Plan, which we refer to as the HoldCo 2020 ESPP, and the grant to our board of directors of discretionary authority to adjourn or postpone the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes in favor of Proposals 1, 2, 3 or 4.
Upon the recommendation of our board of directors, our board of directors has approved and declared the advisability of the Merger Agreement, the Liquidia Merger and the Merger Transaction, and recommends that our stockholders vote “FOR” adoption of the Merger Agreement and approval of the merger of Liquidia Technologies with Gemini Merger Sub I, Inc., “FOR” approval of the HoldCo 2020 Incentive Plan, “FOR” approval of the HoldCo 2020 ESPP and “FOR” the grant of discretionary authority to our board of directors to adjourn or postpone the special meeting to a later date. Before voting, you should carefully review all the information contained in this proxy statement/prospectus. In particular, you should carefully consider the matters discussed under the section entitled “Risk Factors” beginning on page 36, including certain risks and uncertainties resulting from the Merger Transaction.
On the pages after this letter, you will find the notice of the special meeting, which lists the matters to be considered at the special meeting, and the proxy statement/prospectus, which describes the matters listed in the notice.
Your vote at this special meeting is very important.   Whether or not you plan to virtually attend the special meeting, I hope you will vote as soon as possible. If you are a stockholder of record, you may vote over the Internet or by telephone. You will find voting instructions in the notice and proxy statement/prospectus and on the proxy card. If your shares are held in “street name” — that is, held for your account by a broker or other nominee — you will receive instructions from the holder of record that you must follow for your shares to be voted.
On behalf of the Board of Directors, I thank you for your continued support of Liquidia.
Yours Sincerely,
/s/ Neal F. Fowler
Neal F. Fowler
Chief Executive Officer and Director
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the Merger Transaction described in this proxy statement/prospectus or determined if this proxy statement/ prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated            , 2020 and is first being mailed to our stockholders on or about           , 2020.

 
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LIQUIDIA TECHNOLOGIES, INC.
419 Davis Drive, Suite 100
Morrisville, North Carolina 27560
www.liquidia.com
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON            , 2020
To the stockholders of Liquidia Technologies, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Liquidia Technologies, Inc. will be held on             , 2020, at            , Eastern Time, virtually at www.meetingcenter.io/      , to consider and take action with respect to the following:
(1)   to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of June 29, 2020, among Liquidia Technologies, Inc., RareGen, LLC, which we refer to as RareGen, Liquidia Corporation, which we refer to as HoldCo, Gemini Merger Sub I, Inc., which we refer to herein as Liquidia Merger Sub, Gemini Merger Sub II, LLC, which we refer to herein as RareGen Merger Sub, and PBM RG Holdings, LLC, which we refer to herein as the Members’ Representative, pursuant to which we and RareGen will each become a subsidiary of HoldCo, and each share of Liquidia Technologies common stock will be automatically converted into one share of HoldCo common stock and to approve the merger of Liquidia Merger Sub with and into Liquidia Technologies;
(2)   to consider and vote on a proposal to approve the Liquidia Corporation 2020 Long-Term Incentive Plan, which we refer to as the HoldCo 2020 Incentive Plan, effective upon the completion of the proposed Merger Transaction;
(3)   to consider and vote on a proposal to approve the Liquidia Corporation 2020 Employee Stock Purchase Plan, which we refer to as the HoldCo 2020 ESPP, effective upon the completion of the proposed Merger Transaction;
(4)   to ratify the appointment of PricewaterhouseCoopers LLP as HoldCo’s independent registered public accounting firm for the year ending December 31, 2020; and
(5)   to consider and vote upon a proposal to grant discretionary authority to our board of directors to adjourn or postpone the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes in favor of Proposals 1, 2, 3 or 4.
We may also transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.
These items of business are described in the accompanying proxy statement/prospectus, which we encourage you to read in its entirety before voting.
Only our stockholders of record at the close of business on            , 2020 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments or postponements thereof.
Due to concerns regarding the novel coronavirus (COVID-19) pandemic and to protect the health and safety of our employees and stockholders, the special meeting will be a virtual meeting conducted solely online via live webcast and can be attended by visiting www.meetingcenter.io/      . If you plan to attend the meeting virtually on the Internet, you must register by following the instructions contained in the Voting Procedures section of this proxy statement/prospectus. In connection with the special meeting, you will be
 

 
asked to consider and vote on certain stockholder proposals which are more fully described below and in the accompanying proxy statement/prospectus. Whether or not you plan to virtually attend the special meeting, we urge you to read the proxy statement/prospectus (and any documents exhibited to the proxy statement/prospectus or incorporated into the proxy statement/prospectus by reference) and consider such information carefully before voting. This is an important special meeting that affects your investment in Liquidia. You may revoke your proxy in the manner described in the accompanying proxy statement/prospectus at any time before it is voted at the special meeting.
We have provided access to our proxy materials to each stockholder of record in a fast and efficient manner via the Internet. This reduces the amount of paper necessary to produce these materials, as well as the costs associated with mailing these materials to all stockholders. Accordingly, on or about            , 2020, we anticipate mailing a Notice Regarding Internet Availability of Proxy Materials, or the Notice, to all stockholders of record as of            , 2020, and posted our proxy materials on the website referenced in the Notice (www.envisionreports.com/LQDA). As more fully described in the Notice, all stockholders may choose to access our proxy materials on the website referred to in the Notice or may request to receive a printed set of our proxy materials. In addition, the Notice and website provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR NOT YOU EXPECT TO ATTEND VIRTUALLY, PLEASE PROMPTLY VOTE YOUR PROXY BY ACCESSING THE INTERNET SITE AND FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD OR BY REQUESTING A PRINTED COPY OF THE PROXY MATERIALS AND MARKING, DATING, SIGNING AND RETURNING THE PROXY CARD.
We cannot complete the Merger Transaction unless holders of a majority of the outstanding shares of Liquidia Technologies common stock entitled to vote on the matter have voted “FOR” Proposal 1, as described above.
By Order of the Board of Directors,
/s/ Neal F. Fowler
Neal F. Fowler
Chief Executive Officer and Director
           , 2020
Morrisville, North Carolina
 

 
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates by reference important business and financial information about us from other documents that are not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see the section entitled “Where You Can Find Additional Information” beginning on page 202. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into this document through the United States Securities and Exchange Commission, or the SEC, website at www.sec.gov or by requesting them in writing or by telephone at the appropriate address below.
You may also obtain documents incorporated by reference into this proxy statement/prospectus by requesting them in writing or by telephone at the following address and telephone number:
Liquidia Technologies, Inc.
P.O. Box 110085
Research Triangle Park, North Carolina 27709
Tel: (919) 328-4400
Attn: Corporate Secretary
To receive timely delivery of the documents in advance of the meetings, you should make your request no later than five business days prior to the date of the meeting, or no later than         , 2020.
ABOUT THIS PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by HoldCo, constitutes a prospectus of Liquidia Corporation under Section 5 of the Securities Act of 1933, as amended, or the Securities Act, with respect to the shares of HoldCo common stock to be issued to our stockholders and RareGen members pursuant to the Merger Transaction. This proxy statement/prospectus also constitutes a proxy statement for Liquidia Technologies under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. It also constitutes a notice of meeting with respect to the special meeting of our stockholders.
No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus and neither we nor RareGen takes any responsibility for, and cannot provide any assurances as to the reliability of, any other information that others may give you. This proxy statement/prospectus is dated        , 2020. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement/prospectus to our stockholders nor the issuance by HoldCo of shares of its common stock pursuant to the Merger Transaction will create any implication to the contrary.
This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this proxy statement/prospectus regarding our company has been provided by Liquidia Technologies.
All references in this proxy statement/prospectus to “HoldCo” refer to Liquidia Corporation, a Delaware corporation; all references in this proxy statement/prospectus to “Liquidia Technologies” refer to Liquidia Technologies, Inc., a Delaware corporation; all references in this proxy statement/prospectus to “RareGen” refer to RareGen, LLC, a Delaware limited liability company; unless otherwise indicated or as the context requires, all references in this proxy statement/prospectus to “our company,” “we,” “our” and “us” refer to Liquidia Technologies; and unless otherwise indicated or as the context requires, all references to the “Merger Agreement” refer to the Agreement and Plan of Merger, dated as of June 29, 2020, by and among HoldCo, Liquidia Technologies, RareGen, Liquidia Merger Sub, RareGen Merger Sub and PBM RG Holdings, LLC, solely in its capacity as the “Members’ Representative”, a copy of which is included as Annex A to this proxy statement/prospectus. When referring to equity holders of the two parties to the merger, this document generally uses “members” with respect to RareGen and “stockholders” with respect to Liquidia Technologies or HoldCo.
 

 
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F-1
F-17
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Annex A – Agreement and Plan of Merger
Annex B – Opinion of Jefferies LLC
Annex C – Liquidia Corporation 2020 Long-Term Incentive Plan, and forms of award agreements thereunder
Annex D – Liquidia Corporation 2020 Employee Stock Purchase Plan
 
iv

 
VOTING PROCEDURES
WHO CAN VOTE?
Each share of our common stock that you owned as of the close of business on           , 2020, the record date for the special meeting, which we refer to herein as the Record Date, entitles you to one vote on at least one matter to be voted upon at the special meeting. On the Record Date, there were         shares of our common stock issued and outstanding, of which           shares were entitled to vote on at least one matter. Accordingly, there are an aggregate of         votes entitled to be cast on all proposals at the special meeting.
HOW CAN I ATTEND THE MEETING?
The special meeting will be a completely virtual meeting of stockholders, which will be conducted exclusively by webcast. You are entitled to participate in the special meeting only if you were a stockholder of Liquidia Technologies as of the close of business on the Record Date, or if you hold a valid proxy for the special meeting. No physical meeting will be held.
You will be able to attend the special meeting online and submit your questions during the meeting by visiting www.meetingcenter.io/               . You also will be able to vote your shares online by attending the special meeting by webcast.
To participate in the special meeting, you will need to review the information included on your Notice, on your proxy card or on the instructions that accompanied your proxy materials. The password for the meeting is LQDARGN2020.
If you hold your shares through an intermediary, such as a bank or broker, you must register in advance using the instructions below.
The online meeting will begin promptly at          Eastern Time. We encourage you to access the special meeting 15 minutes prior to the start time leaving ample time for the check in. Please follow the registration instructions as outlined in this proxy statement/prospectus.
HOW DO I REGISTER TO ATTEND THE SPECIAL MEETING VIRTUALLY ON THE INTERNET?
If you are a registered stockholder (i.e., you hold your shares through our transfer agent, Computershare), you do not need to register to attend the special meeting virtually on the Internet. Please follow the instructions on the notice or proxy card that you received.
If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend the special meeting virtually on the Internet.
To register to attend the special meeting online by webcast you must submit proof of your proxy power (legal proxy) reflecting your Liquidia Technologies holdings along with your name and email address to Computershare. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on          , 2020.
 
1

 
You will receive a confirmation of your registration by email after Liquidia Technologies receives your registration materials.
Requests for registration should be directed to us at the following:
By email:
Forward the email from your broker, or attach an image of your legal proxy, to legalproxy@computershare.com;
By mail:
Computershare
COMPANY Legal Proxy
P.O. Box 43001
Providence, RI 02940-3001
HOW DO I VOTE? If your shares are registered directly in your name, you may vote:

Over the Internet or by Telephone.   If you are a registered stockholder (that is, if you hold your stock directly and not in street name), you may vote by telephone or over the Internet by following the instructions included in the Notice by accessing the Internet at www.envisionreports.com/LQDA and following the instructions contained on that website. Stockholders with shares registered directly with us may vote (i) by telephone by dialing 1-800-652-8683 toll-free from the United States, U.S. territories and Canada or (ii) by Internet at www.envisionreports.com/LQDA and following the instructions contained on that website. Internet and telephone voting are available 24 hours a day. You must specify how you want your shares voted or your Internet or telephone vote cannot be completed and you will receive an error message. Your shares will be voted according to your instructions.

By Mail.   You may vote by mail by signing, detaching and returning the bottom portion of the proxy card with the postage prepaid envelope addressed to Computershare, Inc. provided with the proxy materials. If you wish to request a printed copy of the proxy materials by mail, send an email to investorvote@computershare.com by         , 2020 with “Proxy Materials — Liquidia” in the subject line. Include your full name and address in the email, plus the number located in the shaded bar on your Notice, and state in the email that you want a paper copy of the meeting materials. Your proxy will be voted according to your instructions. If you do not specify how you want your shares voted, they will be voted as recommended by our board of directors.
 
2

 

Virtually at the Special Meeting.   If you virtually attend the special meeting, you may vote online during the special meeting. To vote at the special meeting, you must access www.meetingcenter.io/          and will need the control number located on your proxy card or to follow the instructions that accompanied your proxy materials. We recommend that you log-in at least 15 minutes before the special meeting starts to ensure that you are logged in when the virtual meeting begins. Only our stockholders and persons holding proxies from our stockholders may attend the special meeting. Please see “How Can I Attend the Meeting?” and “How Do I Register to Attend the Special Meeting Virtually on the Internet” above for more information.
If your shares are held in “street name” (held for your account by a broker or other nominee) you may vote:

Over the Internet or by Telephone.   You will receive instructions from your broker or other nominee if you are permitted to vote over the Internet or by telephone.

By Mail.   You will receive instructions from your broker or other nominee explaining how to cast your vote.

Virtually at the Special Meeting.   Contact the broker or other nominee who holds your shares to obtain a broker’s proxy card. You will not be able to vote at the special meeting unless you have a proxy from your broker issued in your name giving you the right to vote the shares. Please see “How Can I Attend the Meeting?” and “How Do I Register to Attend the Special Meeting Virtually on the Internet” above for more information.
HOW CAN I CHANGE MY VOTE? You may revoke your proxy and change your vote at any time before the special meeting. To do this, you must do one of the following:

Vote over the Internet or by Telephone as instructed above. Only your latest Internet vote is counted.

Sign and date a new proxy and submit it as instructed above. Only your latest proxy vote is counted.

Virtually attend the special meeting and vote online by accessing www.meetingcenter.io/          . Virtually attending the special meeting will not revoke your proxy unless you specifically request it. Please see “How Can I Attend the Meeting?” and “How Do I Register to Attend the Special Meeting Virtually on the Internet” above for more information.
WILL MY SHARES BE VOTED IF I DO NOT RETURN MY PROXY?
If your shares are registered directly in your name, your shares will not be voted if you do not vote over the Internet, by telephone or return your proxy, or virtually attend and vote at the special meeting. If you have misplaced your proxy, you may obtain another by following the instructions provided in the Notice or by accessing the Internet website at www.envisionreports.com/LQDA and following the instructions contained on that website.
 
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If your shares are held in “street name,” your brokerage firm, under certain circumstances, may vote your shares for you if you do not return your proxy. Brokerage firms have authority to vote customers’ unvoted shares on matters that the New York Stock Exchange, or NYSE, determines to be “routine.” If you do not give a proxy to your brokerage firm to vote your shares, your brokerage firm may either: vote your shares on routine matters, or leave your shares unvoted. Each of the proposals which you are being asked to vote on are not considered routine matters except for Proposal 4, the ratification of the independent registered public accounting firm. We therefore strongly encourage you to provide voting instructions to your brokerage firm by submitting your proxy. This ensures your shares will be voted at the meeting according to your instructions. You should receive directions from your brokerage firm about how to submit your proxy to them.
IF I DO NOT GIVE INSTRUCTIONS TO MY BANK OR BROKER, WHAT MATTERS DOES MY BANK OR BROKER HAVE AUTHORITY TO VOTE UPON?
Pursuant to NYSE Rule 452 and corresponding Listed Company Manual Section 402.08, discretionary voting by brokers of shares held by their customers in “street name” is prohibited. If you do not give instructions to your bank or broker within ten days of the special meeting, it may vote on matters that the NYSE determines to be “routine,” but will not be permitted to vote your shares with respect to “non-routine” items. Under the NYSE rules, each of the proposals which you are being asked to vote on are non-routine matters except for Proposal 4, the ratification of the independent registered public accounting firm. When a bank or broker has not received instructions from the beneficial owners or persons entitled to vote and the bank or broker cannot vote on a particular matter because it is not routine, then there is a “broker non-vote” on that matter. Broker non-votes will be counted in determining whether there is a quorum for the special meeting. As a result, we strongly encourage you to submit your voting instructions and exercise your right to vote as a stockholder.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
It means that you have more than one account, which may be at the transfer agent, with stockbrokers or otherwise. Please vote over the Internet, or complete and return all proxies for each account to ensure that all of your shares are voted.
HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A majority of our outstanding shares of common stock as of the Record Date must be present at the special meeting to hold the special meeting and conduct business. This is called a quorum. Shares are counted as present at the special meeting if the stockholder votes over the Internet or telephone, completes and submits a proxy or is virtually present at the special meeting. Shares that are present that vote to abstain or do not vote on one or more of the matters to be voted upon are counted as present for establishing a quorum. If a quorum is not present, we expect that the special meeting will be adjourned until we obtain a quorum.
 
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WHAT VOTE IS REQUIRED TO APPROVE EACH MATTER AND HOW ARE VOTES COUNTED?
Proposal 1 — Approval of the Merger Agreement and the Liquidia Merger
To approve Proposal 1, if a quorum is present or represented by proxy at the special meeting, stockholders holding a majority of our common stock outstanding and entitled to vote on the matter must vote “FOR” the proposal, meaning that the votes cast by the stockholders “FOR” the approval of the proposal must equal a majority of the shares outstanding. If a stockholder votes to “ABSTAIN,” it has the same effect as a vote “AGAINST.” Broker non-votes will have the same effect as a vote “AGAINST” this proposal. If no vote is specified on the proxy and in the absence of directions to the contrary, the shares will be voted “FOR” the Merger Agreement and the Liquidia Merger.
Proposal 2 — Approval of the HoldCo 2020 Incentive Plan
To approve Proposal 2, if a quorum is present or represented by proxy at the special meeting, stockholders holding a majority of our common stock present or represented by proxy at the special meeting and entitled to vote on the matter must vote “FOR” the proposal, meaning that the votes cast by the stockholders “FOR” the approval of the proposal must exceed the number of votes cast “AGAINST” the approval of the proposal. If a stockholder votes to “ABSTAIN,” it has the same effect as a vote “AGAINST.” Broker non-votes will not be considered as votes cast “FOR” or “AGAINST” this proposal and will therefore have no effect on the outcome of the vote. If no vote is specified on the proxy and in the absence of directions to the contrary, the shares will be voted “FOR” the HoldCo 2020 Incentive Plan.
Proposal 3 — Approval of the HoldCo 2020 ESPP
To approve Proposal 3, if a quorum is present or represented by proxy at the special meeting, stockholders holding a majority of our common stock present or represented by proxy at the special meeting and entitled to vote on the matter must vote “FOR” the proposal, meaning that the votes cast by the stockholders “FOR” the approval of the proposal must exceed the number of votes cast “AGAINST” the approval of the proposal. If a stockholder votes to “ABSTAIN,” it has the same effect as a vote “AGAINST.” Broker non-votes will not be considered as votes cast “FOR” or “AGAINST” this proposal and will therefore have no effect on the outcome of the vote. If no vote is specified on the proxy and in the absence of directions to the contrary, the shares will be voted “FOR” the HoldCo 2020 ESPP.
 
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Proposal 4 — Ratify the Appointment of PricewaterhouseCoopers LLP as HoldCo’s Independent Registered Public Accounting Firm for the Year Ending December 31, 2020
To approve Proposal 4, if a quorum is present or represented by proxy at the meeting, stockholders holding a majority of our common stock present or represented by proxy at the special meeting and entitled to vote on the matter must vote “FOR” the proposal, meaning that the votes cast by the stockholders “FOR” the approval of the proposal must exceed the number of votes cast “AGAINST” the approval of the proposal. If a stockholder votes to “ABSTAIN,” it has the same effect as a vote “AGAINST.” As Proposal 4 is a routine matter, broker non-votes will not occur with respect to this proposal. If no vote is specified on the proxy and in the absence of directions to the contrary, the shares will be voted “FOR” the ratification of the appointment of HoldCo’s independent auditor.
The inspector of election appointed for the special meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes, will tabulate all votes.
HOW DOES THE LIQUIDIA BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
Our board of directors recommends that you vote:

“FOR” Proposal 1 — Approval of the Merger Agreement and the Liquidia Merger;

“FOR” Proposal 2 — Approval of the HoldCo 2020 Incentive Plan;

“FOR” Proposal 3 — Approval of the HoldCo 2020 ESPP;

“FOR” Proposal 4 — Ratify the Appointment of PricewaterhouseCoopers LLP as HoldCo’s Independent Registered Public Accounting Firm for the Year Ending December 31, 2020; and

“FOR” Proposal 5 — Approval of the Grant of Discretionary Authority to the Liquidia Board of Directors to Adjourn or Postpone the Special Meeting
ARE THERE OTHER MATTERS TO BE VOTED ON AT THE MEETING?
We do not know of any other matters that may come before the special meeting other than the approval of the Merger Agreement and the Liquidia Merger, the approval of the HoldCo 2020 Incentive Plan, the approval of the HoldCo 2020 ESPP, the ratification of the appointment of HoldCo’s independent auditor for 2020 and the approval of the grant of discretionary authority to our board of directors to adjourn or postpone the special meeting. If any other matters are properly presented to the special meeting, the persons named in the accompanying proxy intend to vote, or otherwise act, in accordance with their judgment.
 
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WHERE DO I FIND THE VOTING RESULTS FOR THE MEETING?
We intend to announce preliminary voting results at the special meeting. We will publish final results in a Current Report on Form 8-K, which will be filed with the SEC no later than four business days following the special meeting. To request a printed copy of our filings with the SEC, please write to Investor Relations, Liquidia Technologies, Inc., P.O. Box 110085, Research Triangle Park, North Carolina 27709, or e-mail Investor Relations at IR@liquidia.com. You will also be able to find a copy on the Internet through our website at www.liquidia.com or through the SEC’s electronic data system, called EDGAR, at www.sec.gov. Our website is not part of this proxy statement/prospectus; references to our website address in this proxy statement/prospectus are intended to be inactive textual references only.
WHO WILL SOLICIT THESE PROXIES AND PAY FOR THE COSTS OF DOING SO?
We will solicit proxies and pay the costs of soliciting proxies. In addition to mailing the Notice, our directors, officers and employees may solicit proxies by telephone, e-mail and in person, without additional compensation. Upon request, we will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for distributing proxy materials to stockholders.
HOW CAN I RECEIVE FUTURE PROXY STATEMENTS AND ANNUAL REPORTS OVER THE INTERNET?
This proxy statement/prospectus is available on our Internet site at www.liquidia.com. This proxy statement/prospectus is also available on the Internet site at
www.envisionreports.com/LQDA. Most stockholders can elect to view future proxy statements and annual reports over the Internet instead of receiving printed copies in the mail. If you are a stockholder of record, you can choose this option when you vote over the Internet and save us the cost of producing and mailing these documents. If you are a stockholder of record and choose to view future proxy statements and annual reports over the Internet, you will receive a proxy in the mail next year with instructions containing the Internet address to access those documents. If your shares are held through a broker or other nominee, you should check the information provided by them for instructions on how to elect to view future proxy statements and annual reports over the Internet.
WHY IS THE SPECIAL MEETING BEING HELD VIRTUALLY?
We have been closely monitoring developments with the coronavirus (COVID-19) pandemic and the related recommendations and protocols issued by public health authorities and federal, state, and local governments. In light of these ongoing concerns and in order to protect the health and safety of our employees and stockholders, we will be conducting the special meeting solely online.
We are excited to embrace the latest technology to provide expanded access, improved communication and cost savings for our stockholders and our company. We believe that hosting a virtual meeting will enable more of our stockholders to attend and participate in the meeting since our stockholders can participate from any location around the world with Internet access.
 
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QUESTIONS AND ANSWERS ABOUT THE MERGER TRANSACTION
Q:   Why am I receiving this proxy statement/prospectus?
A:    We and RareGen have agreed that we will acquire RareGen under the terms of an Agreement and Plan of Merger, referred to herein as the Merger Agreement, that is described in this proxy statement/prospectus. A copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A. You are receiving this proxy statement/prospectus because we are asking our stockholders to adopt the Merger Agreement and approve the Liquidia Merger. Neither we nor RareGen are soliciting votes of RareGen’s members in this proxy statement/prospectus.
In connection with the Merger Transaction, our stockholders are also being asked to approve the HoldCo 2020 Incentive Plan and the HoldCo 2020 ESPP and ratify the appointment of HoldCo’s independent auditor for 2020. Copies of the HoldCo 2020 Incentive Plan and the HoldCo 2020 ESPP are attached to this proxy statement/prospectus as Annex C and Annex D, respectively. This proxy statement is also a prospectus provided by Liquidia Corporation, which we refer to as HoldCo, in connection with HoldCo’s offer of its common stock to be issued upon completion of the Merger Transaction.
We will hold a special meeting of our stockholders to obtain the necessary stockholder approvals. This proxy statement/prospectus contains important information about the proposed Merger Transaction and the special meeting of our stockholders. You should read this proxy statement/prospectus carefully.
Your vote is important. We encourage you to vote as soon as possible.
Q:   Why are we proposing the Merger Transaction?
A:    We believe that the combination of the two companies will provide substantial strategic and financial benefits to our stockholders by creating a stronger company primarily focused on the treatment of pulmonary arterial hypertension, or PAH, that is capable of creating more equityholder value than either we or RareGen could individually. Additionally, the combined company will have a scalable PAH commercial infrastructure, it will have experience with PAH commercial launches and the onboarding of PAH experts currently at RareGen to HoldCo’s management and board of directors will serve to fortify the combined company’s PAH expertise. Further, the Merger Transaction also results in immediate cash flow to HoldCo through sales of generic treprostinil via RareGen’s Promotion Agreement, dated as of August 1, 2018, as amended, with Sandoz Inc., or Sandoz, which we refer to herein as the Promotion Agreement. While the Merger Transaction has the potential to create greater value for our stockholders, please see the section entitled “Risk Factors” beginning on page 36 for more information on the risks associated with the Merger Transaction and the business of HoldCo following the Merger Transaction, among other risks. To review our reasons for the Merger Transaction, including specific risks considered by our board of directors in greater detail, see the section entitled “Proposal 1 — The Merger Transaction: Liquidia’s Reasons for the Merger Transaction” beginning on page 95 and “Proposal 1 — The Merger Transaction: RareGen’s Reasons for the Merger Transaction” beginning on page 97.
Q:   Does our board of directors recommend voting in favor of the Merger Agreement?
A:    Yes. After careful consideration, upon the recommendation of the transaction committee of our board of directors, which we refer to as the transaction committee, our board of directors determined that the Merger Transaction is advisable and is fair to, and in the best interests of, our company and our stockholders. Our board of directors recommends that our stockholders vote “FOR” the adoption of the Merger Agreement and approval of the Liquidia Merger.
For a description of the factors considered by our board of directors in making its determination, see the section entitled “Proposal 1 — The Merger Transaction: Liquidia’s Reasons for the Merger Transaction” beginning on page 95.
Q:   What will happen in the Merger Transaction?
A:    In order to combine the Liquidia Technologies and RareGen businesses, we formed a new holding company, Liquidia Corporation, with two subsidiaries, Liquidia Merger Sub and RareGen Merger Sub. At the effective time of the Merger Transaction, RareGen Merger Sub will merge with and into
 
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RareGen, with RareGen surviving the merger as a subsidiary of HoldCo. We refer to this merger as the RareGen Merger. Immediately following the RareGen Merger, an additional merger will occur in which Liquidia Merger Sub will merge with and into Liquidia Technologies, with Liquidia Technologies surviving the merger as a subsidiary of HoldCo. We refer to this merger as the Liquidia Merger. As a consequence of these mergers, Liquidia Technologies and RareGen will each become a subsidiary of HoldCo, and equityholders of Liquidia Technologies and RareGen will become stockholders of HoldCo. We refer to the entire transaction as the Merger Transaction.
Q:   What will happen to Liquidia Technologies if, for any reason, the merger with RareGen does not close?
A:    We have invested significant time and incurred, and expect to continue to incur, significant expenses related to the proposed Merger Transaction. Although our board of directors may elect to, among other things, attempt to complete another strategic transaction, such as the potential formation of a partnership or a licensing transaction with respect to our lead program, LIQ861, for the treatment of PAH, if the Merger Transaction does not close, we will continue to work toward achieving regulatory approval and subsequent commercialization of LIQ861.
Q:   What will Liquidia Technologies and RareGen equityholders receive in the Merger Transaction?
A:    Upon the closing of the Merger Transaction, (i) each share of our common stock, whether certificated or held in book-entry form, will automatically convert into one share of HoldCo common stock, (ii) each option or warrant to purchase our common stock will convert into an option or warrant to purchase an identical number of shares of HoldCo common stock as are underlying such Liquidia Technologies option or warrant, and the exercise price per share will be identical to the Liquidia Technologies option or warrant and (iii) each Liquidia Technologies restricted stock unit will entitle the holder to a HoldCo restricted stock unit, which upon vesting, will settle into a share of HoldCo common stock. Therefore, based on           shares of our common stock outstanding as of            , 2020, our stockholders will receive, in the aggregate, a total of           shares of HoldCo common stock, or approximately      % of the HoldCo common stock outstanding at the closing of the Merger Transaction (which, for the avoidance of doubt, includes the Holdback Shares but excludes the Net Sales Earnout Shares, as discussed below), and holders of our common stock, options and warrants to purchase shares of our common stock and our restricted stock units will receive, in the aggregate, a total of           shares of HoldCo common stock, or approximately      % of the HoldCo common stock at the closing of the Merger Transaction, on a fully diluted basis.
Example:   If a Liquidia Technologies stockholder owns 10,000 shares of our common stock and an option to purchase 1,000 shares of our common stock, then as a result of the Merger Transaction, the stockholder will receive 10,000 shares of HoldCo common stock and an option to purchase 1,000 shares of HoldCo common stock.
Upon the closing of the Merger Transaction, all 10,000 RareGen common units, representing all of the issued and outstanding RareGen equity, will convert into the right to receive an aggregate of 6,166,666 shares of HoldCo common stock, including 616,666 shares of HoldCo common stock which will be withheld from RareGen members to secure the indemnification obligations of RareGen members, which we refer to as Holdback Shares. RareGen members will be entitled to receive, on a pro rata basis, any Holdback Shares remaining on March 31, 2022. Additionally, RareGen members shall be entitled to a pro rata portion of any RareGen cash at closing in excess of $1.0 million. RareGen members will also be entitled to receive up to an additional 2,708,333 shares of HoldCo common stock in the aggregate, based on the amount of 2021 net sales of the generic treprostini product owned by Sandoz which RareGen markets pursuant to a Promotion Agreement between the parties. See “Under what circumstances, and when, will RareGen members receive additional HoldCo shares or other consideration following the closing of the Merger Transaction?” below.
Example:   If a RareGen member owns 75 common units, then as a result of the Merger Transaction, the RareGen member will be entitled to receive 41,625 shares of HoldCo common stock and its pro rata portion of any RareGen cash in excess of $1.0 million at the closing of the Merger Transaction, and will be entitled to receive up to 4,625 Holdback Shares on or about March 31, 2022 and up to 20,312 Net Sales Earnout Shares in 2022, based on the amount of net sales of Sandoz’s generic treprostinil product in 2021.
 
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See “Under what circumstances, and when, will RareGen members receive additional HoldCo shares or other consideration following the closing of the Merger Transaction?” below for more information.
Q:   How will warrants, stock options and restricted stock units be affected by the Merger Transaction?
A:    Each outstanding warrant and option to purchase our common stock, and each restricted stock unit, will be assumed by HoldCo at the effective time of the Merger Transaction on a one-for-one basis. HoldCo will assume each outstanding award under the Liquidia Technologies, Inc. Stock Option Plan, as amended, the Liquidia Technologies, Inc. 2016 Equity Compensation Plan, as amended, and the Liquidia Technologies, Inc. 2018 Long-Term Incentive Plan, which we collectively refer to herein as the Liquidia Equity Plans. Each assumed award will continue to have, and be subject to, the same terms and conditions set forth in the applicable foregoing plans, except as noted below. RareGen does not have any outstanding options.
Each option and warrant to purchase shares of our common stock outstanding immediately prior to the effective time of the Merger Transaction will become an option or warrant to purchase shares of HoldCo common stock, with an identical exercise price per share. Each Liquidia Technologies restricted stock unit will become a HoldCo restricted stock unit. Each assumed Liquidia Technologies option and restricted stock unit will be vested as to the same percentage of the total number of shares as it was vested immediately prior to the effective time of the Merger Transaction. No consent of our option holders, warrant holders or restricted stock unit holders is needed to effect the assumption of such derivative securities by HoldCo. Each outstanding warrant to purchase our common stock will be assumed by HoldCo at the effective time of the Merger Transaction. Each assumed Liquidia Technologies warrant will be exercisable for a like number of shares of HoldCo common stock with an identical exercise price per share as such Liquidia Technologies warrant.
For more information about how our stock options, warrants and restricted stock units will be affected by the Merger Transaction, see the section entitled “Proposal 1 — The Merger Transaction: Treatment of Stock Options, Warrants and Restricted Stock Units” beginning on page 113.
Q:   What are the differences between Liquidia Corporation and Liquidia Technologies?
A:   As Liquidia Technologies’ successor following the closing of the Merger Transaction, the certificate of incorporation and bylaws of HoldCo are substantially identical to the amended and restated certificate of incorporation, as amended, and the amended and restated bylaws of our company. The only changes between the governing documents of our company and HoldCo are (i) the company name, (ii) the number of shares of HoldCo common stock authorized under the HoldCo certificate of incorporation (80,000,000 shares) versus the number of shares of our common stock currently authorized under our amended and restated certificate of incorporation, as amended (60,000,000 shares) and (iii) the addition of an exclusive federal forum provision in HoldCo’s bylaws for the resolution of any complaint asserting a cause of action arising under the Securities Act. As such, the rights of our stockholders contained in the amended and restated certificate of incorporation, as amended, and amended and restated bylaws of our company will not substantially change following the Merger Transaction. Further, Liquidia Corporation will be the parent company to both Liquidia Technologies and RareGen following the Merger Transaction, as opposed to Liquidia Technologies operating as a standalone company.
Q:   What vote is required by our stockholders to adopt the Merger Agreement and approve the Liquidia Merger?
A:    The affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote on the matter is required to adopt the Merger Agreement and approve the Liquidia Merger. See “Voting Procedures” above on page 1 for more information.
Q:   What vote is required by our stockholders to approve the HoldCo 2020 Incentive Plan?
A:    The affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy at the special meeting and entitled to vote on the matter is required to approve the HoldCo 2020 Incentive Plan. See “Voting Procedures” above on page 1 for more information.
 
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Q:   What vote is required by our stockholders to approve the HoldCo 2020 ESPP?
A:    The affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy at the special meeting and entitled to vote on the matter is required to approve the HoldCo 2020 ESPP. See “Voting Procedures” above on page 1 for more information.
Q:   What vote is required by our stockholders to ratify the appointment of PricewaterhouseCoopers LLP as HoldCo’s independent registered public accounting firm for the year ending December 31, 2020?
A:    The affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy at the special meeting and entitled to vote on the matter is required to ratify the appointment of PricewaterhouseCoopers LLP as HoldCo’s independent registered public accounting firm for the year ending December 31, 2020. See “Voting Procedures” above on page 1 for more information.
Q:   What vote is required by our stockholders to approve the grant of discretionary authority to our board of directors to adjourn or postpone the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes in favor of Proposals 1, 2, 3 or 4?
A:    Regardless of whether a quorum is present, the affirmative vote of the holders of a majority of the shares of our common stock present or represented by proxy at the special meeting and entitled to vote on the matter is required to approve the grant of discretionary authority to our board of directors to adjourn or postpone the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes in favor of Proposals 1, 2, 3 or 4. See “Voting Procedures” above on page 1 for more information.
Q:   Have any of our stockholders agreed to vote in favor of the Merger Transaction?
A:    In connection with the Merger Agreement, (i) Mr. Fowler, our and HoldCo’s Chief Executive Officer and a director of our company and HoldCo, (ii) Canaan VIII L.P., a 5% stockholder of our company, (iii) Eshelman Ventures, LLC and Fredric N. Eshelman, together a principal stockholder of our company, and (iv) New Enterprise Associates 12, Limited Partnership and NEA Ventures 2006 Limited Partnership, together a 5% stockholder of our company, which we refer to collectively as the Supporting Stockholders and which beneficially own an aggregate of approximately 34.5% of our common stock outstanding as of the date of this proxy statement/prospectus, each entered into a separate Support Agreement with us, HoldCo and RareGen pursuant to which, among other things, each Supporting Stockholder agreed to support the Merger Transaction by voting the portion of the shares of our common stock over which such Supporting Stockholder has the power to vote (to the extent permitted by applicable law, rule or regulation) in favor of the Merger Agreement and the transactions contemplated thereby. The Support Agreements will terminate upon the earlier of (i) the consummation of the Merger Transaction and (ii) the date on which the Merger Agreement is validly terminated in accordance with its terms. For more information, see “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Support Agreements” beginning on page 138.
We currently expect that our directors and executive officers will vote their shares in favor of each of the proposals, although none of them has entered into any agreement obligating them to do so, except for Mr. Fowler as indicated above.
Q:   What percentage of the outstanding common stock is held by our executive officers and directors as a group?
A:    Our executive officers and directors as a group beneficially own approximately 3.2% of the outstanding shares of our common stock of as of July 15, 2020, reflective of (i) shares of common stock that are subject to options and warrants that are currently exercisable within 60 days of that date and (ii) shares of common stock underlying restricted stock units which will have settled into common stock within 60 days of that date.
Q:   What vote was required by RareGen members to adopt the Merger Agreement and approve the RareGen Merger?
A:    The affirmative vote of a majority of the outstanding common units held was required to adopt the Merger Agreement and approve the RareGen Merger, or the Requisite RareGen Approval. Prior to the
 
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execution of the Merger Agreement, RareGen obtained the Requisite RareGen Approval. As a result, no further RareGen member approval or action is necessary to complete the Merger Transaction.
Q:   Do the directors, officers or affiliates of Liquidia or RareGen have any interests in the Merger Transaction that are different than, or in addition to, the interests of Liquidia and RareGen equityholders generally?
A:    Roger A. Jeffs, Ph.D. and Paul B. Manning, current directors of RareGen, will become directors of HoldCo after the Merger Transaction and will be entitled to receive compensation as directors of HoldCo. Mr. Manning is the manager and sole beneficial owner of PBM Capital Finance, which currently owns 70.65% of RareGen’s common units. Dr. Jeffs is the manager of Serendipity BioPharma LLC, which currently owns 25.00% of RareGen’s common units. Dr. Jeffs and Mr. Manning currently own 18,595 and 1,018,466 shares, respectively, of our common stock through various entities which they control. Effective upon the Merger Transaction, the HoldCo board of directors approved an increase in the authorized number of directors of HoldCo from eight to nine. One current director of HoldCo will resign as a director of HoldCo after the Merger Transaction.
See the section entitled “Directors and Officers of HoldCo Following Completion of the Merger Transaction: Director Compensation” beginning on page 150 for a description of the compensation to be received by HoldCo’s directors, which compensation will be the same as what is currently payable to our directors. Additionally, see the section entitled “Proposal 1 — The Merger Transaction: Interests of Certain Directors, Officers and Affiliates of Liquidia and RareGen” beginning on page 116 for a discussion of amounts payable to our transaction committee in connection with the Merger Transaction.
The current officers of Liquidia Technologies will retain their same positions and salaries at HoldCo as those currently held at Liquidia Technologies. One current officer of RareGen, namely Scott Moomaw, RareGen’s Chief Operating Officer, will become an executive officer of HoldCo after the Merger Transaction. Mr. Moomaw is expected to become Senior Vice President, Commercial of HoldCo effective immediately following the Merger Transaction and will receive, among other benefits, an annual salary and a discretionary annual cash bonus commensurate with our other senior executive officers on Mr. Moomaw’s level, and an incentive stock option grant to purchase shares of HoldCo common stock on his first day of employment, vesting over a four-year period with an exercise price equal to the then-fair market value of HoldCo common stock. Damian deGoa, RareGen’s Chief Executive Officer, will resign effective as of the closing of the Merger Transaction.
Pursuant to Mr. deGoa’s and Mr. Moomaw’s current employment agreements with RareGen, upon the closing of the Merger Transaction, (i) Mr. deGoa is eligible to receive a one-time bonus equal to four percent of the total amount of cash and the fair market value of other property actually paid to the members of RareGen in their capacity as such in connection with the Merger Transaction, and (ii) Mr. Moomaw is eligible to receive a one-time bonus equal to two percent of the total amount of cash and the fair market value of other property actually paid to the members of RareGen in their capacity as such in connection with the Merger Transaction. The amounts to be paid to Messrs. deGoa and Moomaw due to the consummation of the Merger Transaction are included in the transaction expenses to be paid by RareGen’s members and cannot be calculated until closing. For more information on the transaction bonuses payable to Messrs. deGoa and Moomaw, see the section entitled “Directors and Executive Officers of RareGen: Executive Compensation: Narrative Disclosure to Summary Compensation Table: deGoa and Moomaw Employment Agreements” beginning on page 163.
Q:   Under what circumstances, and when, will RareGen members receive additional HoldCo shares or other consideration following the closing of the Merger Transaction?
A:    Pursuant to the terms of the Merger Agreement, RareGen members will receive 6,166,666 shares of HoldCo common stock upon the closing of the Merger Transaction, including 616,666 shares of HoldCo common stock which will be withheld at closing, for the purpose of securing the indemnification obligations of RareGen members to Liquidia indemnitees. On March 31, 2022, any remaining Holdback Shares shall be disbursed to Computershare Trust Company, N.A., which we refer to herein and in the Merger Agreement as the Exchange Agent, for distribution to RareGen members on a pro rata basis. Additionally, RareGen members shall be entitled to a pro rata portion of any RareGen cash at closing in excess of $1 million, which
 
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is referred to in the Merger Agreement as the “Minimum Cash Amount”. For more information, see “Proposal 1 — The Merger Transaction: The Merger Consideration and Conversion of Securities: Holdback Shares” on page 111 and “The Merger Agreement — Indemnification” beginning on page 130.
Additionally, pursuant to the terms of the Merger Agreement, in 2022 RareGen members will be entitled to receive, on a pro rata basis in the aggregate, up to an aggregate of 2,708,333 shares of HoldCo common stock, based on the amount of 2021 net sales of Sandoz’s generic treprostinil product (as calculated pursuant to the Promotion Agreement). Specifically, the actual amount of shares of HoldCo common stock which RareGen members are entitled to receive on a pro rata basis is subject to a bi-directional sliding scale of 70% — 130% of $47.0 million of net sales of Sandoz’s generic treprostinil product. Such additional shares are referred to as “Net Sales Earnout Shares” in the Merger Agreement. For example, if 2021 net sales falls within $32.9 million (70% of $47.0 million) — $61.1+ million (130% of $47.0 million), then HoldCo shall issue to RareGen members, on a pro rata basis, between 1,458,333 shares — 2,708,333 shares of Net Sales Earnout Shares. For the avoidance of doubt, if 2021 net sales are less than $32.9 million, then no Net Sales Earnout Shares shall be issued to RareGen members, and if 2021 net sales are greater than $61.1 million, then the maximum 2,708,333 Net Sales Earnout Shares will be issued to RareGen’s members on a pro rata basis.
Q:   Under what circumstances will RareGen members be required to indemnify Liquidia or its affiliates, and will the damages be paid in shares of HoldCo common stock or cash?
A:    The representations and warranties made by RareGen will survive the effective date of the Merger Transaction and remain in full force and effect until on March 31, 2022. Notwithstanding the foregoing, the representations and warranties in Section 3.1.1 (Organization and Qualification; Subsidiaries), Section 3.3 (Capitalization) and Section 3.4 (Authority), which are referred to in the Merger Agreement as “Fundamental Representations”, shall survive indefinitely and the representations and warranties in Section 3.17 (Taxes) shall survive until the date that is 60 days after expiration of the applicable statute of limitations period. The RareGen members, severally and not jointly, in proportion to their respective pro rata ownership of RareGen, shall indemnify and defend each of us, HoldCo and our officers, directors, employees, accountants (other than our public accountants), consultants, legal counsel, advisors, agents and other representatives, which group is collectively referred to as the Liquidia Indemnitees, against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all losses incurred or sustained by, or imposed upon, the Liquidia Indemnitees arising out of or resulting from:

any inaccuracy in or breach of any of the representations or warranties of RareGen contained in the Merger Agreement or in any certificate or instrument delivered by or on behalf of RareGen pursuant to the Merger Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the closing date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date);

any breach or non-fulfillment of any covenant, agreement or obligation to be performed by RareGen pursuant to the Merger Agreement;

any “Indemnified Taxes,” as defined in the Merger Agreement; or

any “Transaction Expenses,” as defined in the Merger Agreement.
Notwithstanding the foregoing, the RareGen members shall not have any liability under the Merger Agreement for any individual direct claim or third party claim if the losses associated therewith are less than $25,000, or the Claim Threshold, and any such losses below such claim threshold shall not be taken into account or aggregated for purposes of determining the applicability of the “Basket” (as defined below). Furthermore, RareGen members shall not be liable to the Liquidia Indemnitees for indemnification described above until the aggregate amount of all losses in respect of indemnification exceeds $200,000, which is referred to as the “Basket” in the Merger Agreement, in which event the RareGen members shall be required to pay or be liable for all such losses in excess of the Basket. Other than losses arising out of or resulting from any inaccuracy in or breach of any Fundamental Representation, indemnified taxes, transaction expenses or arising from fraud, the aggregate amount of all losses for which the RareGen members shall be liable pursuant to the foregoing section shall not exceed $3,700,000, which is referred to as the “Cap” in
 
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the Merger Agreement. The aggregate amount of all losses for which the RareGen members shall be liable (other than fraud claims pursuant to the Merger Agreement) shall not exceed the lesser of (i) such RareGen member’s percentage share of such losses and (ii) the portion of the merger consideration actually received by the RareGen member.
A reduction of the number of Holdback Shares shall be the sole recourse and the exclusive remedy for the Liquidia Indemnitees against the RareGen members for satisfaction of the indemnification obligations of the RareGen members pursuant the Merger Agreement, except in the case of any losses arising out of any inaccuracy in or breach of any Fundamental Representation, indemnified taxes, transaction expenses or arising from fraud. The Liquidia Indemnitees shall seek recovery for any losses arising out of any inaccuracy in or breach of any Fundamental Representation, indemnified taxes, transaction expenses or arising from fraud, (a) first, as a reduction of the number of Holdback Shares (to the extent there remains any Holdback Shares available for such reduction), (b) second, at the election of the indemnifying party, from (i) the return of shares of HoldCo common stock issued to the indemnifying party pursuant to the Merger Agreement, or (ii) as an offset to any Net Sales Earnout Shares issuable to the indemnifying party, and (c) third, directly from the RareGen members by wire transfer of immediately available funds. Notwithstanding the foregoing, the Members’ Representative may elect, in its sole discretion, for any losses to be satisfied via wire transfer of immediately available funds in lieu of any reduction to the number of Holdback Shares, return of shares of HoldCo common stock or offset against the Net Sales Earnout Shares. Any losses payable to a Liquidia Indemnitee pursuant to the indemnification provisions contained in the Merger Agreement shall be satisfied from the RareGen members, severally and not jointly, in proportion to their respective pro rata ownership of RareGen. Additionally, all indemnification payments made under the Merger Agreement shall be treated by the parties as an adjustment to the merger consideration for tax purposes, unless otherwise required by law.
Q:   Under what circumstances will Liquidia Technologies or HoldCo be required to indemnify the RareGen members or their affiliates, and will the damages be paid in shares of HoldCo common stock or cash?
A:    The representations and warranties of our company, HoldCo Liquidia Merger Sub and RareGen Merger Sub shall survive the closing and shall remain in full force and effect until March 31, 2022; provided, that the representations and warranties in Section 4.1 (Organization and Qualification; Subsidiaries), Section 4.3 (Authority) and 4.15 (Exclusivity of Representations), which are referred to in the Merger Agreement as the “HoldCo Fundamental Representations,” shall survive indefinitely. HoldCo shall indemnify and defend each RareGen member and their respective directors, officers, employees, accountants, consultants, legal counsel, advisors, agents and other representatives, which group is collectively referred to as the RareGen Member Indemnitees, against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all losses incurred or sustained by, or imposed upon, the RareGen Member Indemnitees arising out of or resulting from:

any inaccuracy in or breach of any of the representations or warranties of our company, HoldCo, Liquidia Merger Sub or RareGen Merger Sub contained in the Merger Agreement or in any certificate or instrument delivered by or on behalf of our company, HoldCo, Liquidia Merger Sub or RareGen Merger Sub pursuant to the Merger Agreement, as of the date such representation or warranty was made or as if such representation or warranty was made on and as of the closing date (except for representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified date); or

any breach or non-fulfillment of any covenant, agreement or obligation to be performed by us, HoldCo, Liquidia Merger Sub or RareGen Merger Sub pursuant to the Merger Agreement.
Notwithstanding the foregoing, HoldCo shall not have any liability under the Merger Agreement for any individual direct claim or third party claim if the losses associated therewith are less than the Claim Threshold and any such losses below such Claim Threshold shall not be taken into account or aggregated for purposes of determining the applicability of the Basket. Additionally, HoldCo shall not be liable to the RareGen Member Indemnitees until the aggregate amount of all losses exceeds the Basket, in which event HoldCo shall be required to pay or be liable for all such losses in excess of the Basket. Other than losses arising out of or resulting from any inaccuracy in or breach of any HoldCo Fundamental Representation (as defined below), the aggregate amount of all losses for which HoldCo shall be liable thereunder shall not
 
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exceed the Cap. The aggregate amount of all losses arising out of or resulting from any inaccuracy in or breach of any HoldCo Fundamental Representation for which HoldCo shall be liable, when added to any other losses for which RareGen members may be liable thereunder, shall not exceed the value of the merger consideration actually paid to the RareGen members.
Q:   When do you expect to complete the Merger Transaction?
A:    We and RareGen are working to complete the Merger Transaction as quickly as possible. We and RareGen expect to complete the Merger Transaction late in the third calendar quarter of 2020 or early in the fourth calendar quarter of 2020. However, we and RareGen cannot predict the exact timing of the completion of the Merger Transaction because the transaction is subject to several conditions.
For a description of the conditions to completion of the Merger Transaction, see the section entitled “The Merger Agreement — Conditions to the Completion of the Merger Transaction” beginning on page  127.
Q:   Where will my shares of HoldCo common stock be listed? (see page 32)
A:    HoldCo common stock is expected to be listed on the Nasdaq Capital Market under the symbol “LQDA” as the successor to Liquidia Technologies.
Q:   Are there any regulatory consents or approvals that are required to complete the Merger Transaction?
A:    Neither we nor RareGen are aware of the need to obtain any regulatory approvals in order to complete the Merger Transaction other than the declaration by the SEC of the effectiveness of the registration statement of which this proxy statement/prospectus is a part.
We and RareGen intend to obtain the SEC’s approval and any additional regulatory approvals that may be required. However, none of the parties can assure you that all of the approvals will be obtained.
Q:   Are there contractual conditions to completion of the Merger Transaction? (see page 127)
A:   Yes. Our and RareGen’s obligations to complete the Merger Transaction are subject to the satisfaction or waiver of certain conditions. The conditions to the obligations of our company and RareGen that must be satisfied or waived before the completion of the Merger Transaction include, among other things, the following, subject to certain exceptions and qualifications:

declaration by the SEC of the effectiveness of the registration statement of which this proxy statement/prospectus is a part and the absence of any stop order suspending such effectiveness;

our stockholder approval of the Merger Agreement and the Liquidia Merger;

absence of any order by any governmental entity or court, or consent, approval or other authorization, that prevents or prohibits the Merger Transaction or any other transactions contemplated by the Merger Agreement, and the absence of any pending legal proceeding seeking such order;

the receipt of all required consents, approvals and authorizations of any governmental, administrative, judicial or regulatory authority;

the Hart-Scott-Rodino Act, or the HSR Act, waiting period (together with any extensions thereof) relating thereto shall have expired or been terminated, if applicable;

RareGen and the Members’ Representative shall have entered into the litigation funding and indemnification agreement; and

the HoldCo common stock issuable to our stockholders and RareGen members in the Merger Transaction being approved for listing on the Nasdaq Capital Market, subject to official notice of issuance.
Pursuant to a Limited Waiver and Modification to the Merger Agreement, dated as of August 3, 2020, (i) RareGen has waived the requirement in the Merger Agreement that the shares issuable to RareGen members in the Merger Transaction be registered on the registration statement of which this proxy statement/prospectus is a part and (ii) HoldCo has covenanted and agreed to file with the SEC a resale
 
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registration statement as promptly as practicable following the closing of the Merger Transaction to register for resale the shares of HoldCo common stock issuable to RareGen members in the Merger Transaction and to use reasonable best efforts to cause such resale registration statement to be declared effective by the SEC within 60 days following the closing date of the Merger Transaction.
The conditions to the obligations of our company to effect the Liquidia Merger also include, among other things, the following, subject to certain exceptions and qualifications:

the continued truth and correctness at the closing of the Merger Transaction of the representations and warranties given by RareGen as of the date of the execution of the Merger Agreement; or, if this condition is not so satisfied, any failures of such representations and warranties to be so true and correct do not have, in the aggregate, a material adverse effect on the assets, liabilities, business, financial condition, results of operations or capitalization of RareGen;

RareGen’s performance or compliance in all material respects with all agreements and covenants required by the Merger Agreement on or prior to the effective time of the Merger Transaction;

RareGen’s services agreement with PBM Capital Group shall be terminated or, by agreement of us, RareGen and PBM Capital Group, amended and restated, in either case as of the effective time of the Merger Transaction;

the resignation of all RareGen officers, directors, and Joint Steering Committee members (other than Scott Moomaw) and the termination of Damian deGoa’s employment agreement with RareGen;

Sandoz’s consent and waiver to the transactions contemplated by the Merger Agreement shall be in effect and shall not have been rescinded or conditioned as of the effective time of the Merger Transaction;

PBM Capital Finance and Serendipity BioPharma LLC, or Serendipity, shall have executed a Cooperation Agreement, and each RareGen member shall have executed and delivered a lock-up agreement, each as further described below under “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement” beginning on page 135; and

RareGen shall have cash as of closing equal to at least $1,000,000.
The Sandoz consent and waiver included in the first amendment to the Promotion Agreement is effective through September 30, 2020. In the event that the Merger Transaction does not close on or before September 30, 2020, RareGen will need to obtain an extension to Sandoz’s consent and waiver in order to satisfy the condition to closing.
The conditions to the obligations of RareGen to effect the RareGen Merger also include, among other things, the following, subject to certain exceptions and qualifications:

the continued truth and correctness at the closing of the Merger Transaction of the representations and warranties given by HoldCo, our company, Liquidia Merger Sub and RareGen Merger Sub as of the date of the execution of the Merger Agreement; or, if this condition is not so satisfied, any failures of such representations and warranties to be so true and correct do not have, in the aggregate, a material adverse effect on the assets, liabilities, business, financial condition, results of operations or capitalization of HoldCo, our company, Liquidia Merger Sub or RareGen Merger Sub;

the performance or compliance in all material respects by HoldCo, our company, Liquidia Merger Sub and RareGen Merger Sub with all agreements and covenants required by the Merger Agreement on or prior to the effective time of the Merger Transaction; and

we shall have taken all necessary action to ensure that Dr. Jeffs and Mr. Manning shall have been appointed to the HoldCo board of directors as of the effective time of the Merger Transaction.
Q:   Does the Merger Agreement permit termination of the Merger Transaction? (see page 134)
A:    Yes. The Merger Agreement may be terminated prior to the effectiveness of the Merger Transaction under the following conditions, subject to certain exceptions and qualifications:

by mutual written consent of us and RareGen;
 
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by either us or RareGen if the Merger Transaction has not been completed by December 31, 2020;

by either us or RareGen if a governmental entity has taken any final and non-appealable action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement and the related agreements;

by either us or RareGen if our stockholders have not adopted the Merger Agreement and approved the Merger Transaction;

by us, if our board of directors determines to accept a superior proposal (as defined in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 134), but only after we (i) provide RareGen with not less than five business days’ notice of our determination to accept such superior proposal, including all material terms thereof and (ii) fulfills our obligations in the Merger Agreement upon such termination; and

by either us or RareGen if any representation, warranty, covenant or agreement of the other party set forth in the Merger Agreement is or becomes untrue in a manner that would result in a failure of a closing condition and is not curable within 30 days after written notice.
Q:   Could payment of termination fees be required? (see page 134)
A:    Yes. If the Merger Agreement is terminated (i) by us if our board of directors decides to accept a superior proposal or (ii) by RareGen if our board of directors changes its recommendation to stockholders following the receipt of an alternative proposal, then we shall pay to RareGen a termination fee of $7.5 million, as more fully discussed in the section entitled “The Merger Agreement — Termination Fee” beginning on page 134.
Q:   May we or RareGen negotiate with other parties? (see page 126)
A:    The Merger Agreement contains provisions prohibiting us or RareGen from seeking an alternative transaction to the Merger Transaction. These “no solicitation” provisions apply to us and RareGen and their respective officers, directors, affiliates or employees as well as any investment banker, attorney or other advisor or representative retained by any of them. Under these provisions, covered persons may not, directly or indirectly:

solicit, initiate or knowingly encourage or facilitate any alternative proposal (as defined under “Merger Agreement: Meeting of Stockholders” on page 122) or RareGen acquisition proposal (as defined in the section entitled “The Merger Agreement — No Solicitation” beginning on page 126);

enter into any agreement with respect to any alternative proposal or RareGen acquisition proposal, as applicable, or enter into any agreement with respect to any alternative proposal or RareGen acquisition proposal or enter into any agreement or understanding requiring the abandonment, termination or failure to complete the Merger Transaction or any other transaction contemplated by the Merger Agreement or any ancillary agreement; or

participate in discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any alternative proposal or RareGen acquisition proposal, as applicable.
Notwithstanding the restrictions described above, if at any time prior to obtaining stockholder approval of the Merger Transaction at our special meeting, we and/or our representatives receive a bona fide, unsolicited written acquisition proposal that did not result from a breach of the Merger Agreement, we and/or our representatives may engage in negotiations and discussions with, and furnish any information and other access (so long as all such information and access has previously been made available to RareGen or is made available to RareGen before or concurrently with the time such information or access is made available to such person) to, any person making such alternative proposal if, and only if, our board of directors determines in good faith, after consultation with our outside legal and financial advisors, that (i) such alternative proposal constitutes or is reasonably likely to become a superior proposal and (ii) the failure of our board of directors to furnish such information or access or enter into such discussions or negotiations would violate its fiduciary duties under applicable law; but before furnishing any such information, we shall
 
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have received from the person making such alternative proposal an executed confidentiality agreement with terms at least as restrictive in all material respects on such person as the confidentiality agreement between us and RareGen, which confidentiality agreement shall not prohibit us from complying with the terms of this “no solicitation” covenant.
For more information, please see the section entitled “The Merger Agreement — No Solicitation” beginning on page 126.
Q:   Will our stockholders recognize a taxable gain or loss for U.S. federal income tax purposes as a result of the Merger Transaction?
A:    Based upon customary covenants, assumptions and representations as to factual matters described in the section entitled “Proposal 1 — The Merger Transaction: Material U.S. Federal Income Tax Consequences” beginning on page 114, all of which must continue to be true and accurate as of the effective time of the Merger Transaction, the Merger Transaction is intended to qualify as an exchange described in Section 351 of the Internal Revenue Code of 1986, as amended, or the Code. Provided the Merger Transaction is treated as intended, stockholders should generally not recognize taxable gain or loss for U.S. federal income tax purposes as a result of the Merger Transaction.
Tax matters are very complicated, and the tax consequences of the Merger Transaction to our stockholders will depend on the facts of each stockholder’s own situation. For a description of the material U.S. federal income tax consequences of the Merger Transaction to our stockholders, please see the information set forth in the section entitled “Proposal 1 — The Merger Transaction: Material U.S. Federal Income Tax Consequences” beginning on page 114. Each stockholder is also encouraged to consult the stockholder’s own tax advisor for a full understanding of the tax consequences of the Merger Transaction.
Q:   What is the anticipated accounting treatment for the Merger Transaction?
A:    In accordance with U.S. generally accepted accounting principles, HoldCo will account for the acquisition of RareGen through the Merger Transaction under the acquisition method of accounting for business combinations, and we will be treated as the accounting acquirer. For more information, please see the section entitled “Proposal 1 — The Merger Transaction: Accounting Treatment” beginning on page 116.
Q:   What if I object to the Merger Transaction? Do I have appraisal rights?
A:    Under applicable Delaware law, our stockholders and RareGen members will not have appraisal rights in connection with the issuance of HoldCo common stock in the Merger Transaction.
Q:   Will HoldCo have a different CUSIP or ticker symbol than Liquidia Technologies following completion of the Merger Transaction?
A:    No, following completion of the Merger Transaction, HoldCo will have the same CUSIP and ticker symbol, “LQDA”, as Liquidia Technologies.
Q:   Will HoldCo bear the costs and expenses and be responsible for all final, non-appealable damages of RareGen’s and Sandoz’s litigation with United Therapeutics Corporation or realize any recovery from such litigation?
A:    No. On June 4, 2020 RareGen entered into a financing agreement with Henderson SPV, LLC, or Henderson, to cover the prospective costs of the litigation, or the UTC/Smiths Medical litigation, with United Therapeutics Corporation, or United Therapeutics, and Smiths Medical ASD, Inc., or Smiths Medical, from the date of this agreement. Additionally, pursuant to a litigation funding and indemnification agreement between RareGen and the Members’ Representative to be effective at the closing of the Merger Transaction, which we refer to as the litigation funding and indemnification agreement, in the event Henderson is no longer required to, or fails to timely, make payments to RareGen pursuant to the financing agreement, the Members’ Representative will make payments to or on behalf of RareGen to be used by RareGen exclusively for the payment of counsel fees and litigation expenses incurred in connection with the UTC/Smiths Medical litigation. As consideration for funding the UTC/Smiths Medical litigation, Henderson and the Members’ Representative are each entitled to a portion of the litigation proceeds prior to such proceeds, upon a settlement or recovery of final, non-appealable damages, ultimately being distributed to RareGen
 
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members on a pro rata basis. HoldCo or its subsidiaries post-closing will not be entitled to any proceeds resulting from, or bear any financial or other liability for, the UTC/Smiths Medical litigation. For more information on the financing agreement and the litigation funding and indemnification agreement, see “RareGen’s Business: Legal Proceedings and Related Agreements” beginning on page 76 and “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Litigation Funding and Indemnification Agreement” beginning on page 139, respectively.
Q:   Are there other proposals that I should consider?
A:    Yes. In connection with the Merger Transaction, we are also asking its stockholders to consider and vote to approve the HoldCo 2020 Incentive Plan, approve the HoldCo 2020 ESPP, ratify ratify the appointment of HoldCo’s independent auditor for 2020 and grant discretionary authority to our board of directors to adjourn or postpone the special meeting to a later date if there are insufficient votes in favor of Proposals 1, 2, 3 or 4.
Q:   What do I need to do now?
A:    You are encouraged to carefully read and consider the information contained in this proxy statement/prospectus, including the annexes, and to consider how the Merger Transaction and other proposals will affect you. You should also review the documents referenced under the section entitled “Where You Can Find Additional Information” beginning on page 202. If you are a Liquidia Technologies stockholder, you should then submit a proxy as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card or submit your voting instructions over the internet or by telephone if those options are available to you.
Q:   How do I vote?
A:    If you are a holder of record of our common stock on the Record Date, you are eligible to vote virtually at the special meeting or by submitting a proxy for the special meeting. See above under “Voting Instructions” for more information on voting at the special meeting.
Q:   Do our stockholders need to take any action with respect to their Liquidia Technologies common stock holdings?
A:    No. Each share of our common stock issued and outstanding immediately prior to the effective time of the Merger Transaction, whether certificated or held in book-entry form, shall be converted into an equal number of shares of HoldCo common stock without any action on the part of the holder. All such shares of our common stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist.
Q:   What should I do if I receive more than one set of voting materials?
A:    You may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold our shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Our stockholders should complete, sign, date and return each proxy card and voting instruction card they receive. See above under “Voting Instructions” for more information on voting at the special meeting.
 
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Q:   Whom should I call with questions?
A:    If you have any questions about the Merger Transaction or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card, you should contact:
Liquidia Technologies, Inc.
P.O. Box 110085
Research Triangle Park, North Carolina 27709
Tel: (919) 328-4400
Attn: Corporate Secretary
You may also obtain additional information about Liquidia Technologies and HoldCo from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find Additional Information” beginning on page 202.
 
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SUMMARY
We are sending this proxy statement/prospectus to our stockholders. In addition, HoldCo will send this proxy statement/prospectus to offerees of its common stock to be issued upon completion of the Merger Transaction. This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the Merger Transaction, you should read this entire document carefully, including the Merger Agreement attached as Annex A and incorporated by reference in this proxy statement/prospectus, the opinion of Jefferies LLC attached as Annex B and the other documents referred to in this proxy statement/prospectus. Page references have been included parenthetically to direct you to a more complete description of the topics presented in this summary.
The Parties to the Merger Agreement
Liquidia Technologies, Inc.
419 Davis Drive, Suite 100
Morrisville, North Carolina 27560
Tel: (919) 328-4400
We are a late-stage clinical biopharmaceutical company focused on the development and commercialization of novel products using its proprietary PRINT® technology to transform the lives of patients. PRINT is a particle engineering platform that enables precise production of uniform drug particles designed to improve the safety, efficacy and performance of a wide range of therapies. Currently, we are focused on the development of two product candidates for which it holds worldwide commercial rights: LIQ861 for the treatment of pulmonary arterial hypertension, or PAH, and LIQ865 for the treatment of local post-operative pain. We are headquartered in Research Triangle Park, NC. For more information, please visit www.liquidia.com. Our principal executive offices are located at 419 Davis Drive, Suite 100, Morrisville, North Carolina 27560 and its telephone number is (919) 328-4400.
This proxy statement/prospectus incorporates important business and financial information about us from other documents that are incorporated by reference. See the section entitled “Where You Can Find Additional Information” beginning on page 202.
RareGen, LLC
c/o PBM Capital Group, LLC
200 Garrett Street, Suite S
Charlottesville, Virginia 22902
Tel: (434) 980-8100
RareGen is a portfolio company of PBM Capital, a healthcare investment firm. RareGen provides strategy, investment, and commercialization for rare disease pharmaceutical products. RareGen has a small, targeted sales force focused on PAH. Pursuant to its Promotion Agreement with Sandoz, RareGen owns the exclusive rights to conduct any and all promotional and non-promotional activities to encourage the appropriate use of the first-to-file fully substitutable generic treprostinil injection for the treatment of patients with PAH in the United States. See “RareGen’s Business” beginning on page 69 for more information. RareGen’s principal executive offices are located at c/o PBM Capital Group, LLC, 200 Garrett Street, Suite S, Charlottesville, Virginia 22902 and its telephone number is (434) 980-8100.
Liquidia Corporation
419 Davis Drive, Suite 100
Morrisville, North Carolina 27560
Tel: (919) 328-4400
Liquidia Corporation, which we refer to as HoldCo, is a newly formed corporation that has not, to date, conducted any activities other than those incident to its formation, the matters contemplated by the Merger Agreement and the preparation of this proxy statement/prospectus. Upon completion of the Merger Transaction, we and RareGen will each become a subsidiary of HoldCo. The business of HoldCo will be the combined businesses currently conducted by our company and RareGen.
 
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Gemini Merger Sub I, Inc.
Gemini Merger Sub I, Inc., which is referred to herein as Liquidia Merger Sub, is a newly formed Delaware corporation that has not, to date, conducted any activities other than those incident to its formation and the matters contemplated by the Merger Agreement. Liquidia Merger Sub is a direct wholly owned subsidiary of HoldCo and was formed for the purpose of indirectly acquiring our company as part of the Liquidia Merger. At the time of the Liquidia Merger, we will merge with and into Liquidia Merger Sub, with our company surviving the Liquidia Merger as a direct wholly owned subsidiary of HoldCo and Liquidia Merger Sub will cease to exist.
Gemini Merger Sub II, LLC
Gemini Merger Sub II, LLC, which is referred to herein as RareGen Merger Sub, is a newly formed Delaware limited liability company that has not, to date, conducted any activities other than those incident to its formation and the matters contemplated by the Merger Agreement. RareGen Merger Sub is a direct wholly owned subsidiary of HoldCo and was formed for the purpose of indirectly acquiring RareGen as part of the RareGen Merger. At the time of the RareGen Merger, RareGen will merge with and into RareGen Merger Sub, with RareGen surviving the RareGen Merger as a direct wholly owned subsidiary of HoldCo, and RareGen Merger Sub will cease to exist.
Members’ Representative
PBM RG Holdings, LLC, a Delaware limited liability company, is serving as the Members’ Representative pursuant to the Merger Agreement.
Summary of the Merger Transaction
To accomplish the combination of the Liquidia Technologies and RareGen businesses, we formed HoldCo, a holding company with two subsidiaries, Liquidia Merger Sub and RareGen Merger Sub. At the time the Merger Transaction is completed:

Liquidia Merger Sub will be merged into our company, and we will be the surviving corporation. We refer to this as the Liquidia Merger.

RareGen Merger Sub will be merged into RareGen, and RareGen will be the surviving corporation. We refer to this as the RareGen Merger.

As a result, we and RareGen will each become a subsidiary of HoldCo. We refer to the entire transaction as the Merger Transaction.
The organization of the companies before and after the Merger Transaction are illustrated below:
[MISSING IMAGE: tm2025040d1-fc_premerger4c.jpg]
[MISSING IMAGE: tm2025040d1-fc_postmerger4c.jpg]
 
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Treatment of Liquidia Technologies common stock, Stock Options, Warrants and Restricted Stock Units
Upon the closing of the Merger Transaction, (i) each share of our common stock, whether certificated or held in book-entry form, will automatically convert into one share of HoldCo common stock, (ii) each option or warrant to purchase our common stock will convert into an option or warrant to purchase an identical number of shares of HoldCo common stock as are underlying such Liquidia Technologies option or warrant, and the exercise price per share and other terms will be identical to the Liquidia Technologies option or warrant, and (iii) each restricted stock unit to acquire our common stock will automatically convert into the right to receive one share of HoldCo common stock for each share of our common stock subject to such restricted stock unit grant.
Treatment of RareGen Common Units and Consideration to be Received in the Merger
Pursuant to the terms of the Merger Agreement, RareGen members are to receive, on a pro rata basis in the aggregate, 6,166,666 shares of HoldCo common stock, of which 5,550,000 shares shall be issued to RareGen members upon the closing of the Merger Transaction and 616,666 shares of which will be withheld at closing, which we refer to herein and in the Merger Agreement as the Holdback Shares, for the purpose of securing the indemnification obligations of RareGen members to Liquidia Indemnitees. On March 31, 2022, any remaining Holdback Shares shall be disbursed to Computershare Trust Company, N.A., which we refer to herein and in the Merger Agreement as the Exchange Agent, for distribution to RareGen members on a pro rata basis. Additionally, at closing, RareGen members shall be entitled to a pro rata portion of any RareGen cash at closing in excess of $1 million, which is referred to in the Merger Agreement as the “Minimum Cash Amount”. For more information, see “Proposal 1 — The Merger Transaction: The Merger Consideration and Conversion of Securities: Holdback Shares” on page 111 and “The Merger Agreement — Indemnification” beginning on page 130.
Additionally, pursuant to the terms of the Merger Agreement, RareGen members are entitled to receive, on a pro rata basis in the aggregate, up to an aggregate of 2,708,333 shares of HoldCo common stock in 2022, based on the amount of 2021 net sales of Sandoz’s generic treprostinil product (as calculated pursuant to the Promotion Agreement). Specifically, the actual amount of shares of HoldCo common stock which RareGen members are entitled to receive in 2022 on a pro rata basis is subject to a bi-directional sliding scale of 70% — 130% of $47.0 million of net sales of Sandoz’s generic treprostinil product. Such additional shares are referred to as “Net Sales Earnout Shares” in the Merger Agreement. For example, if 2021 net sales falls within $32.9 million (70% of $47.0 million) — $61.1+ million (130% of $47.0 million), then HoldCo shall issue to RareGen members, on a pro rata basis, between 1,458,333 shares — 2,708,333 shares of Net Sales Earnout Shares. For the avoidance of doubt, if 2021 net sales is less than $32.9 million, then no Net Sales Earnout Shares shall be issued to RareGen members, and if 2021 net sales is greater than $61.1 million, then the maximum 2,708,333 Net Sales Earnout Shares will be issued to RareGen’s members on a pro rata basis.
Material U.S. Federal Income Tax Considerations
The parties intend that the Merger Transaction will qualify as an exchange described in Section 351 of the Code. A holder of our common stock who exchanges all of his, her or its shares of our common stock and receives only shares of HoldCo common stock in the Merger Transaction is not intended to recognize gain or loss for U.S. federal income tax purposes. This gain or loss will generally constitute capital gain or loss. The deductibility of capital losses is subject to limitations. Each holder’s aggregate tax basis in the HoldCo capital stock received in the Merger Transaction will be the same as his, her or its aggregate tax basis in our common stock exchanged in the Merger Transaction. The holding period of the HoldCo common stock received in the Merger Transaction by a holder of our common stock will include the holding period of our common stock that he, she or it exchanged in the Merger Transaction.
Tax matters are very complicated, and the tax consequences of the Merger Transaction to a Liquidia Technologies stockholder will depend on the facts of each stockholder’s own situation. For a description of the material U.S. federal income tax consequences of the Merger Transaction to our stockholders, please see the information set forth in the section entitled “Proposal 1 — The Merger Transaction: Material U.S.
 
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Federal Income Tax Consequences” beginning on page 114. Each Liquidia Technologies stockholder is also encouraged to consult the stockholder’s own tax advisor for a full understanding of the tax consequences of the Merger Transaction.
Recommendation of the Liquidia Technologies Board of Directors
After careful consideration, our board of directors recommends that our stockholders vote “FOR” each proposal being submitted to a vote of our stockholders at the special meeting. All of the members of our board of directors approved such recommendations.
For a more complete description of our reasons for the Merger Transaction and the recommendations of our board of directors, see the sections entitled “Proposal 1 — The Merger Transaction: Liquidia’s Reasons for the Merger Transaction” beginning on page 95 and “Voting Procedures” beginning on page 1.
Opinion of Jefferies LLC
We retained Jefferies LLC, or Jefferies, an investment banking firm, as our financial advisor in connection with the Merger Transaction. In connection with the engagement, we requested that Jefferies evaluate the fairness to our stockholders, from a financial point of view, of the number of shares of HoldCo common stock to be received by our stockholders in the Liquidia Merger pursuant to the Merger Agreement. At a special meeting of our board of directors on June 28, 2020, Jefferies’ representatives rendered an oral opinion, confirmed by delivery of a written opinion dated June 29, 2020, to our board of directors to the effect that, as of that date and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of review undertaken as described in its opinion, the number of shares of HoldCo common stock to be received by our stockholders in the Liquidia Merger pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of our common stock. The full text of the written opinion of Jefferies, dated June 29, 2020, which sets forth the various assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of the review undertaken by Jefferies in providing its opinion, is set forth as Annex B and a detailed description of the Jefferies opinion can be found at “Proposal 1 — The Merger Transaction: Opinion of Jefferies LLC” beginning on page 98. Jefferies provided its fairness opinion for the use and benefit of our board of directors (in its capacity as such) in its consideration of the Merger Transaction, and Jefferies’ opinion does not address the relative merits of the Merger Transaction contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to us, nor does it address our underlying business decision to engage in the Merger Transaction or the terms of the Merger Agreement or the documents referred to therein. The fairness opinion does not constitute a recommendation as to how any stockholder of our company should vote or act with respect to the Merger Transaction or any other matter. We urge our stockholders to read the opinion of Jefferies carefully and in its entirety.
Support Agreements
In connection with the execution of the Merger Agreement, Neal F. Fowler, Canaan VIII L.P., Eshelman Ventures, LLC and Fredric N. Eshelman and New Enterprise Associates 12, Limited Partnership and NEA Ventures 2006 Limited Partnership, collectively referred to as the Supporting Stockholders, have entered into separate irrevocable Support Agreements with us, HoldCo and RareGen. Pursuant to the Support Agreements, the Supporting Stockholders have agreed to, among other things, to the extent permitted by applicable law, rule or regulation, vote all of our common stock owned by them in favor of the adoption and approval of the Merger Agreement and the consummation of the Merger Transaction and the transactions contemplated therein, and the other related ancillary agreements at every meeting of our stockholders at which such matters are considered and at every adjournment or postponement thereof.
The Support Agreements will terminate upon the earlier of (i) the consummation of the Merger Transaction and (ii) the date on which the Merger Agreement is validly terminated in accordance with its terms. As of the date of this proxy statement/prospectus, the Supporting Stockholders collectively hold and are entitled to vote in the aggregate approximately 34.5% of the issued and outstanding shares of our common stock entitled to vote at the special meeting of our stockholders. For more information, see “The
 
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Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Support Agreements” beginning on page 138.
Cooperation Agreements
At the time of execution of the Merger Agreement on June 29, 2020, we and HoldCo entered into a separate Cooperation Agreements with each of (i) (x) PBM Capital Finance and (y) PD Joint Holdings, LLC Series 2016-A, or PD Joint Holdings, an affiliate of PBM Capital Finance which is expected to receive shares of HoldCo common stock in connection with the Merger Transaction initially delivered to PBM Capital Finance by way of a post-closing transfer, and (ii) Serendipity, which we refer to individually as a New Company Investor and collectively as the New Company Investors. The Cooperation Agreement entered into with PBM Capital Finance and PD Joint Holdings and is referred to herein as the PBM/PD Cooperation Agreement and the Cooperation Agreement entered into with Serendipity is referred to herein as the Serendipity Cooperation Agreement, and they are together referred to as the Cooperation Agreements.
Pursuant to the Cooperation Agreements, prior to the effectiveness of the Merger Transaction, but conditioned on the closing of the Merger Transaction, HoldCo’s board of directors agreed to take all necessary actions to increase the authorized number of directors from eight to nine and appoint Roger A. Jeffs, Ph.D. and Paul B. Manning as a Class I and Class III director of HoldCo, respectively, for terms expiring at HoldCo’s 2022 and 2021 annual meetings of stockholders, respectively, and until their successors are elected and qualified, or until such director’s earlier resignation, removal or death. Prior to the closing date of the Merger Transaction, Ralph Snyderman, a current Class I director of our company and HoldCo, will resign, conditional and effective upon the closing date, and Dr. Jeffs and Mr. Manning will fill the vacancies created by this resignation and the increase in authorized number of directors, respectively. The size of the board of directors of HoldCo shall not exceed nine directors during the Cooperation Period (as defined below) unless at least two-thirds of the members of the board of directors approve an increase in the size of the board. Subject to any applicable corporate governance documents of HoldCo, and applicable stock exchange rules, concurrently upon appointment to the board of directors, (A) Dr. Jeffs shall be appointed to the Compensation Committee and (B) Mr. Manning shall be appointed to the Nominating and Corporate Governance Committee and, in each case, HoldCo agrees to maintain such committee appointments during the term of the applicable Cooperation Agreement, as long as each such director (or, as applicable, their Replacement Designee (as defined below)) continues to serve on the HoldCo board of directors.
Pursuant to the Cooperation Agreements, during the Cooperation Period, as long as the New Company Investor owns at least 66% of the shares of HoldCo common stock held on the date of closing of the Merger Transaction (and subject to adjustment for stock splits, reclassifications, combinations, buybacks or similar transactions), which amount is referred to as the “Ownership Minimum,” and in the event that any new director appointed pursuant to the applicable Cooperation Agreement, referred to therein as a “New Director” (or any Replacement Designee, as applicable) becomes unwilling or unable to serve as a director and ceases to be a director, resigns as a director or is removed as a director, or for any other reason fails to serve or is not serving as a director at any time prior to the end of the Cooperation Period, then such New Company Investor shall be entitled to designate, subject to the approval (not to be unreasonably withheld) of the applicable committee of the HoldCo board of directors, a candidate for replacement of such New Director, which replacement is referred to in the Cooperation Agreements as a “Replacement Designee”. Any Replacement Designee shall qualify as an independent director of HoldCo under applicable rules of the SEC, the rules of any stock exchange on which HoldCo is traded and applicable governance policies of HoldCo. Following the approval of a candidate for Replacement Designee by the applicable committee of the HoldCo board of directors, the HoldCo board of directors shall promptly appoint such Replacement Designee to the HoldCo board of directors. Upon his or her appointment to the HoldCo board of directors, such Replacement Designee shall be deemed a “New Director” for all purposes under each Cooperation Agreement.
Pursuant to the Cooperation Agreements, the New Company Investors and their affiliates have each agreed to, among other things, subject to certain limited exceptions described below, during the period commencing on the date of the Merger Agreement and expiring on the later to occur of (x) the one-year anniversary of the date on which the New Director or any Replacement Designee affiliated with such New
 
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Director no longer serves on the HoldCo board of directors; or (y) the three-year anniversary of the closing date of the Merger Transaction, which is referred to as the Cooperation Period, (A) vote all our common stock or HoldCo common stock beneficially owned, directly or indirectly, by the New Company Investors (i) in favor of the slate of directors recommended by our board of directors or HoldCo board of directors, (ii) against the election of any nominee for director not approved, recommended and nominated by our board of directors or HoldCo board of directors for election at any such stockholder meeting and (iii) in accordance with our board of directors’ or HoldCo board of directors’ recommendation with respect to any other matter presented at such stockholder meeting; and (B) (iv) not institute, solicit, join or assist in any litigation, arbitration or other proceeding against or involving us, HoldCo or any of our or their respective current or former directors or officers (including derivative actions) or affiliates, subject to certain limited exceptions. Notwithstanding the foregoing, the New Company Investors are permitted to vote in their sole discretion with respect to any proposals relating to (i) an “Extraordinary Transaction” (such as a merger or other acquisition of our company or HoldCo) requiring a vote of our or HoldCo’s stockholders or (ii) amendments to our or HoldCo’s certificate of incorporation, bylaws or other governing documents which materially diminish stockholder rights.
Additionally, each New Company Investor has agreed, among other things, during the Cooperation Period, to comply with customary standstill provisions.
The parties have agreed to a mutual non-disparagement provision during the Cooperation Period, subject to certain exceptions. The Cooperation Agreements will each terminate at the end of the Cooperation Period unless otherwise mutually agreed in writing by each party. Additionally, the standstill and board composition and other governance obligations of the New Company Investors shall terminate in the event that we or HoldCo, as applicable, materially breach our or its obligations to the New Company Investors and such breach (if capable of being cured) has not been cured within 30 calendar days following written notice of such breach from the New Company Investors, or, if impossible to cure within 30 calendar days, we or HoldCo, as applicable, have not taken substantive action to correct within 30 calendar days following written notice of such breach from the New Company Investors.
For a complete description of the Cooperation Agreements, please see the section entitled “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Cooperation Agreements beginning on page 135.
Post-Closing Transfer Restrictions
In connection with the Merger Transaction, each current RareGen member receiving HoldCo common stock in exchange for their RareGen common units has agreed that, without the prior written consent of HoldCo, it will not, subject to limited exceptions, among other things, offer, sell, contract to sell, pledge, or otherwise dispose of, or to enter into any hedging or swap transaction with respect to, any shares of HoldCo common stock acquired in the Merger Transaction for a period ending six months after the closing date of the Merger Transaction solely with respect to the shares of HoldCo common stock acquired on the closing date of the Merger Transaction. RareGen members will not enter into a lock-up agreement for any shares of HoldCo common stock acquired after the closing date of the Merger Transaction, such as upon the acquisition of Holdback Shares or Net Sales Earnout Shares.
For the avoidance of doubt, the lock-up agreement shall not apply to shares of HoldCo common stock or any derivative securities of HoldCo which are beneficially owned before or following the date of the lock-up agreement, other than the particular shares subject to the lock-up agreement.
For more information, see the section entitled “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Post-Closing Transfer Restrictions” beginning on page 140.
Interests of Certain Directors, Officers and Affiliates of Liquidia and RareGen
Roger A. Jeffs, Ph.D. and Paul B. Manning, current directors of RareGen, will become Class I and Class III directors of HoldCo, respectively, upon consummation of the Merger Transaction and will be entitled to receive compensation as directors of HoldCo. Mr. Manning is the manager and sole beneficial owner of PBM Capital Finance, which currently owns 70.65% of RareGen’s common units. Dr. Jeffs is the
 
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manager of Serendipity BioPharma LLC, which currently owns 25.00% of RareGen’s common units. Dr. Jeffs and Mr. Manning currently own 18,595 and 1,018,466 shares, respectively, of our common stock through various entities which they control. Effective June 28, 2020, contingent upon the closing of the Merger Transaction, the HoldCo board of directors increased the authorized number of directors of HoldCo from eight to nine and Ralph Snyderman, a Class I director, will resign.
The current officers of Liquidia Technologies will retain their same positions and salaries at HoldCo as those currently held at Liquidia Technologies. Scott Moomaw, RareGen’s Chief Operating Officer, will become HoldCo’s Senior Vice President, Commercial after the Merger Transaction. Mr. Moomaw is expected to become Senior Vice President, Commercial of HoldCo effective immediately following the Merger Transaction and will receive, among other benefits, an annual salary and a discretionary annual cash bonus commensurate with our other senior executive officers on Mr. Moomaw’s level, and an incentive stock option grant to purchase shares of HoldCo common stock on his first day of employment, vesting over a four-year period with an exercise price equal to the then-fair market value of HoldCo common stock. Damian deGoa, RareGen’s Chief Executive Officer, will resign effective as of the closing of the Merger Transaction.
Pursuant to Mr. deGoa’s and Mr. Moomaw’s current employment agreements with RareGen, upon the closing of the Merger Transaction, (i) Mr. deGoa is eligible to receive a one-time bonus equal to four percent of the total amount of cash and the fair market value of other property actually paid to the members of RareGen in their capacity as such in connection with the Merger Transaction, and (ii) Mr. Moomaw is eligible to receive a one-time bonus equal to two percent of the total amount of cash and the fair market value of other property actually paid to the members of RareGen in their capacity as such in connection with the Merger Transaction. The amounts to be paid to Messrs. deGoa and Moomaw due to the consummation of the Merger Transaction are included in the transaction expenses to be paid by RareGen’s members and cannot be calculated until closing. For more information on the transaction bonuses payable to Messrs. deGoa and Moomaw, see the section entitled “Directors and Executive Officers of RareGen: Executive Compensation: Narrative Disclosure to Summary Compensation Table: deGoa and Moomaw Employment Agreements” beginning on page 163.
Following completion of the Merger Transaction, the directors of HoldCo will be Dr. Stephen Bloch, Neal F. Fowler, Katherine Rielly-Gauvin, Dr. Joanna Horobin, Roger A. Jeffs, Ph.D., Arthur Kirsch, Paul B. Manning, Dr. Seth Rudnick and Raman Singh. Each director of HoldCo will be entitled to receive compensation as directors of HoldCo, which compensation will be identical to what our directors currently receive for serving as directors of our company. See the section entitled “Directors and Officers of HoldCo Following Completion of the Merger Transaction: Director Compensation” beginning on page 150 for a description of the compensation to be received by HoldCo’s directors.
In connection with the Merger Transaction, on March 9, 2020, our board of directors established the transaction committee comprised of Dr. Stephen Bloch, Neal F. Fowler, Dr. Joanna Horobin, Arthur Kirsch and Dr. Seth Rudnick, with Mr. Kirsch as Chairman. The transaction committee has the authority to, among other things, negotiate the definitive transaction documentation relating to the Merger Agreement subject to the approval of the full Liquidia Technologies board of directors and our stockholders. In recognition of their efforts, Mr. Kirsch will receive $10,000 as compensation for serving as Chairman of the transaction committee and Drs. Bloch, Horobin and Rudnick and Mr. Fowler will each receive $5,000 for their service as members of the transaction committee.
The rights of our and RareGen’s directors and executive officers to indemnification and directors’ and officers’ liability insurance will survive completion of the Merger Transaction. Our board of directors was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the transactions contemplated by the Merger Agreement and in recommending that you vote to approve the proposals being submitted to our stockholders at the special meeting.
Board of Directors and Executive Officers of HoldCo Following the Merger
As noted above, the executive officers of HoldCo following the Merger Transaction are identical to the current Liquidia Technologies executive officers, with the exception of Mr. Moomaw, who is expected to be appointed as HoldCo’s Senior Vice President, Commercial following the closing of the Merger Transaction.
 
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Following completion of the Merger Transaction, the directors of HoldCo will be Dr. Stephen Bloch, Neal F. Fowler, Katherine Rielly-Gauvin, Dr. Joanna Horobin, Roger A. Jeffs, Ph.D., Arthur Kirsch, Paul B. Manning, Dr. Seth Rudnick and Raman Singh, with Dr. Bloch remaining as Chairman. Of such directors, Drs. Bloch, Horobin and Rudnick, Messrs. Fowler, Kirsch and Singh and Ms. Rielly-Gauvin are current Liquidia directors and Dr. Jeffs and Mr. Manning are current RareGen directors.
The classification of HoldCo directors following the closing of the Merger Transaction will be:

Class I (serving for a term expiring at the 2022 Annual Meeting of Stockholders): Drs. Bloch, Horobin and Jeffs

Class II (serving for a term expiring at the 2023 Annual Meeting of Stockholders): Ms. Rielly-Gauvin, Dr. Horobin and Mr. Singh

Class III (serving for a term expiring at the 2021 Annual Meeting of Stockholders): Messrs. Fowler, Kirsch and Manning
The members of the committees of the HoldCo board of directors following the closing of the Merger Transaction will be:

Audit Committee: Mr. Kirsch (Chairperson), Dr. Bloch and Mr. Singh

Compensation Committee: Drs. Bloch (Chairperson), Horobin, Jeffs and Rudnick and Mr. Kirsch

Nominating and Corporate Governance Committee: Ms. Rielly-Gauvin, Dr. Rudnick and Messrs. Manning and Singh

Research and Development Committee: Drs. Rudnick (Chairperson) and Horobin and Ms. Rielly-Gauvin
Certificate of Incorporation and Bylaws of HoldCo
The Certificate of Incorporation of HoldCo, which was filed with the Secretary of State of the State of Delaware on June 17, 2020 and subsequently approved and ratified by the HoldCo board of directors, is included in this proxy statement/prospectus as Exhibit 3.1. The Bylaws of HoldCo, which were adopted by the HoldCo board of directors on June 28, 2020, are included in this proxy statement/prospectus as Exhibit 3.2. For more information about HoldCo’s Certificate of Incorporation and Bylaws, see “Description of HoldCo Capital Stock Following Completion of the Merger Transaction” beginning on page 167 and “Comparison of Stockholder and Unitholder Rights” beginning on page 172.
Expected Timing of the Merger Transaction
We and RareGen currently expect the closing of the Merger Transaction to occur late in the third calendar quarter of 2020 or early in the fourth calendar quarter of 2020. However, the Merger Transaction is subject to the satisfaction or waiver of certain conditions as described in the Merger Agreement, and it is possible that factors outside the control of us and RareGen could result in the Merger Transaction being completed at a later time or not at all.
Conditions to Completion of the Merger Transaction
A number of conditions must be satisfied or waived, before the Merger Transaction can be completed. These include, among others:

the registration statement of which this proxy statement/prospectus is a part must be declared effective by the SEC under the Securities Act;

the Liquidia Merger shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of our common stock;

no governmental, administrative, judicial or regulatory authority, nor any federal or state court, shall have enacted any statute, rule, regulation or order preventing or otherwise prohibiting completion of the Merger Transaction;
 
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the receipt of all required consents, approvals and authorizations of any governmental, administrative, judicial or regulatory authority;

the HSR Act waiting period (together with any extensions thereof) relating thereto shall have expired or been terminated, if applicable;

the shares of HoldCo common stock issuable to our stockholders and RareGen members in the Merger Transaction shall have been approved for listing on the Nasdaq Capital Market, subject to official notice of issuance; and

RareGen and the Members’ Representative shall have entered into the litigation funding and indemnification agreement.
Pursuant to a Limited Waiver and Modification to the Merger Agreement, dated as of August 3, 2020, (i) RareGen has waived the requirement in the Merger Agreement that the shares issuable to RareGen members in the Merger Transaction be registered on the registration statement of which this proxy statement/prospectus is a part and (ii) HoldCo has covenanted and agreed to file with the SEC a resale registration statement as promptly as practicable following the closing of the Merger Transaction to register for resale the shares of HoldCo common stock issuable to RareGen members in the Merger Transaction and to use reasonable best efforts to cause such resale registration statement to be declared effective by the SEC within 60 days following the closing date of the Merger Transaction.
The conditions to the obligations of our company to effect the Liquidia Merger also include, among other things, the following, subject to certain exceptions and qualifications:

the representations and warranties of RareGen contained in the Merger Agreement shall be true and correct as of June 29, 2020 and as of the effective time of the Merger Transaction as if made as of the effective time of the Merger Transaction, except to the extent that such representations and warranties refer to a specific date, in which case such representations and warranties shall have been true and correct as of such date;

RareGen’s material performance or compliance with all agreements and covenants required to be complied with or performed on or prior to the effective time of the Merger Transaction;

RareGen’s services agreement with PBM Capital Group shall be terminated or, by agreement of us, RareGen and PBM Capital Group, amended and restated, in either case as of the effective time of the Merger Transaction;

the resignation of all officers and directors of RareGen from their respective positions, effective as of and contingent upon the effective time of the Merger Transaction;

all representatives of RareGen on the Joint Steering Committee pursuant to the Promotion Agreement, other than Scott Moomaw, shall have resigned from such Joint Steering Committee;

Sandoz’s consent and waiver to the transactions contemplated by the Merger Agreement shall be in effect and not have been rescinded or conditioned as of the effective time of the Merger Transaction;

RareGen’s employment agreement with Mr. deGoa shall have been terminated prior to the effective time of the Merger Transaction and no severance or bonus obligations shall be payable to Mr. deGoa post-closing;

each RareGen member shall have executed and delivered a lock-up agreement in the form attached to the Merger Agreement;

each of the parties to the Cooperation Agreements shall have executed and delivered the Cooperation Agreements; and

RareGen shall have cash as of the closing of the Merger Transaction equal to at least $1 million.
The Sandoz consent and waiver included in the first amendment to the Promotion Agreement is effective through September 30, 2020. In the event that the Merger Transaction does not close on or before September 30, 2020, RareGen will need to obtain an extension to Sandoz’s consent and waiver in order to satisfy the condition to closing.
 
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The conditions to the obligations of RareGen to effect the RareGen Merger also include, among other things, the following, subject to certain exceptions and qualifications:

the continued truth and correctness at the closing of the Merger Transaction of the representations and warranties given by HoldCo, our company, Liquidia Merger Sub and RareGen Merger Sub as of the date of the execution of the Merger Agreement; or, if this condition is not so satisfied, any failures of such representations and warranties to be so true and correct do not have, in the aggregate, a material adverse effect on the assets, liabilities, business, financial condition, results of operations or capitalization of HoldCo, our company, Liquidia Merger Sub or RareGen Merger Sub;

the performance or compliance in all material respects by HoldCo, our company, Liquidia Merger Sub and RareGen Merger Sub with all agreements and covenants required by the Merger Agreement on or prior to the effective time of the Merger Transaction; and

we shall have taken all necessary action to ensure that Dr. Jeffs and Mr. Manning shall have been appointed to the HoldCo board of directors as of the effective time of the Merger Transaction.
For more information regarding conditions to completion of the Merger Transaction and a complete list of such conditions, see the section entitled “The Merger Agreement — Conditions to the Completion of the Merger Transaction” beginning on page 127.
Termination of the Merger Agreement
The Merger Agreement may be terminated, and the Merger Transaction may be abandoned, at any time before the effective time of the Merger Transaction by action taken or authorized by the board of directors of the terminating party or parties, whether before or after the requisite Liquidia Technologies stockholder and RareGen member approvals have been obtained, under the following circumstances:

by mutual written consent of us and RareGen;

by either us or RareGen if the Merger Transaction has not been completed by December 31, 2020, subject to certain limitations;

by either us or RareGen if a governmental entity has issued a final and non-appealable order, decree or ruling or taken any other action which has the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement and related agreements;

by either us or RareGen, if our stockholders have not adopted the Merger Agreement and approved the Merger Transaction at the special meeting, subject to certain conditions;

by us, if our board of directors determines to accept a superior proposal, subject to certain conditions;

by us, subject to certain limitations, if RareGen materially breaches any representation or warranty set forth in the Merger Agreement or fails to perform any of RareGen’s covenants set forth in the Merger Agreement and such breach or failure to perform is not cured by RareGen within 30 days following receipt by RareGen of our written notice of such breach or failure;

by RareGen, subject to certain limitations, if we materially breach any representation or warranty set forth in the Merger Agreement or fail to perform any of our covenants set forth in the Merger Agreement and such breach or failure to perform is not cured by us within 30 days following receipt by our of RareGen’s written notice of such material breach or failure; or

by RareGen, if our board of directors shall have made a change in recommendation to our stockholders following the receipt of a superior proposal.
In the event the Merger Agreement is terminated by (i) us on account of our acceptance of a superior proposal or (ii) RareGen, if our board of directors shall have made a change in recommendation to our stockholders following the receipt of an alternative proposal, then, in the case of a termination by us pursuant to (i), we shall pay to RareGen by wire transfer a one-time termination fee equal to $7.5 million immediately before and as a condition to such termination, and in the case of a termination by RareGen pursuant to (ii), within two business days after the date of such termination.
 
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For more information regarding conditions to completion of the Merger Transaction and a complete list of such conditions, see the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 134.
No Solicitation Restriction
The Merger Agreement contains provisions prohibiting us or RareGen from seeking an alternative transaction to the Merger Transaction. These “no solicitation” provisions apply to us and RareGen and our and their respective officers, directors, affiliates or employees as well as any investment banker, attorney or other advisor or representative retained by any of them. Under these provisions, covered persons may not, directly or indirectly:

solicit, initiate or knowingly encourage or facilitate any alternative proposal (as defined under “The Merger Agreement: Meeting of Stockholders” on page 122) or RareGen acquisition proposal (as defined in the section entitled “The Merger Agreement — No Solicitation” beginning on page 126);

enter into any agreement with respect to any alternative proposal or RareGen acquisition proposal, as applicable, or enter into any agreement with respect to any alternative proposal or RareGen acquisition proposal or enter into any agreement or understanding requiring the abandonment, termination or failure to complete the Merger Transaction or any other transaction contemplated by the Merger Agreement or any ancillary agreement; or

participate in discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, any alternative proposal or RareGen acquisition proposal, as applicable.
Notwithstanding the restrictions described above, if at any time prior to obtaining stockholder approval of the Merger Transaction at our special meeting, we and/or our representatives receive a bona fide, unsolicited written acquisition proposal that did not result from a breach of the Merger Agreement, we and/or our representatives may engage in negotiations and discussions with, and furnish any information and other access (so long as all such information and access has previously been made available to RareGen or is made available to RareGen before or concurrently with the time such information or access is made available to such person) to, any person making such alternative proposal if, and only if, our board of directors determines in good faith, after consultation with our outside legal and financial advisors, that (i) such alternative proposal constitutes or is reasonably likely to become a superior proposal and (ii) the failure of our board of directors to furnish such information or access or enter into such discussions or negotiations would violate its fiduciary duties under applicable law; but before furnishing any such information, we shall have received from the person making such alternative proposal an executed confidentiality agreement with terms at least as restrictive in all material respects on such person as the confidentiality agreement between us and RareGen, which confidentiality agreement shall not prohibit us from complying with the terms of this “no solicitation” covenant.
For more information, please see the section entitled “The Merger Agreement — No Solicitation” beginning on page 126.
Accounting Treatment of the Merger Transaction
In accordance with U.S. generally accepted accounting principles, HoldCo will account for the acquisition of RareGen through the Merger Transaction under the acquisition method of accounting for business combinations, and we will be treated as the accounting acquirer. For more information, please see the section entitled “Proposal 1 — The Merger Transaction: Accounting Treatment” beginning on page 116.
Regulatory Clearances Required for the Merger Transaction
We and RareGen have each agreed to use their reasonable best efforts to obtain all necessary waivers, consents, approvals, orders and authorizations from governmental entities with respect to the Merger Agreement required under applicable law. Certain conditions to closing the Merger Transaction include, but are not limited to: (i) the HSR Act waiting period (together with any extensions thereof) relating thereto
 
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shall have expired or been terminated, if applicable; (ii) the absence of any order by any governmental entity or court, or consent, approval or other authorization, that prevents or prohibits the Merger Transaction or any other transactions contemplated by the Merger Agreement, and the absence of any pending legal proceeding seeking such order; (iii) the declaration by the SEC of the effectiveness of the registration statement of which this proxy statement/prospectus is a part and the absence of any stop order suspending such effectiveness; and (iv) the shares of HoldCo common stock to be issued to our stockholders and RareGen members pursuant to the Merger Transaction shall be authorized for listing on the Nasdaq Capital Market at the effective time of the Merger Agreement, subject to official notice of issuance. We and RareGen have jointly determined that a notification with the United States Federal Trade Commission, or the FTC, and the Antitrust Division of the United States Department of Justice, or the DOJ, is not required in connection with the Merger Transaction and therefore the parties will not need to observe a mandatory premerger waiting period before completing the Merger Transaction.
We and RareGen believe that the Merger Transaction does not raise substantial regulatory concerns and that all applicable regulatory approvals will be obtained on a timely basis.
Comparison of Stockholder and Unitholder Rights
Liquidia Technologies is incorporated under the laws of the State of Delaware as a corporation and the rights of our stockholders are governed by the laws of the State of Delaware, including the Delaware General Corporation Law, or the DGCL, our amended and restated certificate of incorporation, as amended, and our amended and restated bylaws. RareGen is formed under the laws of the State of Delaware as a limited liability company and the rights of RareGen unitholders are governed by the Delaware Limited Liability Company Act, or the DLLCA, and RareGen’s operating agreement, effective August 6, 2018, as amended, or the operating agreement. As a result of the Merger Transaction, our stockholders and RareGen unitholders will become HoldCo stockholders. HoldCo is incorporated under the laws of the State of Delaware and the rights of HoldCo stockholders will be governed by the laws of the State of Delaware, including the DGCL, HoldCo’s certificate of incorporation and HoldCo’s bylaws. As a result, the rights of our stockholders and RareGen unitholders who become HoldCo stockholders will continue to be governed by the laws of the State of Delaware (although in the case of RareGen, under the DGCL and not the DLLCA) but will also be governed by HoldCo’s certificate of incorporation and HoldCo’s bylaws.
As Liquidia Technologies’ successor following the closing of the Merger Transaction, the certificate of incorporation and bylaws of HoldCo are substantially identical to the amended and restated certificate of incorporation, as amended, and the amended and restated bylaws of our company. The only changes between the governing documents of our company and HoldCo are (i) the company name, (ii) the number of shares of HoldCo common stock authorized under the HoldCo certificate of incorporation (80,000,000 shares) versus the number of shares of our common stock currently authorized under our amended and restated certificate of incorporation, as amended (60,000,000 shares) and (iii) the addition of an exclusive federal forum provision in HoldCo’s bylaws for the resolution of any complaint asserting a cause of action arising under the Securities Act. As such, the rights of our stockholders contained in the amended and restated certificate of incorporation, as amended, and amended and restated bylaws of our company will not substantially change following the Merger Transaction. See “Description of HoldCo Capital Stock Following Completion of the Merger Transaction” on page 167 for more information.
The comparison of stockholder and unitholder rights contained in the section entitled “Comparison of Stockholder and Unitholder Rights” beginning on page 172 is based on the certificate of incorporation and bylaws of HoldCo that are currently in effect and will be in effect following the completion of the Merger Transaction. The following discussion is not intended to provide a comprehensive discussion of each company’s governing documents and is qualified in its entirety by reference to HoldCo’s certificate of incorporation and bylaws attached to the registration statement of which this proxy statement/prospectus is a part as Exhibit 3.1 and Exhibit 3.2, respectively, and are incorporated by reference herein. Copies of our governing documents have been filed with the SEC. We encourage you to read the governing documents and relevant provisions of the DGCL and the DLLCA.
Listing of Shares of HoldCo Common Stock; Delisting and Deregistration of Shares of Liquidia Technologies common stock
It is a condition to the completion of the merger that the shares of HoldCo common stock to be issued to our stockholders and RareGen members pursuant to the Merger Transaction be authorized for listing on
 
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the Nasdaq Capital Market at the effective time of the Merger Agreement, subject to official notice of issuance. Upon completion of the Merger Transaction, shares of our common stock currently listed on the Nasdaq Capital Market will cease to be listed on the Nasdaq Capital Market and will be subsequently deregistered under the Exchange Act. For more information regarding the listing of shares of HoldCo common stock and the delisting and deregistration of shares of our common stock, see the section entitled “Proposal 1 — The Merger Transaction: Listing of Shares of HoldCo Common Stock; Delisting and Deregistration of Shares of Liquidia Technologies common stock” beginning on page 117.
The Liquidia Special Meeting
The special meeting of our stockholders will be held on        , 2020, at         , Eastern Time, virtually at www.meetingcenter.io/         , to consider and take action with respect to the following:

to consider and vote upon a proposal to adopt the Merger Agreement dated as of June 29, 2020, among Liquidia Technologies, RareGen, HoldCo, Liquidia Merger Sub, RareGen Merger Sub and the Members’ Representative, pursuant to which Liquidia Technologies and RareGen will each become a subsidiary of HoldCo, and each share of Liquidia Technologies common stock will be automatically converted into one share of HoldCo common stock and to approve the merger of Liquidia Merger Sub with and into Liquidia Technologies, which we refer to herein as Proposal 1;

to consider and vote on a proposal to approve the Liquidia Corporation 2020 Long-Term Incentive Plan, which we refer to as the HoldCo 2020 Incentive Plan, effective upon the completion of the proposed Merger Transaction, which we refer to herein as Proposal 2;

to consider and vote on a proposal to approve the Liquidia Corporation 2020 Employee Stock Purchase Plan, which we refer to as the HoldCo 2020 ESPP, effective upon the completion of the proposed Merger Transaction, which we refer to herein as Proposal 3;

to ratify the appointment of PricewaterhouseCoopers LLP as HoldCo’s independent registered public accounting firm for the year ending December 31, 2020, which we refer to herein as Proposal 4; and

to consider and vote upon a proposal to grant discretionary authority to our board of directors to adjourn or postpone the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes in favor of Proposals 1, 2, 3 or 4, which we refer to herein as Proposal 5.
Only holders of record of our common stock at the close of business on         , 2020, the Record Date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting or any adjournments or postponements thereof. At the close of business on the Record Date,           shares of our common stock were issued and outstanding.
In connection with the Merger Agreement, (i) Mr. Fowler, our and HoldCo’s Chief Executive Officer and a director of our company and HoldCo, (ii) Canaan VIII L.P., a 5% stockholder of our company, (iii) Eshelman Ventures, LLC and Fredric N. Eshelman, together a principal stockholder of our company, and (iv) New Enterprise Associates 12, Limited Partnership and NEA Ventures 2006 Limited Partnership, together a 5% stockholder of our company, which we refer to collectively as the Supporting Stockholders and which beneficially own an aggregate of approximately 34.5% of our common stock outstanding as of the date of this proxy statement/prospectus, each entered into a separate Support Agreement with us, HoldCo and RareGen pursuant to which, among other things, each Supporting Stockholder agreed to support the Merger Transaction by voting the portion of the shares of our common stock over which such Supporting Stockholder has the power to vote (to the extent permitted by applicable law, rule or regulation) in favor of the Merger Agreement and the transactions contemplated thereby. The Support Agreements will terminate upon the earlier of (i) the consummation of the Merger Transaction and (ii) the date on which the Merger Agreement is validly terminated in accordance with its terms. For more information, see “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Support Agreements” beginning on page 138.
We currently expect that our directors and executive officers will vote their shares in favor of each of the proposals, although none of them has entered into any agreement obligating them to do so, except for Mr. Fowler, as indicated above.
 
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A Liquidia Technologies stockholder may cast one vote for each share of our common stock owned. The following votes are required to approve each of the four proposals at the special meeting: (i) the proposal to approve the Merger Agreement and the Liquidia Merger requires the majority of our common stock entitled to vote on the matter; and (ii) the proposals to approve the HoldCo 2020 Incentive Plan, the HoldCo 2020 ESPP and the grant of discretionary authority to our board of directors to adjourn or postpone the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes in favor of Proposals 1, 2, 3 or 4, and the proposal to ratify the appointment of PricewaterhouseCoopers LLP as HoldCo’s independent registered public accounting firm for the year ending December 31, 2020, each require the majority of Liquidia Technologies common stock present or represented by proxy at the special meeting and entitled to vote on the matter.
If necessary to solicit additional proxies if there are not sufficient votes to approve Proposals 1, 2, 3 or 4, the holders of a majority of the shares entitled to vote and present in person or represented by proxy, whether or not a quorum is present, may adjourn the meeting to another place, date or time without further notice unless the adjournment is for more than 30 days after the date for which the meeting was originally noticed or if after the adjournment a new Record Date is fixed for the adjourned meeting, in which case a written notice of the place, if any, date and time of the adjourned meeting and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, will be given to each stockholder of record entitled to vote at the meeting.
For more information, see “Voting Procedures” beginning on page 1 and “Questions and Answers About the Merger Transaction” beginning on page 8.
Comparative Market Value of Liquidia Technologies Common Stock and RareGen Units
Our common stock is currently listed on the Nasdaq Capital Market under the symbol “LQDA”. There is no established public trading market for RareGen units. The following table sets forth the closing sales price of our common stock on June 29, 2020, the last full trading day immediately preceding the public announcements of the Merger Transaction and a concurrent public offering of our common stock, and on July 31, 2020, the latest practicable date prior to the date of this proxy statement/prospectus.
Date
Liquidia Technologies
Common Stock
RareGen
Units
June 29, 2020
$ 10.67 N/A
July 31, 2020
$ 5.53 N/A
Appraisal Rights
Appraisal rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. The laws of the State of Delaware, which is the state of incorporation and formation of both our company and RareGen, respectively govern whether or not appraisal rights are available in a given merger.
Stockholders do not have appraisal rights with respect to shares of any class or series of stock if such shares of stock are listed on a national securities exchange. Therefore, because our common stock is listed on Nasdaq, and will receive in the merger only shares of HoldCo common stock, which will be publicly listed on Nasdaq, holders of our common stock will not be entitled to appraisal rights in the merger with respect to their shares of our common stock.
Under the DLLCA, appraisal rights do not exist except when those rights are specifically provided for in the company agreement or an agreement of merger. Because appraisal rights are not specifically provided for in the Merger Agreement or RareGen’s operating agreement, dated as of August 7, 2018, as amended, or the operating agreement, RareGen members also do not have appraisal rights in connection with the Merger Transaction.
For more information on the appraisal rights as it relates to the Merger Transaction, see the section entitled “Proposal 1 — The Merger Transaction: Appraisal Rights” beginning on page 118.
 
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Required RareGen Vote
The Requisite RareGen Approval was obtained on June 29, 2020, which included the approval of PBM Capital Finance, LLC, or PBM Capital Finance, Serendipity and Damian deGoa, which own 70.65%, 25.00% and 0.75%, respectively, of RareGen’s common units. As a result, no further RareGen member approval or action is necessary to complete the Merger Transaction.
Risk Factors
For a complete description of the risks relating to the Merger Transaction, the businesses of HoldCo and RareGen and the ownership of HoldCo common stock and other risk factors, please see the section immediately below entitled “Risk Factors” beginning on page 36.
 
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RISK FACTORS
If you are a Liquidia Technologies stockholder, you should carefully consider the following risk factors before deciding whether to vote to adopt the Merger Agreement and approve the Liquidia Merger and the other proposals presented herein. These risk factors should be considered in conjunction with the other information included in this proxy statement/prospectus, including the matters addressed in the section entitled “Forward-Looking Statements” on page 87. Additional risks and uncertainties not presently known to us or RareGen, or that are not currently believed to be important to you, also may adversely affect the Merger Transaction and HoldCo following completion of the Merger Transaction.
Risks Related to the Merger Transaction
We may not achieve the benefits expected from the Merger Transaction, which may harm our business and could result in the loss of key suppliers, licensees, collaborators, business partners and personnel.
Achieving the benefits of the Merger Transaction will depend in part on the successful integration of the technology, platforms, capabilities, operations and personnel of our company and RareGen in a timely and efficient manner to minimize the impact on suppliers, licensees, collaborators, business partners, employees and management. The integration of our company and RareGen will be a complex, time-consuming and expensive process and may harm our business, financial condition and results of operations. The challenges involved in this integration include, but are not limited to, the following:

retaining existing suppliers, licensees, collaborators and business partners of both our company and RareGen;

retaining and integrating directors, executive management and other key employees of both our company and RareGen;

onboarding RareGen employees to our company’s benefit plans and payroll;

managing the RareGen field sales team;

consolidating the companies’ promotional, sales and commercialization efforts so that the industry receives useful information about HoldCo’s product candidates and services;

identifying and eliminating redundant operations and assets;

coordinating research and development activities to integrate existing technologies and enhance introduction of new products and technologies;

persuading employees that the business cultures of our company and RareGen are compatible; and

maintaining and upgrading uniform standards, controls, procedures and policies for compliance with rules and regulations customary in our line of business, including but not limited to federal and state healthcare requirements and internal controls and procedures that we will be required to maintain under the Sarbanes-Oxley Act of 2002.
We cannot assure you that we can successfully integrate our business with that of RareGen in a timely manner or that all or any of the anticipated benefits of the Merger Transaction will be realized.
The Merger Transaction involves the integration of two companies that previously have operated independently. Risks to the successful integration of the two companies include:

the impairment of relationships with employees, suppliers, licensees, collaborators and business partners;

the potential disruption of our business and distraction of our management;

the difficulty of incorporating acquired technology, platforms and relationships from RareGen into our offerings;

not achieving expected synergies as a result of a number of factors, including, but not limited to, the failure of the FDA to timely approve our NDA for LIQ861 and/or the failure of Sandoz’s treprostinil pursuant to the Promotion Agreement to be administered subcutaneously; and
 
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unanticipated expenses related to integration of the two companies.
We may not succeed in addressing these risks or any other problems encountered in connection with the Merger Transaction.
No market currently exists for HoldCo common stock, and the market value of HoldCo common stock after the Merger Transaction could be less than the value of RareGen equity and our common stock before the Merger Transaction.
The market value of the shares of HoldCo common stock that you will receive in exchange for common units of RareGen or shares of our common stock in the Merger Transaction, in the case of RareGen, was not known at the time RareGen members voted to adopt the Merger Agreement and approve the RareGen Merger, and in the case of our company, will not be known at the time our stockholders vote to adopt the Merger Agreement and approve the Liquidia Merger because the shares of HoldCo common stock will not trade publicly until the completion of the Merger Transaction. Common units of RareGen and shares of our common stock may have a greater value than the shares of HoldCo common stock for which they will be exchanged in the Merger Transaction.
The pro forma financial statements included in this proxy statement/prospectus are presented for informational purposes only and may not be an indication of our financial condition or results of operations following completion of the Merger Transaction.
The HoldCo unaudited pro forma condensed combined financial statements contained in this proxy statement/prospectus are presented for informational purposes only and are not necessarily indicative of what our actual financial condition or results of operations would have been had the Merger Transaction been completed on the dates indicated. The HoldCo unaudited pro forma condensed combined financial statements reflect adjustments, which are based upon preliminary estimates, to record the RareGen identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of RareGen as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this document. For more information, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements of HoldCo,” beginning on page 77.
You will receive a fixed percentage of HoldCo common stock despite changes in the values of RareGen common units or our common stock.
There will be no adjustment to the percentage of HoldCo common stock to be exchanged for each unit of RareGen and each share of our common stock due to changes in the fair market value of either common units of RareGen or our common stock. In addition, neither we nor RareGen may terminate the Merger Agreement or “walk away” from the Merger Transaction solely because of changes in the value of either company’s equity. Therefore, if the value of common units of RareGen or our common stock changes relative to the value of the other, there will be no change in what you receive in the Merger Transaction to reflect this. The share price of our common stock is subject to the general price fluctuations in the market for publicly traded equity securities and has experienced significant volatility. Our stockholders should obtain recent market quotations for our common stock. We and RareGen cannot predict or give any assurances as to the market price of our common stock before the Merger Transaction or of HoldCo common stock at any time after the completion of the Merger Transaction.
The market price for HoldCo common stock following the closing may be affected by factors different from those that historically have affected our common stock and RareGen common units.
Upon completion of the Merger Transaction, holders of shares of our common stock and RareGen common units will become holders of HoldCo common stock. Our business differs from that of RareGen, and accordingly the results of operations of HoldCo will be affected by some factors that are different from those currently affecting our results of operations. The results of operation of HoldCo may also be affected by factors different from those currently affecting us. For a discussion of our and RareGen’s businesses and of important factors to consider in connection with those businesses, see the documents
 
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incorporated by reference in this proxy statement/prospectus and referred to in the section entitled “Where You Can Find Additional Information” beginning on page 202 and the section entitled “RareGen’s Business” beginning on page 69, respectively.
Any delay in completing the Merger Transaction may reduce or eliminate the benefits expected to be achieved thereunder.
The Merger Transaction is subject to a number of conditions beyond our and RareGen’s control that may prevent, delay or otherwise materially adversely affect its completion. Neither we nor RareGen can predict whether and when these conditions will be satisfied. Any delay in completing the Merger Transaction could cause us not to realize some or all of the operational and revenue synergies and other benefits that we and RareGen expect to achieve if the merger is successfully completed within its expected time frame.
Completion of the Merger Transaction is subject to a number of conditions, which, if not satisfied or waived, may result in termination of the Merger Agreement.
The Merger Agreement contains a number of conditions to completion of the Merger Transaction. The conditions to the obligations of our company and RareGen that must be satisfied or waived before the completion of the Merger Transaction include, among other things, the following, subject to certain exceptions and qualifications:

declaration by the SEC of the effectiveness of the registration statement of which this proxy statement/prospectus is a part and the absence of any stop order suspending such effectiveness;

our stockholder approval of the Merger Agreement and the Liquidia Merger;

absence of any order by any governmental entity or court, or consent, approval or other authorization, that prevents or prohibits the Merger Transaction or any other transactions contemplated by the Merger Agreement, and the absence of any pending legal proceeding seeking such order;

the receipt of all required consents, approvals and authorizations of any governmental, administrative, judicial or regulatory authority;

the Hart-Scott-Rodino Act, or the HSR Act, waiting period (together with any extensions thereof) relating thereto shall have expired or been terminated, if applicable;

RareGen and the Members’ Representative shall have entered into the litigation funding and indemnification agreement; and

the HoldCo common stock issuable to our stockholders and RareGen members in the Merger Transaction being approved for listing on the Nasdaq Capital Market, subject to official notice of issuance.
Pursuant to a Limited Waiver and Modification to the Merger Agreement, dated as of August 3, 2020, (i) RareGen has waived the requirement in the Merger Agreement that the shares issuable to RareGen members in the Merger Transaction be registered on the registration statement of which this proxy statement/prospectus is a part and (ii) HoldCo has covenanted and agreed to file with the SEC a resale registration statement as promptly as practicable following the closing of the Merger Transaction to register for resale the shares of HoldCo common stock issuable to RareGen members in the Merger Transaction and to use reasonable best efforts to cause such resale registration statement to be declared effective by the SEC within 60 days following the closing date of the Merger Transaction.
The conditions to the obligations of our company to effect the Liquidia Merger also include, among other things, the following, subject to certain exceptions and qualifications:

the continued truth and correctness at the closing of the Merger Transaction of the representations and warranties given by RareGen as of the date of the execution of the Merger Agreement; or, if this condition is not so satisfied, any failures of such representations and warranties to be so true and correct do not have, in the aggregate, a material adverse effect on the assets, liabilities, business, financial condition, results of operations or capitalization of RareGen;

RareGen’s performance or compliance in all material respects with all agreements and covenants required by the Merger Agreement on or prior to the effective time of the Merger Transaction;
 
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RareGen’s services agreement with PBM Capital Group shall be terminated or, by agreement of us, RareGen and PBM Capital Group, amended and restated, in either case as of the effective time of the Merger Transaction;

the resignation of all RareGen officers, directors, and Joint Steering Committee members (other than Scott Moomaw) and the termination of Damian deGoa’s employment agreement with RareGen;

Sandoz’s consent and waiver to the transactions contemplated by the Merger Agreement, which waiver of its Promotion Agreement termination right upon a change of control of RareGen was obtained subject to the Merger Transaction closing on or prior to September 30, 2020 pursuant to the first amendment to the Promotion Agreement, shall be in effect and shall not have been rescinded or conditioned as of the effective time of the Merger Transaction;

PBM Capital Finance and Serendipity BioPharma LLC, or Serendipity, shall have executed a Cooperation Agreement, and each RareGen member shall have executed and delivered a lock-up agreement, each as further described below under “The Merger Agreement – Agreements Entered Into in Connection with the Merger Agreement” beginning on page 135; and

RareGen shall have cash as of closing equal to at least $1,000,000.
The Sandoz consent and waiver included in the first amendment to the Promotion Agreement is effective through September 30, 2020. In the event that the Merger Transaction does not close on or before September 30, 2020, RareGen will need to obtain an extension to Sandoz’s consent and waiver in order to satisfy the condition to closing.
The conditions to the obligations of RareGen to effect the RareGen Merger also include, among other things, the following, subject to certain exceptions and qualifications:

the continued truth and correctness at the closing of the Merger Transaction of the representations and warranties given by HoldCo, our company, Liquidia Merger Sub and RareGen Merger Sub as of the date of the execution of the Merger Agreement; or, if this condition is not so satisfied, any failures of such representations and warranties to be so true and correct do not have, in the aggregate, a material adverse effect on the assets, liabilities, business, financial condition, results of operations or capitalization of HoldCo, our company, Liquidia Merger Sub or RareGen Merger Sub;

the performance or compliance in all material respects by HoldCo, our company, Liquidia Merger Sub and RareGen Merger Sub with all agreements and covenants required by the Merger Agreement on or prior to the effective time of the Merger Transaction; and

we shall have taken all necessary action to ensure that Dr. Jeffs and Mr. Manning shall have been appointed to the HoldCo board of directors as of the effective time of the Merger Transaction.
Many of the conditions to completion of the Merger Transaction are not within either our or RareGen’s control, and neither company can predict when or if these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to December 31, 2020, it is possible that the Merger Agreement may be terminated. Although we and RareGen have agreed in the Merger Agreement to use reasonable best efforts, subject to certain limitations, to complete the merger in the most expeditious manner practicable, these and other conditions to completion of the merger may fail to be satisfied.
The Merger Agreement may be terminated in accordance with its terms and the Merger Transaction may not be completed.
We and RareGen may terminate the Merger Agreement under certain circumstances, including, among other reasons, if the Merger Transaction is not completed by December 31, 2020. In addition, if the Merger Agreement is terminated (i) by us if our board of directors decides to accept a superior proposal or (ii) by RareGen if our board of directors changes its recommendation to our stockholders following receipt of an alternative proposal, then we shall pay to RareGen a termination fee of  $7.5 million, as more fully discussed in the section entitled “The Merger Agreement — Termination Fee” beginning on page 134.
In addition, although Neal Fowler, Canaan VIII L.P., Eshelman Ventures, LLC and Fredric N. Eshelman and an additional large institutional investor of our company have agreed to vote their shares of
 
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our common stock in favor of the approval of the Merger Agreement and the Liquidia Merger, pursuant to separate Support Agreements, this obligation will terminate if the Merger Agreement is validly terminated. See “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Support Agreements” beginning on page 138 for additional information regarding such agreements.
We may incur substantial transaction fees and merger-related costs in connection with the Merger Transaction.
We expect to incur a number of substantial expenses, totaling approximately $4 million, associated with completing the Merger Transaction, including the costs and expenses of filing, printing and mailing the notice of internet availability of the definitive proxy statement/prospectus and all filing and other fees paid to the SEC and Nasdaq in connection with the Merger Transaction, investment banking fees and expenses, and combining the operations of the two companies. While we have assumed that a certain level of transaction and coordination expenses will be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of these transaction and coordination expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. Additional unanticipated costs may be incurred in the integration of the businesses of our company and RareGen, and such costs could become substantial. Although it is expected that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all. Further, if the Merger Transaction is not completed, we would have to recognize these expenses without realizing the expected benefits of the Merger Transaction. These costs could adversely affect our financial condition and results of operations prior to the Merger Transaction and of HoldCo following completion of the Merger Transaction.
Our stockholders may not realize a benefit from the Merger Transaction commensurate with the ownership dilution they will experience in connection with the Merger Transaction.
If we are unable to realize the strategic and financial benefits currently anticipated from the Merger Transaction, our stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect our business, financial results, financial condition and stock price following completion of the Merger Transaction. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.
We and RareGen will be subject to business uncertainties and contractual restrictions while the Merger Transaction is pending that may cause disruption from the transaction and may make it more difficult to maintain relationships with employees, suppliers, business partners or licensees.
Uncertainties about the effect of the Merger Transaction on employees, suppliers, business partners, licensees and other persons with whom we or RareGen has a business relationship may have an adverse effect on our business or RareGen prior to the Merger Transaction and on HoldCo following completion of the Merger Transaction. In connection with the pendency of the Merger Transaction, as well as during times of significant change and uncertainty such as the period following completion of the Merger Transaction, suppliers, business partners, licensees and other persons with whom we or RareGen have a business relationship may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships with our company or RareGen, or take other actions as a result of the Merger Transaction that could negatively affect our or RareGen’s respective revenues, earnings and cash flows, as well as the market price or fair market value of their respective securities. The ability of us or RareGen to raise additional capital through the debt markets, and the associated borrowing costs, may also be negatively impacted. These disruptions could have an adverse effect on the results of operations, cash flows and financial position of us or RareGen, including an adverse effect on HoldCo’s ability to realize the expected cost savings and other benefits of the Merger Transaction. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Merger Transaction or termination of the Merger Agreement.
 
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Employee execution of retention agreements and recruitment of additional employees may be particularly challenging prior to the completion of the Merger Transaction, as employees and prospective employees may experience uncertainty about their future roles with HoldCo. If, despite our or RareGen’s retention and recruiting efforts, key employees depart or prospective key employees fail to accept employment with either company because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with HoldCo, our and RareGen’s financial results could be adversely affected. Furthermore, HoldCo’s operational and financial performance following completion of the Merger Transaction could be adversely affected if it is unable to retain key employees and skilled workers of our company or RareGen. The loss of the services of key employees and skilled workers and their experience and knowledge regarding our or RareGen’s businesses could adversely affect HoldCo’s future operating results and its successful ongoing operation of the business.
During the pendency of the Merger Transaction, we may not be able to enter into a business combination with another party because of restrictions in the Merger Agreement.
Covenants in the Merger Agreement impede our ability to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Merger Transaction, even if such transactions might be favorable to our stockholders. As a result, if the Merger Transaction is not completed, we may be at a disadvantage to our competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, we are discouraged from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a strategic collaboration agreement involving LIQ861, or a sale of our assets, an acquisition of our common stock, a tender offer for our common stock, a merger or other business combination outside the ordinary course of business, as the termination of the Merger Agreement of (i) by us if our board of directors decides to accept a superior proposal or (ii) by RareGen if our board of directors changes its recommendation following the receipt of an alternative proposal would result in us paying to RareGen a termination fee of  $7.5 million. For more information, see the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 134.
Because the lack of a public market for the RareGen common units makes it difficult to evaluate the fairness of the Merger Transaction, RareGen’s members may receive consideration in the RareGen Merger that is greater than or less than the fair market value of the RareGen common units.
The outstanding equity of RareGen is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of RareGen. Since the percentage of HoldCo’s common stock to be issued to RareGen’s members was determined based on negotiations between the parties, it is possible that the value of HoldCo’s common stock to be issued in connection with the RareGen Merger will be greater than the fair market value of RareGen. Alternatively, it is possible that the value of the shares of HoldCo common stock to be issued in connection with the RareGen Merger will be less than the fair market value of RareGen.
The combined company will incur significant transaction costs as a result of the Merger Transaction, including investment banking, legal and accounting fees. In addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time, including costs associated with the integration of the RareGen sales force. Actual transaction costs may substantially exceed our estimates and may have an adverse effect on the combined company’s financial condition and operating results.
Failure of the Merger Transaction to qualify as an exchange as described in Section 351 of the Code could adversely affect the RareGen members and our stockholders.
The parties intend for the Merger Transaction to qualify, for U.S. federal income tax purposes, as a transfer described in Section 351 of the Code. For a description of the material U.S. federal income tax consequences of the Merger Transaction to our stockholders, please see the information set forth in the section entitled “Proposal 1 — The Merger Transaction: Material U.S. Federal Income Tax Consequences” beginning on page 114. Each of our stockholders is encouraged to consult such member’s or stockholder’s own tax advisor for a complete understanding of the tax consequences of the Merger Transaction. Certain
 
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structural and other requirements are required to be satisfied for a transaction to qualify as a transfer described in Section 351 of the Code. We should not recognize taxable gain or loss if the Merger Transaction fails to qualify as an exchange described in Section 351 of the Code. Each Liquidia Technologies U.S. holder would recognize capital gain or loss in an amount equal to the difference between the value of the HoldCo common stock received and the U.S. holder’s tax basis in our common stock exchanged for such HoldCo common stock, if the Merger Transaction fails to qualify as an exchange described in Section 351 of the Code.
The future results of HoldCo will suffer if HoldCo does not effectively manage its expanded operations following the completion of the Merger Transaction.
Following the completion of the Merger Transaction, the size and complexity of the business of HoldCo will increase beyond the current size of either our or RareGen’s business. HoldCo’s future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. If HoldCo is unsuccessful in managing its integrated operations, or if it does not realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Merger Transaction, the operations and financial condition of HoldCo could be adversely affected and HoldCo may not be able to take advantage of business development opportunities.
Our internal financial forecasts regarding RareGen may not prove accurate.
In connection with the Merger Transaction, our management prepared internal, stand-alone, pre-transaction financial forecasts of RareGen. These forecasts are based on numerous variables and assumptions that are inherently uncertain and are beyond our control, including assumptions with respect to macro-economic trends, interest rates and anticipated growth rates, and is not necessarily indicative of what RareGen’s actual results of operations, cash flows or financial position would be on the dates indicated. The assumptions used in preparing these forecasts may not prove to be accurate and other factors may affect HoldCo’s actual results and financial condition after the completion of the Merger Transaction, which may cause HoldCo’s actual results and financial condition to differ materially from our estimates contained in the unaudited prospective financial information for RareGen. These forecasts were not prepared with a view to public disclosure, are subject to significant economic, competitive, industry and other uncertainties and may not be achieved in full, at all, or within projected timeframes. The failure of our or RareGen’s businesses to achieve projected results could have a material adverse effect on the price of HoldCo common stock, HoldCo’s financial position, and HoldCo’s operating results and cash flows.
The Merger Transaction may not be accretive and may cause dilution to HoldCo’s earnings per share, which may negatively affect the market price of common stock of HoldCo.
HoldCo could fail to realize all of the benefits anticipated in the Merger Transaction or experience material delays or inefficiencies in realizing such benefits, which could cause dilution to HoldCo’s adjusted diluted earnings per share or decrease or delay the expected accretive effect of the Merger Transaction and cause a decrease in the market value of HoldCo’s common stock.
Any of these factors could negatively impact HoldCo earnings per share or decrease or delay the expected accretive effect of the Merger Transaction and cause a decrease in the market price of common stock of HoldCo.
The Merger Transaction may be completed even though material adverse changes may result from the announcement of the Merger Transaction, industry-wide changes and other causes.
We and RareGen have made representations to each other that there has not been a material adverse change affecting our respective companies and if such representation is not accurate at closing, the other party will not be obligated to complete the Merger Transaction. However, certain types of changes will not constitute a material adverse change, including:

any change or condition relating to the economy or securities markets in general, or the industries in which we or RareGen operate in general, and not specifically relating to our company or RareGen;

acts of war, armed hostilities or terrorism;
 
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any changes in applicable laws or accounting rules, including accounting principles generally accepted in the United States, or GAAP;

any change or condition attributable to the public announcement or pendency of the Merger Agreement or the transactions contemplated by the Merger Agreement, including the loss of customers, suppliers, vendors, lenders, investors, licensors, collaboration partners, employees, other third parties or the performance by us or RareGen of the Merger Agreement;

with respect to our company, effects resulting from Hatch-Waxman based litigation relating to LIQ861;

geopolitical conditions (including any trade wars), any outbreak, including continuation or expansion of any military conflict, declared or undeclared war, armed hostilities, or acts of foreign or domestic terrorism (including cyber-terrorism);

hurricane, flood, tornado, earthquake or other natural disaster or act of God or weather conditions, or any pandemic, epidemic, plague, or other outbreak of illness or public health event;

with respect to our company, the failure to meet any internal or external projections or forecasts or any decline in the price of our common stock or changes in the trading volume thereof; and

with respect to RareGen, any effects resulting from any litigation and claims subject to the litigation funding and indemnification agreement.
If any of these adverse changes occur and we and RareGen complete the Merger Transaction, HoldCo may suffer.
Risks Related to the Business of HoldCo
HoldCo will need to raise capital after the closing of the Merger Transaction in order to support its operations, which capital may not be available on terms acceptable to HoldCo, or at all.
As of March 31, 2020, we had cash of approximately $40.1 million and RareGen had cash and cash equivalents of approximately $6.0 million. RareGen will distribute all of its cash in excess of $1 million prior to the closing of the Merger Transaction and will have $1 million in cash immediately following the closing. In July 2020, we closed an underwritten public offering pursuant to which we sold 9,375,000 shares of our common stock at a public offering price of $8.00, for total gross proceeds of $75 million, before deducting underwriting discounts and commissions. Following this public offering and the Merger Transaction, HoldCo will likely need to raise substantial additional capital to continue its business operations and remain in compliance with the minimum cash covenant on its debt during and beyond the third quarter of 2021, in addition to commercializing LIQ861, if approved. As a result, HoldCo will need to raise capital after the closing of the Merger Transaction from the sale of debt or equity securities or other sources in order to support its operations. There can be no assurance that HoldCo will be able to obtain this capital on acceptable terms, or at all. If HoldCo issues additional equity or convertible debt securities to raise this capital, your percentage ownership of HoldCo will be reduced, and you may experience significant dilution. In addition, new investors in HoldCo may demand rights, preferences or privileges that differ from, or are senior to, yours, including warrants in addition to the securities purchased and protection against future dilutive transactions.
We have incurred losses over the last few years in excess of RareGen’s operating income, and HoldCo may not be able to achieve profitability.
We have incurred net losses of $14.8 million during the three months ended March 31, 2020 and $47.6 million, $53.1 million and $29.2 million during the years ended December 31, 2019, 2018 and 2017, respectively. We also had negative operating cash flows for each of these periods. As of March 31, 2020 and December 31, 2019, we had an accumulated deficit of $230.0 million and $215.2 million, respectively.
Since our incorporation, we have invested heavily in the development of our product candidates and technologies, as well as in recruiting management and scientific personnel. To date, we have not commenced the commercialization of our product candidates and all of our revenue has been derived from up-front fees and milestone payments made to our company in connection with licensing and collaboration
 
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arrangements we have entered into. These up-front fees and milestone payments have been, and may continue to be, insufficient to match our operating expenses. We expect to continue to devote substantial financial and other resources to the clinical development of our product candidates and, as a result, must generate significant revenue to achieve and maintain profitability.
RareGen achieved income from operations of $0.4 million in 2019 and RareGen’s future income from operations is not expected to offset our net losses and accumulated deficit for the foreseeable future.
As a result, HoldCo may continue to incur losses and negative cash flow and may never transition to profitability or positive cash flow. Even if HoldCo does achieve profitability, it may not sustain or increase profitability on a quarterly or annual basis in the future. If HoldCo is unable to achieve profitability, it may be forced to implement expense reduction measures, including selling its assets, consolidating its operations, reducing its workforce or delaying, canceling or reducing certain product development, marketing or other operational programs, any of which could harm its business.
Following the closing of the Merger Transaction, HoldCo’s two subsidiaries will be Liquidia Technologies, a late-stage clinical biopharmaceutical company and RareGen, a provider of strategy, investment, and commercialization services and support for rare disease pharmaceutical products, with no approved products and no historical product revenue aside from RareGen’s commercialization of a generic version of Remodulin®, which may make it difficult for you to evaluate HoldCo’s business, financial condition and prospects.
We are a late-stage clinical biopharmaceutical company with no history of commercial operations upon which you can evaluate our prospects. Drug product development involves a substantial degree of uncertainty. Our operations to date have been limited to developing our PRINT technology, undertaking preclinical studies and clinical trials for our product candidates and collaborating with pharmaceutical companies, including GlaxoSmithKline plc and/or its subsidiaries, collectively, GSK, to expand the applications for our PRINT technology through licensing as well as joint product development arrangements. We have not obtained marketing approval for any of our product candidates and, accordingly, have not demonstrated an ability to generate revenue from pharmaceutical products or successfully overcome the risks and uncertainties frequently encountered by companies undertaking drug product development. Consequently, your ability to assess our business, financial condition and prospects may be significantly limited. RareGen provides strategy, investment, and commercialization services and support for rare disease pharmaceutical products, and it has a small, targeted sales force focused on PAH. To date, RareGen’s operations consists entirely of providing services and support relative to the commercialization and marketing of Sandoz’s first-to-file fully substitutable generic version of Remodulin®, a parenteral formulation of treprostinil owned by United Therapeutics and RareGen has a negative income from operations since inception. Further, the net losses that we incur may fluctuate significantly from quarter-to-quarter and year-to-year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance as a subsidiary of HoldCo. Other unanticipated costs may also arise. Therefore, it may be difficult to evaluate HoldCo’s business, financial condition and prospects as a combined company.
United Therapeutics has initiated a lawsuit against us in which it claims that LIQ861 is infringing three of its patents, which may result in our company being delayed in its efforts to commercialize LIQ861.
We are developing LIQ861 under the 505(b)(2) regulatory pathway with Tyvaso® as the reference listed drug. Accordingly, under the Hatch-Waxman Amendments to the Food, Drug and Cosmetic Act, we were required to, in the NDA for LIQ861, certify that patents listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the “Orange Book”, for Tyvaso are invalid, unenforceable or will not be infringed by the manufacture, use or sale of LIQ861. Two of these patents are U.S. Patent No. 9,604,901, or the ‘901 patent, entitled “Process to Prepare Treprostinil, the Active Ingredient in Remodulin®”, and U.S. Patent No. 9,593,066, or the ‘066 patent”, entitled “Process to Prepare Treprostinil, the Active Ingredient in Remodulin®”, both of which are owned by United Therapeutics. A notice of the paragraph IV certification was required to be provided to United Therapeutics as the owner of the patents that are the subject of the certification to which the NDA for LIQ861 refers. On June 4, 2020, United Therapeutics, as the holder of such patents, asserted a patent challenge directed to the ‘901 patent and the ‘066 patent by filing a complaint against us in the U.S. District Court for the District of Delaware (Case No. 1:20-cv-00755-UNA), or the Hatch-Waxman Litigation, thereby triggering an automatic 30-month regulatory stay on final approval of the NDA for LIQ861. As a result of United Therapeutics’ patent challenge, the FDA is
 
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prohibited from approving the NDA for LIQ861 until the earliest to occur of the expiration of the 30-month stay, expiration of the ‘901 patent and ‘066 patent, settlement of the lawsuit or a decision in the infringement suit that is favorable to us as the NDA applicant. Accordingly, we may be subject to significant delay and incur substantial costs in litigation before we are able to commercialize LIQ861, if at all.
On July 21, 2020, the U.S. Patent and Trademark Office, or the USPTO, issued U.S. Patent No. 10,716,793, or the “793 patent”, entitled “Treprostinil Administration by Inhalation”, to United Therapeutics. On July 22, 2020, United Therapeutics filed an amended complaint in the Hatch-Waxman Litigation asserting infringement of the ‘793 patent by the practice of LIQ861. The infringement allegations of the ‘793 patent is separate from the 30-month regulatory stay on final approval of the NDA for LIQ861, which is only associated with the infringement allegations of the ‘901 patent and the ‘066 patent.
On March 30, 2020, we filed two petitions for inter partes review with the Patent Trial and Appeal Board, or the PTAB, of the USPTO. One petition is for inter partes review of the ‘901 patent and a second petition is for inter partes review of the ‘066 patent, both of which are owned by United Therapeutics. We are seeking a determination that the claims in the ‘066 patent and the ‘901 patent are invalid. Both the ‘066 patent and the ‘901 patent are continuation patents to U.S. Patent No. 8,497,393 which was granted to United Therapeutics and subsequently invalidated by the USPTO in an inter partes review instituted in 2016 by SteadyMed Ltd. A determination by the PTAB to institute the petitions is expected early in the fourth quarter of 2020, and final written decisions determining the validity of the challenged claims of the ‘066 patent and the ‘901 patent, if the petitions are instituted by the PTAB, is expected within 12 months from institution.
Our commercial success depends largely on our ability to protect our intellectual property.
Our commercial success depends, in large part, on our ability to obtain and maintain patent protection and trade secret protection in the United States and elsewhere in respect of our product candidates and PRINT technology. If we fail to adequately protect our intellectual property rights, our competitors may be able to erode, negate or preempt any competitive advantage we may have. To protect our competitive position, we have filed and will continue to file for patents in the United States and elsewhere in respect of our product candidates and PRINT technology. The process of identifying patentable subject matter and filing a patent application is expensive and time-consuming. We cannot assure you that we will be able to file the necessary or desirable patent applications at a reasonable cost, in a timely manner, or at all. Further, since certain patent applications are confidential until patents are issued, third parties may have filed patent applications for subject matters covered by our pending patent applications without us being aware of such applications, and our patent applications may not have priority over patent applications of others. In addition, we cannot assure you that our pending patent applications will result in patents being obtained. Once published, all patent applications and publications throughout the world, including our own, become prior art to our new patent applications and may prevent patents from being obtained or interfere with the scope of patent protection that might be obtained. The standards that patent offices in different jurisdictions use to grant patents are not always applied predictably or uniformly and may change from time to time.
Even if we have been or are able to obtain patent protection for our product candidates or PRINT technology, if the scope of such patent protection is not sufficiently broad, we may not be able to rely on such patent protection to prevent third parties from developing or commercializing product candidates or technology that may copy our product candidates or technology. The enforceability of patents in the pharmaceutical industry involves complex legal and scientific questions and can be uncertain. Accordingly, we cannot assure you that third parties will not successfully challenge the validity, enforceability or scope of our patents. A successful challenge to our patents may lead to generic versions of our drug products being launched before the expiry of our patents or otherwise limit our ability to stop others from using or commercializing similar or identical products and technology. A successful challenge to our patents may also reduce the duration of the patent protection of our drug products or technology. If any of our patents are narrowed or invalidated, our business and prospects may be materially and adversely affected. In addition, we cannot assure you that we will be able to detect unauthorized use or take appropriate, adequate and timely actions to enforce our intellectual property rights. If we are unable to adequately protect our intellectual property, our business, competitive position and prospects may be materially and adversely affected.
 
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Even if our patents or patent applications are unchallenged, they may not adequately protect our intellectual property or prevent third parties from designing around our patents or other intellectual property rights. If the patent applications we file or may file do not lead to patents being granted or if the scope of any of our patent applications is challenged, we may face difficulties in developing our product candidates, companies may be dissuaded from collaborating with us, and our ability to commercialize our product candidates may be materially and adversely affected. We are unable to predict which of our patent applications will lead to patents or assure you that any of our patents will not be found invalid or unenforceable or challenged by third parties. The patents of others may prevent the commercialization of product candidates incorporating our technology. In addition, given the amount of time required for the development, clinical testing and regulatory review of new product candidates, any patents protecting our product candidates may expire before or shortly after such product candidates might become approved for commercialization.
Moreover, the issuance of a patent is not conclusive as to the inventorship of the patented subject matter, or its scope, validity or enforceability. We cannot assure you that all of the potentially relevant prior art, that is, any evidence that an invention is already known, relating to our patents and patent applications, has been found. If such prior art exists, it may be used to invalidate a patent or may prevent a patent from being issued.
In addition, we, our collaborators or our licensees may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. As a result, we may miss potential opportunities to seek patent protection or strengthen our patent position.
HoldCo’s management, which is substantially similar to our management, has broad discretion in using the net proceeds from prior public and private equity offerings and may not use them effectively.
HoldCo’s management expects to use the net proceeds of July 2020 public offering and prior public and private equity offerings for ongoing commercial development of LIQ861, for continued development of LIQ865 and for general corporate purposes. The net proceeds are not being used to fund the acquisition of RareGen and we do not expect to use any material proceeds from this offering to fund the operations of RareGen. HoldCo’s management has broad discretion in the application of such proceeds and could spend the proceeds in ways that do not improve HoldCo’s results of operations or enhance the value of its equity. The failure by HoldCo’s management to apply these funds effectively could result in financial losses that could have a material adverse effect on HoldCo’s business, diminish cash flows available to service its debt, cause the value of its equity to decline and delay the development of its product candidates. Pending their use, HoldCo may invest such proceeds in short-term, investment-grade, interest-bearing securities, which may not yield favorable returns.
Disruptions at the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of HoldCo’s business may rely, which could negatively impact HoldCo’s business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including global pandemics, natural disasters, geopolitical actions, government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, in December 2019, a novel strain of COVID-19, or coronavirus, was reported to have surfaced in Wuhan, China and has become a global pandemic as of the date of this proxy statement/prospectus. The full impact of the coronavirus is unknown and rapidly evolving. For example, after generally suspending in-person inspections due to COVID-19, the FDA recently announced it would resume domestic facility
 
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inspections, although the agency continues its general suspension of foreign facility inspections (although “mission-critical” inspections may be considered on a case-by-case basis). Because of the global pandemic, decision-making around facility inpsections by the FDA (including preapproval inspections) continues to evolve. Additionally, over the last several years, including from December 22, 2018 until January 25, 2019, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. If a prolonged government disruption occurs, it could significantly impact the ability of the FDA to timely review and process HoldCo’s regulatory submissions, which could have a material adverse effect on its business. Further, in HoldCo’s operations as a public company, prolonged government disruptions, global pandemics and other natural disasters or geopolitical actions could impact its ability to access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.
HoldCo will depend upon third parties for materials and components necessary for both clinical and commercial production of LIQ861, including single suppliers for the active ingredient, the device, encapsulation and packaging of LIQ861.
We depend on third-party suppliers for the supply of materials and components necessary for clinical and commercial production of LIQ861, including the active pharmaceutical ingredients which are used in our product candidates. These supplies may not always be available to us at the standards we require or on terms acceptable to us, or at all, and we may not be able to locate alternative suppliers in a timely manner, or at all. If we are unable to obtain necessary clinical or commercial supplies, our manufacturing operations and clinical trials and the clinical trials of our collaborators, and our plans for commercial production may be delayed or disrupted and our business and prospects may be materially and adversely affected as a result.
For example, we currently rely on a sole supplier for treprostinil, the active pharmaceutical ingredient of LIQ861, which sources treprostinil from a manufacturer in South Korea. If our supplier is unable to supply treprostinil to us in the quantities we require, or at all, or otherwise default on its supply obligations to us, or if it ceases its relationship with us, we may not be able to obtain alternative supplies of treprostinil from other suppliers on acceptable terms, in a timely manner, or at all. Furthermore, LIQ861 is administered using the RS00 Model 8 DPI, or dry powder inhaler, which is manufactured by Plastiape S.p.A., or Plastiape, which is located in Italy. We also rely on a sole supplier for encapsulation and packaging services. We purchase treprostinil, our DPI supply and encapsulation and packaging services pursuant to purchase orders and do not have long-term contracts with these suppliers. In the event of any prolonged disruption to our supply of treprostinil, the manufacture and supply of RS00 Model 8 DPI or encapsulation and packaging services, our ability to develop and commercialize, and the timeline for commercialization of, LIQ861 may be adversely affected.
Additionally, in December 2019, a novel strain of COVID-19, or coronavirus, was reported to have surfaced in Wuhan, China and has become a global pandemic as of the date of this proxy statement/prospectus. The full impact of the coronavirus is unknown and rapidly evolving. Both South Korea, the country from which our supplier sources treprostinil, and Italy, the country in which Plastiape is headquartered, have had significant outbreaks of this disease, which, in the case of Italy, led to a lockdown of the entire country. The extent to which the coronavirus impacts our ability to procure sufficient materials and components for the development and commercialization of our products and product candidates (or for pre-approval inspections, if required in order for FDA to obtain sufficient assurance or verification of compliance with good manufacturing practice regulations) will depend on the severity, location and duration of the spread of the coronavirus, and the actions undertaken to contain the coronavirus or treat its effects.
We and RareGen depend on skilled labor, and HoldCo’s business and prospects may be adversely affected if it loses the services of its skilled personnel, including those in senior management, or is unable to attract new skilled personnel.
HoldCo’s ability to continue our and RareGen’s operations following completion of the Merger Transaction and manage its potential future growth depends on its ability to hire and retain suitably skilled and qualified employees, including those in senior management, in the long-term. Due to the specialized nature of our and RareGen’s work, there is a limited supply of suitable candidates. We and RareGen compete with other biotechnology and pharmaceutical companies, educational and research institutions and government entities, among others, for research, technical and clinical personnel. In addition, in order
 
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to manage its potential future growth effectively, HoldCo will need to improve its financial controls and systems and, as necessary, recruit sales, marketing, managerial and finance personnel. If HoldCo is unable to attract and retain skilled personnel, including in particular Neal Fowler, its Chief Executive Officer, its business and prospects may be materially and adversely affected.
We reported material weaknesses in internal control over financial reporting for the year ended December 31, 2019 and quarter ended March 31, 2020, and HoldCo cannot assure you that additional material weaknesses will not be identified in the future. Additionally, as a private company, RareGen’s internal controls over financial reporting will need to be upgraded to the level of a Sarbanes-Oxley compliant company. HoldCo’s failure to implement and maintain effective internal control over financial reporting could result in material misstatements in HoldCo’s financial statements, which could require HoldCo to restate its financial statements, cause investors to lose confidence in HoldCo’s reported financial information and have a negative effect on HoldCo’s stock price.
Effective internal controls over financial reporting are necessary for public companies to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause HoldCo to fail to meet its reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of HoldCo common stock. In addition, any future testing by HoldCo conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, or the subsequent testing by HoldCo’s independent registered public accounting firm, may reveal deficiencies in its internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.
As required by the Sarbanes Oxley Act and commencing with the fiscal year ended December 31, 2019, we are required to furnish a report by management on, among other things, the effectiveness of its internal controls over financial reporting, or ICFR, for the fiscal year ended December 31, 2019. In connection with the assessment of the effectiveness of its ICFR, our management identified the following material weaknesses that existed as of December 31, 2019:
During 2019, we experienced significant turnover in finance personnel that reduced the complement and skill of the resources within our company. As a result, we did not maintain an effective control environment as we lacked a sufficient complement of resources with an appropriate level of knowledge, experience and training to design, maintain and monitor our ICFR commensurate with our financial reporting requirements. As a result, this material weakness contributed to the following material weaknesses:

We did not design and maintain controls to ensure adequate segregation of duties within our financial reporting function, including the preparation and review of journal entries. Specifically, some key accounting personnel had the ability to both prepare and post journal entries without an independent review by someone without the ability to prepare and post journal entries.

We did not design and maintain effective controls over certain information technology general controls for information systems that are relevant to the preparation of its financial statements. Specifically, we did not design and maintain effective user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications and data to appropriate Liquidia Technologies personnel.
These material weaknesses did not result in a material misstatement of our annual or interim financial statements for 2019. Additionally, these material weaknesses could result in a misstatement of the relevant account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Additionally, HoldCo could be subject to regulatory scrutiny, a loss of public and investor confidence, and to litigation from investors and stockholders, all of which could have a material adverse effect on its business and the trading price of its shares. Subsequent to our December 31, 2019 year end, we began taking a number of actions, including designing and implementing new controls and revising existing controls, in order to remediate the material weaknesses described above. To that end, we have engaged a large accounting
 
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firm to assist us with the remediation efforts. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could result in charges by the SEC with violating the books and records and internal control provisions of the federal securities laws which may result in penalties and fines to HoldCo or its or its subsidiaries’ directors and officers, and also could restrict our future access to the capital markets.
RareGen, as a private company, is not subject to Sarbanes-Oxley and, as such, following the closing of the Merger Transaction its internal controls over financial reporting will need to be built and/or upgraded, which could be time-consuming and expensive. For example, RareGen’s controls and processes will need to be formalized and HoldCo will need to build an internal finance function to support RareGen. The controller at PBM Capital Group currently acts as RareGen’s Chief Financial Officer and otherwise supports RareGen’s financial infrastructure needs. The acquisition of RareGen could also hinder HoldCo’s efforts to remediate its material weaknesses as management will need to devote substantial efforts and resources towards consummating the Merger Transaction, syncing Liquidia’s and RareGen’s businesses and implementing and upgrading ICFR for RareGen.
For as long as we and HoldCo are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, its independent registered public accounting firm will not be required to attest to the effectiveness of the issuer’s internal controls over financial reporting pursuant to Section 404. We or HoldCo, as our successor, could be an emerging growth company for up to an additional three years. An independent assessment of the effectiveness of the issuer’s internal controls could detect additional problems that its management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us or HoldCo to incur additional remediation expenses.
HoldCo’s ability to use net operating losses to offset future taxable income will be subject to certain limitations.
In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses to offset future taxable income. A corporation generally undergoes an “ownership change” if the percentage of stock of the corporation owned by one or more of its 5% stockholders has increased by more than 50 percentage points over a three-year period.
Our existing net operating losses currently are subject to limitations arising from previous ownership changes and will be subject to additional limitations as a result of the Merger Transaction. In addition, if HoldCo undergoes an ownership change after the Merger Transaction, the combined company’s ability to utilize NOLs could be further limited by Section 382 of the Code. It is impossible for HoldCo to ensure that it will not experience an ownership change in the future because changes in its stock ownership, some of which are outside of HoldCo’s control, could result in an ownership change under Section 382 of the Code.
Generally, the limitations on HoldCo’s ability to use our pre-Merger Transaction NOLs to offset future taxable income are expected to be significant, and thus, HoldCo’s liability for future U.S. federal income taxes may be materially higher than that liability would have been absent such limitations. Similar rules may apply for foreign and state income tax purposes as well.
Risks Related to the Business of RareGen
RareGen does not hold the FDA regulatory approval for the Product and is dependent on Sandoz to manufacture and supply the Product in compliance with FDA requirements, and is more broadly dependent on Sandoz’s FDA and healthcare compliance relative to the Product.
Sandoz holds the FDA approval (the ANDA) for and controls the Product and is responsible among other things for the compliant manufacture, distribution, labeling, and advertising of the Product. RareGen’s role is one of a specialized service provider to Sandoz. As a result, RareGen is dependent on Sandoz to manufacture and supply the Product, and dependent on Sandoz for the continued FDA compliance of the Product. RareGen does not have control over Sandoz’s compliance with laws and regulations applicable to drug manufacturers and ANDA holders (for example, applicable current good manufacturing practices (GMPs); FDA labeling, promotional labeling, and advertising requirements; pharmacovigilance and adverse
 
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event reporting; and other ongoing FDA reporting and submission requirements), nor over its compliance with healthcare compliance and fraud, waste, and abuse laws, or similar regulatory requirements and other laws and regulations, such as those related to environmental health and safety matters. In addition, RareGen has no control over the ability of Sandoz to maintain adequate quality control, quality assurance and qualified personnel, or other personnel with roles related to the regulatory compliance of the Product and its labeling, promotion, and advertising or of Sandoz’s activities in relation to government healthcare programs. If the FDA or a comparable foreign regulatory authority finds deficiencies with the manufacture or quality assurance of the Product or identifies safety or efficacy concerns related to the Product, or if Sandoz otherwise is unable to comply with applicable laws, regulations and standards, Sandoz’s ability to manufacture, sell and supply the Product could be limited, which would cause an adverse effect on RareGen’s business, financial condition and results of operations.
Sandoz’s ability to consistently manufacture and supply the Product in a timely manner may also be interrupted by production shortages or other supply interruptions, including as a result of the ongoing COVID-19 pandemic. RareGen’s share of net profits under the Promotion Agreement is reduced by certain manufacturing costs and other write-offs related to Sandoz’s inability to sell the Product, including in the event that the Product expires prior to sale. Currently, the Product expires 24 months after the date of manufacture. If Sandoz’s manufacturing costs increase, or its ability to sell the Product within 24 months of the date of manufacture is interrupted, there would be an adverse effect on RareGen’s business, financial condition and results of operations.
RareGen’s ability to sell the Product is dependent on market acceptance of generic treprostinil for parenteral administration by patients, health care providers and by third-party payors, while interactions with these persons and entities are subject to compliance requirements.
RareGen’s ability to sell the Product is dependent on market acceptance of generic treprostinil for parenteral administration by patients, health care providers and by third-party payors. If the Product does not achieve an adequate level of acceptance, RareGen may not generate sufficient revenue to remain profitable.
At the same time, arrangements with healthcare providers, physicians, third-party payors and customers, and RareGen’s sales, marketing and educational activities, may expose it to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain its business or financial arrangements and relationships.
The degree of market acceptance of the Product will depend on a number of factors, including:

the efficacy, safety and potential advantages compared to alternative treatments;

RareGen’s ability to offer the Product for sale at competitive prices;

the convenience and ease of administration compared to alternative treatments;

whether the Product may be administered subcutaneously;

product labeling or product insert requirements of the FDA or foreign regulatory authorities, including any limitations or warnings contained in a product’s approved labeling, including any black box warning;

the willingness of the target patient population to try new treatments, including the generic version of a brand, and of physicians to prescribe such treatments;

RareGen’s ability to hire and retain sales and marketing personnel and their ability to support Sandoz under RareGen’s Promotion Agreement;

the strength of Sandoz’s manufacturing and distribution support;

the requirement by third-party payors to use generic treprostinil for parenteral administration in place of Remodulin®;

the availability of third-party coverage and adequate reimbursement for the Product;

the prevalence and severity of any side effects;

any restrictions on the use of the Product together with other medications; and
 
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the services provided by specialty pharmacies related to use of the Product.
RareGen’s business may also be impacted by the need to maintain compliant operations (including oversight and monitoring of personnel and their activities) in relation to interactions with the persons and parties noted above, relative to FDA and healthcare law requirements.
RareGen faces substantial competition, which may result in a smaller than expected commercial opportunity.
RareGen faces substantial competition. Even though Sandoz launched the first-to-file fully substitutable generic treprostinil for parenteral administration in March 2019 that is sold primarily through the specialty pharmacies, Teva Pharmaceutical Industries Ltd. launched a generic treprostinil for parenteral administration in October 2019 that is sold primarily through a specialty pharmacy and to hospitals, Par Pharmaceutical, Inc. launched a generic treprostinil for parenteral administration after receiving approval in September 2019 that is sold primarily to hospitals, Dr. Reddy’s Laboratories Inc.’s received approval in May 2020 for generic treprostinil for parenteral administration, and Alembic Pharmaceuticals Ltd’s has settled with United Therapeutics in order to launch a generic treprostinil for parenteral administration, though it has not yet been approved to date. Such increased competition may result in a smaller than expected commercial opportunity for RareGen.
Generic drug prices may, and often do, decline, sometimes dramatically, especially as additional generic pharmaceutical companies (including low-cost generic producers outside of the United States) receive approvals and enter the market for a given product. The goals established under the Generic Drug User Fee Act, and increased funding of the FDA’s Office of Generic Drugs, have led to more and faster generic approvals, and consequently increased competition for generic products. The FDA has stated that it has established new steps to enhance competition, promote access and lower drug prices and is approving record-breaking numbers of generic applications. The FDA’s changes may benefit RareGen’s competitors. RareGen’s ability to sell the Product and earn revenue is affected by the number of companies selling competitive products, including new market entrants, and the timing of their approvals.
Furthermore, branded pharmaceutical companies such as United Therapeutics continue to defend their products vigorously through, among other actions, life cycle management, marketing agreements with third-party payors, pharmacy benefits managers and generic manufacturers. These actions add increased competition in the generic pharmaceutical industry, including competition for the Product.
Many of the companies against which RareGen competes, or against which RareGen may compete in the future, including United Therapeutics, have significantly greater financial resources than does RareGen. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors may also compete with RareGen in recruiting and retaining qualified sales personnel.
RareGen’s future success depends on its ability to attract, retain and motivate qualified sales personnel, with experience specific to the pharmaceutical industry and relevant disease area.
RareGen is highly dependent on the expertise of its sales personnel. Each member of its sales team may terminate his or her employment with RareGen at any time. RareGen does not maintain “key person” insurance for any of its employees.
Recruiting and retaining qualified sales and marketing personnel is critical to RareGen’s success. The loss of the services of members of RareGen’s sales team could seriously harm its ability to successfully implement its business strategy. Furthermore, replacing sales personnel may be difficult and may take an extended period of time because of the limited number of individuals in RareGen’s industry with the breadth of skills and experience required to successfully sell and market products such as treprostinil. Competition to hire from this limited pool is intense, and RareGen may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. If RareGen is unable to continue to attract and retain high quality sales personnel, its ability to pursue its growth strategy will be limited.
 
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Medical devices, which RareGen does not control, are necessary for the administration of the Product.
In order for the Product to be administered with patients, patients must use certain other medical equipment, including pumps, cartridges and infusion sets. RareGen does not manufacture or control such medical equipment, which is manufactured by third parties and owned and dispensed by specialty pharmacies, hospitals or other third parties. RareGen’s ability to serve patients is dependent upon the ability of specialty pharmacies to maintain sufficient inventory of such medical equipment to provide to patients. If manufacturers cease to manufacture or support medical equipment or if specialty pharmacies are unable to obtain or maintain sufficient inventories of such medical equipment, RareGen’s sales may be adversely impacted.
RareGen is seeking to work with third parties to develop or procure pumps and cartridges that can be used to administer the Product. Such pumps and cartridges may require FDA 510(k) clearance before they can be sold. There is no guarantee that RareGen or a third party will receive FDA 510(k) clearance. Failure by RareGen or third parties to successfully develop or supply the medical equipment or to obtain or maintain regulatory approval or clearance of such medical equipment could negatively impact the market acceptance of and sales of the Product.
RareGen must comply with various laws in jurisdictions around the world that restrict certain marketing practices in the pharmaceutical and medical device industries. Failure to comply with such laws could result in penalties and have a material adverse effect on RareGen’s business, financial condition and results of operations.
RareGen’s business activities may be subject to challenge under laws in jurisdictions around the world restricting particular marketing practices, such as among others, anti-kickback and various false claim statutes, the Foreign Corrupt Practices Act and the United Kingdom Bribery Act. Any penalties imposed upon RareGen for failure to comply could have a material adverse effect on its business and financial condition.
In the United States, the Federal Anti-Kickback Statute prohibits, among other activities, knowingly and willfully offering, paying, soliciting, or receiving compensation to induce, or in return for, the purchase, lease, order or arranging the purchase, lease or order of any health care product or service reimbursable under any federally financed health-care program. This statute has been interpreted broadly to apply to arrangements between pharmaceutical manufacturers and prescribers, purchasers, formulary managers, patients, and others. The exemptions and safe harbors under this statute may be narrow, and practices that involve compensation may be subject to scrutiny if they do not qualify for an exemption or safe harbor.
The Federal False Claims Act, as amended by the PPACA, prohibits any person from presenting or causing to be presented a false or fraudulent claim or making or causing a false statement material to a false or fraudulent claim. For example, several pharmaceutical and health care companies have been investigated under this law for allegedly providing free product to customers with the expectation that the customers would bill federal health care programs for the free product. Other companies have been prosecuted for causing false claims to be submitted because of these companies’ marketing of a product for unapproved, or “off-label”, and non-reimbursable uses. Potential liability under the Federal False Claims Act includes mandatory treble damages and significant per-claim penalties. The majority of states also have statutes similar to the Federal Anti-Kickback Statute and the Federal False Claims Act. Sanctions under these federal and state laws may include treble civil monetary penalties, exclusion of a manufacturer’s product from reimbursement under state government programs, debarment, criminal fines, additional reporting requirements and regulatory oversight and imprisonment.
Although federal enforcement is most commonly directed toward those actors who file or cause to be filed claims for reimbursement, both parties to certain sales and marketing transactions are equally liable. Enforcement trends change periodically, and RareGen may receive governmental inquiries into the nature of its sales and marketing arrangements. Such investigations or reviews could result in punitive enforcement including fines and penalties, reputational damage, and market loss.
The U.S. Physician Payments Sunshine Act established reporting requirements for certain pharmaceutical, biologic and device manufacturers, or “applicable manufacturers”, regarding direct and indirect payments or other transfers of value made to physicians and teaching hospitals, as well as reporting of investment interests in such manufacturers held by physicians and their immediate family members
 
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during the preceding calendar year. Failure to submit required information may result in civil monetary penalties, which may increase significantly for “knowing failures.” In 2022, the Sunshine Act will be extended to payments and transfers of value to physician assistants, nurse practitioners, and other mid-level practitioners (with reporting requirements going into effect in 2022 for payments made in 2021). These laws are relevant to companies providing sales and marketing services on behalf of “applicable manufacturers,” for example, resulting in the need to track and report certain information to the applicable manufacturer, to allow the applicable manufacturer to meet its obligation under the law. In addition, Section 6004 of the ACA requires annual reporting of information about drug samples that manufacturers and authorized distributors provide to healthcare providers. A number of states have also implemented laws relevant to the licensure or registration of pharmaceutical sales representatives, as well as other laws addressing compliance program expectations, transparency regarding sales and marketing activities and prohibitions or restrictions on certain financial arrangements or activities. Tracking, assessing, and complying with laws which may apply on a state-by-state basis can be challenging and time consuming.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that certain business activities could be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring that business arrangements with third parties comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert management’s attention from the business.
Government healthcare reform and other reforms could adversely affect RareGen’s revenue, costs and results of operations.
RareGen provides services within the pharmaceutical industry, which is highly regulated by federally funded healthcare programs and, therefore, subject to those programs’ controls of pricing, rebates, and marketing. In recent years, there have been numerous initiatives on the federal and state levels in the United States for comprehensive reforms affecting the marketing, payment for, the availability of and reimbursement for healthcare services. For example, Congress and many states have proposed legislation that seeks to indirectly or directly regulate pharmaceutical drug pricing by requiring drug manufacturers to publicly report proprietary pricing information or to place a maximum price ceiling on pharmaceutical products purchased by state agencies. At least five relevant bills have been introduced in Congress since 2019, and H.R. 3 passed in the House. Current and future U.S. legislative healthcare reforms and the recent Executive Orders issued in July 2020 by the President on drug pricing, may result in price and marketing controls and other restrictions for any approved products, if covered, and could adversely impact RareGen’s business.
In addition, rebate policies could allow state Medicaid programs to request additional supplemental rebates on the Product as a result of the increase in the federal base Medicaid rebate. Private insurers could also use the enactment of any federal policies to exert pricing pressure on the Product, and to the extent that private insurers or managed care programs follow Medicaid coverage and payment developments, the adverse effects may be magnified by private insurers adopting lower payment schedules.
The COVID-19 pandemic is affecting the delivery model and coverage parameters for some prescription drugs. In April 2020, HHS published an interim final rule that expanded the permissible circumstances for administering some drugs to increase access to care as patients avoid office visits. In some instances, coverage for Part B drugs could potentially be shifted from Part D, which affects reimbursement rates and copayment obligations. Similarly, HPMS Memo (Mar. 10, 2020) authorizes Part D sponsors to loosen refill restrictions, allow reimbursement for out-of-network pharmacies, permit home and mail delivery of prescription drugs, and waive prior authorization requirements. The effect of these waivers on pricing, distribution, and sales volume is still uncertain. It is unknown how long the emergency and pandemic declarations will remain in effect, whether all of these measures will be extended past the current emergency, or whether COVID-19 will result in any other material or long-term effects on the market.
 
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The Patient Protection and Affordable Care Act of 2010 (Pub.L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub.L 111-152, 124 Stat. 1029), as amended and collectively known as the ACA, is a broad measure intended to expand health care coverage within the United States and introduce additional measures to protect the integrity of federally funded health programs. The 21st Century Cures Act of 2016 (Pub.L. 114-255), meanwhile, contains a wide range of provisions designed to promote clinical research and streamline and expedite the FDA review and approval process. The reforms imposed by these laws significantly impact the pharmaceutical industry. The ACA, however, remains subject to pending legal and constitutional challenges in the United States Supreme Court. California, et al v. Texas, et al, Cause No. 19-840. The full effects of the ACA and the 21st Century Cures Act may be unknown until all outstanding legal issues are resolved, the statutory provisions are fully implemented, and CMS, the FDA, and other federal and state agencies issue final applicable regulations or guidance. RareGen may also face uncertainties as a result of federal executive, Congressional and administrative efforts to repeal, substantially modify or invalidate some or all of the relevant provisions of the ACA.
Moreover, in the coming years, additional changes could be made to governmental health care programs or FDA regulations that could significantly impact the success of the Product. There is no assurance that the ACA and other laws, as currently enacted or as amended in the future, will not adversely affect RareGen’s business and financial results, and RareGen cannot predict how future federal or state legislative, regulatory, or administrative changes related to healthcare reform will affect its business. The future stability of applicable laws and regulations, and the resulting impact on RareGen’s business is thus uncertain and could be material.
The successful commercialization of the Product depends on a variety of factors, including the extent to which drug prices are scutinized and potentially limited, and governmental authorities and health insurers establish adequate coverage and reimbursement levels for the Product.
In recent years, there have been numerous initiatives on the federal and state levels in the United States for a broad range of reforms regarding the pricing of pharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, increasing transparency regarding pricing, and otherwise addressing government control and other changes to the healthcare system in the United States. Specifically, there have been several United States Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.
Some states have implemented, and other states are considering, pharmaceutical price controls or patient access constraints under the Medicaid program, and some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. There have also been recent state legislative efforts to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices. Efforts by government officials or legislators to implement measures to regulate prices or payments for pharmaceutical products, including legislation on drug importation, could adversely affect our business if implemented.
Successful sales of the Product depend, in part, on the extent to which coverage and reimbursement for the Product is available from government and health administration authorities, private health insurers and other third-party payors. To manage healthcare costs, many governments and third-party payors increasingly scrutinize the pricing of drug products and require increasing levels of evidence of favorable clinical outcomes and cost-effectiveness before extending coverage. If the Product is unable to obtain coverage and adequate levels of reimbursement from third party payors, the commercial success and marketability will be negatively and materially impacted.
Risks Relating to the Ownership of HoldCo Common Stock
An active trading market for HoldCo common stock may not be sustainable. If an active trading market is not sustained, HoldCo’s ability to raise capital in the future may be impaired.
We completed our initial public offering in July 2018. Prior to this time, there was no public market for our common stock. Although HoldCo’s common stock will be listed on the Nasdaq Capital Market following
 
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completion of the Merger Transaction, an active trading market for its shares may not be sustained. If an active market for HoldCo common stock is not sustained, it may be difficult for you to sell shares of HoldCo common stock without depressing the market price for the shares or at all. An inactive trading market may also impair HoldCo’s ability to raise capital to continue to fund operations by selling shares and may impair HoldCo’s ability to acquire other companies or technologies by using our shares as consideration.
Holders of our common stock will have a reduced ownership and voting interest after the Merger Transaction and will exercise less influence over management.
Holders of our common stock currently have the right to vote in the election of the board of directors and on other matters affecting our company. Upon the completion of the Merger Transaction, each Liquidia Technologies stockholder who receives shares of HoldCo common stock will become a stockholder of HoldCo with a percentage ownership of HoldCo that is smaller than the stockholder’s percentage ownership of our company. It is currently expected that our stockholders as a group ((excluding, for this purpose, shares of HoldCo common stock to be received by current RareGen members, or known affiliates of RareGen members, who are holders of our common stock) will receive shares in the Merger Transaction constituting approximately 86.0% of the shares of HoldCo common stock immediately after the Merger Transaction (assuming for this purposes that all 616,666 of the Holdback Shares are distributed to RareGen members on March 31, 2022), or approximately 80.9% of the shares of HoldCo common stock immediately after the Merger Transaction assuming a maximum of 2,708,333 Net Sales Earnout Shares are issued to current RareGen members in 2022. Because of this, our stockholders will have less influence on the management and policies of HoldCo than they now have on the management and policies of our company.
If the proposed Merger Transaction is consummated, future sales of HoldCo’s common stock in the public market could cause HoldCo’s stock price to fall.
Upon consummation of the Merger Transaction, HoldCo will issue to RareGen’s members an aggregate of 6,166,666 shares of HoldCo common stock, including 616,666 shares of HoldCo common stock, which are referred to in the Merger Agreement as “Holdback Shares” which are being withheld to satisfy potential indemnification obligations of RareGen members. In addition, HoldCo will issue up to 2,708,333 shares of HoldCo common stock in 2022, which are referred to in the Merger Agreement as “Net Sales Earnout Shares”, if RareGen achieves at least $32.9 million of 2021 net sales (as calculated by Sandoz net sales), with the number of Net Sales Earnout Shares to be issued to depend upon the actual amount of the 2021 net sales. For more information, see “Proposal 1 — The Merger Transaction: The Merger Consideration and Conversion of Securities” on page 110. The shares issued to RareGen members on the closing date of the Merger Transaction will be subject to a six-month lock-up as described under “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Post-Closing Transfer Restrictions” on page 140. In the event that Holdback Shares are released or Net Sales Earnout Shares are issued, such shares will not have a lock-up restriction.
Following consummation of the Merger Transaction, approximately 43.9 million shares of HoldCo’s common stock are expected to be outstanding (including, for this purpose, the 616,666 Holdback Shares), of which approximately 4.9 million shares of HoldCo common stock, or approximately 11% of HoldCo’s outstanding shares following consummation of the Merger Transaction, are expected to be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, unless held by HoldCo’s “affiliates,” as that term is defined in Rule 144 under the Securities Act. Pursuant to the terms of the Merger Agreement, the HoldCo common stock issued to RareGen members on the closing date of the Merger Transaction will be subject to a six-month lock-up following the effective date of the Merger Transaction. Once the lock-up restriction on shares of HoldCo common stock issued to RareGen members expires, 5,550,000 shares of HoldCo common stock can be freely sold in the public market which could cause HoldCo’s stock price to decline.
We expect that the market price of HoldCo’s common stock may be volatile, and you may lose all or part of your investment.
The trading prices of the securities of pharmaceutical and biotechnology companies have been highly volatile. As such, the trading price of HoldCo’s common stock may be highly volatile and could be subject
 
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to wide fluctuations in response to various factors, some of which are beyond our control. The market price for HoldCo’s common stock may be influenced by many factors, including:

results of clinical trials of LIQ861, LIQ865 or any product candidate we may develop, or those of our competitors;

the success of Sandoz’s generic version of Remodulin® to which RareGen has commercial rights to pursuant to that certain Promotion Agreement between Sandoz and RareGen;

HoldCo’s cash resources;

the success of competitive products or technologies;

potential approvals of any product candidate we may develop for marketing by the FDA or equivalent foreign regulatory authorities or any failure to obtain such approvals;

HoldCo’s involvement in significant lawsuits, including stockholder or patent litigation, including inter partes review proceedings with originator companies or others which may hold patents, including United Therapeutics, and our current litigation with United Therapeutics in the U.S. District Court for the District of Delaware;

regulatory or legal developments in the United States and other countries;

the results of HoldCo’s efforts to commercialize any product candidate it may develop;

developments or disputes concerning patents or other proprietary rights;

the recruitment or departure of key personnel;

the level of expenses related to any of our product candidates or clinical development programs;

the results of HoldCo’s efforts to discover, develop, acquire or in-license additional product candidates or products;

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

variations in HoldCo’s financial results or those of companies that are perceived to be similar to HoldCo;

changes in the structure of healthcare payment systems;

market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts’ reports or recommendations;

general economic, industry and market conditions; and

the other factors described in this “Risk Factors” section.
The stock market in general, and market prices for the securities of pharmaceutical companies like HoldCo in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of HoldCo’s common stock, regardless of its operating performance. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of HoldCo’s stockholders were to bring a lawsuit against HoldCo, the defense and disposition of the lawsuit could be costly and divert the time and attention of HoldCo’s management and harm its operating results.
Future sales and issuances of equity securities, convertible securities or other securities could result in additional dilution of the percentage ownership of holders of HoldCo’s common stock.
HoldCo’s stockholders may experience dilution upon future equity issuances, including any other convertible debt or equity securities it may issue in the future, the exercise of stock options to purchase common stock granted to its employees, consultants and directors, including options to purchase common
 
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stock granted under its stock option and equity incentive plans, the issuance of common stock in settlement of previously issued awards under its stock option and equity incentive plans that may vest in the future or the issuance of common stock pursuant to its employee stock purchase plan.
We expect that significant additional capital will be needed in the future to continue HoldCo’s planned operations. To raise capital, HoldCo may sell equity securities, convertible securities or other securities in one or more transactions at prices and in a manner it determines from time to time. If HoldCo sells equity securities, convertible securities or other securities, current investors may be materially diluted by such subsequent sales. HoldCo may also need its stockholders to authorize the issuance of additional shares of common stock under its certificate of incorporation if it does not have sufficient authorized shares to raise such additional capital or issue future awards under its incentive plan. New investors could also gain rights, preferences and privileges senior to those of holders of HoldCo’s existing equity securities.
HoldCo’s principal stockholders and management will own a significant percentage of its stock and will be able to exercise significant influence over matters subject to stockholder approval.
HoldCo’s executive officers, directors and principal stockholders, together with their respective affiliates, will beneficially own approximately 33.2% of HoldCo’s common stock as of immediately following consummation of the Merger Transaction, of which 17.0% are expected to be beneficially owned by HoldCo’s executive officers and directors. Accordingly, HoldCo’s executive officers, directors and principal stockholders have significant influence in determining the composition of the HoldCo board of directors, and voting on all matters requiring stockholder approval, including mergers and other business combinations, and will have significant influence over HoldCo’s operations. This concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of HoldCo that you may believe are in your best interests as one of HoldCo’s stockholders. This in turn could have a material adverse effect on HoldCo’s stock price and may prevent attempts by HoldCo’s stockholders to replace or remove the HoldCo board of directors or management.
As our Exchange Act reporting successor, HoldCo will continue to incur increased costs as a result of operating as a public company, and its management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, we are incurring significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements, and HoldCo will incur these legal, accounting and other expenses following completion of the Merger Transaction. We have also incurred costs associated with recently adopted corporate governance requirements, including requirements of the SEC and the Nasdaq Stock Market LLC, or Nasdaq. These rules and regulations have increased our legal and financial compliance costs and made some activities more time-consuming and costly. These rules and regulations also make it more difficult and more expensive for us to obtain director and officer liability insurance and HoldCo may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage that we received as a private company. As a result, it may be more difficult for HoldCo to attract and retain qualified individuals to serve on its board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
When HoldCo ceases to be an “emerging growth company” and when its independent registered public accounting firm is required to undertake an assessment of its internal control over financial reporting, the cost of its compliance with Section 404 of the Sarbanes-Oxley Act will correspondingly increase. Moreover, if HoldCo is not able to comply with the requirements of Section 404 applicable to it in a timely manner, or if it or its independent registered public accounting firm identifies deficiencies in HoldCo’s internal control over financial reporting that are deemed to be material weaknesses, the market price of HoldCo’s common stock could decline and HoldCo could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Anti-takeover provisions in HoldCo’s charter documents and under Delaware law could make an acquisition of HoldCo difficult, limit attempts by HoldCo’s stockholders to replace or remove its management and adversely affect HoldCo’s stock price.
Provisions of HoldCo’s certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in its control or change in its management, including transactions in
 
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which stockholders might otherwise receive a premium for their shares, or transactions that HoldCo stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of HoldCo stock. Among other things, the certificate of incorporation and bylaws:

permit the HoldCo board of directors to issue up to 10 million shares of preferred stock, with any rights, preferences and privileges as they may designate;

provide that the authorized number of directors may be changed only by resolution of HoldCo’s board of directors;

provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

require that any action to be taken by HoldCo’s stockholders must be effected at a duly called annual or special meeting of stockholders and may not be taken by written consent;

create a staggered board of directors such that all members of HoldCo’s board of directors are not elected at one time;

allow for the issuance of authorized but unissued shares of HoldCo’s capital stock without any further vote or action by its stockholders; and

establish advance notice requirements for nominations for election to the HoldCo board of directors or for proposing matters that can be acted upon at stockholders’ meetings.
In addition, because HoldCo is incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any stockholder owning in excess of 15% of our outstanding stock for a period of three years following the date on which the stockholder obtained such 15% equity interest in HoldCo.
The terms of HoldCo’s authorized preferred stock selected by its board of directors at any point could decrease the amount of earnings and assets available for distribution to holders of HoldCo common stock or adversely affect the rights and powers, including voting rights, of holders of HoldCo’s common stock without any further vote or action by the stockholders. As a result, the rights of holders of HoldCo common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued by HoldCo in the future, which could have the effect of decreasing the market price of HoldCo common stock.
Any provision of HoldCo’s certificate of incorporation or bylaws or Delaware corporate law that has the effect of delaying or deterring a change in control could limit opportunities for its stockholders to receive a premium for their shares of common stock, and could also affect the price that investors are willing to pay for its common stock.
HoldCo’s certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with HoldCo or its directors, officers or other employees. Furthermore, HoldCo’s bylaws designates the federal district courts of the United States as the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act which could be a less favorable judicial forum than state courts for stockholders with respect to disputes with HoldCo or its directors, officers or other employees.
HoldCo’s certificate of incorporation provides that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on HoldCo’s behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of HoldCo’s directors or officers to HoldCo or its stockholders; (iii) any action asserting a claim against HoldCo arising pursuant to any provision of the DGCL, HoldCo’s certificate of incorporation or bylaws; or (d) any action asserting a claim against HoldCo governed by the internal affairs doctrine. Furthermore, HoldCo’s bylaws designate the federal district courts of the United States as the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any
 
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person or entity purchasing or otherwise acquiring any interest in shares of HoldCo capital stock is deemed to have received notice of and consented to the foregoing provisions. These forum selection provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with HoldCo or its directors or officers, which may discourage such lawsuits against HoldCo and its directors or officers. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, HoldCo may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect HoldCo’s business, financial condition, prospects or results of operations.
Because HoldCo does not anticipate paying any cash dividends on its common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our equity securities. As our successor, HoldCo currently intends to retain all of its future earnings, if any, to finance the growth and development of its business. In addition, the terms of our and HoldCo’s existing credit facility with Pacific Western Bank precludes HoldCo, and the terms of any future debt agreement may preclude HoldCo, from paying dividends. As a result, capital appreciation, if any, of HoldCo’s equity securities will likely be your sole source of gain for the foreseeable future.
Other Risk Factors
Our, RareGen’s and HoldCo’s businesses are and will be subject to the risks described above. In addition, our business is, and will continue to be, subject to the risks described in our Annual Reports on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find Additional Information” beginning on page 202 for the location of information incorporated by reference in this proxy statement/prospectus.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF RAREGEN
You should read the following discussion and analysis of RareGen’s financial condition and results of operations together with the financial statements of RareGen and the related notes and other financial information included elsewhere in this proxy statement/prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this proxy statement/prospectus, including information with respect to RareGen’s plans and strategy for its business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this proxy statement/prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
RareGen, LLC, or RareGen, provides strategy, commercialization and investment support to companies developing therapeutics addressing rare diseases. On August 1, 2018, RareGen entered into its first partnership with Sandoz, Inc., or Sandoz, whereby the parties launched the first-to-file generic of treprostinil injection for the treatment of patients with pulmonary arterial hypertension, or PAH.
Promotion Agreement
RareGen entered into a Promotion Agreement with Sandoz on August 1, 2018, as amended on May 8, 2020, or the Promotion Agreement, pursuant to which Sandoz engaged RareGen on an exclusive basis to promote the appropriate use of Sandoz’s treprostinil, or the Product, for the treatment of PAH in the United States. Sandoz retains all rights in and to the Product. RareGen paid Sandoz an initial payment of $10 million on August 1, 2018 for the right to conduct the promotional activities as contemplated in the Promotion Agreement. Upon the successful quality release by Sandoz of 9,000 units of the Product, RareGen paid Sandoz $10 million in additional consideration for the right to conduct the promotional activities for the Product and receive a portion of the Net Profits (as defined below under “RareGen’s Business” beginning on page 69). The portion of Net Profits are allocated to RareGen as follows: (i) for that portion of aggregate Net Profits less than or equal to $500 million, RareGen shall receive between 50-80% of all such Net Profits; and (ii) for that portion of aggregate Net Profits greater than $500 million, RareGen shall receive 75% of all such Net Profits. For the year ended December 31, 2019, RareGen recognized revenues of $10.1 million for its share of Net Profits under the Promotion Agreement including contra revenue of approximately $3.3 million, related to the amortization of the upfront payments.
PBM Services Agreement
Pursuant to that certain services agreement with PBM Capital Group, dated August 7, 2018 and as amended on April 1, 2019, or the Services Agreement, PBM Capital Group is retained by RareGen to provide certain services including but limited to: (i) strategy and business development, (ii) operations management, (iii) contract negotiation and review, (iv) processing purchase orders issued by RareGen, (v) establishing, maintaining and administering benefit plans, (vi) maintaining financial books and records of RareGen and (vii) furnishing such other services as are incidental to the foregoing or usually or customarily furnished by a financial manager. RareGen pays a fee of $20,000 per month for the services provided by PBM Capital Group. As a condition precedent to closing the Merger Agreement, the Services Agreement will be terminated or, by agreement of our company, RareGen and PBM Capital Group, amended and restated, in either case as of the effective time of the Merger Transaction. For the year ended December 31, 2019, RareGen paid $0.3 million in management fees to PBM Capital Group under the Services Agreement. PBM Capital Group is a related party of RareGen. For more information, please see “Certain Relationships and Related Party Transactions of RareGen” beginning on page 165.
Recent Developments
Litigation Financing Agreement
On June 4, 2020, RareGen entered into a financing agreement with Henderson SPV, LLC to cover the prospective costs of the litigation with United Therapeutics Corporation, or United Therapeutics, and Smiths
 
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Medical ASD, Inc., or Smiths Medical, from the date of this agreement, in consideration for a share of the litigation proceeds. The share is a fixed percentage based on the litigation proceeds with various litigation proceed ranges. In the case where RareGen has no proceeds from the litigation, RareGen will have no obligation to Henderson SPV, LLC, or Henderson, for the litigation expenses that were previously financed. Henderson has not financed any costs of litigation as of the date of this proxy statement/prospectus.
Amendment to the Promotion Agreement with Sandoz, Inc.
On May 8, 2020, the Promotion Agreement with Sandoz was amended and significant provisions of the amendment are as follows:

Sandoz and RareGen will share any litigation proceeds in the current lawsuit or any future lawsuit they bring against United Therapeutics and Smiths Medical. The parties will also share equally in any losses incurred and approved expenses incurred. Note 7 includes a description of the circumstances regarding this litigation.

As described below, we and RareGen have entered into the Merger Agreement. Upon the closing of the Merger Transaction, RareGen will use good faith efforts to bring cartridges to market and make cartridges available for use with the Product, the initial term of the Promotion Agreement will be extended to eight years, and the formula for sharing net profits will be altered in exchange for Sandoz’s waiver of its right to terminate the Promotion Agreement for a change in control. Sandoz’s waiver of its right to terminate the Promotion Agreement for a change in control will be granted only if the Merger Transaction closes on or prior to September 30, 2020.
Merger Transaction
On June 29, 2020, we and RareGen entered into the Merger Agreement. The completion of the Merger Transaction is subject to the satisfaction of customary closing conditions, including approval by our stockholders and a registration statement on Form S-4, of which this proxy statement/prospectus forms a part, being declared effective by the SEC.
Upon satisfaction of the customary closing conditions, RareGen’s members will receive the following as consideration:

6,166,666 shares of our common stock; plus

the contingent right to receive up to 2,708,333 additional shares of our common stock if RareGen is able to meet certain net sales thresholds in 2021; plus

an amount in cash equal to the cash held by RareGen at closing, less $1.0 million, if any; plus

the contingent right to receive the amount of any payments received from Sandoz under the Promotion Agreement that are attributable to any periods prior to the closing date, if any.
Key Components of RareGen’s Results of Operations
Net Service Revenue
RareGen’s revenue to date has consisted of revenues for its share of net profits under the Promotion Agreement, recognized when such net profits are realized by Sandoz.
Operating Expenses
Litigation Expense
Litigation expense consists of legal fees and expenses related to the UTC/Smiths Medical litigation, in which RareGen is a co-plaintiff, described in detail below under “RareGen’s Business — Legal Proceedings and Related Agreements” beginning on page 76.
Payroll Expense
Payroll expense consists primarily of personnel expenses, including salaries and benefits for personnel in executive and commercial functions.
 
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Contract Support, General and Administrative
Contract support, general and administrative expenses consist of travel, entertainment, marketing, business insurance, consulting and facility costs, and non-litigation-related legal expenses.
Management Fee
Management fee consists of amounts paid to PBM Capital Group, a related party of RareGen, to provide accounting, administrative, management, legal and other back-office services to RareGen as provided under the Services Agreement.
Research and Development
Research and development expenses consist primarily of costs incurred in connection with RareGen’s device development activities and include:

costs of funding medical device research and development performed by third parties;

consultant fees;

expenses related to regulatory activities, including filing fees paid to regulatory agencies; and

expenses related to the purchase of molds and other items necessary for the manufacture of such devices.
Research and development costs are expensed as incurred. Costs for certain activities are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to RareGen by its vendors and collaborators.
Other Income (Expense)
Other income (expense), net consists of interest income on RareGen’s cash and cash equivalents.
Impact of COVID-19 on RareGen’s Business
RareGen has been actively monitoring the novel coronavirus, or COVID-19, situation and its impact globally. RareGen did not experience any material impact on its financial results for the quarter ended March 31, 2020. RareGen’s primary service relates to a life-sustaining, critical pharmaceutical for patients. As such, the demand for the service is directly impacted by these patients’ needs. The success of RareGen’s business is dependent on the distribution and supply chain managed by Novartis. Sandoz is a division of Novartis. RareGen continues to operate with the exception of enabling its employees, including field sales force, to work from home and abiding by travel restrictions issued by federal and local governments. As a result of these travel restrictions, sales representatives have been unable to physically visit hospitals and health care professionals, which may impact the near-term growth of RareGen’s business. Challenges may also be presented from a compliance monitoring standpoint,with more heavy reliance on remote and virtual oversight tools.
If the COVID-19 pandemic continues, RareGen may experience other disruptions that could severely impact its business, results of operations and prospects. The extent to which COVID-19 may impact RareGen’s business will depend on future developments, which are highly uncertain and cannot be predicted, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
 
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Results of Operations
Comparison of the Three Months Ended March 31, 2020 and 2019
Three Months Ended
March 31,
Increase
(Decrease)
2020
2019
(in thousands)
Statement of Operations Data:
Net service revenue
$ 2,849 $ 4,392 $ (1,543)
Operating expenses:
Litigation expense
216 345 (129)
Payroll expense
588 792 (204)
Contract support, general and administrative
175 396 (221)
Management fee
60 120 (60)
Research and development
26 1 25
Total operating expenses
1,066 1,654 (588)
Net income
$ 1,797 $ 2,739 $ (942)
Net Service Revenue
Revenue for the quarter ended March 31, 2020 was $2.8 million, compared to $4.3 million for the quarter ended March 31, 2019. The decrease of $1.5 million was primarily the result of the first bulk order of the Product from a wholesaler occurring during the quarter ended March 31, 2019.
Operating Expenses
Litigation Expense
Litigation expenses for the quarter ended March 31, 2020 were $0.2 million, compared to $0.3 million for the quarter ended March 31, 2019. The decrease of $0.1 million was due to decreased legal fees and expenses related to the UTC/Smiths Medical litigation, in which RareGen is a co-plaintiff.
Payroll Expense
Payroll expenses for the quarter ended March 31, 2020 were $0.6 million, compared to $0.8 million for the quarter ended March 31, 2019. The decrease of $0.2 million was primarily due to a reduction in sales employees from natural attrition.
Contract Support, General and Administrative
Contract support, general and administrative expenses for the quarter ended March 31, 2020 were $0.2 million, compared to $0.4 million for the quarter ended March 31, 2019. The decrease of $0.2 million was primarily due to a reduction in marketing spend of $160,000 and a reduction in travel-related expenses of $50,000.
Management Fee
The management fee for each of the quarters ended March 31, 2020 and 2019 was $0.1 million, relating to amounts paid to PBM Capital Group to provide accounting, administrative, management and other services to RareGen.
Research and Development
Research and development expenses for the quarter ended March 31, 2020 were $26 thousand compared to $1 thousand for the quarter ended March 31, 2019. The increase of $25 thousand was primarily related to efforts undertaken by RareGen to develop a cartridge that can be used to administer the Product subcutaneously.
 
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Comparison of Periods Ended December 31, 2019 and 2018
The following table summarizes RareGen’s results of operations for the year ended December 31, 2019 and for the period from July 16, 2018 (date of inception) through December 31, 2018:
Period Ended
December 31,
Increase
(Decrease)
2019
2018
(in thousands)
Statement of Operations Data:
Net service revenue
$ 10,088 $ $ 10,088
Operating expenses:
Litigation expense
5,312 5,312
Payroll expense
2,945 495 2,450
Contract support, general and administrative
1,114 428 686
Management fee
300 192 108
Research and development
30 30
Total operating expenses
9,701 1,115 8,586
Other income
23 23
Net income (loss)
$ 410 $ (1,115) $ 1,525
Net Service Revenue
Revenue for the year ended December 31, 2019 was $10.1 million. RareGen did not generate any revenue for the period ended December 31, 2018. Revenue for the year ended December 31, 2019 consisted of revenues from its share of net profits under the Promotion Agreement with Sandoz.
Operating Expenses
Litigation Expense
Litigation expenses for the year ended December 31, 2019 were $5.3 million. RareGen did not have any litigation expenses for the period ended December 31, 2018. The increase of $5.3 million was due to legal fees and expenses related to the UTC/Smiths Medical litigation, in which RareGen is a co-plaintiff.
Payroll Expense
Payroll expenses for the period ended December 31, 2018 were $0.5 million, compared to $2.9 million for the year ended December 31, 2019. The increase of $2.4 million was primarily due to a full year of staffing and the hiring of additional sales representatives in 2019. Most of the field sales force was not hired until November 2018.
Contract Support, General and Administrative
Contract support, general and administrative expenses for the period ended December 31, 2018 were $0.4 million, compared to $1.1 million for the year ended December 31, 2019. The increase of $0.7 million was primarily due to a full year of expenses in 2019 compared to only four months of expenses in 2018.
Management Fee
The management fee for the period ended December 31, 2018 was $0.2 million, compared to $0.3 million for the year ended December 31, 2019. The increase of $0.1 million was due to increased amounts paid to PBM Capital Group, a related party of RareGen, to provide accounting, administrative, management and other services to RareGen, primarily related to there being a full year of expenses in 2019 as compared to only four months of expenses in 2018.
 
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Research and Development
Research and development expenses for the year ended December 31, 2019 were $30 thousand. RareGen did not have any research and development expenses for the period ended December 31, 2018. The increase of $30 thousand was primarily related to efforts undertaken by RareGen to develop a cartridge that can be used to administer the Product subcutaneously.
Other Income (Expense)
Other income (expense) for the period ended December 31, 2018 was $0, compared to $23 thousand during the year ended December 31, 2019. This increase of $23 thousand was primarily attributable to an increase of interest earned on RareGen’s cash and cash equivalents.
Liquidity and Capital Resources
Sources of Liquidity
RareGen earned net income of $1.8 million for the quarter ended March 31, 2020, and earned net income of $2.7 million during the quarter ended March 31, 2019. RareGen incurred operating losses of $1.1 million for the period from July 16, 2018 (date of inception) through December 31, 2018, and earned net income of $0.4 million during the year ended December 31, 2019. RareGen entered into a litigation financing agreement in June 2020 that will fund a portion of its litigation expenses related to the UT/Smiths Medical litigation. As a result, RareGen does not presently anticipate that it will need additional capital to fund its operations.
From inception through March 31, 2020, RareGen has funded its operations primarily through $24.2 million in capital contributions from its members and $12.9 million in revenues from its share of net profits under the Promotion Agreement. As of March 31, 2020 and December 31, 2019, RareGen had $6.0 million and $3.6 million in cash and cash equivalents, respectively. RareGen had no indebtedness as of either March 31, 2020 or December 31, 2019.
Cash Flows for the Quarters ended March 31, 2020 and 2019
The following table shows a summary of RareGen’s cash flows for the quarter ended March 31, 2020 and the quarter ended March 31, 2019:
Quarter Ended
March 31,
2020
2019
(in thousands)
Cash and cash equivalents, beginning of quarter
$ 3,563 $ 1,080
Net cash provided by (used in) operating activities
2,457 (1,264)
Net cash used in investing activities
(12)
Net cash provided by financing activities
2,200
Net increase in cash and cash equivalents
$ 2,444 $ 936
Operating Activities
Net cash used in operating activities was $1.3 million for the quarter ended March 31, 2019. RareGen launched its first product the last week of the quarter ended March 31, 2019. While revenue was recognized, amounts receivable under the Promotion Agreement were not due from Sandoz until the second calendar quarter of 2019. In addition, RareGen incurred operating expenses in the quarter ended March 31, 2019.
Net cash provided by operating activities for the quarter ended March 31, 2020 was $2.5 million, consisting of revenue generated from RareGen’s share of the net profits under the Promotion Agreement, partially offset by operating expenses and litigation expenses.
 
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Investing Activities
Net cash used in investing activities for the quarter ended March 31, 2020 was $12 thousand. There was no net cash used in investing activities for the quarter ended March 31, 2019.
Financing Activities
Net cash provided by financing activities for the quarter ended March 31, 2019 was $2.2 million, consisting of capital contributions from RareGen’s members. There was no net cash provided by financing activities for the quarter ended March 31, 2020.
Cash Flows for the Periods Ended December 31, 2019 and 2018
The following table shows a summary of RareGen’s cash flows for the year ended December 31, 2019 and the period from July 16, 2018 (date of inception) through December 31, 2018:
Period Ended
December 31,
2019
2018
(in thousands)
Cash and cash equivalents, beginning of period
$ 1,081 $
Net cash provided by (used in) operating activities
333 (894)
Net cash used in investing activities
(50) (20,025)
Net cash provided by financing activities
2,200 22,000
Net increase in cash and cash equivalents
$ 2,483 $ 1,081
Operating Activities
Net cash used in operating activities for the period ended December 31, 2018 was $0.9 million. RareGen began operations in August 2018 and did not launch its first product until March of 2019.
Net cash provided by operating activities for the year ended December 31, 2019 was $0.3 million, consisting of revenue generated from RareGen’s share of the net profits under the Promotion Agreement with Sandoz, partially offset by operating expenses and litigation expenses.
Investing Activities
Net cash used in investing activities for the period ended December 31, 2018 was $20.0 million, consisting primarily of payments made to Sandoz related to obligations from the Promotion Agreement.
Net cash used in investing activities for the year ended December 31, 2019 was $50 thousand, consisting of manufacturing molds related to efforts undertaken by RareGen to develop a cartridge that can be used to administer the Product subcutaneously.
Financing Activities
Net cash provided by financing activities for the period ended December 31, 2018 was $22.0 million, consisting of capital contributions from RareGen’s members.
Net cash provided by financing activities for the year ended December 31, 2019 was $2.2 million, consisting of capital contributions from RareGen’s members.
Funding Requirements
RareGen expects to incur significant expenses for the foreseeable future related to ongoing litigation, most of which will be funded under the litigation financing arrangement. RareGen expects to be able to support the company through continuing operations. As of December 31, 2019, RareGen had cash and cash
 
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equivalents of $3.6 million. RareGen expects its existing cash and cash equivalents and cash generated from operations will enable it to fund its operating expenses and capital expenditure requirements.
RareGen’s future capital requirements will depend on many factors, including:

RareGen’s ability to maintain the Promotion Agreement, on favorable terms, if at all;

the ability of RareGen and Sandoz to successfully sell the Product during the term of the Promotion Agreement;

the outcome, timing and cost of regulatory approvals for any medical devices used to administer the Product;

the cost and timing of hiring new employees to support RareGen’s continued growth; and

the costs of establishing and maintaining sales and marketing capabilities and related support.
RareGen expects to finance its future cash needs primarily through the receipt of its share of net profits under the Promotion Agreement and from reimbursement of UTC/Smiths Medical litigation expenses through the third-party litigation financing arrangement.
Off-Balance Sheet Arrangements
RareGen has not entered into any off-balance sheet arrangements.
Critical Accounting Policies
RareGen’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, as determined by the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RareGen’s most critical accounting policies are summarized below. See note 2 to RareGen’s financial statements beginning on page F-1 of this proxy statement/prospectus for a description of RareGen’s other significant accounting policies.
On August 1, 2018, RareGen partnered with Sandoz in the Promotion Agreement to launch the first-to-file generic of treprostinil injection for the treatment of patients with PAH. Under the Promotion Agreement, RareGen will provide certain promotional and nonpromotional activities on an exclusive basis for the Product in the United States of America for the treatment of PAH, in exchange for a share of Sandoz’s net profits, as defined within the Promotion Agreement. In addition, RareGen paid Sandoz $20 million at the inception of the Promotion Agreement, in consideration for the right to conduct the promotional activities for the Product. In exchange for its services, RareGen is entitled to receive a portion of net profits based on specified profit levels associated with the Product.
RareGen determined that certain activities within the contract are within the scope of ASC 808, Collaborative Arrangements. The commercialization of the Product is a joint operating activity where RareGen will provide promotional and other activities for Sandoz’s Product and Sandoz will be responsible for items such as supply of the Product, distribution to customers, managing sales, returns, and regulatory matters. Both parties will be active participants, each carrying out its assigned responsibilities, and participating in the joint operating activity and will share in the risks and rewards of the commercialization through the profit-sharing arrangement.
In addition, RareGen determined that the services provided under the Promotion Agreement fall within the scope of Topic 606. While this is RareGen’s first income-generating contract, the promotional activities RareGen will perform are one of the services RareGen expects to provide as part of its ordinary activities, and it is receiving consideration for this service from Sandoz in the form of a share of future net profits. RareGen has one combined performance obligation under the Promotion Agreement, which is to perform promotional and non-promotional activities to encourage the appropriate use of the Product in
 
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accordance with the product labeling and applicable law. As such, and in accordance with ASU 2018-18: Clarifying the Interaction between Topic 808 and Topic 606, RareGen will account for the entire Promotion Agreement under Topic 606.
The share of net profits due to RareGen under the Promotion Agreement represents variable consideration as described in Topic 606 that is subject to a number of uncertainties, including the level of acceptance the Product achieves from health care providers that must prescribe the Product to their patients, or by payors such as insurers who must add the Product to their list of covered drugs, “gross to net” revenue adjustments, Sandoz’s costs, and competition from other products that have or may enter the market. As such, the recognition of revenue will be limited to the amount that is payable based on the net profit hurdles achieved to date. RareGen will receive payments representing its share of net profits on a quarterly basis based on net profits received by Sandoz to date during the term of the Promotion Agreement.
The $20 million paid by RareGen to Sandoz as consideration payable to the customer has been recorded as an asset that will be amortized on a straight-line basis into income as contra revenue over the initial term of five-year contract.
The Promotion Agreement has customary termination provisions for breach, bankruptcy of one of the parties, withdrawal of marketing approval, and safety concerns. Both parties have the right to terminate the Promotion Agreement before the end of the initial term in certain circumstances including if net profits targets are not reached after aggregate net profits received by the other party has reached a specified hurdle.
The Product was launched in March 2019. For the year ended December 31, 2019, RareGen recognized revenues for its share of net profits under the Promotion Agreement of approximately $10.1 million including contra revenue of approximately $3.3 million, related to the amortization of the upfront payments. For the three-month period ended March 31, 2020, RareGen recognized revenues for its share of net profits under the Promotion Agreement of approximately $2.8 million including contra revenue of approximately $1 million, related to the amortization of the upfront payments. For the three-month period ended March 31, 2019, RareGen recognized revenues for its share of net profits under the Promotion Agreement of approximately $4.4 million including contra revenue or approximately $333,000. At March 31, 2020, December 31, 2019 and December 31, 2018, the unamortized balances of the upfront payments made to Sandoz were approximately $15.7 million, $16.7 million and $20 million, respectively, which are included in Intangibles, net in RareGen’s balance sheet in the accompanying financial statements.
Recent Accounting Pronouncements
See note 2 to RareGen’s financial statements beginning on page F-1 of this proxy statement/prospectus for a description of recent accounting pronouncements applicable to RareGen’s financial statements.
Qualitative and Quantitative Disclosures about Market Risk
RareGen is affected by changes in the general level of U.S. interest rates, particularly because RareGen’s investments, including cash equivalents, are in the form of money market accounts.
Inflation generally affects RareGen by increasing its cost of labor. RareGen does not believe that inflation had a material effect on its business, financial condition or results of operations during the period from July 16, 2018 (date of inception) through December 31, 2018, the year ended December 31, 2019 or the three months ended March 31, 2020.
 
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RAREGEN’S BUSINESS
Overview
Pursuant to its Promotion Agreement with Sandoz, RareGen owns the exclusive rights to conduct any and all promotional and non-promotional activities to encourage the appropriate use of the first-to-file fully substitutable generic treprostinil injection for the treatment of patients with PAH in the United States, or the Product. To that end, RareGen has a small, targeted sales force focused on PAH which it employs to conduct such marketing activities. See below under “Promotion Agreement” on page 70 for more information.
Treprostinil, Remodulin® and the Generic Version of Remodulin®
Treprostinil/Remodulin® Generally
Treprostinil is a synthetic analog of prostacyclin, a vasoactive mediator essential to normal lung function that is deficient in patients with PAH. Treprostinil can be administered as a continuous infusion through the use of an infusion pump or continuous intravenous infusion through the use of a central venous catheter. PAH is a rare disease, with an estimated prevalence in the United States of approximately 30,000 patients. Of such patients, approximately 3,000 patients are on Remodulin®, which has annual sales of approximately $600 million. Remodulin® is treprostinil administered through subcutaneous or intravenous infusion and is marketed by United Therapeutics. Because parenteral agents are considered to offer the greatest efficacy, but also carry the most significant side effects related to infusion site pain, risk of infection, and significant limitations on quality of life, they are usually reserved for patients later in the course of the disease.
Treprostinil is currently sold mainly through specialty pharmacies, such as Accredo and CVS, and hospitals through traditional distributors. Treprostinil generally has a two-year shelf life, although Remodulin® has a four-year shelf life.
Remodulin® was approved by the FDA for subcutaneous and intravenous administration in 2002 and 2004, respectively, and has been sold commercially in the United States since 2002. United Therapeutics sells Remodulin® to specialty pharmaceutical distributors in the United States and to pharmaceutical distributors internationally. Remodulin® is indicated to treat patients with PAH, to diminish symptoms associated with exercise. Studies establishing effectiveness included patients with functional class II-IV (moderate to severe) symptoms. Outside of the United States, Remodulin® is marketed and sold for the treatment of PAH throughout most of Europe, and various countries throughout Asia, the Middle East and South America.
Remodulin® has many qualities that make it an appealing alternative to other parenteral therapies for the treatment of PAH. Remodulin® is stable at room temperature, so it does not need to be cooled during infusion and patients do not need to use cooling packs or refrigeration to keep it stable. Treprostinil is highly soluble under certain circumstances and highly potent in concentrated solutions. This allows therapeutic concentrations of Remodulin® to be delivered at very low flow rates via miniaturized infusion pumps for both subcutaneous and intravenous infusion. Remodulin® can be continuously infused for up to 48 hours before refilling the external infusion pump. This profile contrasts favorably with non-treprostinil based, continuously infused prostacyclin therapies that are presently available — Flolan®, Veletri® and generic epoprostenol. Flolan® and generic epoprostenol are not stable at room temperature (and therefore require refrigeration or the use of cooling packs), but Veletri® may be stable at room temperature depending on its concentration. Flolan®, generic epoprostenol, and Veletri® have shorter half-lives than Remodulin, requiring mixing prior to pump refills. None of these other parenteral products may be administered via subcutaneous infusion, and therefore may only be delivered intravenously.
Patients must use external pumps manufactured by third parties to deliver Remodulin®. Smiths Medical manufactures the pumps used by most patients in the United States to administer Remodulin®, including the CADD-MS® 3 (MS-3) pump used to deliver subcutaneous Remodulin®, and the CADD-Legacy® pump to deliver intravenous Remodulin®.
There are serious side effects associated with Remodulin®. For example, when infused subcutaneously, Remodulin® causes varying degrees of infusion site pain and reaction (redness and swelling) in most patients.
 
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Patients who cannot tolerate the infusion site pain related to the use of subcutaneous Remodulin® may instead use intravenous Remodulin®. Intravenous Remodulin® is delivered continuously through a surgically implanted central venous catheter, similar to Flolan®, Veletri® and generic epoprostenol. Patients who receive therapy through implanted venous catheters have a risk of developing blood stream infections and a serious systemic infection known as sepsis. Other common side effects associated with both subcutaneous and intravenous Remodulin® include headache, diarrhea, nausea, jaw pain, vasodilation and edema.
It is estimated that branded sales of Remodulin® recorded approximately $466 million in U.S. revenue in 2019 (and approximately $587 million in total, including approximately $121 million of non-U.S. sales), of which approximately 50% of branded Remodulin® sales derived from intravenous administration and 50% of branded Remodulin® sales derived from subcutaneous administration. The majority of sales made pursuant to the Promotion Agreement are made through specialty pharmacies. In consideration for RareGen conducting certain responsibilities associated with the commercialization of the Product, RareGen receives a portion of the net profits generated from the sales of the Product.
Sandoz
Sandoz, a Novartis division, is a global leader in generic pharmaceuticals and biosimilars. Sandoz’s purpose is to pioneer novel approaches to help people around the world access high-quality medicine. Sandoz’s broad portfolio of high-quality medicines, covering all major therapeutic areas, accounted for 2019 sales of $9.7 billion. Sandoz’s headquarters are in Holzkirchen, in Germany’s Greater Munich area.
Generic Version of Remodulin®
In 2011, Sandoz filed an ANDA with the FDA to market a generic version of treprostinil for parenteral administration. Sandoz claimed that United Therapeutics’ patents for Remodulin® were invalid, unenforceable and/or not infringed by its generic version of treprostinil. United Therapeutics then sued Sandoz for patent infringement and the parties settled that litigation in 2015. Pursuant to that settlement agreement, Sandoz was permitted to market its generic treprostinil alternative in June 2018 and United Therapeutics agreed to not interfere with Sandoz’s efforts to launch its generic product. In August 2018, Sandoz partnered with RareGen to jointly market and commercialize its generic version of treprostinil pursuant to a Promotion Agreement, as described below. The treprostinil is supplied in 20 mL multi-dose vials in four strengths — containing 20 mg, 50 mg, 100 mg, or 200 mg (1 mg/mL, 2.5 mg/mL, 5 mg/mL or 10 mg/mL) of treprostinil, respectively.
Sandoz launched the first-to-file fully substitutable generic treprostinil for parenteral administration in March 2019, followed by Teva Pharmaceuticals in October 2019. Par Pharmaceutical, Inc. launched a generic treprostinil for parenteral administration after receiving approval in September 2019, Dr. Reddy’s Laboratories Inc.’s received approval in May 2020 for generic treprostinil for parenteral administration, and Alembic Pharmaceuticals Ltd’s has settled with United Therapeutics in order to launch a generic treprostinil for parenteral administration, though it has not yet been approved to date. In March 2020, Teva obtained the rights to sell its generic product to CVS, which rights were previously held by RareGen and Sandoz. Currently, RareGen sells Sandoz’s generic product mainly through Accredo. The generic product launched by Sandoz and RareGen is a fully substitutable generic for Remodulin®, with the same active ingredient, same strength, same dosage forms and same inactive ingredient amounts as Remodulin®, and at the same service and support, but at a lower price. This product is currently used only for intravenous administration.
Pursuant to the UTC/Smiths Medical litigation, RareGen and Sandoz allege that Smiths Medical and United Therapeutics blocked access to cartridges necessary for administering the generic treprostinil through the CADD MS-3 pump manufactured by Smiths Medical for use in the administration of subcutaneous infusions of generic treprostinil.
Promotion Agreement
RareGen entered into a Promotion Agreement with Sandoz on August 1, 2018, as amended on May 8, 2020, or the Promotion Agreement, pursuant to which Sandoz engaged RareGen on an exclusive basis to promote the appropriate use of Sandoz’s treprostinil, or the Product, for the treatment of PAH in the United
 
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States, including its commonwealths, territories, possessions and military bases, or the Territory. Under the Promotion Agreement, RareGen also works jointly with Sandoz on commercial strategy for the Product and has responsibility for identifying, manufacturing and developing medical devices, including pumps and cartridges, that may be used to administer the Product. Sandoz retains all rights in and to the Product. Sandoz is the holder of the ANDA for the Product. As the ANDA holder, Sandoz maintains responsibility for compliance with FDA regulatory and healthcare laws including any regulatory communications with the FDA or any other regulatory authorities as it pertains to, for example, reporting obligations for the ANDA, maintaining regulatory approvals, inspections, and meeting all submission requirements for the product label and for promotional labeling materials at the time of initial dissemination.
Under the Promotion Agreement, Sandoz retains responsibility for: the specifications, manufacture and supply, distribution and future development of treprostinil; regulatory submission and interactions with the FDA pertaining to treprostinil, including maintaining all necessary regulatory approvals; reporting to the FDA or other regulatory authorities on matters relating to manufacturing, sale or promotion, such as any safety events involving treprostinil; internally reviewing and, as it determines appropriate, approving promotional materials developed by RareGen, and making submissions to the FDA’s Office of Prescription Drug Promotion; handling safety activities including adverse event reporting, and initiating and managing any recalls of treprostinil.
RareGen’s activities and obligations related to regulatory matters conducted under the Promotion Agreement include: promotional and non-promotional activities, including sales and marketing activities for treprostinil, and engagement of healthcare professionals for advisory boards; developing, with prior written approval from Sandoz, marketing and educational materials consistent with FDA approved labeling and applicable laws; notifying Sandoz of notices from governmental authorities about adverse event reports or regulatory inquiries related to the safety of treprostinil, product complaints or alleged defects, unsolicited requests for off-label medical information; providing certain data and information to Sandoz in order to fulfill its transparency and reporting obligations under the Physician Payment Sunshine Act; complying with applicable laws relevant to the activities conducted under the Promotion Agreement; establishing a compliance program and mechanism for disclosure of any violations of RareGen policies and procedures and submission of an annual report and certification to Sandoz of its compliance activities; and managing, with oversight and participation from Sandoz, negotiations and arrangements for managed care activities.
The Promotion Agreement, unless earlier terminated, initially extends until the eight (8) year anniversary of the first commercial sale of the Product by Sandoz, which occurred on or about March 25, 2019. The Promotion Agreement automatically renews for successive two-year terms unless earlier terminated.
RareGen paid Sandoz an initial payment of $10 million on August 1, 2018 and, upon the successful quality release by Sandoz of 9,000 units of the Product on August 3, 2018, RareGen paid Sandoz an additional $10 million as further consideration for the right to conduct the activities as contemplated in the Promotion Agreement and to receive a portion of the “Net Profits” (as defined below). The portion of Net Profits are allocated to RareGen as follows: (i) for that portion of aggregate Net Profits less than or equal to $500 million, RareGen shall receive between 50-80% of all such Net Profits; and (ii) for that portion of aggregate Net Profits greater than $500 million, RareGen shall receive 75% of all such Net Profits.
“Net Profits” are calculated based on net sales of the Product less (i) certain manufacturing costs incurred by Sandoz or its affiliates or any third party, if applicable, (ii) certain write-offs resulting from or relating to unsold and expired Products or components, (iii) costs associated with patient starter kits and (iv) certain other fees, charges and expenses charged by customers. RareGen also has the right to inspect and audit the records and books of account maintained by Sandoz, or any affiliate, as applicable, with respect to Net Profits and related factors.
RareGen also is required to use good faith efforts to bring to market 3ml cartridges for use in a Smiths Medical CADD-MS® 3 (MS-3) ambulatory infusion pump with treprostinil, or the Cartridges, and to market and make the Cartridges available for use with the Product. Upon termination of the Promotion Agreement, Sandoz may make and market the Cartridges pursuant to a license agreement as negotiated between RareGen and Sandoz in good faith.
 
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The Promotion Agreement required the formation of a joint steering committee, or JSC, which meets quarterly and consists of three representatives from each of RareGen and Sandoz. The purpose and responsibilities of the JSC include: (i) reviewing and approving updates or amendments to the “RareGen Activity Plan and Budget” (as defined in the Promotion Agreement); (ii) planning and implementating RareGen promotional activities; (iii) coordinating and implementing commercialization strategy; (iv) discussing the forecasting, procurement and manufacture of the Product and constituent parts; and (v) discussing status and terms of agreements with customers.
RareGen and Sandoz may terminate the Promotion Agreement for cause upon a number of customary events, such as a material breach of the Promotion Agreement that remains uncured, complete withdrawal of marketing approval of the Product or upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings with respect to the other party. Further, either party may terminate the Promotion Agreement upon written notice to the other party at any time after the initial eight (8) year term in the event Sandoz is then procuring 100% of its supply of Product from a single third party upon (a) expiration of the supply agreement with such third party and (b) Sandoz’s failure, after exercise of commercially reasonable efforts, to secure continued supply of the Product from such third party or other third parties within 12 months of the termination of such supply agreement. RareGen and Sandoz also each have a right to terminate the Promotion Agreement on not more than 90 days’ written notice in the event that Net Profits in the last calendar year are less than $5 million.
Sandoz may terminate the Promotion Agreement on not more than 90 days’ written notice after the conclusion of any full 12-month calendar year in the event that Net Profits in such calendar year are less than or equal to 10% of the net sales in such calendar year; provided, however, that Sandoz may not terminate the Promotion Agreement in such instance unless and until (i) aggregate amounts received by RareGen under the sharing of Net Profits have reached $32.5 million, or (ii) both (x) Net Profits or the profit margin were adversely affected in such calendar year by any temporary event or circumstance and (z) the JSC makes a determination that such profit margin deficiency is not likely to continue in the subsequent calendar year. Sandoz may also terminate the Promotion Agreement upon a change of control of RareGen; provided, however, that in connection with the first amendment to the Promotion Agreement, Sandoz waived this termination right provided that the Merger Transaction closes on or prior to September 30, 2020. In the event that the Merger Transaction does not close on or before September 30, 2020, RareGen will need to obtain an extension to Sandoz’s consent and waiver in order to satisfy the conditions to closing the Merger Transaction.
RareGen may terminate the Promotion Agreement on not more than 90 days’ written notice after the conclusion of any full 12-month calendar year in the event that RareGen’s share of the Net Profits in such calendar year are less than or equal to RareGen’s operating expenses relating to the Product for such calendar year; provided, however, that RareGen may not terminate the Promotion Agreement in such instance unless and until (i) aggregate amounts received by Sandoz under the share of Net Profits have reached $28.125 million, or (ii) both (x) Net Profits or its operating expenses relating to the Product were adversely affected in such calendar year by a temporary event or circumstance and (z) the JSC makes a determination that RareGen’s share of the Net Profits is not likely to continue to be less than its operating expenses relating to the Product in the subsequent calendar year.
Pursuant to the terms of the Promotion Agreement, Sandoz and RareGen also entered into a pharmacovigilance agreement on January 9, 2019, or the Pharmacovigilance Agreement. Under the Promotion Agreement, Sandoz is responsible for all pharmacovigilance activities regarding the Product while RareGen’s sole obligations related to pharmacovigilance is to notify Sandoz in the event that it receives safety information regarding the Product or information regarding any safety-related regulatory request or inquiry. The Pharmacovigilance Agreement establishes the procedures and guidelines that RareGen must follow when fulfilling its pharmacovigilance notification responsibilities.
PBM Services Agreement
Pursuant to that certain services agreement with PBM Capital Group, dated August 7, 2018 and as amended on April 1, 2019, or the Services Agreement, PBM Capital Group is retained by RareGen to provide certain services including but limited to: (i) strategy and business development, (ii) operations management, (iii) contract negotiation and review, (iv) processing purchase orders issued by RareGen,
 
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(v) establishing, maintaining and administering benefit plans, (vi) maintaining financial books and records of RareGen and (vii) furnishing such other services as are incidental to the foregoing or usually or customarily furnished by a financial manager. RareGen pays a fee of $20,000 per month for the services provided by PBM Capital Group. The Services Agreement automatically renews for successive one-year periods after the expiration of the initial term on August 7, 2019. However, the Services Agreement may be terminated by either party at any time, with or without cause with 60 days advance written notice. As a condition precedent to closing the Merger Agreement, the Services Agreement will be terminated or, by agreement of us, RareGen and PBM Capital Group, amended and restated, in either case as of the effective time of the Merger Transaction.
Joint Development Agreement
Pursuant to a Joint Development Agreement, dated May 6, 2019, by and between RareGen and Carelife USA Inc., or Carelife, RareGen has engaged Carelife to perform certain development and manufacturing services, and to furnish finished cartridges when ready for commercial sale. Currently, RareGen is working with Carelife to develop a medication cartridge for use with CADD-MS® 3 (MS-3) ambulatory infusion pumps. Pursuant to the Joint Development Agreement, Carelife or an affiliate of Carelife will manufacture the medication cartridge for use with CADD-MS® 3 ambulatory infusion pumps that is currently under development by RareGen and Carelife. Such manufacturer will then sell cartridges to a distributor who will import the cartridges into the United States and sell them to specialty pharmacies and other customers. It is contemplated that RareGen will only receive a commission or fee on sales of the cartridges to the specialty pharmacies and other customers. The amount of RareGen’s fee is to be negotiated. All other amounts received with respect to the manufacture and sale of such cartridges will be paid to the manufacturer, distributor and/or other third parties.
Each party is responsible for providing the necessary systems, personnel and materials to perform the tasks assigned to it according to the terms of the Joint Development Agreement. Additionally, RareGen is responsible for (i) costs and expenses related to the production of product molds, and (ii) third party costs and expenses relating to testing of any products manufactured by Carelife in accordance with the Joint Development Agreement. RareGen retains all intellectual property and technology created pursuant to the Joint Development Agreement.
The initial term of the Joint Development Agreement expires on May 6, 2027, and RareGen may terminate at any time upon 30 days’ prior written notice.
Marketing, Sales and Support
RareGen has a PAH-seasoned small, targeted sales force that provides strategy, investment and commercialization for the Product. RareGen also engages a consultant for certain marketing services. RareGen closely coordinates with specialty pharmacies to maximize the patient experience and adoption. Specialty pharmacies own the infusion pumps and supply them to patients as needed, along with the drug and other ancillary equipment required for continuous infusion.
The majority of sales made pursuant to the Promotion Agreement are made through specialty pharmacies, due to its investments in health care professionals, or HCPs, and patient experience and support. Currently, approximately 95% of quantities are sold through specialty pharmacies.
Following the closing of the Merger Transaction, RareGen, as a subsidiary of HoldCo, will continue to carry out its responsibilities under the Promotion Agreement, including sales and marketing. RareGen
 
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and Sandoz are jointly responsible for commercial strategy and payer strategy. Sandoz will continue to hold the ANDA, manage the supply chain, recognize and report revenue, and manage contracts with payers.
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Research, Development and Engineering
RareGen continues to pursue potential collaborations and partnerships with third parties to develop ambulatory infusion pumps that would be suitable for administration of generic treprostinil to patents.
Intellectual Property
RareGen does not currently hold any patent, published patent applications or U.S. copyright registrations and currently holds one registered trademark, “RAREGEN”. Much of RareGen’s intellectual property consists of know-how and goodwill which is valid and enforceable only insofar as it qualifies as trade secrets under applicable law.
Additionally, pursuant to the Promotion Agreement, RareGen has the non-exclusive right to use Sandoz’s trademarks and copyrights on (i) labels and other written, printed or graphic matter on (x) any container or wrapper utilized with the Product or (z) any written material accompanying the Product and (ii) any other Product materials provided by or on behalf of Sandoz for use in connection with RareGen’s promotional activities. Any improvement, enhancement or modification made, discovered, conceived, reduced to practice or generated by RareGen to any of RareGen’s know-how (as defined in the Promotion Agreement) in performing its promotional activities shall vest in RareGen if it is not derived from Sandoz’s confidential information.
Government Regulation
RareGen does not itself hold any drug approvals from the FDA or any similar governmental authority, nor does it bill government or commercial payors for any pharmaceutical products. Given, however, that RareGen provides services to the pharmaceutical industry that include sales and marketing and certain educational communication services, FDA laws and other federal laws governing healthcare are relevant to its business and the related risks. Additionally, certain states have implemented laws applicable to pharmaceutical companies whereby they must also comply with, among other things, transparency requirements regarding sales and marketing activities, and prohibitions or restrictions on financial arrangements or activities with healthcare professionals.
At the federal level, FDA law prohibits “misbranding” of drugs and establishes related rules and policies on promotional and non-promotional (educational, scientific) communications, and as such, interactions with or communications directed to healthcare professionals, or HCPs, or prospective customers, or patients or patient- or disease-advocates or advocacy groups, are subject to heightened scrutiny by the FDA. Relative to non-promotional communications, for example, there are specific FDA accommodations for non-promotional, truthful and non-misleading sharing of information regarding products in development and off-label uses including dissemination of peer-reviewed reprints that contain off-label information, support of independent continuing medical education, or CME, that may include discussion of off-label information, and healthcare economic discussions with payors. These non-promotional communications, while permitted by the FDA, are subject to a number of limitations as well as industry compliance best
 
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practices. Additionally, although the FDA would typically look primarily to the ANDA holder for responsibility for the compliance of its products including as related to outsourced services that it obtains from third parties, the Food, Drug, and Cosmetic Act is broad in scope such that if any third party were found to have “caused” misbranding the FDA could theoretically take enforcement action against that entity, even if not explicitly in a directly regulated role.
Compliance with these FDA laws also has relevance to healthcare fraud and abuse laws such as (i) the False Claims Act, or the FCA, as off-label promotion can be used as a basis the government to take action under the FCA, and (ii) the Anti-Kickback Statute, or AKS, as healthcare professionals who receive payment for services, such as advisory board services, who are not clearly documented as providing bona fide services for which only fair market value has been paid can raise AKS-related concerns.
The AKS prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, overtly or covertly, in case or in kind, to induce or reward, or in return for, or either the referral of an individual for, or the purchase, lease or order or recommendation of an item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. This statute has been interpreted broadly to apply to, among other things, arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other hand. The term “remuneration” expressly includes kickbacks, bribes or rebates and also has been broadly interpreted to include anything of value. There are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions; however, the exceptions and safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe harbor may be subject to scrutiny. The failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our sales and marketing practices may not meet all of the criteria for safe harbor protection from AKS liability in all cases. A person or entity does not need to have actual knowledge of the AKS or specific intent to violate it to have committed a violation. In addition, Patient Protection and Affordable Care Act of 2010, as amended, or the ACA, codified case law that a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA.
The federal FCA prohibits individuals or entities from, among other things, knowingly presenting or causing the presentation of a claims payment to, or approval by, the federal government that are false, fictitious or fraudulent, or knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the federal government. Although we do not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers, promoting a product for unapproved uses (also known as “off-label promotion”), marketing products of sub-standard quality, or, as noted above, paying a kickback that results in a claim for items or services in violation of the AKS. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. In addition, certain marketing practices, including off-label promotion, may also implicate the FCA. Although the FCA is a civil statute, conduct that results in a FCA violation may also implicate various federal criminal statutes.
Employees
As of March 31, 2020, RareGen employed nine employees on a full-time basis, consisting of seven active sales employees, RareGen’s Chief Executive Officer and RareGen’s Chief Operating Officer. In addition, RareGen contracts with consultants for services. RareGen believes that its future success will depend in large part on its ability to recruit and retain qualified employees, particularly highly skilled sales representatives. At times RareGen has experienced difficulty in attracting new personnel, and RareGen may not be successful in retaining or recruiting sufficient key personnel in the future. None of RareGen’s employees is represented by a labor union, and RareGen has never experienced a work stoppage, slowdown or strike. RareGen considers its relationship with its employees to be good.
 
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Properties
RareGen’s corporate headquarters are located in Durham, North Carolina, and consist of approximately 1,350 square feet of space under a lease that expires on October 31, 2020. The permitted use of this location is general office. RareGen believes that its facility is adequate for its current needs.
Legal Proceedings and Related Agreements
On April 16, 2019, Sandoz and RareGen filed a complaint against United Therapeutics and Smiths Medical in the District Court of New Jersey (Case No. No. 3:19-cv-10170), or the UTC/Smiths Medical litigation, alleging that United Therapeutics and Smiths Medical violated the Sherman Antitrust Act of 1890, state law antitrust statutes and unfair competition statutes by engaging in anticompetitive acts regarding the drug treprostinil for the treatment of PAH. On March 20, 2020, Sandoz and RareGen filed a first amended complaint adding a claim that United Therapeutics breached a settlement agreement that was entered into in 2015, in which United Therapeutics agreed to not interfere with Sandoz’s efforts to launch its generic treprostinil, by taking calculated steps to restrict and interfere with the launch of Sandoz’s competing generic product. United Therapeutics developed treprostinil under the brand name Remodulin® and Smiths Medical manufactured a pump and cartridges that are used to inject treprostinil into patients continuously throughout the day. Sandoz and RareGen allege that United Therapeutics and Smiths Medical entered into anticompetitive agreements (i) whereby Smiths Medical placed restrictions on the cartridges such that they can only be used with United Therapeutics’ branded Remodulin® product and (ii) requiring Smiths Medical to enter into agreements with specialty pharmacies to sell the cartridges only for use with Remodulin®.
On January 29, 2020, the court denied RareGen’s and Sandoz’s motion for a preliminary injunction and United Therapeutics’ and Smiths Medicals’ motion to dismiss. The litigation is proceeding through the discovery process.
HoldCo or its subsidiaries post-closing will not be entitled to any proceeds resulting from, or bear any financial or other liability for, the UTC/Smiths Medical litigation.
RareGen may become subject to additional legal proceedings and claims arising in connection with the normal course of its business. In the opinion of RareGen’s management, except as disclosed herein, there are currently no claims that would have a material adverse effect on RareGen’s financial position, results of operations or cash flows.
Financing Agreement
On June 4, 2020, RareGen entered into a financing agreement with Henderson SPV, LLC, or Henderson, to cover prospective costs of the litigation with United Therapeutics and Smiths Medical, from the date of this agreement, in consideration for a share of the litigation proceeds. In the event that RareGen has no proceeds from the litigation, Henderson will have no right to recover any litigation expenses that were previously financed. Henderson has not financed any costs of litigation as of the date of this proxy statement/prospectus.
Litigation Funding and Indemnification Agreement
See “The Merger Agreement — Agreements Entered Into in Connection with the Merger Agreement: Litigation Funding and Indemnification Agreement” on page 139 for more information.
 
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF HOLDCO
On June 29, 2020, we and RareGen entered into the Merger Agreement. Under the terms of the Merger Agreement, Liquidia Merger Sub, a wholly owned subsidiary of HoldCo, will merge with and into our company and our stockholders will receive one share of HoldCo common stock in exchange for each share of our common stock at the effective time of the Merger Transaction. In addition, RareGen Merger Sub, a wholly owned subsidiary of Liquidia Corporation, will merge with and into RareGen under the Merger Transaction. Upon consummation of the Merger Transaction, the separate corporate existences of Liquidia Merger Sub and RareGen Merger Sub will thereupon cease and our company and RareGen will continue as wholly owned subsidiaries of Liquidia Corporation.
The following unaudited pro forma condensed combined financial statements give effect to the Merger Transaction. The Unaudited Pro Forma Condensed Combined Balance Sheet is presented as if the Merger Transaction had occurred on March 31, 2020. The Unaudited Pro Forma Condensed Combined Statements of Income for the three months ended March 31, 2020 and for the year ended December 31, 2019 are presented as if the Merger Transaction had occurred on January 1, 2019, the beginning of the earliest period presented. The unaudited pro forma financial information is based on the historical consolidated financial statements of our company and RareGen, and the assumptions and adjustments set forth in the accompanying explanatory notes. This unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting where we are considered the acquirer of RareGen for accounting purposes. See “Note 2 — Basis of Presentation” below on page 81.
The unaudited pro forma condensed combined financial information for the Merger Transaction has been developed from and should be read in conjunction with our unaudited interim financial statements contained in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 filed with the SEC on May 11, 2020 and our audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 16, 2020, which are each incorporated by reference into this proxy statement/prospectus. The acquisition of RareGen will be accounted for as a business combination and will reflect the application of acquisition accounting in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. For purposes of developing the Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2020, the acquired RareGen assets, including identifiable intangible assets and liabilities assumed, have been recorded at their estimated fair values with the excess purchase price assigned to goodwill. The pro forma adjustments are based on preliminary estimates of the fair values of assets acquired and liabilities assumed and information available as of the date of this proxy statement/prospectus. Certain valuations and assessments, including valuations of the fixed assets, contingent consideration, other intangible assets as well as the assessment of the tax positions and rates of the combined business, are in process and will not be completed until subsequent to the close of the proposed acquisition. The estimated fair values assigned in this unaudited pro forma financial information are preliminary and represent our current best estimate of fair value and are subject to revision.
At the effective time of the Merger Transaction, an aggregate of 6,166,666 shares of HoldCo common stock, including 616,666 shares of HoldCo common stock which will be withheld from RareGen members to secure the indemnification obligations of RareGen members, will be issued to RareGen members in exchange for 10,000 RareGen common units, representing all of the issued and outstanding RareGen equity. Additionally, RareGen members shall be entitled to a pro rata portion of any RareGen cash at closing in excess of $1 million. RareGen members are also entitled to receive a pro rata portion of up to an additional 2,708,333 shares of HoldCo common stock in the aggregate in 2022, based on the amount of 2021 net sales of the generic treprostinil product owned by Sandoz, which RareGen markets pursuant to the Promotion Agreement, which are referred to herein as Net Sales Earnout Shares. Please see Note 3 below for further detail on consideration paid to RareGen members. The fair value of the purchase consideration, or the purchase price, in the unaudited pro forma condensed combined financial information is estimated to be approximately $37.4 million. The purchase consideration consists of the 6,166,666 shares of HoldCo common stock based on a per share price of $5.38, which represents the closing price of our common stock on July 27, 2020, and the estimated fair value of the contingent consideration liability of $4.3 million.
 
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Unaudited Pro Forma Condensed Combined Balance Sheet
March 31, 2020
Liquidia
Technologies
RareGen
Transaction
Accounting
Adjustments
Notes
Pro Forma
Combined
Assets
Current assets:
Cash and cash equivalents
$ 40,127,919 $ 6,008,451 $ (5,008,451)
A
$ 41,127,919
Accounts receivable, net
3,853,198 (3,853,198)
B
Prepaid expenses and other current
assets