Schedule 14A


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NameSchedule 14A
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Opinion of Tokai’s Financial Advisor

(pages 91-99)

The Tokai board of directors engaged Wedbush Securities Inc. (“Wedbush”) to provide financial advisory and investment banking services and to consider and evaluate potential strategic transactions, and ultimately requested that Wedbush render an opinion as to whether the ratio of shares of Tokai common stock issued for the Otic share capital (as described more fully in the section entitled “ Terms of the Share Purchase Agreement—Exchange Ratio ,” beginning on page 103 of this proxy statement, the “ exchange ratio ”) in connection with the Otic Transaction was fair to the stockholders of Tokai from a financial point of view. At the December 21, 2016 meeting of the Tokai board of directors, Wedbush rendered its oral opinion, subsequently confirmed by delivery of a written opinion dated December 21, 2016, to the Tokai board of directors that, as of the date of such opinion, and based upon the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review set forth in its written opinion, the exchange ratio was fair to the stockholders of Tokai from a financial point of view.

The full text of Wedbush’s written opinion, which sets forth the procedures followed, assumptions made, matters considered, and limitations and qualifications of the review undertaken in connection with the opinion, is attached as Annex D. Wedbush’s opinion was intended for the use and benefit of the Tokai board of directors (in its capacity as such) in connection with its evaluation of the Otic Transaction. Wedbush’s opinion was not intended to be used for any other purpose without Wedbush’s prior written consent in each

 

 

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instance, except as Tokai’s counsel advises is required by law. Wedbush has consented to the use of Wedbush’s opinion in this proxy statement. Wedbush’s opinion does not address Tokai’s underlying business decision to enter into the Share Purchase Agreement or complete the Otic Transaction, the relative merits of the Otic Transaction compared to any alternative transactions or strategies that were or may be available to Tokai and the other proposals to be addressed at the special meeting. Wedbush’s opinion did not constitute a recommendation to the Tokai board of directors as to how to act or to any Tokai stockholder or any other person as to how to vote with respect to the Otic Transaction or any other matter (including, without limitation, the amount of consideration to be paid).

The Tokai Special Meeting

(pages 11-17, 66-71)

Tokai will hold a special meeting of the Tokai stockholders on May 9, 2017, at 9:00 am local time, at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 to vote on the issuance of Tokai common stock in the Otic Transaction, the related issuance of Tokai common stock in the Equity Financing and other related actions, including the proposed reverse stock split.

Market Price and Dividend Information

(page 29)

Tokai’s common stock trades under the symbol “TKAI” on The NASDAQ Global Market and has been publicly traded since September 17, 2014. On December 21, 2016, the last trading day prior to the public announcement of the Tokai board of directors’ approval of the Otic Transaction, the reported closing price of the Tokai common stock was $1.01 per share. On April 4, 2017, the latest practicable trading date before the filing of this proxy statement, the reported closing price of the Tokai common stock was $0.82 per share. Because the price of Tokai common stock is subject to fluctuation, the market value of the shares of Tokai common stock that Otic shareholders will be entitled to receive pursuant to the terms of the Share Purchase Agreement may increase or decrease.

Neither Tokai nor Otic has ever declared or paid cash dividends on its capital stock. Any determination to pay dividends following consummation of the Otic Transaction or otherwise will be at the discretion of Tokai’s then-current board of directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors Tokai’s then-current board of directors deems relevant.

No Solicitation; Third Party Competing Proposals

(pages 106-108)

Under the Share Purchase Agreement, both Tokai and Otic are subject to customary covenants restricting the solicitation of competing offers. However, subject to certain requirements set forth in the Share Purchase Agreement, Tokai is entitled to furnish non-public information to, and engage in discussions or negotiations with, third parties who submit a bona fide, unsolicited written proposal to acquire 50% or more of the equity securities or consolidated total assets of Tokai, so long as the Tokai board of directors determines in its good faith judgment that such acquisition proposal is more favorable to the holders of Tokai’s capital stock than the transactions contemplated by the Share Purchase Agreement (after consultation with its financial and legal advisors) and which Tokai’s board of directors determines to be reasonably capable of being completed on the terms proposed.

Changes to Board Recommendation

(pages 108-109)

Prior to Tokai stockholder approval of the Share Purchase Agreement and the issuance of Tokai common stock to the Sellers pursuant to the Share Purchase Agreement, the Tokai board of directors is permitted

 

 

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to withhold, withdraw or modify, or publicly propose to withdraw or modify, its approval or recommendation that Tokai stockholders vote in favor of the Share Issuance Proposal if the Tokai board of directors determines in good faith (after consultation with outside legal counsel) that the failure to do so could reasonably be expected to be inconsistent with its fiduciary obligations under applicable law.

Conditions to Consummation of the Otic Transaction

(pages 105-106)

The Share Purchase Agreement sets forth certain conditions to the obligations of the parties in the transaction, including the following, each of which cannot be waived by either party:

 

 



 

Tokai stockholders approving the Share Issuance Proposal;

 

 



 

the filing, obtainment or occurrence of all authorizations and consents, including Israeli tax rulings described in the Share Purchase Agreement;

 

 



 

the absence of any order, executive order, stay, decree, judgment or injunction (preliminary or permanent) or statute, rule, or regulation prohibiting consummation of the Otic Transaction; and

 

 



 

the approval of an initial listing application on The NASDAQ Global Market with respect to the shares of Tokai common stock to be issued in the Otic Transaction.

Further, each of the following conditions to the obligations of the parties in the transaction may be waived by either or both of the parties:

 

 



 

the accuracy of representations and warranties, subject to customary materiality standards;

 

 



 

the performance of covenants in all material respects;

 

 



 

the absence of any continuing Tokai or Otic material adverse effect; and

 

 



 

resignations of the directors of Tokai who will not continue to serve as directors following closing of the Otic Transaction pursuant to the terms of the Share Purchase Agreement.

Termination of the Share Purchase Agreement

(pages 115-117)

The Share Purchase Agreement includes certain termination rights, including:

 

 



 

by either Tokai or Otic upon mutual written consent;

 

 



 

by either Tokai or Otic, if the Otic Transaction is not consummated by May 31, 2017 (the “ Outside Date ”);

 

 



 

by either Tokai or Otic, if a final non-appealable governmental order is issued permanently restraining or prohibiting the Otic Transaction;

 

 



 

by either Tokai or Otic, if Tokai’s stockholders fail to approve the Otic Transaction at the special meeting of Tokai stockholders;

 

 



 

by either Tokai or Otic, if there is a breach such that the applicable accuracy of representations or warranties would cause a closing condition to not be satisfied;

 

 



 

by Tokai, if Otic has knowingly and materially breached its non-solicitation obligations;

 

 



 

by Tokai, if Tokai complies with its non-solicitation obligations in order to accept a superior proposal and pays to Otic the Tokai termination fee; and

 

 



 

by Otic, if certain triggering events occur, such as a change of the Tokai board of directors’ recommendation that the Tokai or Otic stockholders vote “FOR” the Share Issuance Proposal, breach of Tokai’s non-solicitation covenants, or approval by the Tokai board of directors of a competing proposal.

 

 

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Termination Fee and Expenses

(pages 117-118)

Under the terms of the Share Purchase Agreement, all fees and expenses incurred in connection with the Share Purchase Agreement are to be paid by the party incurring such expenses, regardless of whether the Otic Transaction is consummated.

However, Otic must pay Tokai a termination fee of $1.5 million if:

 

 



 

Tokai has terminated the Share Purchase Agreement as a result of a knowing and material breach by Otic of its non-solicitation obligations in the Share Purchase Agreement; or

 

 



 

Tokai has terminated the Share Purchase Agreement as a result of a material breach or failure to perform by Otic of any representation, warranty, covenant or agreement set forth in the Share Purchase Agreement, which breach has caused a closing condition in the Share Purchase Agreement not to be satisfied and remains uncured by Otic prior to the earlier of the Outside Date and the expiration of a 30-day period commencing upon delivery of written notice from Tokai to Otic of such breach.

Tokai must pay Otic a termination fee of $1.0 million (the “Tokai termination fee”) if:

 

 



 

Tokai has terminated the Share Purchase Agreement at any time prior to the approval by Tokai’s stockholders of the issuance of the shares of Tokai common stock in the Otic Transaction and each of the following has occurred: Tokai received a superior proposal (as such term is defined in the section entitled, “ Terms of the Share Purchase Agreement—No Solicitation; Third Party Competing Proposal ” in this proxy statement beginning on page 106); Tokai has complied in all material respects with its non-solicitation obligations in the Share Purchase Agreement in order to accept such superior proposal; and the Tokai board of directors approved, and Tokai concurrently with termination of the Share Purchase Agreement entered into, a definitive agreement with respect to such superior proposal;

 

 



 

so long as prior to the termination of the Share Purchase Agreement, any person makes an acquisition proposal or amends an acquisition proposal made prior to the date of the Share Purchase Agreement with respect to Tokai and within 12 months after such termination Tokai enters into a definitive agreement to consummate, or consummates, any acquisition and:

 

 



 

either Otic or Tokai has terminated the Share Purchase Agreement and the Otic Transaction has not been consummated prior to the Outside Date; provided, such terminating party did not cause such failure to fulfill any obligation under the Share Purchase Agreement and was not a principal cause of or resulted in the failure of the Otic Transaction to so occur prior to the Outside Date; or

 

 



 

Otic has terminated the Share Purchase Agreement as a result of a material breach or failure to perform by Tokai of any representation, warranty, covenant or agreement set forth in the Share Purchase Agreement, which breach has caused a closing condition in the Share Purchase Agreement not to be satisfied and remains uncured by Tokai prior to the earlier of the Outside Date and the expiration of a 30-day period commencing upon delivery of written notice from Otic to Tokai of such breach; or

 

 

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Otic has terminated the Share Purchase Agreement at any time prior to the approval by Tokai’s stockholders of the issuance of the shares of Tokai common stock in the Otic Transaction due to the occurrence of any of the following:

 

 



 

Tokai’s board of directors failed to recommend that the stockholders of Tokai vote to approve the issuance of Tokai common stock in the Otic Transaction or withdrew or modified its recommendation;

 

 



 

Tokai’s board of directors (or any committee thereof) approved or recommended to the Tokai stockholders an acquisition proposal;

 

 



 

a tender or exchange offer for outstanding shares of Tokai’s common stock was commenced and Tokai’s board of directors recommended that the Tokai stockholders tender or exchange their shares in such offer or failed to recommend against such offer within ten business days of its commencement; or

 

 



 

Tokai has knowingly and materially breached its no solicitation obligations in the Share Purchase Agreement.

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