Blue Water Acquisition Corporation

05/03/2021 | Press release | Distributed by Public on 05/04/2021 01:03

Merger Agreement

Merger Agreement

This section describes the material provisions of the Merger Agreement (as defined below) but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1. The Company's stockholders and other interested parties are urged to read such agreement in its entirety. Unless otherwise defined herein, the capitalized terms used below are defined in the Merger Agreement.

General Terms and Effects

On April 27, 2021, Blue Water Acquisition Corp., a Delaware corporation (the 'Company'), entered into an Agreement and Plan of Merger (the 'Merger Agreement') with Blue Water Merger Sub Corp., a Delaware corporation and newly formed wholly-owned subsidiary of the Company ('Merger Sub'), and Clarus Therapeutics, Inc., a Delaware corporation ('Clarus').

Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein, upon the consummation of the transactions contemplated by the Merger Agreement (the 'Closing'), Merger Sub will merge with and into Clarus (the 'Merger' and, together with the other transactions contemplated by the Merger Agreement, the 'Transactions'), with Clarus continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Company. In the Merger, based on existing Clarus share preference and convertible debtholder rights, (i) certain shares of Clarus preferred stock issued and outstanding immediately prior to the effective time of the Merger (the 'Effective Time') will be canceled and converted into the right to receive a portion of the Merger Consideration (as defined below), (ii) all other shares of Clarus capital stock, and all outstanding options to purchase any capital stock that have not been exercised prior to the Effective Time, will be canceled, retired and terminated without any consideration or any liability to Clarus with respect thereto, and (iii) certain convertible and non-convertible promissory notes of the Company outstanding as of the Closing will be canceled and converted into, or exchanged for, the right to receive a portion of the Merger Consideration.

2

Merger Consideration

The aggregate merger consideration to be paid pursuant to the Merger Agreement to Clarus securityholders as of immediately prior to the Effective Time ('Clarus Securityholders') will be a number of shares of Company Class A common stock equal to (the 'Merger Consideration'): (A) (i) $198,194,295.43, plus (or minus) the estimated indebtedness of Clarus as of the Closing, net of its cash and cash equivalents ('Closing Net Indebtedness'), divided by (ii) $10.20; plus (B) 1,500,000 shares of Company Class A Common Stock issuable to the holders of certain non-convertible promissory notes of Clarus in exchange for $10 million of the aggregate principal amount of such notes and other amendments to the terms of the remaining indebtedness pursuant to the Transaction Support Agreement (as described below); plus (C) (i) the outstanding balance (principal and interest) at Closing of certain convertible and non-convertible promissory notes of Clarus issued between signing of the Merger Agreement and Closing divided by $10.00, other than any such non-convertible promissory notes that the Company elects in its discretion to pay off at Closing. The Merger Consideration to be paid to Clarus Securityholders will be paid solely by the delivery of new shares of Company Class A Common Stock. The Closing Net Indebtedness (and the resulting Merger Consideration) is based solely on estimates determined shortly prior to the Closing and is not subject to any post-Closing true-up or adjustment. The Merger Consideration will be allocated among Clarus Securityholders as determined by Clarus shortly prior to the Closing based on existing share preference and convertible debtholder rights.

Representations and Warranties; Covenants

The Merger Agreement contains a number of representations and warranties by the Company and Merger Sub (together, the 'Company Parties'), on the one hand, and Clarus, on the other hand, as of the date of the Merger Agreement and as of the date of the Closing. Many of the representations and warranties are qualified by materiality or Material Adverse Effect. 'Material Adverse Effect' as used in the Merger Agreement means with respect to any specified person or entity, any fact, event, occurrence, change or effect that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, assets, liabilities, financial condition, net worth, management, earnings, cash flows, business, operations or properties of such person or entity and its subsidiaries, taken as a whole, or the ability of such person or entity or any of its subsidiaries on a timely basis to consummate the transactions contemplated by the Merger Agreement or the ancillary documents to which it is a party or bound or to perform its obligations thereunder, in each case subject to certain customary exceptions. Certain of the representations are subject to specified exceptions and qualifications contained in the Merger Agreement or in information provided pursuant to certain disclosure schedules to the Merger Agreement. The representations and warranties made by the Company Parties and Clarus are customary for transactions similar to the Transactions.

The Merger Agreement also contains certain customary covenants by each of the parties during the period between the signing of the Merger Agreement and the earlier of the Closing or the termination of the Merger Agreement in accordance with its terms (the 'Interim Period'), including with respect to (1) access to their offices, properties, books and records; (2) the operation of their respective businesses in the ordinary course of business; (3) provision of financial statements by Clarus; (4) the Company's public filings; (5) no insider trading; (6) notifications of certain breaches, consent requirements, material adverse changes or other matters; (7) efforts to consummate the Closing and obtain third party and regulatory approvals; (8) tax matters and transfer taxes; (9) further assurances; and (10) confidentiality. Each party also agreed during the Interim Period not to solicit, pursue or enter into any arrangement relating to an alternative competing transaction and to notify the others of receipt of proposals or indications of interest relating thereto. The parties further agreed to certain customary post-Closing covenants.

The Merger Agreement and the consummation of the Transactions require the approval of both the Company's stockholders and Clarus's stockholders. The Company agreed to prepare promptly and file with the U.S. Securities and Exchange Commission (the 'SEC') a registration statement on Form S-4 (as amended, the 'Registration Statement') in connection with the registration under the Securities Act of 1933, as amended (the 'Securities Act'), of the issuance of the Merger Consideration, and containing a proxy statement/prospectus for the purpose of the Company's solicitation of proxies from its stockholders to approve the Merger Agreement, the Transactions and related matters (the 'Company Stockholder Approval') at a special meeting of the Company's stockholders (the 'Company Stockholder Meeting') and providing such stockholders an opportunity, in accordance with the Company's organizational documents and the Company's initial public offering prospectus, to have their shares of Company common stock redeemed (the 'Redemption'). Clarus agreed to obtain the written consent of its stockholders to approve the Merger Agreement and the Transactions (the 'Clarus Stockholder Approval') promptly after the Registration Statement has become effective.

3

The parties have also agreed to take all action within their power as may be necessary or appropriate such that, effective immediately after the Closing, the Company's board of directors (the 'Post-Closing Board') shall consist of seven directors, which shall be divided into three classes serving staggered three-year terms. Two of the members of the Post-Closing Board will be Joseph Hernandez and Kimberly Murphy (or, if Ms. Murphy is not independent under applicable SEC and Nasdaq rules, such other designee of Mr. Hernandez that does satisfy such requirements), one of whom shall serve as the chairperson of the Post-Closing Board. The other five members of the Post-Closing Board (at least three of whom shall be independent directors) will be designated by Clarus prior to the Closing. In addition, the Company has agreed to adopt an equity incentive plan, as described in the Merger Agreement. The parties also agreed to take all action necessary, so that the individuals serving as the officers of the Company immediately after Closing will be the same individuals as those of Clarus immediately prior to the Closing.

The representations and warranties of the parties terminate as of and do not survive the Closing, and there are no indemnification rights for another party's breach. The covenants and agreements of the parties shall not survive the Closing, except those covenants and agreements to be performed after the Closing which covenants and agreement shall survive until fully performed.

Closing Conditions

The obligations of the parties to complete the Closing are subject to various conditions, including the following mutual conditions of the parties unless waived:

● upon the Closing, after giving effect to the completion of the Redemption, the Company having net tangible assets of at least $5,000,001;
● the effectiveness of the Registration Statement;
● the conditional approval of the Company's initial listing application with Nasdaq in connection with the Transactions; and
● other mutual closing conditions customary for transactions of this type.

The Merger Agreement does not include a minimum cash condition for the Company.

Unless waived by the Company, the obligations of the Company Parties to consummate the Merger are subject to the satisfaction of certain customary conditions (in addition to customary certificates and other closing deliverables), as well as the following:

● certain litigation in which Clarus is involved shall not have been adjudicated or settled, and no offer of settlement shall have been made by Clarus, that would have a Material Adverse Effect on the Company;
● absence of any Material Adverse Effect with respect to Clarus since the date of the Merger Agreement (but excluding a qualifying settlement of certain litigation in which Clarus is involved) which is continuing and uncured;
● each Stockholder Lock-Up Agreement (as described below), Lender Lock-Up Agreement (as described below) and the Registration Rights Agreement (as described below) shall have been executed and delivered;
● Clarus's indebtedness at the Closing shall not exceed $43.125 million and there shall be no obligation of Clarus to make any post-Closing payment in the nature of a royalty; and
● Clarus shall have consummated a 'Permitted Financing' (as described in the Merger Agreement) with gross proceeds to Clarus of at least $15 million.

4

Unless waived by Clarus, the obligations of Clarus to consummate the Merger are subject to the satisfaction of certain customary additional conditions (in addition to customary certificates and other closing deliverables), as well as the following:

● absence of any Material Adverse Effect with respect to the Company since the date of the Merger Agreement which is continuing and uncured;
● the Second Amended and Restated Certificate of Incorporation of the Company shall have been filed and become effective; and
● the Registration Rights Agreement (as described below) shall have been executed and delivered.

Termination

The Merger Agreement may be terminated under certain customary and limited circumstances at any time prior to the Closing, including:

● by mutual written consent of the Company and Clarus;
● by either the Company or Clarus if the Closing has not occurred by October 27, 2021, other than as a result of a breach by the party seeking termination;
● by either the Company or Clarus if a governmental authority of competent jurisdiction shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting, or if any law is in effect making illegal, the transactions contemplated by the Merger Agreement, other than as caused by the breach of the party seeking termination;
● by the Company in the event of an uncured or incurable breach by Clarus that has rendered or would render impossible the satisfaction of any of the conditions to the Company Parties' obligation to close, or upon evidence that the Clarus Stockholder Approval was obtained but was not timely delivered to the Company;
● by Clarus in the event of an uncured or incurable breach by the Company that has rendered or would render impossible the satisfaction of any of the conditions to the Clarus's obligation to close;
● by the Company if there has been an event after the signing of the Merger Agreement that has had a Material Adverse Effect on Clarus (but excluding a qualifying settlement of certain litigation in which Clarus is involved) that is continuing and uncured;
● by Clarus if there has been an event after the signing of the Merger Agreement that has had a Material Adverse Effect on the Company that is continuing and uncured; and
● by either the Company or Clarus if the Company Stockholder Meeting is held and the Company Stockholder Approval is not received.

If the Merger Agreement is validly terminated, all further obligations of the parties under the Merger Agreement will terminate and will be of no further force and effect (except that certain obligations related to confidentiality, dispute resolution, termination, waiver of claims against the trust, and certain general provisions will continue in effect), and no party will have any further liability to any other party thereto except for liability for any willful breach of the Merger Agreement prior to such termination. No termination fee is payable by either party.

5

Governing Law and Arbitration; Trust Account Waiver

The Merger Agreement is governed by Delaware law and, subject to the required arbitration provisions, the parties are subject to the non-exclusive jurisdiction of federal and state courts located in Delaware.

Clarus agreed that it and its affiliates will not have any right, title, interest or claim of any kind in or to any monies in the Company's trust account held for its public stockholders, and agreed not to, and waived any right to, make any claim against the trust account (including any distributions therefrom).

The foregoing description of the Merger Agreement and the Transactions does not purport to be complete and is qualified in its entirety by the terms and conditions of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto and is incorporated herein by reference.

The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of such agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating such agreement. The Merger Agreement has been filed to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Clarus or any other party to the Merger Agreement. In particular, the representations, warranties, covenants and agreements contained in the Merger Agreement, which were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts) and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors and reports and documents filed with the SEC. Investors should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any party to the Merger Agreement. In addition, the representations, warranties, covenants and agreements and other terms of the Merger Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations and warranties and other terms may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company's public disclosures.

Related Agreements

Clarus Support Agreements

Simultaneously with the execution and delivery of the Merger Agreement, certain significant stockholders of Clarus holding in the aggregate approximately 91% of Clarus's outstanding capital stock, including the minimum vote required by each series of Clarus preferred stock, entered into support agreements (each, a 'Clarus Support Agreement') with the Company and Clarus. Under the Clarus Support Agreements, each Clarus stockholder party thereto agreed to vote all of its shares of Clarus capital stock in favor of the Merger Agreement and the Transactions and to otherwise take certain other actions in support of the Merger Agreement, the Transactions and the other matters submitted to Clarus Stockholders for their approval, and provide a proxy to the Company to vote such Clarus capital stock accordingly. The Clarus Support Agreements prohibit transfers of the Clarus Stock held by the Clarus stockholders party thereto between the date of the Clarus Support Agreement and the date of Closing, except for certain permitted transfers where the recipient also agrees to comply with the Clarus Support Agreement.

Sponsor Support Agreement

Simultaneously with the execution and delivery of the Merger Agreement, the Company's sponsor, Blue Water Sponsor LLC (the 'Sponsor') entered into a support agreement (the 'Sponsor Support Agreement') with the Company and Clarus. Under the Sponsor Support Agreement, the Sponsor agreed that it would abide by its undertakings in that certain letter agreement dated December 15, 2020, by and among the Company and its officers, its directors and the Sponsor filed as Exhibit 10.1 on Form 8-K filed on December 21, 2020 (the 'Insider Letter'), including voting its Company shares in favor of the Merger Agreement and the Transactions and not redeeming such shares in connection with the Merger, and that in the event of a transfer of its shares permitted under the Insider Letter, the Sponsor will ensure that the transferee agrees to be bound by the restrictions in the Sponsor Support Agreement. The Sponsor also agreed in connection with the Merger to waive its anti-dilution right pursuant to Article IV, Section 4.3(b)(ii) of the Company's charter. The Company undertook to enforce the Sponsor's obligations under the Insider Letter.

6

Stockholder Lock-Up Agreements

The Merger Agreement provides that at or prior to the Closing, certain significant Clarus stockholders will enter into a lock-up agreement with the Company (each, a 'Stockholder Lock-Up Agreement'). Pursuant to the Lock-Up Agreements, each Clarus stockholder party thereto would agree to a 180-day lock-up of its restricted Company securities following Closing, subject to (i) early release upon certain corporate transactions and (ii) certain limited permitted transfers where the recipient takes the shares subject to the restrictions in the Stockholder Lock-Up Agreement.

Lender Lock-Up Agreements

The Merger Agreement provides that at or prior to the Closing, certain Clarus noteholders (the 'Lenders') will enter into a lock-up agreement with the Company (each, a 'Lender Lock-Up Agreement'). Pursuant to the Lender Lock-Up Agreements, each Lender party thereto would agree to a 180-day lock-up of its restricted Company securities following Closing, subject to (i) early release upon certain corporate transactions, (ii) limited 'leak-out' transfers of restricted securities within specified daily volume caps starting with the 91st day after the Closing and (iii) certain limited permitted transfers where the recipient takes the shares subject to the restrictions in the Lender Lock-Up Agreement.

Registration Rights Agreement

The Merger Agreement provides that at, and as a condition to, the Closing, the Company will enter into a registration rights agreement (the 'Registration Rights Agreement') with the Sponsor and the Clarus Securityholders named therein. Pursuant to the Registration Rights Agreement, the Company would have an obligation to file a registration statement under the Securities Act covering the resale of (i) shares of Company common stock held by the Sponsor or issuable to the Sponsor upon conversion or exercise of other Company securities held by it, and (ii) shares of Company common stock issuable to the Clarus Securityholders party thereto in the Merger. Either the Sponsor or a majority of the Clarus Securityholders party to the Registration Rights Agreement holding registrable securities would be entitled to make a written demand for registration under the Securities Act of all or part of their registrable securities. Subject to certain exceptions, if at any time after the Closing the Company proposes to file a registration statement under the Securities Act with respect to its securities, under the Registration Rights Agreement the Company would be required to give notice to the other parties thereto as to the proposed filing and offer them the opportunity to register the sale of such number of registrable securities as they may request in writing. The Registration Rights Agreement would terminate and supersede that certain registration rights agreement dated December 15, 2020 between the Company and the Sponsor filed as Exhibit 10.3 on Form 8-K filed on December 21, 2020.

The foregoing descriptions of the Clarus Support Agreements, the Sponsor Support Agreement, the Stockholder Lock-up Agreements, the Lender Lock-up Agreements and the Registration Rights Agreement do not purport to be complete and are qualified in their entirety by reference to the complete text of the form of Clarus Support Agreement, the Sponsor Support Agreement, the form of Stockholder Lock-up Agreement, the form of Lender Lock-up Agreement and the form of Registration Rights Agreement, copies of which are filed herewith as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 respectively.

Transaction Support Agreement

In connection with the Merger Agreement, on April 27, 2021, the Company, Clarus, and certain Clarus equityholders and noteholders party thereto entered into a Transaction Support Agreement (the 'Transaction Support Agreement') pursuant to which, among other things, the Clarus securityholders party thereto agreed to provide Clarus with up to $35 million in financing, through the purchase of convertible and non-convertible promissory notes (of which approximately $7.2 million was funded prior to April 27, 2021), and to transfer certain royalty rights to Clarus.

7

The foregoing description of the Transaction Support Amendment does not purport to be complete and is qualified in its entirety by reference to the complete text of the Transaction Support Agreement, a copy of which is filed herewith as Exhibit 10.6.

Underwriting Agreement Amendment

In connection with the Merger Agreement, on April 27, 2021, the Company and Maxim Group LLC ('Maxim'), acting in its capacity as representative to the underwriters under that certain Underwriting Agreement filed as Exhibit 1.1 on Form 8-K filed on December 21, 2020 (the 'Underwriting Agreement'), entered into an amendment to the Underwriting Agreement (the 'Underwriting Agreement Amendment'). Pursuant to the Underwriting Agreement Amendment, Maxim agreed to eliminate, and waive the Company's previous non-compliance with, certain rights of first refusal under the Underwriting Agreement in exchange for an undertaking by the Company, at its option, either to have Maxim participate as an underwriter or placement agent in future financings by the Company or to engage Maxim as its capital markets advisor in connection with future financings, on the terms and conditions set forth in the Underwriting Agreement Amendment. The Company will also pay Maxim a financial advisory fee in connection with the Business Combination.

The foregoing description of the Underwriting Agreement Amendment does not purport to be complete and is qualified in its entirety by reference to the complete text of the Underwriting Agreement Amendment, a copy of which is filed herewith as Exhibit 1.1.

Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.

Description
1.1 Amendment, dated as of April 27, 2021, to Underwriting Agreement, dated as of December 15, 2020, by and between the Company and Maxim Group LLC.
2.1* Agreement and Plan of Merger, dated as of April 27, 2021, by and among the Company, Merger Sub and Clarus.
10.1 Form of Support Agreement, dated as of April 27, 2021, by and among the Company, Clarus and the stockholder of Clarus party thereto.
10.2 Support Agreement, dated as of April 27, 2021, by and among the Company, Clarus and the Sponsor.
10.3 Form of Stockholder Lock-Up Agreement by and between the Company and the stockholder of Clarus party thereto.
10.4 Form of Lender Lock-Up Agreement by and between the Company and the noteholder of Clarus party thereto.
10.5 Form of Registration Rights Agreement by and among the Company, the Sponsor and the Clarus securityholders party thereto.
10.6* Transaction Support Agreement, dated of April 27, 2021 by and among the Company, Clarus and the Clarus securityholders party thereto.
* Certain exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon its request.

8