<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
FEMRX, INC.
(NAME OF SUBJECT COMPANY)
------------------------
FEMRX, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
314463 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
ANDREW M. THOMPSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FEMRX, INC.
1221 INNSBRUCK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 752-8580
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF
OF THE PERSON FILING STATEMENT)
------------------------
COPIES TO:
CRAIG E. DAUCHY, ESQ.
COOLEY GODWARD LLP
3000 SAND HILL ROAD
BUILDING 3, SUITE 230
MENLO PARK, CA 94025-7116
(650) 843-5100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is FemRx, Inc., a Delaware corporation (the
"Company"), and the principal executive offices of the Company are located at
1221 Innsbruck Drive, Sunnyvale, CA 94089. The title of the class of equity
securities to which this Statement relates is the common stock ("Common Stock"),
par value $.001 per share, of the Company. A "Share" means a share of Company
Common Stock.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1, dated October 9, 1998 (the "Schedule 14D-1"), filed
with the Securities and Exchange Commission (the "Commission") by Johnson &
Johnson, a New Jersey corporation ("Parent"), and ET/FM Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Johnson & Johnson (the
"Purchaser"), to purchase all outstanding shares of Company Common Stock at a
price of $2.35 per share (the "Offer Price"), net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated October 9, 1998 (the "Offer to Purchase"), and the related Letter of
Transmittal (which, together with any amendments and supplements thereto,
collectively constitute the "Offer") included in the Schedule 14D-1.
The Offer is being made pursuant to the Agreement and Plan of Merger dated
as of October 3, 1998 (the "Merger Agreement") among Parent, the Purchaser and
the Company, pursuant to which, following the consummation of the Offer and the
satisfaction or waiver of certain conditions, the Purchaser will be merged with
and into the Company, with the Company surviving the merger (as such, the
"Surviving Corporation") as a wholly owned subsidiary of Parent (the "Merger").
On the effective date of the Merger, each outstanding Share not tendered in the
Offer (other than Shares owned by the Company as treasury stock or by Parent,
the Purchaser or any other direct or indirect wholly owned subsidiary of Parent
or by stockholders, if any, who are entitled to and who properly exercise
dissenters' rights under Delaware law or, to the extent applicable, California
law) will be converted into the right to receive the Offer Price in cash,
without interest (the "Merger Consideration").
The Merger is subject to a number of conditions, including approval by
stockholders of the Company, if such approval is required by applicable law, and
Shares having been purchased pursuant to the Offer. In the event the Purchaser
acquires 90% or more of the outstanding Shares pursuant to the Offer or
otherwise, the Purchaser would be able to effect the Merger pursuant to the
short-form merger provisions of the Delaware General Corporation Law (the
"DGCL"), without prior notice to, or any action by, any other stockholder of the
Company. In such event, the Purchaser could, and intends to, effect the Merger
without prior notice to, or any action by, any other stockholder of the Company.
The Purchaser and Parent have entered into Stockholder Agreements dated as
of October 3, 1998 (the "Stockholder Agreements") with the "Stockholders" (as
defined in Item 3 "The Stockholder Agreements"), who beneficially own 5,414,858
Shares in the aggregate, including Shares issuable upon the exercise of options.
Under the Stockholder Agreements, the Stockholders have agreed to sell, and the
Purchaser has agreed to purchase, all Shares beneficially owned by them,
representing approximately 59.1% of the outstanding Shares as of September 30,
1998 (assuming exercise of all options held by the Stockholders) (approximately
51.9% on a fully diluted basis, assuming the exercise of all options and
warrants), as well as any Shares subsequently acquired by the Stockholders
through the exercise of options or otherwise, at a price per Share equal to the
Offer Price. The obligation of the Stockholders to sell, and the obligation of
the Purchaser to purchase, Shares under the Stockholder Agreements are subject
to the Purchaser having accepted Shares for payment under the Offer in
accordance with the Merger Agreement. The Stockholders may, and the Purchaser
may direct the Stockholders to, tender their Shares into the Offer. Any Shares
of the Stockholders not purchased in the Offer will be purchased by the
Purchaser immediately following the purchase of Shares in the Offer. In
addition, the Stockholders have agreed to vote their Shares in favor of the
Merger, the adoption by the Company of the Merger Agreement and the approval of
the terms thereof and each of the other transactions contemplated by the Merger
Agreement, and have agreed to vote against any other acquisition proposal.
1
<PAGE> 3
According to the Schedule 14D-1, the principal executive offices of Parent
and the Purchaser are located at One Johnson & Johnson Plaza, New Brunswick, NJ
08933.
The Merger Agreement and the Stockholder Agreements are further described
in Item 3 hereof.
ITEM 3. IDENTIFY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
there are no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company, its executive officers, directors or affiliates
or (ii) Parent or the Purchaser or any of their respective executive officers,
directors or affiliates.
(i) ARRANGEMENTS WITH THE COMPANY OR ITS EXECUTIVE OFFICERS, DIRECTORS OR
AFFILIATES
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended December 31, 1997,
1996, 1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(1)
--------------------------- ---- --------- -------- ----------
<S> <C> <C> <C> <C>
Andrew M. Thompson................................. 1997 172,464 -- 80,000
President and Chief Executive Officer 1996 150,000 16,500 --
1995 106,714 25,000 --
George M. Savage, M.D. ............................ 1997 172,486 -- 80,000
Senior Vice President, Research and Development 1996 150,000 16,500 --
1995 106,714 25,000 --
Edward W. Unkart................................... 1997 144,357 -- 75,000
Vice President, Finance and Administration, 1996 125,008 11,563 --
Chief Financial Officer and Assistant Secretary 1995(2) -- -- --
Jeffrey J. Christian............................... 1997 155,458 -- 75,000
Vice President, Engineering 1996 142,789 17,325 --
1995(2) -- -- 5,000
Marshall Tsuruda................................... 1997 124,041 -- 110,000
Vice President, Operations 1996(3) -- -- 50,000
1995 -- -- --
</TABLE>
- ---------------
(1) Repriced options treated as new grants.
(2) Messrs. Unkart and Christian were employed by the Company for less than a
full year during the fiscal year ended December 31, 1995 and for that
reason, earned less than $100,000 in compensation from the Company.
(3) Mr. Tsuruda was employed by the Company for less than a full year during the
fiscal year ended December 31, 1996 and for that reason, earned less than
$100,000 in compensation from the Company.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1995 Stock
Option Plan (the "1995 Plan"). The 1995 Plan was adopted by the Board of
Directors in April 1995 and has been amended three times, most recently in March
1997, subject to stockholder approval received in May 1997. Pursuant to the 1995
Plan, the Company may grant incentive and nonstatutory stock options to key
employees, directors of or
2
<PAGE> 4
consultants or advisors to the Company. A total of 1,955,625 shares of Common
Stock is authorized for issuance under the 1995 Plan.
At September 30, 1998, options covering an aggregate of 157,897 shares of
Company Common Stock had been exercised under the 1995 Plan, 1,306,174 shares
were outstanding, and 491,554 shares (plus any shares that might in the future
be returned to the plan as a result of cancellations or expiration of options)
remained available for future grant under the 1995 Plan. During the year ended
December 31, 1997, under the 1995 Plan, the Company granted to all current
executive officers as a group, options to purchase 495,000 shares at exercise
prices ranging from $2.5625 to $3.125 per share and to all employees and
consultants (excluding current executive officers) as a group, options to
purchase 829,000 shares at exercise prices ranging from $2.00 to $4.125 per
share.
The 1995 Plan is administered by the Board of Directors and the
Compensation Committee of the Board of Directors (the "Compensation Committee").
No vesting is required under the 1995 Plan, although it may be imposed by the
Board of Directors. The maximum term of a stock option under the 1995 Plan is 10
years, but if the optionee at the time of grant has voting power over more than
10% of the Company's outstanding capital stock, the maximum term of an incentive
stock option is five years. The exercise price of stock options granted under
the 1995 Plan is determined by the Board of Directors. Options granted under the
1995 Plan are generally non-transferable. The exercise price may be paid in cash
or any other form of consideration that may be acceptable to the Board of
Directors.
Options generally terminate three months after termination of the
optionee's employment or relationship as a consultant or director unless such
termination is caused by the permanent disability or death of the optionee. The
1995 Plan may be amended at any time by the Board of Directors, although certain
amendments would require stockholder approval. The 1995 Plan will terminate in
April 2005, unless earlier terminated by the Board of Directors. Pursuant to the
Merger Agreement, the 1995 Plan will be terminated as of (and contingent upon)
the consummation of the Offer.
In connection with the Offer, options outstanding under the 1995 Plan will
become fully vested as of a date five business days prior to the earliest date
upon which Purchaser can purchase any Company Common Stock pursuant to the Offer
(and contingent upon such purchase) and, upon consummation of the Offer, each
option granted under the 1995 Plan that is outstanding immediately prior to the
consummation of the Offer shall be cancelled concurrently with (and contingent
upon) the consummation of the Offer if not exercised prior to such consummation.
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at
year-end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(4) VALUE AT ASSUMED
---------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM ($)(3)
OPTION EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH)(2) DATE 5%($) 10%($)
---- ----------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Andrew M. Thompson.............. 80,000 6.04% $2.9375 03/02/07 147,790 374,530
George M. Savage, M.D. ......... 80,000 6.04% $2.9375 03/02/07 147,790 374,530
Edward W. Unkart................ 75,000 5.66% $2.9375 03/02/07 138,553 351,122
Jeffrey J. Christian............ 75,000 5.66% $2.9375 03/02/07 138,553 351,122
Marshall Tsuruda................ 60,000 4.53% $2.9375 03/02/07 110,843 280,897
50,000(5) 3.78% $2.5675 03/26/06 75,487 196,093
</TABLE>
- ---------------
(1) Based on an aggregate of 1,324,000 options, including 384,750 repriced
options, granted to employees and directors of the Company in fiscal 1997,
including the Named Executive Officers set forth in the "Summary
Compensation Table" above and directors.
3
<PAGE> 5
(2) The exercise price is equal to the closing price as reported on the Nasdaq
National Market on the last market trading day preceding the date of grant.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years or nine years in the case of options
repriced on March 11, 1997). Stock price appreciation of five percent and
ten percent is assumed pursuant to rules promulgated by the Commission and
does not represent the Company's prediction of its stock price performance.
The potential realizable value at 5% and 10% appreciation is calculated by
assuming that the exercise price appreciates at the indicated rate for the
entire term of the option and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.
(4) Each of the options listed in the table was granted under the 1995 Plan and
was immediately exercisable. The shares purchasable thereunder are subject
to repurchase by the Company at the original exercise price paid per share
upon the optionee's cessation of service prior to vesting in such shares.
The repurchase right lapses and the optionee vests in the shares subject to,
or issued upon exercise of, the options as to 1/8 of the shares on the sixth
month anniversary of the date of grant and in monthly installments
thereafter for 42 months.
(5) Option repriced on March 11, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997, AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Andrew M. Thompson............. -- -- 18,333/61,667 $0/$0
George M. Savage, M.D. ........ -- -- 18,333/61,667 $0/$0
Edward W. Unkart............... -- -- 17,187/57,813 $0/$0
Jeffrey J. Christian........... -- -- 22,187/57,813 $9,453/$0
Marshall Tsuruda............... -- -- 34,583/75,417 $0/$0
</TABLE>
- ---------------
(1) Based on the closing price as reported on the Nasdaq National Market as of
December 31, 1997 ($2.5625), minus the exercise price, multiplied by the
number of shares underlying the option.
EMPLOYEE STOCK PURCHASE PLAN
In January 1996, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 150,000 shares of Common Stock and
amended the Purchase Plan in March 1998, subject to stockholder approval,
increasing the authorized number of shares to 350,000 shares. To date, the
amendment has not been submitted to the stockholders for approval. The Purchase
Plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code. Under the Purchase Plan, the Board of
Directors may authorize participation by eligible employees, including officers,
in periodic offerings following the adoption of the Purchase Plan. The offering
period for any offering will be no more than 27 months.
Employees are generally not eligible to participate unless they are
employed by the Company or an affiliate of the Company for at least 20 hours per
week and are employed by the Company or a subsidiary of the Company designated
by the Board of Directors for at least five months per calendar year. Employees
who participate in an offering can have up to 15% of their earnings withheld and
applied to the purchase of Company Common Stock on specified dates determined by
the Board of Directors. The price of Company Common Stock purchased under the
Purchase Plan will be equal to 85% of the lower of the fair market value of the
Company Common Stock on the commencement date of each offering period or the
relevant purchase date. Employees may end their participation in the offering at
any time during the offering period, and participation ends automatically on
termination of employment with the Company.
4
<PAGE> 6
The Purchase Plan will terminate at the Board's discretion. In connection
with the Offer, as of the date of the consummation of the Offer (and contingent
thereon), the Purchase Plan will terminate. All funds deposited with the Company
in connection with the Purchase Plan will be returned to the respective
participant, without interest, as soon as practicable after the consummation of
the Offer.
401(k) PLAN
In December 1995, the Company adopted an employee savings plan (the "401(k)
Plan") covering the Company's employees who have not elected out of 401(k) Plan
participation. Pursuant to the 401(k) Plan, eligible employees may elect to
reduce their current compensation by up to the lesser of 20% of their annual
compensation or the statutorily prescribed annual limit ($9,500 in 1997) and
have the amount of such reduction contributed to the 401(k) Plan. In addition,
eligible employees may make rollover contributions to the 401(k) Plan from a
tax-qualified retirement plan. The 401(k) Plan is intended to qualify under
Section 401 of the Code so that contributions by employees or by the Company to
the 401(k) Plan, and income earned on the 401(k) Plan contributions, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company, if any, will be deductible by the Company when
made. The trustee under the 401(k) Plan, at the direction of each participant,
invests the 401(k) Plan employee salary deferrals in selected investment
options.
COMPENSATION OF DIRECTORS
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
eligible for reimbursement for their expenses incurred in connection with
attendance at Board and Committee meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option grants
under the 1996 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Internal Revenue Code of 1986, as amended.
Option grants under the Directors' Plan are non-discretionary. Pursuant to
the terms of the Directors' Plan, each non-employee director who was serving on
the date of the Company's initial public offering ("IPO") was granted on such
date an option to purchase 20,000 shares of the Company Common Stock. In
addition, each non-employee director subsequently elected to the Board will
automatically be granted on the date of his or her election to the Board an
option to purchase 20,000 shares of Common Stock (the "Initial Grant"). On the
one year anniversary date of the Company's IPO, or the anniversary date of a
non-employee directors' election to the Board, if such non-employee director was
not serving in such capacity as of the date of the Company's IPO, and each
one-year anniversary thereafter, each member of the Company's Board of Directors
who is not an employee of the Company and has served as a non-employee director
for at least the full six month period prior, is automatically granted an option
to purchase 5,000 shares of Company Common Stock (the "Annual Grant"). No other
options may be granted at any time under the Directors' Plan. The exercise price
of options granted under the Directors' Plan is 100% of the fair market value of
the Common Stock subject to the option on the date of the option grant. The
Initial Grant under the Directors' Plan will generally vest at the rate of 1/48
of the shares monthly. Annual Grants under the Directors' Plan will vest
entirely on, but not before, the first annual anniversary of the Annual Grant.
The term of options granted under the Directors' Plan is ten years.
In connection with the Offer, options outstanding under the Directors' Plan
will become fully vested as of a date five business days prior to the earliest
date upon which Purchaser can purchase any Company Common Stock pursuant to the
Offer (and contingent upon such purchase) and, upon consummation of the Offer,
each outstanding option granted under the Directors' Plan that is outstanding
immediately prior to the consummation of the Offer shall be cancelled
concurrently with (and contingent upon) the consummation of the Offer if not
exercised prior to such consummation.
5
<PAGE> 7
At September 30, 1998, there were 200,000 shares of Company Common Stock
authorized for issuance under the Directors' Plan. During the last fiscal year,
the Company granted options covering an aggregate of 25,000 shares to the
non-employee directors of the Company, at exercise prices ranging from $2.6875
to $3.00 per share. The fair market value of such Common Stock on the date of
grants was $2.6875 and $3.00 per share (based on the closing price as reported
on the Nasdaq National Market for the day preceding the date of grant). As of
September 30, 1998, no options had been exercised under the Directors' Plan.
OPTION REPRICING INFORMATION
On March 3, 1997, the Compensation Committee approved an offer to employees
of the Company to reprice outstanding options granted between January 30, 1996
and December 17, 1996 (the "Repricing Program"). Under the Repricing Program, as
of March 11, 1997, 384,750 options were converted into repriced options with an
exercise price of $2.5625 (based on the closing price as reported on the Nasdaq
National Market on the last market trading day preceding the day of grant). As
consideration for the grant of repriced options, optionees were prohibited from
exercising the repriced options for a period of six months after the date such
repriced options were granted.
The following table sets forth, as to all executive officers of the
Company, certain information concerning the repricing of all such officers'
options since the Company's inception.
OPTION REPRICING SINCE INCEPTION
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES EXERCISE OPTION TERM
UNDERLYING MARKET PRICE OF PRICE AT NEW REMAINING
OPTIONS STOCK AT TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
---- -------- ---------- ---------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Marshall Tsuruda.............. 03/11/97 50,000 $2.5625 $9.000 $2.5625 9 years
Lori Jennings................. 03/11/97 20,000 2.5625 9.375 2.5625 9 years
John Kraczkowski.............. 03/11/97 30,000 2.5625 9.500 2.5625 9 years
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. McLane and Young. The
Compensation Committee makes recommendations concerning salaries and incentive
compensation, awards stock options to employees and consultants under the
Company's stock option plans and otherwise determines compensation levels and
performs such other functions regarding compensation as the Board may delegate.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into indemnity agreements with Kathleen D. LaPorte,
Andrew M. Thompson, George M. Savage, M.D., Gail Gaumer Schulze, Philip M.
Young, Edward W. Unkart and Jeffrey J. Christian. The indemnity agreements
provide that the Company will indemnify against any and all expenses the
director, executive officer or other agent, who incurred such expenses because
of his or her status as a director, executive officer or other agent, to the
fullest extent permitted by the Company's Bylaws and Delaware law.
The Company's Certificate of Incorporation and Bylaws contain certain
provisions relating to the limitation of liability and indemnification of
directors and officers. The Company's Certificate of Incorporation provides that
directors of the Company may not be held personally liable to the Company or its
stockholders for monetary damages for a breach of fiduciary duty, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law (the "DGCL"), relating to prohibited
dividends, distributions and repurchase or redemptions of stock, or (iv) for any
transaction from which the director derives an improper benefit. However, such
limitation does not limit the availability of non-monetary relief in any action
or proceeding against a director.
6
<PAGE> 8
In addition, the Company's Certificate of Incorporation and Bylaws provide that
the Company shall indemnify its directors and officers to the fullest extent
authorized by Delaware law and may also secure insurance on behalf of any
director, officer, employee or agent against any expense liability or loss
arising out of his or her actions in such capacity.
The Merger Agreement provides that through the sixth anniversary of the
Effective Time (as defined in the Merger Agreement), Parent shall maintain in
effect for the benefit of current or former directors and officers of the
Company, the current level and scope of directors' and officers' liability
insurance policies; provided, however, that in no event shall Parent be required
to expend an aggregate amount in excess of $150,000 for such insurance. Parent
also agreed that all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the time of the consummation of
the Offer (including with respect to the transactions contemplated by the Merger
Agreement) existing as of October 3, 1998 or at the time of the consummation of
the Offer in favor of the then current or former directors or officers of the
Company as provided in its Certificate of Incorporation, its Bylaws and
indemnity agreements shall be assumed and performed by the Surviving Corporation
(as defined in the Merger Agreement) in the Merger and shall survive the Merger
and shall continue in full force and effect without amendment, modification or
repeal in accordance with their terms. Such obligations will also be transferred
to certain successors in the event of certain corporate reorganizations, each as
described in the Merger Agreement.
(ii) ARRANGEMENTS WITH PARENT OR THE PURCHASER, OR ANY OF THEIR EXECUTIVE
OFFICERS, DIRECTORS OR AFFILIATES
THE MERGER AGREEMENT
On October 3, 1998, the Company, Parent and Purchaser entered into the
Merger Agreement that, subject to certain conditions, contemplates an
acquisition of the Company by Parent (through Purchaser, a wholly owned
subsidiary of Parent) at a cash price of $2.35 per share. Pursuant to the Merger
Agreement, Parent has agreed, subject to the terms and conditions of the Merger
Agreement, that any shares not acquired by Purchaser pursuant to the Offer will
be converted into the right to receive $2.35 in cash per share in the Merger. A
copy of the Merger Agreement is filed as Exhibit 1 hereto and is incorporated
herein by reference. A summary of the Merger Agreement is provided below.
The Merger Agreement provides that following the satisfaction or waiver of
the conditions described below under "Conditions to the Merger", the Purchaser
will be merged with and into the Company, and each then outstanding Share (other
than Shares owned by the Company as treasury stock or by Parent, the Purchaser
or any other direct or indirect wholly owned subsidiary of Parent or by
stockholders, if any, who are entitled to and who properly exercise dissenters'
rights under Delaware law or, to the extent applicable, California law), will be
converted into the right to receive an amount in cash equal to the Offer Price.
APPROVAL OF THE MERGER. The DGCL requires, among other things, that the
adoption of any plan of merger or consolidation of the Company must be approved
and found advisable by the Board of Directors and generally by the holders of
the Company's outstanding voting securities. The Board of Directors of the
Company has approved the Offer and the Merger; consequently, approval of the
Company's stockholders will be necessary if the "short-form" merger procedure
described below is not available. The CGCL, if applicable, has similar
requirements. The DGCL also provides that if a parent company owns at least 90%
of each class of stock of a subsidiary, the parent company can effect a
short-form merger with that subsidiary without the action of the other
stockholders of the subsidiary. Accordingly, if, as a result of the Offer or
otherwise, the Purchaser acquires or controls the voting power of at least 90%
of the outstanding Shares, the Purchaser could, and intends to, effect the
Merger without prior notice to, or any action by, any other stockholder of the
Company. Similar provisions may apply under California law.
CONDITIONS TO THE MERGER. The Merger Agreement provides that the Merger is
subject to the satisfaction or waiver of certain conditions, including the
following: (i) if required by applicable law, the Merger Agreement having been
approved and adopted by the holders of a majority of the Shares; provided that
Parent and the Purchaser shall vote all their Shares in favor of the Merger;
(ii) no statute, rule, decision, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other governmental entity or other legal
restraint or
7
<PAGE> 9
prohibition preventing the consummation of the Merger being in effect; provided,
however, that the party seeking to invoke such condition shall have performed
its obligations regarding reasonable efforts and cooperation under the Merger
Agreement; and (iii) Purchaser having previously accepted for payment and paid
for Shares pursuant to the Offer.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be
terminated at any time prior to the effective time of the Merger (the "Effective
Time"), whether before or after approval by the stockholders of the Company, (i)
by mutual written consent of the Company and Parent, (ii) by either the Company
or Parent if (a) as the result of the failure of any of the conditions set forth
below under "Certain Conditions of the Offer," the Purchaser terminates the
Offer in accordance with its terms without having purchased any Shares pursuant
to the Offer, unless the failure of such condition results from the failure by
the party seeking to terminate to fulfill its obligations under the Merger
Agreement; or (b) if any Federal, state or local government or any court,
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency, domestic, foreign or supranational (a
"Governmental Entity"), shall have issued an order, decree or ruling or taken
any action permanently enjoining, restraining or otherwise prohibiting the
acceptance for payment of, or payment for, Shares pursuant to the Offer or the
Merger and such order, decree or ruling or other action has become final and
nonappealable; provided, however, that the party seeking to terminate the Merger
Agreement pursuant to such provision shall have complied with its obligations
regarding reasonable efforts and cooperation under the Merger Agreement, (iii)
by the Company, if (a) the Company has given Parent a Notice of Superior
Proposal with respect to a Takeover Proposal, (b) at least five business days
later the Board of Directors of the Company determines in good faith (based on
the written opinion of WDR or another nationally recognized financial advisor,
which opinion takes into account all the terms and conditions of the Takeover
Proposal, including any break-up fees, expense reimbursement provisions and
conditions to consummation), that the terms of such Takeover Proposal are not
more favorable to the person making such Takeover Proposal and provide greater
present value to all the Company's stockholders than the Merger Agreement, the
Offer and the Merger in light of any improved terms proposed by Parent or the
Purchaser prior to the expiration of such five business day period and (c) the
Company shall have paid to Parent a termination fee of $880,000 (the
"Termination Fee"), (iv) by Parent or the Purchaser prior to the Purchaser's
obligation to accept Shares for payment pursuant to the Offer, in the event of a
breach by the Company of any representation, warranty, covenant or other
agreement contained in the Merger Agreement which (I) would give rise to the
failure of a condition set forth in paragraph (d) or (e) below under "Certain
Conditions of the Offer" and (II) cannot be or has not been cured within 20 days
after the giving of written notice to the Company, (v) by the Company if Parent
or the Purchaser shall have (a) failed to commence the Offer within five
business days of the public announcement of the Merger Agreement, (b) failed to
pay for Shares pursuant to the Offer in accordance with the terms of the Merger
Agreement or (c) breached in any material respect any of their respective
representations, warranties, covenants or other agreements contained in the
Merger Agreement, which breach in respect of clause (c) is incapable of being
cured or has not been cured within 20 days after the giving of written notice to
Parent or the Purchaser, except in any case under clause (c), such breaches
which individually or in the aggregate are not reasonably likely to affect
adversely Parent's or the Purchaser's ability to complete the Offer or the
Merger, (vi) by Parent if (a) Parent shall not have materially breached the
Merger Agreement and (b) the Company's Board of Directors shall have failed to
recommend that the Company's stockholders accept the Offer or withdraws or
amends, in a manner materially adverse to Parent, its recommendation that the
Company's stockholders accept the Offer, or recommends acceptance of any
Superior Proposal or (vii) by the Company if the Offer has not been consummated
by December 30, 1998.
TAKEOVER PROPOSALS. The Merger Agreement provides that the Company shall
not, and shall not authorize or permit any of its subsidiaries, or any of its or
their officers, directors or employees to, and shall use its reasonable efforts
to cause any investment banker, financial advisor, attorney, accountant or other
representative of the Company or of any of its subsidiaries not to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), 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 Takeover Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal. If, however, prior
to acceptance for payment of Shares pursuant to the Offer an unsolicited
Takeover Proposal is
8
<PAGE> 10
made and the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that failure to do so would be inconsistent
with its fiduciary duties to the Company's stockholders under applicable law,
after written notice to Parent, and subject to its obligations to keep Parent
informed (consistent with the fiduciary obligations of the Company's Board of
Directors), the Company may furnish information with respect to the Company
pursuant to a confidentiality agreement to the person making such unsolicited
Takeover Proposal and participate in discussions or negotiations regarding such
Takeover Proposal. The Merger Agreement defines "Takeover Proposal" as any
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of 50% or more of the assets of the Company and its subsidiaries,
taken as a whole, or 50% or more of any class of outstanding equity securities
of the Company or any of its subsidiaries, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 50% or more
of any class of equity securities of the Company or any of its subsidiaries or
any merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement.
The Merger Agreement provides further that neither the Board of Directors
of the Company nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by such Board of Directors or any such committee of the Merger
Agreement, the Offer or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Takeover Proposal or (iii) cause the Company to enter
into any letter of intent, agreement in principle, acquisition agreement or
other agreement (an "Acquisition Agreement") with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to the
acceptance for payment of Shares pursuant to the Offer, the Board of Directors
of the Company determines in good faith, after consultation with outside
counsel, that failure to do so would be inconsistent with its fiduciary duties
to the Company's stockholders under applicable law, the Board of Directors of
the Company may withdraw or modify its adoption, approval or recommendation of
the Merger Agreement, the Offer and the Merger at any time following Parent's
receipt of a Notice of Superior Proposal. A "Notice of Superior Proposal" is a
written notice advising Parent that the Board of Directors of the Company has
received a Superior Proposal. A "Superior Proposal" is a bona fide Takeover
Proposal for all outstanding Shares on terms that the Board of Directors of the
Company determines in its good faith judgment (based on the written opinion of
WDR or another nationally recognized financial advisor, which opinion takes into
account all the terms and conditions of the Takeover Proposal, including any
break-up fees, expense reimbursement provisions and conditions to consummation)
are not more favorable to the person making such Takeover Proposal and provide
greater present value to all the Company's stockholders than the Offer, the
Merger and the Merger Agreement.
In addition to the obligations of the Company set forth in the preceding
paragraphs, the Merger Agreement provides that the Company shall immediately
advise Parent orally and in writing of any Takeover Proposal, any request for
information concerning the Company or its subsidiaries in relation to or any
inquiry regarding the making of a Takeover Proposal and, unless to do so would
be inconsistent with the fiduciary duties of the Board of Directors of the
Company, the material terms and conditions of such Takeover Proposal, request
for information or inquiry and the identity of the person making any such
Takeover Proposal, request for information or inquiry. The Company is further
required under the terms of the Merger Agreement to keep Parent fully informed
of the status and, unless to do so would be inconsistent with the fiduciary
duties of the Board of Directors of the Company, the material terms (including
amendments or proposed amendments) of any such Takeover Proposal, request for
information or inquiry.
The Merger Agreement provides that nothing contained in these provisions
shall prohibit the Company from taking and disclosing to its stockholders a
position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to the Company's stockholders if the
Board of Directors of the Company determines in good faith, after consultation
with outside counsel, that failure to so disclose would be inconsistent with its
fiduciary duties to the Company's stockholders under applicable law; provided
that, except as provided above, neither the Company nor the Board of Directors
nor any committee thereof shall withdraw or modify, or propose to withdraw or
modify, its position with respect to
9
<PAGE> 11
the Merger Agreement, the Offer or the Merger or approve or recommend, or
propose to approve or recommend, a Takeover Proposal.
FEES AND EXPENSES; TERMINATION FEE. All fees and expenses incurred in
connection with the Merger Agreement, the Offer and the Merger and the
transactions contemplated by the Merger Agreement will be paid by the party
incurring such fees or expenses, whether or not the Offer or the Merger is
consummated. If, however, Parent or the Purchaser terminates the Merger
Agreement as a result of a breach by the Company of certain provisions relating
to Takeover Proposals, or the Company terminates the Merger Agreement in
accordance with the provisions relating to Takeover Proposals, the Company is
required to pay to Parent a Termination Fee of $880,000 as liquidated damages,
which the parties have agreed is a reasonable estimate of the costs and expenses
that would be incurred by Parent and the Purchaser if the transactions
contemplated by the Merger Agreement were not to go forward as a result of such
breach.
CONDUCT OF BUSINESS BY THE COMPANY. The Merger Agreement provides that
during the term of the Merger Agreement, except as otherwise provided by the
Merger Agreement or to the extent that Parent shall consent in writing, the
Company shall, and shall cause each of its subsidiaries to, carry on its
business in the ordinary course consistent with past practice and use reasonable
efforts to preserve intact its current business organization, keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers, licensors, licensees, distributors and others having
significant business dealings with it. The Merger Agreement further provides
that the Company shall not, and shall not permit any of its subsidiaries to,
(except as otherwise permitted by the Merger Agreement or to the extent Parent
consents in writing) (i) other than dividends and distributions by a direct or
indirect wholly owned subsidiary of the Company to its parent (a) declare, set
aside or pay any dividends on, or make any other distributions in respect of,
any of its capital stock, (b) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (c) purchase,
redeem or otherwise acquire any shares of its capital stock or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than the issuance of
shares of Company Common Stock upon the exercise of Company Stock Options (as
defined below under "Stock Options") outstanding on the date of the Merger
Agreement in accordance with their present terms); (iii) amend its certificate
of incorporation or by-laws; (iv) acquire or agree to acquire (a) by merging or
consolidating with, or by purchasing a substantial portion of the assets or any
stock of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof or
(b) any assets that are material, individually or in the aggregate, to the
Company except purchases of inventory in the ordinary course of business
consistent with past practice; (v) sell, lease, license, mortgage or otherwise
encumber or subject to any lien or otherwise dispose of any of its properties or
assets, except sales of inventory or sales or licenses of immaterial assets, in
each case in the ordinary course of business consistent with past practice; (vi)
(a) except for the Credit Facility defined below in "Credit Facility" and the
credit line referred to in paragraph (h) of "Certain Conditions of the Offer",
incur or suffer to exist any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any of
its subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing or (b) make any loans, advances or capital contributions
to, or investments in, any other person; (vii) make or agree to make any capital
expenditure or expenditures with respect to property, plant or equipment in
excess of $25,000 in the aggregate; (viii) make any material tax election or
settle or compromise any material income tax liability or make any change in
accounting methods, principles or practices except as required by a change in
generally accepted accounting principles; (ix) pay, discharge, settle or satisfy
any material claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of the Company included in any report of the Company filed
with the Commission and publicly available prior to the
10
<PAGE> 12
date of the Merger Agreement or incurred thereafter in the ordinary course of
business consistent with past practice, or waive any material benefits of, or
agree to modify in any material respect, any confidentiality, standstill or
similar agreement to which the Company or any of its subsidiaries is a party;
(x) except in the ordinary course of business, modify, amend or terminate any
material contract or agreement to which the Company or any of its subsidiaries
is a party or knowingly waive, release or assign any material rights or claims;
(xi) enter into any material contracts or agreements relating to the
distribution, sale or marketing by third parties of the products of, or products
licensed by, the Company or any of its subsidiaries; (xii) except as required to
comply with applicable law or agreements, plans or arrangements existing on the
date of the Merger Agreement, (a) adopt, enter into, terminate or amend any
employment agreement or benefit plan or other arrangement for the benefit or
welfare of any director, officer or current or former employee, (b) increase in
any material manner the compensation or fringe benefits of, or pay any bonus to,
any director, officer or key employee, (c) pay any material benefit not provided
for under any benefit plan, (d) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan (including
the grant of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreement or awards made
thereunder) or (e) take any action other than in the ordinary course of business
to fund or in any other way secure the payment of compensation or benefits under
any employee plan, agreement, contract or arrangement or benefit plan; or (xiii)
authorize any of, or commit or agree to take any of, the foregoing actions.
Pursuant to the Merger Agreement, neither the Company nor any of its
subsidiaries, on the one hand, nor Parent or the Purchaser on the other shall
take any action that would reasonably be expected to result in (i) any of the
representations and warranties of the Company, on the one hand, or of Parent or
the Purchaser on the other hand, set forth in the Merger Agreement that are
qualified as to materiality becoming inaccurate, which inaccuracy would have a
Material Adverse Effect (as defined below) on the Company, (ii) any of such
representations and warranties that are not so qualified becoming inaccurate in
any material respect, which inaccuracy would have a Material Adverse Effect on
the Company, or (iii) except as otherwise permitted with respect to Takeover
Proposals, any of the conditions to the Offer or to the Merger not being
satisfied. "Material Adverse Effect" means any effect that is materially adverse
to the business, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole, or would prevent or materially delay the
consummation of the Offer or the Merger; provided, however, that in determining
whether there has been a Material Adverse Effect, the following shall be
disregarded: any material adverse effect that results substantially from (i) the
taking of any action required by the Merger Agreement, (ii) the breach by Parent
of the Merger Agreement, (iii) the announcement or pendency of the Offer, the
Merger or any of the transactions contemplated by the Merger Agreement or (iv)
any decline in the Company's stock price (which shall not in itself constitute a
Material Adverse Effect).
BOARD OF DIRECTORS; MANAGEMENT. Promptly upon the acceptance for payment
of, and payment for, any Shares by the Purchaser pursuant to the Offer, the
number of directors on the Board of Directors of the Company will be reduced to
five and the Purchaser will be entitled to designate three of such directors.
Therefore, the Purchaser, subject to compliance with Section 14(f) of the
Exchange Act, will control a majority of such directors. The Merger Agreement
requires the Company and its Board of Directors to take all such action needed
to cause the Purchaser's designees to be appointed to the Company's Board of
Directors. Subject to applicable law, the Company must take all action requested
by Parent necessary to effect any such election, including mailing to its
stockholders the Information Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The
Company has agreed to make such mailing with the mailing of the Schedule 14D-9.
The Merger Agreement provides that the directors of the Purchaser immediately
prior to the Merger will be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
STOCK OPTIONS. The Merger Agreement provides that, as soon as practicable
after the date of the Merger Agreement, the Board of Directors of the Company
(or, if appropriate, any committee administering the Company stock option plan)
will adopt such resolutions and take such other actions as may be required to
11
<PAGE> 13
adjust the terms of each outstanding option to purchase Shares listed on a
schedule provided to Parent to provide that (i) five business days prior to the
earliest date on which the Purchaser can purchase any Shares pursuant to the
Offer (and contingent upon such purchase), such option shall vest and become
exercisable in full, (ii) upon consummation of the Offer each outstanding option
to purchase Shares (a "Company Stock Option") granted under any stock option,
stock appreciation right, stock purchase program or arrangement of the Company
(other than the Purchase Plan that is outstanding immediately prior to the
consummation of the Offer, whether or not then exercisable, shall be canceled
concurrently with (and contingent upon) the consummation of the Offer. The
Company (or, if appropriate, the Board of Directors or any committee
administering the stock option plans) will take actions such that immediately
prior to the Effective Time the Company Stock Options set forth in a schedule
provided to Parent are canceled as set forth above. The Merger Agreement
provides that the Company shall not make, or agree to make, any payment of any
kind to any holder of a Company Stock Option without the consent of Parent.
As of the date of the consummation of the Offer (and contingent thereon),
the Purchase Plan will terminate. All funds deposited with the Company in
connection with the Purchase Plan will be returned to the respective
participant, without interest, as soon as practicable after the consummation of
the Offer. Prior to the consummation of the Offer, the Company will take all
actions (including, if appropriate, amending the terms of the Purchase Plan)
that are necessary to give effect to the transactions contemplated by this
paragraph.
Subject to the second preceding paragraph, all stock option plans will
terminate as of the Effective Time and the provisions in any other benefit plan
providing for the issuance, transfer or grant of any capital stock of the
Company or any interest in respect of any capital stock of the Company will be
deleted as of the Effective Time. The Company shall ensure that following the
consummation of the Offer no holder of a Company Stock Option or any participant
in any stock option plan will have any right thereunder to acquire any capital
stock of the Company, Parent or the Surviving Corporation, and the Company will
use its reasonable best efforts to ensure that following the Effective Time, no
holder of a Company Stock Option set forth on the schedule provided to Parent or
any participant in any stock option plan will have any right thereunder to
acquire any capital stock of the Company, Parent or the Surviving Corporation.
CREDIT FACILITY. The Merger Agreement provides that the Purchaser will
establish a credit facility (the "Credit Facility") to provide loans to the
Company in an aggregate amount of up to $3.5 million for working capital needs
from the date of the Merger Agreement to the date on which the Stockholder
Agreements terminate pursuant to their terms. The Company may require advances
of up to $250,000 every two weeks commencing on November 2, 1998. The aggregate
principal amount of all such advances will be payable to the Purchaser in cash
on December 31, 1999. Interest will accrue at a rate equal to the prime rate
plus two percent. Interest will be payable quarterly beginning April 1, 1999.
The advances and accrued interest will be secured by a first priority security
interest in all of the Company's patents.
INDEMNIFICATION, EXCULPATION AND INSURANCE. Through the sixth anniversary
of the Effective Time, Parent will maintain in effect for the benefit of current
or former directors and officers of the Company, the current level and scope of
directors' and officers' liability insurance policies. In no event, however,
will Parent be required to expend an aggregate amount in excess of $150,000 for
such insurance. If the aggregate premium payable for such insurance coverage
exceeds this amount, Parent will obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
Parent has agreed in the Merger Agreement that all rights to
indemnification and exculpation (including the advancement of expenses) from
liabilities for acts or omissions occurring at or prior to the time of
consummation of the Offer (including with respect to the transactions
contemplated by the Merger Agreement) existing now or at the time of
consummation of the Offer in favor of the current or former directors or
officers of the Company as provided in its certificate of incorporation, its
by-laws (each as in effect on the date of the Merger Agreement) and
indemnification agreements shall be assumed by the Surviving Corporation in the
Merger, without further action, as of the time of consummation of the Offer and
shall survive the Merger and shall continue in full force and effect without
amendment, modification or repeal in accordance with their terms; provided,
however, that if any claims are asserted or made during the continuance
12
<PAGE> 14
of such terms, all rights to indemnification (and to advancement of expenses)
hereunder in respect of any such claims shall continue, without diminution,
until disposition of any and all such claims.
The Merger Agreement provides that in the event Parent, the Surviving
Corporation or any of their successors or assigns (i) consolidates with or
merges into any other person and will not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then and in each
such case, proper provisions shall be made so that the successors and assigns of
Parent or the Surviving Corporation, as the case may be, shall expressly assume
the obligations set forth in the preceding paragraphs. The Merger Agreement also
provides that, in the event the Surviving Corporation transfers any material
portion of its assets, in a single transaction or in a series of transactions,
Parent will either guarantee the indemnification obligations set forth in the
second preceding paragraph or take such other action to ensure that the ability
of the Surviving Corporation to satisfy such indemnification obligations will
not be diminished in any material respect.
REASONABLE EFFORTS. The Merger Agreement provides that, on the terms and
subject to the conditions of the Merger Agreement, unless, to the extent
permitted under the Merger Agreement, the Board of Directors of the Company
approves or recommends a Superior Proposal, each of the parties will use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Offer and the Merger and the other
transactions contemplated by the Merger Agreement.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties.
PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. The Merger
Agreement provides that in the event the Purchaser's designees are appointed or
elected to the Board of Directors of the Company as described above under "Board
of Directors", after the acceptance for payment of Shares pursuant to the Offer
and prior to the Effective Time of the Merger, the affirmative vote of a
majority of the directors of the Company not designated by Parent or the
Purchaser is required for the Company to amend or terminate the Merger
Agreement, exercise or waive any of its rights or remedies under the Merger
Agreement, extend the time for performance of the Purchaser's and Parent's
respective obligations under the Merger Agreement or take any action to amend or
otherwise modify the Company's certificate of incorporation or by-laws.
CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other term of the
Offer or the Merger Agreement, the Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares after the termination or
withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer
unless the number of Shares tendered and not withdrawn not later than the date
of expiration of the Offer, shall equal at least 90% of the Fully Diluted Shares
(defined below) (such number of Shares, the "Minimum Tender Condition"). For
purposes of the Merger Agreement: (i) "Fully Diluted Shares" shall mean all
outstanding securities entitled generally to vote in the election of directors
of the Company after giving effect to the exercise or conversion of all options,
rights and securities exercisable or convertible into such voting securities
with exercise or conversion prices at or below the Offer Price, and (ii) both
"Shares tendered" and "Fully Diluted Shares" shall include those shares that
would be received upon the exercise of stock options contingently tendered to
the Offer. Furthermore, notwithstanding any other term of the Offer, the
Purchaser shall not be required to accept for payment or, subject as aforesaid,
to pay for any Shares not theretofore accepted for payment or paid for, and may
terminate the Offer if, at any time on or after the date of the Merger Agreement
and before the acceptance of such Shares for payment or the payment therefor,
any of the following conditions exist:
(a) there shall be issued by any U.S. Federal or state court of
competent jurisdiction in connection with any legal proceeding, any order
or ruling (that has not been vacated, withdrawn or overturned), (i)
restraining or prohibiting the acquisition by Parent or the Purchaser of
any Shares under the Offer or pursuant to the Stockholder Agreements or the
making or consummation of the Offer or the Merger or the performance of any
of the other transactions contemplated by the Merger Agreement or the
13
<PAGE> 15
Stockholder Agreements, or obtaining from the Company, Parent or the
Purchaser any damages in connection with the aforesaid transactions that
are material in relation to the Company and its subsidiaries taken as a
whole, (ii) prohibiting or materially limiting the ownership or operation
by the Company, Parent or any of their respective subsidiaries of a
material portion of the business or assets of the Company and its
subsidiaries, or Parent and its subsidiaries, in each case taken as a
whole, or compelling the Company or Parent to dispose of or hold separate
any material portion of the business or assets of the Company and its
subsidiaries, or Parent and its subsidiaries, in each case taken as a
whole, as a result of the Offer or any of the other transactions
contemplated by the Merger Agreement or the Stockholder Agreements, (iii)
seeking to impose material limitations on the ability of Parent or the
Purchaser to acquire or hold, or exercise full rights of ownership of, any
Shares to be accepted for payment pursuant to the Offer including, without
limitation, the right to vote such Shares on all matters properly presented
to the stockholders of the Company, or (iv) prohibiting Parent or any of
its subsidiaries from effectively controlling in any material respect any
significant portion of the business or operations of the Company and its
subsidiaries taken as a whole;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
Governmental Entity or court that results, directly or indirectly, in any
of the consequences referred to in clauses (i) through (iv) of paragraph
(a) above;
(c) there shall have occurred any Material Adverse Change with respect
to the Company ("Material Adverse Change" means any change that is
reasonably likely to have a Material Adverse Effect);
(d)(i) the Board of Directors of the Company or any committee thereof
shall have (A) withdrawn or modified in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, the Merger or the
Merger Agreement or (B) approved or recommended any Takeover Proposal, (ii)
the Company shall have entered into any agreement with respect to any
Takeover Proposal or (iii) the Board of Directors of the Company or any
committee thereof shall have resolved to do any of the foregoing;
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality shall not be
true and correct or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case at the date of the Merger Agreement and at the scheduled or extended
expiration of the Offer (except to the extent that any such representation
or warranty refers to specifically to another date, in which case such
representation or warranty shall be accurate as of such other date) and,
individually or in the aggregate, such untruth or incorrectness has a
Material Adverse Effect on the Company;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Merger Agreement, which failure to perform or
comply is not substantially cured within 15 days after Parent provide the
Company with notice of such failure;
(g) the Merger Agreement shall have been terminated in accordance with
its terms; or
(h) the Company shall have any debt for borrowed money other than as
permitted under the Credit Facility of the Merger Agreement or under the
Company's lease line of credit in an aggregate amount not exceeding Three
Hundred Thousand Dollars ($300,000.00).
which, in the reasonable judgment of Parent or the Purchaser in any such case
makes it inadvisable to proceed with such acceptance for payment or payments
therefor.
The foregoing conditions in paragraphs (a) through (h) are for the sole
benefit of the Purchaser and Parent and may, subject to the terms of the Merger
Agreement, be waived by the Purchaser and Parent in whole or in part at any time
and from time to time in their sole discretion. The failure by Parent or the
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver
14
<PAGE> 16
with respect to any other facts and circumstances and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
THE STOCKHOLDER AGREEMENTS
On October 3, 1998, Parent and Purchaser entered into Stockholder
Agreements with Andrew M. Thompson, Andrew M. Thompson and Sylvia Astrid Kistler
Thompson TTEES Thompson Family Trust U/A DTD 04/22/93, Savage-Thompson
Management, George M. Savage, M.D., George M. Savage and Nancy Savage, Trustees
of the George and Nancy Savage Living Trust, Edward W. Unkart, Edward W. Unkart
and Michele T. Takei, Trustees of the Takei Unkart Family Trust U/D/A/ August
26, 1987, Kresch Medical Research, L.L.C., Sprout Capital VII, L.P., Sprout
Capital VI, L.P., DLJ Capital Corporation, U.S. Venture Partners IV, L.P.,
Second Ventures II, L.P., USVP Entrepreneur Partners II, L.P., Brinson Venture
Capital Fund III, L.P. and Brinson Trust Company as Trustee of the Brinson MAP
Venture Capital Fund III (collectively, the "Stockholders"). The form of
Stockholder Agreement executed by each Stockholder is filed as Exhibit 2 hereto
and is incorporated herein by reference. A summary of the Stockholder Agreements
is provided below.
The Stockholder Agreements provide that each Stockholder will sell, and the
Purchaser will purchase, all Shares beneficially owned by such Stockholder, at a
price per Share equal to $2.35. The obligation of the Stockholders to sell, and
the obligation of the Purchaser to purchase, Shares under the Stockholder
Agreements are subject to the Purchaser having accepted Shares for payment under
the Offer in accordance with the Merger Agreement. The Stockholders may, and the
Purchaser may direct the Stockholders to, tender their Shares into the Offer.
Any Shares of the Stockholders not purchased in the Offer will be purchased by
the Purchaser immediately following the purchase of Shares in the Offer. The
Stockholders are not required to tender their Shares in the event of any
amendment to the Merger Agreement that creates any additional condition to the
Offer, reduces the Offer Price or otherwise adversely affects the Stockholders
without the written approval of the Stockholders.
Each of the Stockholders has agreed, among other things, not to: (i) sell,
transfer, give, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer") or consent to any Transfer of, any or all of such
Shares or any interest therein, or enter into any contract, option or other
arrangement (including any profit sharing arrangement) with respect to the
Transfer of the Shares to any person other than pursuant to the terms of the
Offer or the Merger; (ii) enter into any voting arrangement, whether by proxy,
voting agreement or otherwise, in connection with, directly or indirectly, any
Takeover Proposal; (iii) directly or indirectly solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate any inquiries or proposals that constitute, or may reasonably be
expected to lead to, any Takeover Proposal; or (iv) directly or indirectly
participate in any discussions or negotiations regarding any Takeover Proposal.
The provisions described in clauses (iii) and (iv) of the previous sentence will
not, however, prohibit an individual Stockholder, or any partner, stockholder,
officer or affiliate of a Stockholder that is a legal entity, who is a director
of the Company from performing his or her legally required fiduciary duties as a
director of the Company as permitted or required under the Merger Agreement.
Each of the Stockholders has also agreed that at any meeting of
stockholders of the Company in which a vote, consent or other approval
(including by written consent) with respect to the Merger and the Merger
Agreement is sought, the Stockholders will vote (or cause to be voted) their
Shares in favor of the Merger, the adoption of the Merger Agreement and the
other transactions contemplated thereby. Each Stockholder Agreement includes an
irrevocable proxy provision for the benefit of the Purchaser with respect to the
Shares owned by each Stockholder, to vote such Shares at any meeting of
stockholders of the Company or at any adjournment thereof or in any other
circumstances upon which a stockholders' vote, consent or other approval is
sought, against (x) any Takeover Proposal or (y) any amendment of the Company's
certificate of incorporation or by-laws or other proposal or transaction
involving the Company, which amendment or other proposal or transaction would be
reasonably likely to impede, frustrate, prevent, delay or nullify the Offer, the
Merger, the Merger Agreement or any of the other transactions contemplated by
the Merger Agreement.
15
<PAGE> 17
In the event the Merger Agreement is terminated by the Company pursuant to
the provisions regarding Takeover Proposals or because the Offer has not been
consummated by December 29, 1998, the Stockholder Agreements will terminate 120
days after the termination of the Merger Agreement (unless the Purchaser ceases
to fulfill its obligations regarding the Credit Facility, in which case the
Stockholder Agreements will terminate five days after such cessation). If the
Merger Agreement otherwise terminates, the Stockholder Agreements will terminate
five days after such termination.
THE EMPLOYMENT AGREEMENTS
Pursuant to a letter dated October 1, 1998 (the "Thompson Employment
Letter"), Andrew M. Thompson, an officer and director of the Company, has agreed
to assist in the transition and integration of the Company with Ethicon, Inc., a
wholly owned subsidiary of Parent ("Ethicon"). The duration of Mr. Thompson's
commitment will be determined as integration plans are finalized. Ethicon,
however, has committed to six months compensation at Mr. Thompson's current
salary. A copy of the Thompson Employment Letter is filed as Exhibit 3 hereto
and is incorporated herein by reference.
Pursuant to a letter dated October 1, 1998 (the "Savage Employment
Letter"), George M. Savage, M.D., an officer and director of the Company, has
agreed to assist Ethicon in the transition and integration of the Company with
Ethicon. Pursuant to the arrangement, Dr. Savage agreed in principle to provide
six months of continued service beyond the consummation of the Offer. The letter
also contains a request by Ethicon that Dr. Savage commit to employment at least
through June 30, 2000. The Savage Employment Letter is to be replaced by a more
detailed agreement within one month of October 1, 1998. A copy of the Savage
Employment Letter is filed as Exhibit 4 hereto and is incorporated herein by
reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) and (b) See below.
Background.
Since the Company's IPO in March 1996, the Company has been active in
seeking out and reviewing opportunities to either acquire complementary
businesses or develop strategic marketing partnerships. The Company's Board of
Directors and senior management believed that increased consolidation in its
business was likely, providing larger companies with a strategic advantage.
From the second half of 1996 through the end of 1997, the Company had
numerous discussions with potential partners. During this period the Company
financed its operations largely from the proceeds of the Company's IPO, as
efforts were made to increase sales of its products. Because sales growth was
not increasing at a rate sufficient to fund ongoing operations, by the summer of
1997, Company management began to explore financing alternatives, including
public and private offerings of equity. By the summer of 1997, however, the
medical device sector was beginning to experience widespread market volatility,
making certain financing alternatives more difficult. The stock prices of
smaller medical device companies, such as the Company, were particularly hard
hit by the difficult market conditions. Company management also anticipated that
scale issues would become increasingly difficult to manage.
Concurrent with the preparation of its 1998 operating plan in late 1997,
Company management determined that it would require substantial additional
capital to fund its operations, continue research and development programs and
market its products.
In December 1997, the Company engaged WDR to explore alternatives for the
Company, including either a sale of the Company or the establishment of a
strategic partnership. Company management and WDR identified 13 potential
partners/acquirers and contacted each party to determine their levels of
interest. During the first quarter of 1998, Company management and WDR met with
seven parties to provide management presentations and sent a copy of the
management presentation to an eighth party.
Concurrent with efforts to sell the Company or establish a strategic
partnership, the Company pursued other financing alternatives. During the first
and second quarters of 1998, a number of financing sources were
16
<PAGE> 18
contacted, and proposals were obtained from five parties. Four of the parties
were either unable to provide sufficient financing to fund the Company's
business plan or could not deliver the funds in a timely fashion. The fifth
party provided a term sheet for a debt financing that was considered to be
unacceptable because of the extreme dilution to existing stockholders, coupled
with onerous repayment terms of the debt.
One of the parties contacted in connection with a possible sale of the
Company was Ethicon. On April 20, 1998, Ettore Carino, Director New Business
Development of Ethicon, and Susan E. Morano, Associate Director New Business
Development of Ethicon, contacted Andrew M. Thompson, President and Chief
Executive Officer of the Company, to discuss Ethicon's interest in a potential
collaborative relationship with the Company.
On April 30, 1998, Mr. Thompson and George M. Savage, M.D., Senior Vice
President of Research and Development of the Company, met in Somerville, New
Jersey with Mr. Carino, Ms. Morano, Chao Chen, Director of Product Development
of Ethicon, Henry Esparza, Vice President of Sales and Marketing of Ethicon,
Glenn Foy, Director of Marketing of Ethicon, Ron Galovich, Director of Marketing
of Ethicon and James R. Gray, Associate Director, Corporate Finance, of WDR.
Representatives of the Company presented an overview of the Company, its
products and its development pipeline.
Despite significant efforts on the part of WDR and the Company management
team to sell the Company or establish a strategic partnership, no preliminary
indications of interest were received in regard thereto. WDR contacted all
parties, including Ethicon, to encourage them to make an offer, but each party
declined. Company management and WDR continued to have discussions with certain
previously contacted parties after a deadline established for preliminary
indications of interest, but no offer was received.
During the time that the Company was attempting to find either a strategic
partner/acquirer or another source of financing, it continued to experience
challenges in commercializing its products and achieving satisfactory levels of
market acceptance. As a result, it needed to conserve cash and raise additional
financing. During the first quarter of 1998, the Company refocused its
organization to reduce costs, including a reduction in its workforce by
approximately one-third, or a net reduction of 23 employees.
During the second and third quarters of 1998, Company management and WDR
continued to contact potential strategic partners as well as parties that had
previously been contacted. The Company also continued to pursue alternative
financial arrangements with third parties. Between May 1998 and mid-September
1998, representatives from Ethicon and the Company continued preliminary
discussions relating to a potential transaction. During this time, Howard I.
Zauberman, Vice President Growth Technologies and New Business Development of
Ethicon, Edward W. Unkart, Vice President, Finance & Administration of the
Company, and David Gottlieb, Executive Director of WDR, also became involved in
the discussions.
On September 16, 1998, representatives from Ethicon contacted the Company
to discuss Ethicon's interest in acquiring the Company. Ethicon expressed
serious interest in exploring an acquisition and proposed general parameters
pursuant to which Ethicon would be willing to proceed with such a transaction as
well as the desired timetable, due diligence requirements and other actions
necessary to proceed with such a transaction.
On September 17, 1998, the Company and Ethicon entered into a
Confidentiality Agreement. Representatives from Ethicon presented Ethicon's
proposal for a transaction involving the acquisition of all of the outstanding
shares of the Company, including those held by the Stockholders, for cash. The
parties discussed the general parameters pursuant to which Ethicon and the
Company would be willing to proceed with the transaction, including Ethicon's
desire to obtain the support of the Company's Board of Directors and senior
management and, in particular, Ethicon's requirement that the Stockholders agree
to support the transaction.
Between September 18, 1998, and September 21, 1998, Ethicon forwarded
proposed Term Sheets to the Company, and discussions and negotiations continued.
Between September 23, 1998 and October 3, 1998, Ethicon conducted due
diligence, and Ethicon and Philip P. Crowley, Assistant General Counsel of
Parent, and the Company and its counsel at Cooley Godward
17
<PAGE> 19
LLP ("Cooley Godward") had numerous discussions and continued negotiations with
respect to the purchase price and other material items of the transaction.
Between September 22, 1998 and October 3, 1998, drafts of definitive
agreements were delivered to representatives of the Stockholders and the
Company. Discussions and negotiations continued throughout this period. The
parties ultimately agreed upon a price of $2.35 (per share) and other material
terms of the proposed transaction and finalized the definitive agreements.
Between September 30, 1998 and October 3, 1998, Mr. Zauberman also began
discussions with Mr. Thompson and Dr. Savage with respect to their
post-acquisition employment arrangements with the Surviving Corporation. Mr.
Thompson and Dr. Savage, both founders of the Company, have agreed to stay with
the Company for a period of six months at their respective current salaries and
benefits in order to assist with the transition and integration of the Company
with Ethicon. Copies of the respective employment continuation letters are filed
as Exhibits 3 and 4.
On September 30, 1998, the Company's Board of Directors met with Company
senior management and representatives of Cooley Godward and WDR to review and
discuss the proposed transaction and its material terms. WDR presented materials
describing the proposed transaction, the process undertaken to explore strategic
alternatives and the economic merits of pursuing the proposed transaction.
On October 1, 1998, the Finance Committee of the Board of Directors of
Parent approved the transaction, and the Board of Directors of Purchaser
approved the transaction.
On October 2, 1998, the Company's Board of Directors met again to consider
the proposed transaction. At this meeting, WDR presented materials underlying
its oral opinion and provided a written opinion that the consideration to be
offered by Purchaser to the stockholders of the Company in the transaction was
fair, from a financial point of view, to such stockholders. After extensive
discussion, including discussion of the Company's immediate cash needs, the
Company's Board of Directors approved the transaction. On October 3, 1998, the
Executive Committee of the Company's Board of Directors met to discuss the final
details of the transaction and approve certain incidental changes to the Merger
Agreement and certain related matters.
On October 3, 1998, the Company, Parent and the Purchaser entered into the
Merger Agreement that, subject to certain conditions, contemplates an
acquisition of the Company by Parent (through the Purchaser, a wholly owned
subsidiary of Parent) at a cash price of $2.35 per share.
The transaction was publicly announced before U.S. financial markets opened
on October 5, 1998. A copy of the press release announcing the execution of the
Merger Agreement is filed as Exhibit 5 hereto and is incorporated herein by
reference.
Recommendation.
The Board of Directors of the Company has unanimously approved and found
advisable the Merger Agreement, the Offer and the Merger and determined that the
terms of the Offer and the Merger are fair to, and in the best interests of, the
stockholders of the Company. The Board of Directors of the Company unanimously
recommends that the Company's stockholders tender their shares pursuant to the
Offer. The Company will file with the Commission and mail to its stockholders
its formal recommendation concerning the Offer at the same time Parent mails its
tender offer materials concerning the Offer.
ACCORDINGLY, THE COMPANY'S BOARD UNANIMOUSLY RECOMMENDS THAT COMPANY
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to the Company's stockholders communicating the Board's
recommendation is filed herewith as Exhibit 6 and is incorporated herein by
reference. A copy of the letter to the Company's option holders communicating
the Board's recommendation is filed herewith as Exhibit 7 and is incorporated
herein by reference.
18
<PAGE> 20
Reasons for Recommendation.
In reaching its conclusions and the recommendations described above, the
Board considered a number of factors in addition to those described, including,
among other things, the following:
(i) the financial and other terms and conditions of the Offer, the
Merger, the Merger Agreement and the Stockholder Agreements, including the
fact that the Offer is subject to a minimum tender and other conditions and
the Board's assessment of the probability that such conditions would be
satisfied;
(ii) the recommendation of the Company's management that the Offer,
the Merger and the Merger Agreement be approved;
(iii) the fact that the consideration to be received by the Company's
stockholders pursuant to the Offer and the Merger represents a significant
premium over the average trading price for the Shares during recent periods
prior to October 5, 1998, the date on which Parent and Purchaser announced
their intention to commence the Offer, and the potential that a price of
$2.35 per share would otherwise be achieved in the near future under the
circumstances;
(iv) the premium to be received by the Company's stockholders in the
Offer compared to the range of premiums paid over market price in announced
mergers and acquisitions of companies in similar lines of business to the
Company;
(v) the historical and prospective business of the Company, including,
among other things, (a) the Company's current financial condition and the
immediate need for, and potential sources of, liquidity, (b) the Company's
competitive position, (c) the Company's recent financial performance,
long-term strategic plan and prospects for the future, (d) recent
developments in the Company's industry segment, including increasing
consolidation and the perceived need for economies of scale, and (e) the
view of management with respect to the foregoing;
(vi) a review of the possible alternatives to the Offer and the Merger
(including the possibility of continuing to operate the Company as an
independent entity and the probability of obtaining adequate financing on a
timely basis), the range of possible values to the Company's stockholders
of such alternatives and the likelihood of accomplishing those
alternatives;
(vii) the written opinion of WDR, dated October 2, 1998 (the "WDR
Opinion"), that the cash consideration to be offered by Purchaser to the
stockholders of the Company in the Offer is fair, from a financial point of
view, to such stockholders. A copy of the WDR Opinion is filed as Exhibit 8
hereto and is incorporated herein by reference. Such opinion should be read
in its entirety for a description of the procedures followed, assumptions
and qualifications made, matters considered and limitations on the review
undertaken by WDR;
(viii) the fact that, if the Company receives a Superior Proposal, the
Company could (x) approve or recommend a tender offer competing with the
Offer or (y) terminate the Merger Agreement and enter into a definitive
acquisition agreement with another party, in connection with the Superior
Proposal, provided that failure to do so would be inconsistent with the
Board's fiduciary obligations and under the circumstances described in the
Merger Agreement, the Company would be required to pay Parent a termination
fee of $880,000 (see "The Merger Agreement -- Termination of the Merger
Agreement" in Item 3 above); subject to the limitation that, pursuant to
the Stockholder Agreements, stockholders who beneficially own, in the
aggregate, approximately 59.1% of the shares outstanding as of September
30, 1998 (assuming exercise of all options held by the Stockholders) have
agreed to tender their Shares in the Offer or otherwise sell their Shares
to Parent if the Offer is consummated;
(ix) the fact that the Company and WDR, on behalf of the Company, had
since its engagement in December 1997, not been able to arrange alternative
financing or consummate a strategic alliance on a timely basis or on terms
satisfactory to the Board; and
(x) the belief of the Board that, in view of the substantial efforts
by the Company and WDR since December 1997 to contact other parties about a
potential transaction with the Company, it was unlikely
19
<PAGE> 21
that a party potentially interested in submitting a proposal to acquire the
Company and who was financially able to do so had not been afforded the
opportunity to do so.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination. In addition, individual members of the Board may have given
different weights to different factors.
THE FULL TEXT OF THE WDR OPINION IS ATTACHED AS EXHIBIT 8 HERETO.
STOCKHOLDERS ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY. SUCH
OPINION WAS PRESENTED FOR THE INFORMATION OF THE BOARD IN CONNECTION WITH ITS
CONSIDERATION OF THE MERGER AGREEMENT AND IS DIRECTED ONLY TO THE FAIRNESS (FROM
A FINANCIAL POINT OF VIEW) OF THE CONSIDERATION TO BE RECEIVED BY THE
STOCKHOLDERS OF THE COMPANY PURSUANT TO THE OFFER. SUCH OPINION DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER SHARES IN
THE OFFER.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to the terms of an engagement letter dated December 18, 1997, the
Company has retained WDR to render financial advisory services to the Company,
and, in accordance with such engagement, WDR has advised the Company with
respect to the Offer and certain related matters. The Company has agreed in the
engagement letter to pay WDR (i) a $100,000 retainer fee, (ii) a fee of $350,000
upon the delivery of the WDR Opinion, including any updates thereof, with
respect to the fairness to the Company's stockholders of a transaction involving
any sale of the Company, and (iii) a minimum transaction fee of $1 million or 2%
of the consideration received by the Company's stockholders, whichever is
greater, less any fees paid to WDR pursuant to (i) or (ii) above if a
transaction is consummated.
The Company has also agreed to reimburse WDR for its reasonable
out-of-pocket expenses and to indemnify WDR and certain related persons against
certain liabilities in connection with its engagement, including certain
liabilities under federal securities laws.
In the past, WDR and its predecessors have provided investment banking
services to the Company and received customary compensation for the rendering of
such services. In the ordinary course of business, WDR, its predecessors and
affiliates may have traded securities of the Company for their own accounts and,
accordingly, may at any time hold a long or short position in such securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to stockholders of the Company with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
Other than as described below, there have been no transactions in shares of
the Company Common Stock which were effected during the past 60 days by the
Company, or, to the best knowledge of the Company, any executive officer,
director, affiliate or subsidiary of the Company.
(a) AND (b). Pursuant to individual Stockholder Agreements, (x) Andrew M.
Thompson and George M. Savage, M.D., each an officer and director of the Company
and entities related to them, (y) Edward W. Unkart, an officer of the Company
and an entity related to Mr. Unkart, together with Sprout Capital VII, L.P.,
Sprout Capital VI, L.P., DLJ Capital Corporation, U.S. Venture Partners IV,
L.P., Second Ventures II, L.P. and USVP Entrepreneur Partners II, L.P. (each
affiliates of the Company) and with Kresch Medical Research, L.L.C., Brinson
Venture Capital Fund III, L.P. and Brinson Trust Company as Trustee of the
Brinson MAP Venture Capital Fund III, who beneficially own 5,414,858 Shares in
the aggregate, including Shares issuable upon the exercise of options, or
approximately 59.1% of the Shares outstanding as of September 30, 1998 (assuming
exercise of all options held by the Stockholders), have agreed (i) to tender all
20
<PAGE> 22
Shares owned by the Stockholders (ii) if necessary, to vote their shares of
Company Common Stock against any competing merger or business combination
proposal or any other proposal that could impede the Merger, (iii) to not sell
or transfer their shares of Company Common Stock to anyone other than Purchaser
or its designee (other than by operation of law) and (iv) to not solicit any
Takeover Proposal. In addition, such persons and entities have granted to
Purchaser an irrevocable proxy to vote their shares of Company Common Stock in
accordance with the foregoing. See "The Stockholder Agreements" under Item 3
above.
To the best of the Company's knowledge, all of its directors and executive
officers currently intend to tender all of their shares of Company Common Stock
in the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) AND (b). As described under Item 3 above, the Company has agreed in the
Merger Agreement not to engage in certain activities in connection with any
proposal to engage in a business combination with, or acquire an interest in or
assets of, the Company. See "The Merger Agreement -- Takeover Proposals" in Item
3 above.
Except to the extent that failure to do so would be inconsistent with the
exercise of fiduciary duties as described under Item 3 hereof, the Company does
not presently intend to solicit, initiate or encourage (including by way of
furnishing information), 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 Takeover Proposal or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; except that the Company may
furnish information or engage in discussions or negotiations with respect to a
Takeover Proposal if the Board of Directors determines in good faith that
failure to do so would be inconsistent with its fiduciary obligations to the
Company's stockholders under applicable law and so notifies Parent. See "The
Merger Agreement -- Takeover Proposals" in Item 3 above.
Except as described herein, there are no transactions, board resolutions,
agreements in principle or signed contracts in response to the Offer that relate
to or would result in one or more of the events referred to in the preceding
paragraph.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 1: Agreement and Plan of Merger, dated as of October 3, 1998,
among Johnson & Johnson, ET/FM Acquisition Corp. and FemRx,
Inc.
Exhibit 2: Form of Stockholder Agreements, dated as of October 3, 1998,
among Johnson & Johnson, ET/FM Acquisition Corp. and each of
the Stockholders.
Exhibit 3: Letter regarding continued employment, dated October 1,
1998, signed by Ethicon, Inc. and Andrew M. Thompson.
Exhibit 4: Letter regarding continued employment, dated October 1,
1998, signed by Ethicon, Inc. and George M. Savage, M.D.
Exhibit 5: Text of the Press Release issued by Johnson & Johnson and
FemRx, Inc., issued on October 5, 1998.
Exhibit 6: Letter to Stockholders of FemRx, Inc., dated October 9,
1998.*
Exhibit 7: Letter to Option Holders of FemRx, Inc., dated October 9,
1998.**
Exhibit 8: Opinion of Warburg Dillon Read LLC, dated October 2, 1998.*
</TABLE>
- ---------------
* Included in copies of Schedule 14D-9 mailed to stockholders and option
holders.
** Included in copies of Schedule 14D-9 mailed to option holders.
21
<PAGE> 23
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
FEMRX, INC.
/s/ ANDREW M. THOMPSON
Name: Andrew M. Thompson
Title: President and Chief Executive
Officer
Dated: October 9, 1998
22
<PAGE> 24
ANNEX A
INFORMATION PROVIDED PURSUANT TO SECTION 14(F)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
GENERAL
This information is being furnished in connection with the designation by
ET/FM Acquisition Corp. (the "Purchaser"), pursuant to the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of October 3, 1998, among Johnson &
Johnson ("Parent"), the Purchaser and FemRx, Inc. (the "Company"), of persons to
be elected to the Board of Directors of the Company (the "Company Board") other
than at a meeting of the stockholders of the Company. The Merger Agreement is
more fully described under Item 3 of the Company's Schedule 14D-9 (the "Schedule
14D-9"), of which this Annex A is a part. Capitalized terms used and not defined
in this Annex A have the meanings assigned to them in the Schedule 14D-9.
THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement, promptly upon the acceptance for payment
of, and payment for, any Shares by the Purchaser pursuant to the Offer, the
number of directors on the Company Board shall be reduced to five and the
Purchaser shall be entitled, subject to compliance with Section 14(f) of the
Securities and Exchange Act of 1934 as amended, to designate three of such
number of directors on the Company Board (the "Purchaser Designees"), such that
the Purchaser will control a majority of such directors, and the Company and its
Board of Directors shall, at such time, take all such action needed to cause the
Purchaser Designees to be appointed to the Company's Board of Directors. The
Merger Agreement also provides that, subject to applicable law, the Company
shall take all action requested by Parent necessary to effect any such election,
including mailing to its stockholders this Information Statement, and the
Company has agreed to make such mailing with the mailing of the Schedule 14D-9
(provided that the Purchaser shall have provided to the Company on a timely
basis all information required to be included in the Information Statement with
respect to the Purchaser Designees).
It is expected that on the date that the Purchaser accepts for payment and
purchases Shares under the Offer, the Company will promptly take such other
action as necessary to enable the Purchaser Designees to be elected to the
Company Board.
Set forth in the table below are the name, age, and principal occupation
and business experience of each of the persons who may be designated by the
Purchaser as the Purchaser Designees. Unless otherwise indicated, the business
address for each individual listed below is One Johnson & Johnson Plaza, New
Brunswick, NJ 08933. Each of the individuals listed below is a citizen of the
United States except for James J. Bergin, who is a citizen of Australia.
<TABLE>
<CAPTION>
NAME OF PURCHASER DESIGNEE AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --- -----------------------------------------------
<S> <C> <C>
James J. Bergin.......... 35 Vice President and Assistant Secretary of the Purchaser
since October of 1998. General Attorney of Parent since
November of 1997. Associate of Donovan Leisure Newton &
Irvine from August of 1992 until October of 1997.
Philip P. Crowley........ 49 Director, Vice President and Secretary of the Purchaser
since October of 1998. Assistant General Counsel and
Assistant Secretary of Parent since June of 1992.
</TABLE>
A-1
<PAGE> 25
<TABLE>
<CAPTION>
NAME OF PURCHASER DESIGNEE AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- -------------------------- --- -----------------------------------------------
<S> <C> <C>
Clifford E. Holland...... 44 Director and President of the Purchaser since October of
1998. President of Ethicon since October of 1998. Group
Vice President and General Manager of Ethicon from November
of 1997 until October of 1998. Executive Vice President of
Sales and Marketing of Johnson & Johnson Health Care
Systems Inc. from January of 1995 until November of 1997.
Vice President of Sales and Marketing of Ethicon from June
of 1994 until January of 1995. Vice President of Sales of
Ethicon from February of 1992 until June of 1994.
Howard I. Zauberman...... 45 Director, Vice President and Treasurer of the Purchaser
since October of 1998. Vice President of Growth
Technologies and New Business Development of Ethicon since
September of 1997. Director of Business Development of
Pfizer, Inc. from October of 1992 until September of 1997.
</TABLE>
Any other officer of Parent or the Purchaser listed in Schedule I to the
Offer to Purchase dated October 9, 1998, filed as an exhibit to the Tender Offer
Statement on Schedule 14D-1 of Parent and the Purchaser may also be designated
by the Purchaser as a Purchaser Designee. The information with respect to the
Purchaser Designees has been supplied by the Purchaser for inclusion herein.
CERTAIN INFORMATION CONCERNING THE COMPANY
As of September 30, 1998, there were approximately 8,933,547 Shares
outstanding and approximately 10,424,722 Shares outstanding on a fully diluted
basis. Each Share that is outstanding as of the close of business on any
applicable record date for any matter to be acted upon by stockholders is
entitled to one vote on such matter; except that, if certain provisions of
California law are applicable to the Company, stockholders may have cumulative
voting rights in the election of directors of the Company. Cumulative voting
means that, for each share held, a stockholder is entitled to that number of
votes equal to the number of directors to be elected. The Company Board consists
of seven members.
THE CURRENT MEMBERS OF THE COMPANY BOARD AND EXECUTIVE OFFICERS OF THE COMPANY
To the extent that the Company Board will consist of persons who are not
among the Purchaser Designees, the Company Board is expected to consist of
persons who are currently directors of the Company who have not resigned.
Set forth below are the name, age, principal occupation and business
experience of each director, including the period during which each has served
as a director of the Company.
<TABLE>
<S> <C>
KATHLEEN D. LAPORTE Director since 1995
Chairman of the Board Age 37
General Partner, Sprout Group
</TABLE>
Ms. LaPorte has served the Company as a director since April 1995 and is
currently the Chairman of the Board of Directors. From January 1993 to the
present, Ms. LaPorte has been affiliated with the Sprout Group, the venture
capital affiliate of Donaldson, Lufkin & Jenrette Inc., and has served as a
General Partner since December 1993. From August 1987 to January 1993, Ms.
LaPorte was a principal at Asset Management Company, a venture capital firm
focused on early stage health care and technology investments. Ms. LaPorte
currently serves on the Board of Directors of Gentle Dental Service Corporation,
Keravision, Inc. and Lynx Therapeutics, Inc. She holds a B.S. in Biology from
Yale University and an M.B.A. from Stanford University.
<TABLE>
<S> <C>
ANDREW M. THOMPSON Director since 1994
President, Chief Executive Officer Age 35
</TABLE>
Mr. Thompson has served as President, Chief Executive Officer and a director of
the Company since its incorporation in November 1994. From May 1994 to November
1994, Mr. Thompson consulted in the
A-2
<PAGE> 26
medical device industry as a partner of Savage-Thompson Management. From May
1991 to November 1994, he served as Vice President, Finance of Medtronic
CardioRhythm, a medical device company focused on catheter ablation systems for
electrophysiology, which he co-founded in May 1991 and which was acquired by
Medtronic, Inc. in May 1992. From June 1989 to May 1991, he consulted full-time
in the medical industry as a partner of Savage-Thompson Management. He received
an M.A. in Production Engineering from Corpus Christi College, Cambridge, an
M.A. in Education and an M.B.A. from Stanford University.
<TABLE>
<S> <C>
GEORGE M. SAVAGE, M.D. Director since 1994
Senior Vice President, Research and
Development Age 38
</TABLE>
Dr. Savage has served as Senior Vice President, Research and Development and a
director of the Company since its incorporation in November 1994. From May 1994
to November 1994, Dr. Savage consulted in the medical device industry as a
partner of Savage-Thompson Management. From May 1991 to November 1994, he served
as Vice President, Clinical and Regulatory Affairs of Medtronic CardioRhythm, a
medical device company focused on catheter ablation systems for
electrophysiology, which he co-founded in May 1991 and which was acquired by
Medtronic, Inc. in May 1992. From May 1991 to May 1992, Dr. Savage also served
CardioRhythm as a director. From June 1989 to May 1991, he consulted full-time
in the medical industry as a partner of Savage-Thompson Management. Dr. Savage
received a B.S. in Biomedical Engineering from Boston University, an M.D. from
Tufts University and an M.B.A. from Stanford University.
<TABLE>
<S> <C>
PETER C. FARRELL Director since 1998
President and Chief Executive Officer, ResMed
Inc. Age 56
</TABLE>
Mr. Farrell has served the Company as a director since August 1998. From June
1989 to the present, Dr. Farrell has served as President of ResMed Inc., a
holding company ("ResMed"), and from July 1990 to the present, he has served as
Chief Executive Officer of ResMed. From July 1984 to June 1989, Dr. Farrell
served as Vice President, Research and Development at various subsidiaries of
Baxter International, Inc., a healthcare company ("Baxter"), and from August
1985 to June 1989, he also served as Managing Director of the Center for Medical
Research Pty Ltd., a subsidiary of Baxter. From January 1978 to December 1989,
Dr. Farrell was Foundation Director of the Center for Biomedical Engineering at
the University of New South Wales where he currently serves as a Visiting
Professor. Dr. Farrell received a B.E. in Chemical Engineering from the
University of Sydney, Australia, and S.M. in Chemical Engineering from the
Massachusetts Institute of Technology, a Ph.D. in Chemical Engineering and
Bioengineering from the University of Washington, Seattle and a D.Sc. from the
University of New South Wales, Australia.
<TABLE>
<S> <C>
JAMES W. MCLANE Director since 1996
President and Chief Operating Officer, Age 59
NovaCare, Inc.
</TABLE>
Mr. McLane has served the Company as a director since November 1996. From May
1997 to the present, Mr. McLane has served as President and Chief Operating
Officer of NovaCare, Inc., a provider of healthcare services. From February 1991
to June 1996, Mr. McLane served as Executive Vice President of Aetna Life &
Casualty Company and Chief Executive Officer of Aetna Health Plans. Prior to
that, he was a Senior Vice President and Division Executive of Citicorp, Inc.
Mr. McLane currently serves on the Board of Directors of Aliginis Inc. He holds
a B.A. in History from Yale University and an M.B.A. from Harvard Business
School.
<TABLE>
<S> <C>
GAIL GAUMER SCHULZE Director since 1995
Senior Executive Vice President, Centeon,
L.L.C Age 46
</TABLE>
Ms. Schulze has served the Company as a director since October 1995. From July
1997 to the present, Ms. Schulze has been Senior Executive Vice President of
Centeon, L.L.C., a manufacturer of blood products. From 1996 to July 1997, Ms.
Schulze was Corporate Vice President of Cost Management Service and Strategy for
Allegiance Healthcare Corporation. From 1980 to 1996, Ms. Schulze held numerous
marketing, product development and general management positions with Baxter
Healthcare Corporation including President, Renal Europe, from 1991 to 1994. Ms.
Gaumer received a B.S. in Psychobiology from the
A-3
<PAGE> 27
University of California, Santa Cruz, a N.I.H. Fellowship in Neurophysiology at
the University of Wisconsin and an M.B.A. from Stanford University.
<TABLE>
<S> <C>
PHILIP M. YOUNG Director since 1995
General Partner, U.S. Venture Partners Age 58
</TABLE>
Mr. Young has served the Company as a director since April 1995. From April 1990
to the present, Mr. Young has served as a General Partner of U.S. Venture
Partners, a venture capital firm. Mr. Young currently serves on the Boards of
Directors of CardioThoracic Systems, Inc., The Immune Response Corporation,
Penederm Inc., Vical Inc., 3Dfx Interactive Inc. and Zoran Corporation. He
received a B.M.E. from Cornell University, an M.S. from George Washington
University, and an M.B.A. from Harvard University where he was a Baker Scholar.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of September 30, 1998 by: (i) each director;
(ii) each executive officer employed by the Company in that capacity on
September 30, 1998; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------- ----------
<S> <C> <C>
Sprout Group(2)........................................ 2,229,659 24.84%
3000 Sand Hill Road
Building 3, Suite 170
Menlo Park, CA 94025
U.S. Venture Partners(3)............................... 1,093,748 12.24%
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Arnold J. Kresch, M.D.(4).............................. 517,638 5.79%
George M. Savage, M.D.(5).............................. 504,794 5.63%
Andrew M. Thompson(6).................................. 494,794 5.52%
Gail Gaumer Schulze(7)................................. 37,603 *
Kathleen D. LaPorte(8)................................. 2,229,659 24.84%
Peter C. Farrell(9).................................... 1,250 *
James W. McLane(10).................................... 29,000 *
Philip M. Young(11).................................... 1,131,351 12.61%
Jeffrey J. Christian(12)............................... 209,846 2.34%
Edward W. Unkart(13)................................... 127,605 1.42%
Marshall Tsuruda(14)................................... 76,694 *
John C. Kraczkowsky(15)................................ 51,927 *
Lori Jennings(16)...................................... 26,873 *
All executive officers and directors as a group (12
persons)(17)......................................... 4,917,096 52.69%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "Commission"). Unless otherwise indicated in
the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
8,933,547 shares outstanding on September 30, 1998, adjusted as required by
rules promulgated by the Commission.
A-4
<PAGE> 28
(2) Represents 1,359,618 shares held by Sprout Capital VII, L.P. ("SVII"),
714,700 shares held by Sprout Capital VI, L.P. ("SVI") and 113,181 shares
held by DLJ Capital Corporation ("DLJ"). Also includes 42,160 shares
issuable pursuant to options exercisable within 60 days of September 30,
1998 by DLJ. DLJ is the Managing General Partner of both SVI and SVII. Ms.
LaPorte, a director of the Company, is a general partner of DLJ Associates
VI, L.P. and DLJ Associates VII, L.P., the general partners of SVI and
SVII, respectively. Ms. LaPorte disclaims beneficial ownership of the
shares held by such entities, except to the extent of her pecuniary
interest therein. Ms. LaPorte may be deemed to exercise voting and
investment power over the shares held by affiliates of Sprout Group.
(3) Represents 946,093 shares held by U.S. Venture Partners IV, L.P. ("USVP
IV"), 114,843 shares held by Second Ventures II, L.P. ("SVLP II") and
32,812 shares held by USVP Entrepreneur Partners II, L.P. ("USVEP II"). Mr.
Young, a director of the Company, is a general partner of Presidio
Management Group IV, L.P., the general partner of each of USVP IV, SVLP II
and USVEP II. Mr. Young disclaims beneficial ownership of the shares held
by such entities, except to the extent of his pecuniary interest therein.
Mr. Young may be deemed to exercise voting and investment power over the
shares held by affiliates of U.S. Venture Partners.
(4) Includes 451,626 shares held by Kresch Medical Research, LLC. Also includes
9,375 shares issuable pursuant to options exercisable within 60 days of
September 30, 1998 by Dr. Kresch. Dr. Kresch is an owner and the sole
manager of Kresch Medical Research, LLC and may be deemed to exercise
voting and investment power over the shares held by such entity.
(5) Represents 458,128 shares held by The George and Nancy Savage Living Trust,
of which Dr. Savage and his wife are trustees, and 10,000 shares held by
Savage-Thompson Management, of which Dr. Savage is a partner. Also includes
36,666 shares issuable pursuant to options exercisable within 60 days of
September 30, 1998.
(6) Represents 448,128 shares held by The Thompson Family Trust, of which Mr.
Thompson and his wife are trustees, and 10,000 shares held by
Savage-Thompson Management, of which Mr. Thompson is a partner. Also
includes 36,666 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(7) Represents 37,603 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(8) Includes 2,187,499 shares held by entities affiliated with Sprout Group.
Also includes 42,160 shares issuable pursuant to options exercisable within
60 days of September 30, 1998 to DLJ. Ms. LaPorte, a director of the
Company, disclaims beneficial ownership of the shares held by such
entities, except to the extent of her pecuniary interest therein.
(9) Represents 1,250 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(10) Includes 20,000 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(11) Includes 1,093,748 shares held by entities affiliated with U.S. Venture
Partners. Mr. Young, a director of the Company, disclaims beneficial
ownership of the shares held by such entities, except to the extent of his
pecuniary interest therein. Also includes 37,603 shares issuable pursuant
to options exercisable within 60 days of September 30, 1998.
(12) Includes 1,721 shares held by Mr. Christian's son. Also includes 39,375
shares issuable pursuant to options exercisable within 60 days of September
30, 1998.
(13) Includes 78,125 shares held by Takei Unkart Family Trust, of which Mr.
Unkart and his wife are trustees. Also includes 34,375 shares issuable
pursuant to options exercisable within 60 days of September 30, 1998.
(14) Includes 54,791 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(15) Includes 26,875 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(16) Represents 26,873 shares issuable pursuant to options exercisable within 60
days of September 30, 1998.
(17) Includes 397,987 shares issuable pursuant to options exercisable within 60
days of September 30, 1998 by the executive officers and directors as a
group.
A-5
<PAGE> 29
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended December 31, 1997,
1996, 1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at December 31, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(1)
--------------------------- ---- --------- -------- ----------
<S> <C> <C> <C> <C>
Andrew M. Thompson................................. 1997 172,464 -- 80,000
President and Chief Executive Officer 1996 150,000 16,500 --
1995 106,714 25,000 --
George M. Savage, M.D.............................. 1997 172,486 -- 80,000
Senior Vice President, Research and Development 1996 150,000 16,500 --
1995 106,714 25,000 --
Edward W. Unkart................................... 1997 144,357 -- 75,000
Vice President, Finance and Administration, 1996 125,008 11,563 --
Chief Financial Officer and Assistant Secretary 1995(2) -- -- --
Jeffrey J. Christian............................... 1997 155,458 -- 75,000
Vice President, Engineering 1996 142,789 17,325 --
1995(2) -- -- 5,000
Marshall Tsuruda................................... 1997 124,041 -- 110,000
Vice President, Operations 1996(3) -- -- 50,000
1995 -- -- --
</TABLE>
- ---------------
(1) Repriced options treated as new grants.
(2) Messrs. Unkart and Christian were employed by the Company for less than a
full year during the fiscal year ended December 31, 1995 and for that
reason, earned less than $100,000 in compensation from the Company.
(3) Mr. Tsuruda was employed by the Company for less than a full year during the
fiscal year ended December 31, 1996 and for that reason, earned less than
$100,000 in compensation from the Company.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1995 Stock
Option Plan (the "1995 Plan"). The 1995 Plan was adopted by the Board of
Directors in April 1995 and has been amended three times, most recently in March
1997, subject to stockholder approval received in May, 1997. Pursuant to the
1995 Plan, the Company may grant incentive and nonstatutory stock options to key
employees, directors of or consultants or advisors to the Company. A total of
1,955,625 shares of Common Stock is authorized for issuance under the 1995 Plan.
At September 30, 1998, options covering an aggregate of 157,897 shares of
Company Common Stock had been exercised under the 1995 Plan, 1,306,174 shares
were outstanding, and 491,554 shares (plus any shares that might in the future
be returned to the plan as a result of cancellations or expiration of options)
remained available for future grant under the 1995 Plan. During the year ended
December 31, 1997, under the 1995 Plan, the Company granted to all current
executive officers as a group, options to purchase 495,000 shares at exercise
prices ranging from $2.5625 to $3.125 per share and to all employees and
consultants (excluding current executive officers) as a group, options to
purchase 829,000 shares at exercise prices ranging from $2.00 to $4.125 per
share.
The 1995 Plan is administered by the Board of Directors and the
Compensation Committee. No vesting is required under the 1995 Plan, although it
may be imposed by the Board of Directors. The maximum term of a stock option
under the 1995 Plan is 10 years, but if the optionee at the time of grant has
voting power over
A-6
<PAGE> 30
more than 10% of the Company's outstanding capital stock, the maximum term of an
incentive stock option is five years. The exercise price of stock options
granted under the 1995 Plan is determined by the Board of Directors. Options
granted under the 1995 Plan are generally non-transferable. The exercise price
may be paid in cash or any other form of consideration that may be acceptable to
the Board of Directors.
Options generally terminate three months after termination of the
optionee's employment or relationship as a consultant or director unless such
termination is caused by the permanent disability or death of the optionee. The
1995 Plan may be amended at any time by the Board of Directors, although certain
amendments would require stockholder approval. The 1995 Plan will terminate in
April 2005, unless earlier terminated by the Board of Directors. Pursuant to the
Merger Agreement, the 1995 Plan will be terminated as of (and contingent upon)
the consummation of the Offer.
In connection with the Offer, options outstanding under the 1995 Plan will
become fully vested as of a date five business days prior to the earliest date
upon which Purchaser can purchase any Company Common Stock pursuant to the Offer
(and contingent upon such purchase) and, upon consummation of the Offer, each
option granted under the 1995 Plan that is outstanding immediately prior to the
consummation of the Offer shall be cancelled concurrently with (and contingent
upon) the consummation of the Offer if not exercised prior to such consummation.
The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by, and held at
year-end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(4) VALUE AT ASSUMED
--------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM($)(3)
OPTION EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH)(2) DATE 5%($) 10%($)
---- ---------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Andrew M. Thompson.............. 80,000 6.04% $2.9375 03/02/07 147,790 374,530
George M. Savage, M.D........... 80,000 6.04% $2.9375 03/02/07 147,790 374,530
Edward W. Unkart................ 75,000 5.66% $2.9375 03/02/07 138,553 351,122
Jeffrey J. Christian............ 75,000 5.66% $2.9375 03/02/07 138,553 351,122
Marshall Tsuruda................ 60,000 4.53% $2.9375 03/02/07 110,843 280,897
50,000(5) 3.78% $2.5675 03/26/06 75,487 196,093
</TABLE>
- ---------------
(1) Based on an aggregate of 1,324,000 options, including 384,750 repriced
options, granted to employees and directors of the Company in fiscal 1997,
including the Named Executive Officers set forth in the "Summary
Compensation Table" above and directors.
(2) The exercise price is equal to the closing price as reported on the Nasdaq
National Market on the last market trading day preceding the date of grant.
(3) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years or nine years in the case of options
repriced on March 11, 1997). Stock price appreciation of five percent and
ten percent is assumed pursuant to rules promulgated by the Commission and
does not represent the Company's prediction of its stock price performance.
The potential realizable value at 5% and 10% appreciation is calculated by
assuming that the exercise price appreciates at the indicated rate for the
entire term of the option and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.
(4) Each of the options listed in the table was granted under the 1995 Plan and
was immediately exercisable. The shares purchasable thereunder are subject
to repurchase by the Company at the original exercise price paid per share
upon the optionee's cessation of service prior to vesting in such shares.
The repurchase right lapses and the optionee vests in the shares subject to,
or issued upon exercise of, the
A-7
<PAGE> 31
options as to 1/8th of the shares on the sixth month anniversary of the
date of grant and in monthly installments thereafter for 42 months.
(5) Option repriced on March 11, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997, AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1997(#) DECEMBER 31, 1997($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Andrew M. Thompson.................... -- -- 18,333/61,667 $ 0/$0
George M. Savage, M.D................. -- -- 18,333/61,667 $ 0/$0
Edward W. Unkart...................... -- -- 17,187/57,813 $ 0/$0
Jeffrey J. Christian.................. -- -- 22,187/57,813 $9,453/$0
Marshall Tsuruda...................... -- -- 34,583/75,417 $ 0/$0
</TABLE>
- ---------------
(1) Based on the closing price as reported on the Nasdaq National Market as of
December 31, 1997 ($2.5625), minus the exercise price, multiplied by the
number of shares underlying the option.
EMPLOYEE STOCK PURCHASE PLAN
In January 1996, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 150,000 shares of Common Stock and
amended the Purchase Plan in March 1998, subject to stockholder approval,
increasing the authorized number of shares to 350,000 shares. To date, the
amendment has not been submitted to the stockholders for approval. The Purchase
Plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code. Under the Purchase Plan, the Board of
Directors may authorize participation by eligible employees, including officers,
in periodic offerings following the adoption of the Purchase Plan. The offering
period for any offering will be no more than 27 months.
Employees are generally not eligible to participate unless they are
employed by the Company or an affiliate of the Company for at least 20 hours per
week and are employed by the Company or a subsidiary of the Company designated
by the Board for at least five months per calendar year. Employees who
participate in an offering can have up to 15% of their earnings withheld and
applied to the purchase of the Company Common Stock on specified dates
determined by the Board of Directors. The price of Company Common Stock
purchased under the Purchase Plan will be equal to 85% of the lower of the fair
market value of Company Common Stock on the commencement date of each offering
period or the relevant purchase date. Employees may end their participation in
the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company.
The Purchase Plan will terminate at the Board's discretion. In connection
with the Offer, as of the date of the consummation of the Offer (and contingent
thereon), the Purchase Plan will terminate. All funds deposited with the Company
in connection with the Purchase Plan will be returned to the respective
participant, without interest, as soon as practicable after the consummation of
the Offer.
401(k) PLAN
In December 1995, the Company adopted an employee savings plan (the "401(k)
Plan") covering the Company's employees who have not elected out of 401(k) Plan
participation. Pursuant to the 401(k) Plan, eligible employees may elect to
reduce their current compensation by up to the lesser of 20% of their annual
compensation or the statutorily prescribed annual limit ($9,500 in 1997) and
have the amount of such reduction contributed to the 401(k) Plan. In addition,
eligible employees may make rollover contributions to the 401(k) Plan from a
tax-qualified retirement plan. The 401(k) Plan is intended to qualify under
Section 401 of the Code so that contributions by employees or by the Company to
the 401(k) Plan, and
A-8
<PAGE> 32
income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the Company,
if any, will be deductible by the Company when made. The trustee under the
401(k) Plan, at the direction of each participant, invests the 401(k) Plan
employee salary deferrals in selected investment options.
COMPENSATION OF DIRECTORS
Directors do not currently receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
eligible for reimbursement for their expenses incurred in connection with
attendance at Board and Committee meetings in accordance with Company policy.
Each non-employee director of the Company also receives stock option grants
under the 1996 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company are eligible to receive
options under the Directors' Plan. Options granted under the Directors' Plan are
intended by the Company not to qualify as incentive stock options under the
Internal Revenue Code of 1986, as amended.
Option grants under the Directors' Plan are non-discretionary. Pursuant to
the terms of the Directors' Plan, each non-employee director who was serving on
the date of the Company's IPO was granted on such date an option to purchase
20,000 shares of Company Common Stock. In addition, each non-employee director
subsequently elected to the Board will automatically be granted on the date of
his or her election to the Board an option to purchase 20,000 shares of Common
Stock (the "Initial Grant"). On the one year anniversary date of the Company's
IPO, or the anniversary date of a non-employee directors' election to the Board,
if such non-employee director was not serving in such capacity as of the date of
the Company's IPO, and each one-year anniversary thereafter, each member of the
Company's Board of Directors who is not an employee of the Company and has
served as a non-employee director for at least the full six month period prior,
is automatically granted an option to purchase 5,000 shares of Company Common
Stock (the "Annual Grant"). No other options may be granted at any time under
the Directors' Plan. The exercise price of options granted under the Directors'
Plan is 100% of the fair market value of the Common Stock subject to the option
on the date of the option grant. The Initial Grant under the Directors' Plan
will generally vest at the rate of 1/48 of the shares monthly. Annual Grants
under the Directors' Plan will vest entirely on, but not before, the first
annual anniversary of the Annual Grant. The term of options granted under the
Directors' Plan is ten years. In the event of a merger, dissolution,
consolidation, certain reverse mergers or certain acquisitions, options
outstanding under the Directors' Plan will automatically become fully vested and
will terminate if not exercised prior to the consummation of the transaction.
In connection with the Offer, options outstanding under the Directors' Plan
will become fully vested as of a date five business days prior to the earliest
date upon which Purchaser can purchase any Company Common Stock pursuant to the
Offer (and contingent upon such purchase) and, upon consummation of the Offer,
each option granted under the Directors' Plan that is outstanding immediately
prior to the consummation of the Offer shall be cancelled concurrently with (and
contingent upon) the consummation of the Offer if not exercised prior to such
consummation.
At September 30, 1998, there were 200,000 shares of Company Common Stock
authorized for issuance under the Directors' Plan. During the last fiscal year,
the Company granted options covering an aggregate of 25,000 shares to the
non-employee directors of the Company, at exercise prices ranging from $2.6875
to $3.00 per share. The fair market value of such Common Stock on the date of
grants was $2.6875 and $3.00 per share (based on the closing price as reported
on the Nasdaq National Market for the day preceding the date of grant). As of
September 30, 1998, no options had been exercised under the Directors' Plan.
A-9
<PAGE> 33
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed of Messrs. McLane and Young, none of whom is currently
an officer or employee of the Company. The Compensation Committee is responsible
for establishing the Company's compensation programs for all employees,
including executives. For executive officers, the Compensation Committee
evaluates performance and determines compensation policies and levels.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of the Company and to motivate them to enhance long-term
stockholder value. Key elements of this philosophy are:
The Company pays competitively with leading medical device companies with
which the Company competes for talent. To ensure that pay is competitive,
the Company regularly compares its pay practices with these companies and
sets its pay parameters based on this review.
The Company maintains the FemRx Annual Bonus Plan to provide motivation to
achieve specific operating goals and to generate rewards that bring total
compensation to competitive levels.
The Company provides significant equity-based incentives for executives and
other key employees to ensure that they are motivated over the long-term to
respond to the Company's business challenges and opportunities as owners
and not just as employees.
BASE SALARY
The Compensation Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Compensation Committee considers
individual and corporate performance, levels of responsibility, prior
experience, breadth of knowledge and competitive pay practices.
ANNUAL INCENTIVE
The FemRx Annual Bonus Plan, an annual incentive award plan, is the
variable pay program for officers and other senior managers of the Company to
earn additional annual compensation. The actual incentive award earned depends
on the extent to which the Company and individual performance objectives are
achieved. At the start of each year, the Compensation Committee and the full
Board of Directors review and approve the annual performance objectives for the
Company and individual officers. The Company's objectives consist of operating,
strategic and financial goals that are considered to be critical to the
Company's fundamental long-term goal building stockholder value.
After the end of the year, the Compensation Committee evaluates the degree
to which the Company has met its goals and establishes a total incentive award
pool under the FemRx Annual Bonus Plan. Individual awards are determined by
evaluating each participant's performance against objectives and allocating a
portion of the award pool based on the participant's contributions during the
year. Awards are paid in cash and distributions are made in the February
following the performance year.
LONG-TERM INCENTIVES
The Company's long-term incentive program consists of the 1995 Plan and the
Purchase Plan. The option program utilizes vesting periods (generally four
years) to encourage key employees to continue in the employ of the Company.
Through option grants, executives receive significant equity incentives to build
long-term stockholder value. Grants are made at 100% of fair market value on the
date of grant. Executives receive value from these grants only if the Company
Common Stock appreciates over the long-term. The size of option grants is
determined based on competitive practices at leading companies in the medical
device industry and
A-10
<PAGE> 34
the Company's philosophy of significantly linking executive compensation with
stockholder interests. In March 1997, the Board granted options to purchase an
aggregate of 370,000 shares of Company Common Stock to the Named Executive
Officers at an exercise price of $2.9375, the fair market value of the Common
Stock on the date of grant.
The Company established the Purchase Plan both to encourage employees to
continue in the employ of the Company and to motivate employees through
ownership interest in the Company. Under the Purchase Plan, employees, including
officers, may have up to 15% of their earnings withheld for purchases of Common
Stock on certain dates specified by the Board. The price of Common Stock
purchased will not be less than the lesser of an amount equal to 85% of the
lower of the fair market value of the Common Stock on the commencement date of
the offering or the relevant purchase date.
CORPORATE PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Thompson's base salary during 1997 as President and Chief Executive
Officer was $175,000. Following the Compensation Committee's review of
compensation paid by leading medical device companies, the Compensation
Committee set Mr. Thompson's base annual salary through 1998 at $175,000. This
amount, in addition to the annual incentive provided by the FemRx Annual Bonus
Plan, was estimated to provide an annual cash compensation level at the average
as compared to a selected group of leading medical device companies. In setting
this amount, the Compensation Committee took into account (i) its belief that
Mr. Thompson is one of the CEOs of leading medical device companies who has
significant and broad-based experience in the medical device industry, (ii) the
scope of Mr. Thompson's responsibility, and (iii) the Board's confidence in Mr.
Thompson to lead the Company's continued development.
FEDERAL TAX CONSIDERATION
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code.
The 500,000 shares per person limitation in the 1995 Plan is intended to
comply with the provisions of Section 162(m) of the Code. The Compensation
Committee intends to continue to evaluate the effects of the statute and the
Treasury regulations and to comply with Code Section 162(m) in the future to the
extent consistent with the best interests of the Company.
OPTION REPRICING INFORMATION
On March 3, 1997, the Compensation Committee approved an offer to employees
of the Company to reprice outstanding options granted between January 30, 1996
and December 17, 1996 (the "Repricing Program"). Under the Repricing Program, as
of March 11, 1997, 384,750 options were converted into repriced options with an
exercise price of $2.5625 (based on the closing price as reported on the Nasdaq
National Market on the last market trading day preceding the day of grant). As
consideration for the grant of repriced options, optionees were prohibited from
exercising the repriced options for a period of six months after the date such
repriced options were granted.
A-11
<PAGE> 35
The following table sets forth, as to all executive officers of the
Company, certain information concerning the repricing of all such officers'
options since the Company's inception.
OPTION REPRICING SINCE INCEPTION
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES EXERCISE ORIGINAL OPTION
UNDERLYING MARKET PRICE OF PRICE AT NEW TERM REMAINING
OPTIONS STOCK AT TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
---- -------- ---------- ---------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Marshall Tsuruda............ 03/11/97 50,000 $2.5625 $9.000 $2.5625 9 years
Lori Jennings............... 03/11/97 20,000 $2.5625 $9.375 $2.5625 9 years
John Kraczkowski............ 03/11/97 30,000 $2.5625 $9.500 $2.5625 9 years
</TABLE>
CONCLUSION
Through the plans described above, a significant portion of the Company's
compensation program and Mr. Thompson's compensation are contingent on Company
performance, and realization of benefits is closely linked to increases in
long-term stockholder value. The Company remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation for a particular time period.
COMPENSATION COMMITTEE(1)
James W. McLane
Philip M. Young
- ---------------
(1) The Committee's objective is to set executive compensation at the market
average when compared to leading companies in the medical device industry.
The primary components of executive compensation are base salary, annual
incentives and long-term equity incentives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As stated above, the Compensation Committee consists of Messrs. McLane and
Young. The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into indemnity agreements with Kathleen D. LaPorte,
Andrew M. Thompson, George M. Savage, Gail Gaumer Schulze, Philip M. Young,
Edward W. Unkart and Jeffrey J. Christian. The indemnity agreements provide that
the Company will indemnify against any and all expenses the director, executive
officer or other agent, who incurred such expenses because of his or her status
as a director, executive officer or other agent, to the fullest extent permitted
by the Company's Bylaws and Delaware law.
The Company's Certificate of Incorporation and Bylaws contain certain
provisions relating to the limitation of liability and indemnification of
directors and officers. The Company's Certificate of Incorporation provides that
directors of the Company may not be held personally liable to the Company or its
stockholders for monetary damages for a breach of fiduciary duty, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, relating to prohibited dividends,
distributions and repurchase or redemptions of stock, or (iv) for any
transaction from which the director derives an improper benefit. However, such
limitation does not limit the availability of non-monetary relief in any action
or proceeding against a director. In addition, the
A-12
<PAGE> 36
Company's Certificate of Incorporation and Bylaws provide that the Company shall
indemnify its directors and officers to the fullest extent authorized by
Delaware law and may also secure insurance on behalf of any director, officer,
employee or agent against any expense liability or loss arising out of his or
her actions in such capacity.
The Merger Agreement provides that through the sixth anniversary of the
Effective Time, Parent shall maintain in effect for the benefit of current or
former directors and officers of the Company, the current level and scope of
directors' and officers' liability insurance policies; provided, however, that
in no event shall Parent be required to expend an aggregate amount in excess of
$150,000 for such insurance. Parent also agreed that all rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the time of the consummation of the Offer (including with respect
to the transactions contemplated by the Merger Agreement) existing as of October
3, 1998 or at the time of the consummation of the Offer in favor of the then
current or former directors or officers of the Company as provided in its
Certificate of Incorporation, its Bylaws and indemnity agreements shall be
assumed and performed by the Surviving Corporation in the Merger and shall
survive the Merger and shall continue in full force and effect without
amendment, modification or repeal in accordance with their terms. Such
obligations will also be transferred to certain successors in the event of
certain corporate reorganizations, each as described in the Merger Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
A-13
<PAGE> 37
PERFORMANCE MEASUREMENT COMPARISON
The following chart shows the total stockholder return of an investment of
$100 in cash on March 27, 1996 for (i) the Company's Common Stock, (ii) the
Nasdaq Stock Market (U.S.) Index and (iii) the Standard & Poor's Health Care
(Medical Products and Supplies) Index. All values assume reinvestment of the
full amount of all dividends and are calculated as of the end of each month:
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
<TABLE>
<CAPTION>
S&P HEALTH CARE
NASDAQ STOCK (MEDICAL PRODUCTS
FEMRX, INC. MARKET - US AND SUPPLIES)
<S> <C> <C> <C>
3/27/96 100 100 100
3/96 108 100 99
6/96 120 109 98
9/96 92 112 109
12/96 50 118 110
3/97 30 112 109
6/97 42 132 130
9/97 29 154 135
12/97 28 145 137
</TABLE>
A-14
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 1: Agreement and Plan of Merger, dated as of October 3, 1998,
among Johnson & Johnson, ET/FM Acquisition Corp. and FemRx,
Inc.
Exhibit 2: Form of Stockholder Agreements, dated as of October 3, 1998,
among Johnson & Johnson, ET/FM Acquisition Corp. and each of
the Stockholders.
Exhibit 3: Letter regarding continued employment, dated October 1,
1998, signed by Ethicon, Inc. and Andrew M. Thompson.
Exhibit 4: Letter regarding continued employment, dated October 1,
1998, signed by Ethicon, Inc. and George M. Savage, M.D.
Exhibit 5: Text of the Press Release issued by Johnson & Johnson and
FemRx, Inc., issued on October 5, 1998.
Exhibit 6: Letter to Stockholders of FemRx, Inc., dated October 9,
1998.*
Exhibit 7: Letter to Option Holders of FemRx, Inc., dated October 9,
1998.**
Exhibit 8: Opinion of Warburg Dillon Read LLC, dated October 2, 1998.*
</TABLE>
- ---------------
* Included in copies of Schedule 14D-9 mailed to stockholders and option
holders.
** Included in copies of Schedule 14D-9 mailed to option holders.
<PAGE> 1
EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
AMONG
JOHNSON & JOHNSON,
ET/FM ACQUISITION CORP.
AND
FEMRX, INC.
DATED AS OF OCTOBER 3, 1998
<PAGE> 2
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
ARTICLE I
THE OFFER
Page
Section 1.01 The Offer..................................... 3
Section 1.02 Company Actions............................... 5
ARTICLE II
THE MERGER
Section 2.01 The Merger.................................... 7
Section 2.02 Closing....................................... 7
Section 2.03 Effective Time................................ 7
Section 2.04 Effects of the Merger......................... 8
Section 2.05 Certificate of Incorporation and Bylaws....... 8
Section 2.06 Directors..................................... 8
Section 2.07 Officers...................................... 8
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 3.01 Effect on Capital Stock................. 9
Section 3.02 Exchange of Certificates................ 10
<PAGE> 3
ARTICLE IV
REPRESENTATIONS & WARRANTIES OF THE COMPANY
Section 4.01 Organization................................... 13
Section 4.02 Company Subsidiaries; Equity Interests......... 13
Section 4.03 Capitalization................................. 14
Section 4.04 Authority...................................... 15
Section 4.05 Consents and Approvals; No Violations.......... 15
Section 4.06 SEC Documents; Financial Statements............ 16
Section 4.07 Information Supplied........................... 17
Section 4.08 Absence of Certain Changes or Events........... 17
Section 4.09 Litigation..................................... 18
Section 4.10 Contracts...................................... 19
Section 4.11 Compliance with Laws........................... 19
Section 4.12 Environmental Matters.......................... 20
Section 4.13 Absence of Changes in Benefit Plans; Labor
Relations...................................... 21
Section 4.14 ERISA Compliance............................... 21
Section 4.15 Taxes.......................................... 24
Section 4.16 No Excess Parachute Payments................... 25
Section 4.17 Title to Properties............................ 25
Section 4.18 Intellectual Property.......................... 26
Section 4.19 Material Agreements............................ 26
Section 4.20 Voting Requirements............................ 26
Section 4.21 State Takeover Statutes........................ 27
Section 4.22 Brokers; Schedule of Fees and Expenses......... 27
Section 4.23 Opinion of Financial Advisor................... 27
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
Section 5.01 Organization................................... 28
Section 5.02 Authority...................................... 28
Section 5.03 Consents and Approvals; No Violations.......... 28
<PAGE> 4
Section 5.04 Information Supplied........................... 29
Section 5.05 Interim Operations of Sub...................... 30
Section 5.06 Brokers........................................ 30
Section 5.07 Financing...................................... 30
Section 5.08 Section 203.................................... 30
ARTICLE VI
COVENANTS
Section 6.01 Conduct of Business............................ 31
Section 6.02 No Solicitation................................ 34
Section 6.03 Certain Tax Matters............................ 36
Section 6.04 Other Actions.................................. 36
Section 6.05 Advice of Changes; Filings..................... 37
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.01 Company Stockholder Approval; Preparation
of Proxy Statement............................. 37
Section 7.02 Access to Information; Confidentiality......... 39
Section 7.03 Reasonable Efforts; Notification............... 40
Section 7.04 Cooperation.................................... 41
Section 7.05 Stock Option Plans............................. 42
Section 7.06 Indemnification, Exculpation and Insurance..... 43
Section 7.07 Directors...................................... 44
Section 7.08 Fees and Expenses.............................. 44
Section 7.09 FIRPTA Certificate............................. 45
Section 7.10 Public Announcements........................... 45
Section 7.11 Arrangements for Key Employees................. 45
Section 7.12 Stop Transfer.................................. 45
Section 7.13 Credit Facility................................ 46
Section 7.14 Information Agent.............................. 46
<PAGE> 5
ARTICLE VIII
CONDITIONS
Section 8.01 Conditions to Each Party's Obligation to
Effect the Merger........................... 47
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.01 Termination................................. 47
Section 9.02 Effect of Termination....................... 49
Section 9.03 Amendment................................... 50
Section 9.04 Extension; Waiver........................... 50
Section 9.05 Procedure for Termination, Amendment,
Extension or Waiver......................... 50
ARTICLE X
MISCELLANEOUS
Section 10.01 Nonsurvival of Representations, Warranties
and Agreements.............................. 51
Section 10.02 Notices..................................... 51
Section 10.03 Interpretation.............................. 52
Section 10.04 Counterparts................................ 53
Section 10.05 Entire Agreement; Third Party Beneficiaries. 53
Section 10.06 Governing Law............................... 54
Section 10.07 Assignment.................................. 54
Section 10.08 Enforcement................................. 54
Section 10.09 Severability................................ 54
Section 10.10 Compliance with Law......................... 55
Section 10.11 Dispute Resolution.......................... 55
Section 10.12 Mediation................................... 57
Section 10.13 Obligation of Parent........................ 58
<PAGE> 6
EXHIBIT A Conditions of the Offer A-1
<PAGE> 7
AGREEMENT AND PLAN OF MERGER (the Agreement) dated as
of October 3, 1998, among JOHNSON & JOHNSON, a New Jersey
corporation ("Parent"), ET/FM ACQUISITION CORP., a Delaware
corporation ("Sub") and a wholly-owned subsidiary of Parent,
and FEMRX, INC., a Delaware corporation (the "Company").
Preliminary Statement
The respective Boards of Directors of Parent, Sub and the
Company have approved and found advisable this Agreement and the acquisition of
the Company by Parent on the terms and subject to the conditions set forth in
this Agreement. In furtherance of such acquisition, Parent proposes to cause Sub
to make a tender offer to purchase all the outstanding shares of common stock,
par value $0.001 per share, of the Company (the "Company Common Stock"; all the
outstanding shares of Company Common Stock being hereinafter collectively
referred to as the "Shares") at a purchase price of $2.35 per Share (the "Offer
Price"), net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions set forth in this Agreement (as it may be amended from
time to time as permitted under this Agreement, the "Offer"). The Board of
Directors of the Company has adopted resolutions approving the Offer and the
Merger (as defined below), recommending that the Company's stockholders accept
the Offer and approving the acquisition of Shares by Sub pursuant to the Offer.
The respective Boards of Directors of Parent, Sub and the Company have each
approved the merger (the "Merger") of Sub into the Company, upon the terms and
subject to the conditions set forth in this Agreement, whereby each Share, other
than Shares owned directly or indirectly by Parent, Sub or the Company and
Dissenting Shares (as defined in Section 3.01(d)), will be converted into the
right to receive the price per Share paid in the Offer. Parent, Sub and the
Company desire to make certain representations, warranties, covenants and
agreements in connection with the Offer and the Merger and also to prescribe
various conditions to the Offer and the Merger.
Each capitalized term used herein and not otherwise defined
shall have the meaning accorded it under Section 10.03.
<PAGE> 8
NOW, THEREFORE, Parent, Sub and the Company hereby agree as
follows:
ARTICLE I
The Offer
SECTION 1.01. The Offer. (a) Provided that none of the
conditions set forth on Exhibit A hereto shall have occurred and be continuing,
as promptly as practicable but in no event later than five business days after
the date of the public announcement (on the date hereof or the following day) by
Parent and the Company of this Agreement, Sub shall, and Parent shall cause Sub
to, commence (within the meaning of Rule 14d-2 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), the Offer. The obligation of Sub to,
and of Parent to cause Sub to, commence the Offer, conduct and consummate the
Offer and accept for payment, and pay for, any Shares tendered and not withdrawn
pursuant to the Offer shall be subject only to the conditions set forth in
Exhibit A (the "Offer Conditions") (any of which may be waived in whole or in
part by Sub in its sole discretion). Sub expressly reserves the right, subject
to compliance with the Exchange Act, to modify the terms of the Offer, except
that, without the express written consent of the Company, Sub shall not (i)
reduce the number of Shares subject to the Offer, (ii) reduce the Offer Price,
(iii) add to or modify the Offer Conditions, (iv) except as provided in the next
two sentences, extend the Offer, (v) change the form of consideration payable in
the Offer or (vi) amend or alter any other term of the Offer in any manner
adverse to the holders of the Shares. Notwithstanding the foregoing, Sub may,
without the consent of the Company, (A) extend the Offer, if at the scheduled or
any extended expiration date of the Offer any of the Offer Conditions shall not
be satisfied or waived, until such time as such conditions are satisfied or
waived, (B) extend the Offer for any period required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission (the "SEC")
or the staff thereof applicable to the Offer, (C) extend the Offer for up to ten
business days if the Minimum Tender Condition (as defined in Exhibit A) has not
been satisfied as of the scheduled expiration date of the Offer and (D) extend
the Offer for any reason for up to two business days. Without limiting the right
of Sub to extend the Offer pursuant to the immediately preceding sentence, in
the event that (i) the Minimum Tender Condition has not been satisfied or (ii)
any condition set forth in paragraph (a) of Exhibit A is not satisfied at the
scheduled expiration date of the Offer, Sub shall, and Parent shall cause Sub
to, extend the expiration date of the Offer in increments of five business days
each until the earliest to occur of (x) the satisfaction or waiver of the
Minimum Tender Condition or such other condition, or Parent reasonably
determines that any Offer Condition is not capable of being satisfied on or
prior to December 29, 1998, (y) the termination
<PAGE> 9
4
of this Agreement in accordance with its terms and (z) December 29, 1998;
provided, however, that if any person or group (within the meaning of Section
13(d)(3) of the Exchange Act) has publicly made a Takeover Proposal (as defined
in Section 6.02(a)) or disclosed in writing its intention to make a Takeover
Proposal, Sub shall not be required pursuant to this sentence to extend the
Offer for more than 20 business days beyond the date on which such Takeover
Proposal was publicly announced or such intention was disclosed if at the end of
such 20 business day period the Company has given Parent a Notice of Superior
Proposal with respect to the Takeover Proposal. Subject only to the conditions
set forth in Exhibit A, Sub shall, and Parent shall cause Sub to, accept for
payment, and pay for, all Shares validly tendered and not withdrawn pursuant to
the Offer that Sub becomes obligated to accept for payment, and pay for,
pursuant to the Offer as soon as practicable after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (such
Schedule 14D-1, as supplemented or amended from time to time, the "Schedule
14D-1") with respect to the Offer, which shall contain an offer to purchase and
a related letter of transmittal and summary advertisement (such Schedule 14D-1
and the documents included therein pursuant to which the Offer will be made,
together with any supplements or amendments thereto, the "Offer Documents") and
shall mail the Schedule 14D-1 to the stockholders of the Company. Parent and Sub
agree that the Offer Documents shall comply as to form in all material respects
with the Exchange Act and the rules and regulations promulgated thereunder, and
the Offer Documents, on the date first filed with the SEC and on the date
published, sent or given to the Company's stockholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation or warranty is made by Parent or Sub with respect to
written information supplied by the Company or any of its stockholders
specifically for inclusion or incorporation by reference in the Offer Documents.
Parent, Sub and the Company each agrees promptly to correct any written
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading in any material
respect, and Parent and Sub further agree to take all steps necessary to amend
or supplement the Schedule 14D-1 and, as applicable, the Offer Documents and to
cause the Schedule 14D-1 as so amended and supplemented to be filed with the SEC
and the other Offer Documents as so amended and
<PAGE> 10
5
supplemented to be disseminated to holders of Shares, in each case as and to the
extent required by applicable Federal securities laws. The Company and its
counsel shall be given reasonable opportunity to review and comment upon the
Offer Documents prior to their filing with the SEC or dissemination to the
stockholders of the Company. Parent and Sub agree to provide the Company and its
counsel any comments Parent, Sub or their counsel may receive from the SEC or
its staff with respect to the Offer Documents promptly after the receipt of such
comments.
(c) Parent shall provide or cause to be provided to Sub on a
timely basis the funds necessary to purchase any and all Shares that Sub becomes
obligated to purchase pursuant to the Offer.
(d) Sub shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to the Offer such amounts as may be
required to be deducted and withheld with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"), or under any
provision of state, local or foreign tax law; provided, however, that Sub shall
promptly pay any amounts deducted and withheld hereunder to the applicable
governmental authority, shall promptly file all tax returns and reports required
to be filed in respect of such deductions and withholding, and shall promptly
provide to the Company proof of such payment and a copy of all such tax returns
and reports.
SECTION 1.02. Company Actions. (a) Subject to 6.02(b) the
Company hereby approves of and consents to the Offer and represents that the
Board of Directors of the Company, at a meeting duly called and held, duly
adopted resolutions approving this Agreement the Offer and the Merger,
determining that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's stockholders and recommending that the
Company's stockholders accept the Offer, and tender their Shares pursuant to the
Offer. The Company represents that its Board of Directors has received the
opinion of Warburg Dillon Read & Co. Inc. ("WDR") that, as of the date thereof
and based upon and subject to the matters set forth therein, the cash
consideration to be offered by Parent to the holders of the Company's common
stock in the Offer and the Merger is fair, from a financial point of view, to
such stockholders, and a complete and correct signed copy of such opinion has
been delivered by the Company to Parent.
<PAGE> 11
6
(b) Promptly after the date the Offer Documents are filed with
the SEC, the Company shall file with the SEC a Solicitation/ Recommendation
Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as
supplemented or amended from time to time, the "Schedule 14D-9") containing the
recommendation described in Section 1.02(a) and shall mail the Schedule 14D-9 to
the stockholders of the Company. The Schedule 14D-9 shall comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder and, on the date filed with the SEC and
on the date first published, sent or given to the Company's stockholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation or warranty is made by the Company
with respect to written information supplied by Parent or Sub specifically for
inclusion in the Schedule 14D-9. The Company, Parent and Sub each agree promptly
to correct any written information provided by it for use in the Schedule 14D-9
if and to the extent that such information shall have become false or misleading
in any material respect, and the Company further agrees to take all steps
necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule
14D-9 as so amended or supplemented to be filed with the SEC and disseminated to
the Company's stockholders, in each case as and to the extent required by
applicable Federal securities laws. Parent and its counsel shall be given
reasonable opportunity to review and comment upon the Schedule 14D-9 prior to
its filing with the SEC or dissemination to stockholders of the Company. The
Company agrees to provide Parent and its counsel any comments the Company or its
counsel may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments.
(c) In connection with the Offer and the Merger, the Company
shall cause its transfer agent to furnish Sub promptly with mailing labels
containing the names and addresses of the record holders of Shares as of a
recent date and of those persons becoming record holders subsequent to such
date, together with copies of all current lists of stockholders, security
position listings and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Shares, and shall
furnish to Sub such information and assistance (including updated lists of
stockholders, security position listings and computer files) as Parent may
reasonably request in communicating the Offer to the Company's stockholders.
Subject to the requirements of applicable law, and except for such steps as are
necessary to
<PAGE> 12
7
disseminate the Offer Documents and any other documents necessary to consummate
the Merger, Parent and Sub and their agents shall hold in confidence the
information contained in any such labels, listings and files, will use such
information only in connection with the Offer and the Merger and, if this
Agreement shall be terminated, will, upon such termination, promptly deliver,
and will use their best efforts to cause their agents promptly to deliver, to
the Company all copies of such information (and all copies of information
derived therefrom) then in their possession or control.
ARTICLE II
The Merger
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, in accordance with the Delaware General
Corporation Law (the "DGCL") and any other applicable State law, Sub shall be
merged with and into the Company at the Effective Time (as defined in Section
2.03). Following the Effective Time, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL. At the election of Parent, any
direct or indirect wholly-owned subsidiary (as defined in Section 10.03) of
Parent may be substituted for Sub as a constituent corporation in the Merger. In
such event, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect the foregoing.
SECTION 2.02. Closing. The closing of the Merger will take
place at 10:00 a.m. (New York City time) on a date to be specified by the
parties, which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VIII (the "Closing Date"), at
the offices of Johnson & Johnson, One Johnson & Johnson Plaza, New Brunswick, NJ
08933, unless another date, time or place is agreed to in writing by the parties
hereto.
SECTION 2.03. Effective Time. Subject to the provisions of
this Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "Certificate of Merger") executed in accordance with the relevant
provisions of
<PAGE> 13
8
the DGCL and shall make all other filings or recordings required under the DGCL
and other applicable law. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such other time specified in the Certificate of Merger as Sub and the Company
shall agree (the time the Merger becomes effective being hereinafter referred to
as the "Effective Time").
SECTION 2.04. Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL.
SECTION 2.05. Certificate of Incorporation and Bylaws. (a) The
Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), as in effect immediately prior to the Effective Time, shall be
the certificate of incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(b) The bylaws of the Company (the "Bylaws") as in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation, until thereafter changed or amended as provided therein or by
applicable law.
SECTION 2.06. Directors. The directors of Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 2.07. Officers. The officers of Sub immediately prior
to the Effective Time shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
<PAGE> 14
9
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any Shares or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one fully paid
and nonassessable share of Common Stock, par value $0.001 per share, of
the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock.
Each Share that is owned by the Company and each Share that is owned by
Parent or Sub shall automatically be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange
therefor. Each Share that is owned by any direct or indirect
wholly-owned subsidiary of Parent (other than Sub) or the Company shall
remain outstanding without change.
(c) Conversion of Company Common Stock. Subject to Section
3.01(d), each issued and outstanding Share (other than Shares to be
canceled or to remain outstanding in accordance with Section 3.01(b)
and other than Dissenting Shares) shall be converted into the right to
receive from the Surviving Corporation in cash, without interest, the
Offer Price or, if applicable, such greater cash amount as may have
been paid to any holder pursuant to the Offer (the "Merger
Consideration"). As of the Effective Time, all such Shares shall no
longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing
any such Shares shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration, without interest.
<PAGE> 15
10
(d) Shares of Dissenting Stockholders. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding
Shares held by a person (a "Dissenting Stockholder") who has neither
voted in favor of the Merger nor consented in writing thereto and
otherwise complies with all the applicable provisions of applicable
state law concerning the right of holders of Company Common Stock to
dissent from the Merger and require appraisal of their Shares
("Dissenting Shares") shall not be converted as described in Section
3.01(c) but shall be converted into the right to receive such
consideration as may be determined to be due to such Dissenting
Stockholder pursuant to applicable laws. If, after the Effective Time,
such Dissenting Stockholder withdraws his demand for appraisal or fails
to perfect or otherwise loses his right to appraisal, in any case
pursuant to applicable state law, his Shares shall be deemed to be
converted as of the Effective Time into the right to receive the Merger
Consideration. The Company shall give Parent (i) prompt notice of any
demands for appraisal of Shares received by the Company and (ii) if and
after Sub shall have accepted for payment Shares pursuant to and
subject to the Offer Conditions, the opportunity to participate in and
direct all negotiations and proceedings with respect to any such
demands. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
SECTION 3.02. Exchange of Certificates. (a) Paying Agent.
Prior to the Effective Time, Parent shall designate a reputable bank or trust
company to act as paying agent in the Merger (the "Paying Agent"). From time to
time prior to, or on the Effective Time, Parent shall make available, or cause
the Surviving Corporation to make available to the Paying Agent cash in amounts
and at the times necessary for the prompt payment of the Merger Consideration
upon surrender of Certificates (as defined in Section 3.02(b)). Any and all
interest earned on funds made available to the Paying Agent pursuant to this
Agreement shall be turned over to the Parent upon request.
(b) Exchange Procedure. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of record
of a certificate or certificates that immediately prior to the Effective Time
represented Shares (the "Certificates") whose Shares were converted into the
right to receive the Merger Consideration pursuant to Section 3.01, (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to
<PAGE> 16
11
the Certificates shall pass, only upon delivery of the Certificates to the
Paying Agent and shall be in a form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor, and the Paying Agent shall pay pursuant to irrevocable
instructions given by Sub or Parent, the amount of cash into which the Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.01, and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Shares that is not registered in the
transfer records of the Company, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 3.02, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.01. No interest will be paid or will accrue on the cash payable
upon the surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. All
cash paid upon the surrender of Certificates in accordance with the terms of
this Article III shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares theretofore represented by such Certificates. At
the Effective Time, the stock transfer books of the Company shall be closed, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the Shares that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent for any reason,
except notation thereon that a stockholder has elected to exercise his right to
appraisal pursuant to applicable law, they shall be canceled and exchanged as
provided in this Article III.
<PAGE> 17
12
(d) No Liability. Any funds deposited with the Paying Agent
that remain unclaimed by the former stockholders of the Company for one year
after the Effective Time shall be paid to the Surviving Corporation upon demand,
and any former stockholders of the Company who have not theretofore complied
with the instructions for exchanging their Certificates provided herein shall
thereafter look only to the Surviving Corporation for payment of their claims
for the Merger Consideration set forth in Section 3.01 hereof for each Share
held by such stockholder, without any interest thereon. None of Parent, Sub, the
Company or the Paying Agent shall be liable to any person in respect of any cash
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates shall not have been surrendered
prior to seven years after the Effective Time (or immediately prior to such
earlier date on which any payment pursuant to this Article III would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 4.05)), the cash payment in respect of such Certificate shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interests of any person previously
entitled thereto.
(e) Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing Shares shall have been lost, stolen or destroyed, the
Paying Agent shall pay to such holder the Merger Consideration required pursuant
to Section 3.01, in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof with such
assurances as the Paying Agent, in its discretion and as a condition precedent
to the payment of the Merger Consideration, may require of the holder of such
lost, stolen or destroyed Certificates.
(f) Withholding Rights. Parent and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement such amounts as may be required to be
deducted and withheld with respect to the making of such payment under the Code,
or under any provision of state, local or foreign tax law.
<PAGE> 18
13
ARTICLE IV
Representations and Warranties of the Company
Except as disclosed in the SEC Documents (as defined in
Section 4.06) filed or publicly available prior to the date of this Agreement
(the "Filed SEC Documents") or set forth on the Disclosure Schedule delivered by
the Company to Parent prior to the execution of this Agreement (the "Company
Disclosure Schedule"), it being agreed that any matter disclosed in the Company
Disclosure Schedule with respect to any subsection of this Agreement shall be
deemed to have been disclosed with respect to all subsections of this Agreement,
the Company represents and warrants to Parent and Sub as follows:
SECTION 4.01. Organization. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated or
organized and has all requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing individually or in the aggregate would not have a
Material Adverse Effect on the Company. The Company has made available to Parent
complete and correct copies of its Certificate of Incorporation and Bylaws, and
the certificate of incorporation and bylaws or other organizational documents of
each of its subsidiaries, in each case as amended to the date of this Agreement.
SECTION 4.02. Company Subsidiaries; Equity Interests. (a)
Schedule 4.02 hereto lists each subsidiary of the Company. All the outstanding
shares of capital stock of each subsidiary of the Company have been validly
issued and are fully paid and nonassessable and are owned by the Company, free
and clear of all pledges, liens, charges, mortgages, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens") and free of
any other restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests).
<PAGE> 19
14
(b) Except for its interests in its subsidiaries, the Company
does not own, directly or indirectly, any capital stock, membership interest,
partnership interest, limited liability interest, joint venture interest or
other ownership interest in any person.
SECTION 4.03. Capitalization. The authorized capital stock of
the Company consists of 40,000,000 shares of Company Common Stock, par value
$0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per
share ("Company Preferred Stock"). At the close of business on September 30,
1998, (i) 8,933,547 Shares were issued and outstanding, (ii) the Company did not
hold any Shares in its treasury, (iii) 1,441,174 Shares were reserved for
issuance upon exercise of outstanding Company Stock Options under the Stock
Option Plans (each as defined in Section 7.05), (iv) 50,000 Shares were reserved
for issuance upon exercise of a warrant, (v) 1 Share was reserved for issuance
in connection with the ESPP (as defined in Section 7.05(b)) and (vi) no shares
of Company Preferred Stock were issued and outstanding. Except as set forth
above, since September 30, 1998, no shares of capital stock or other voting
securities of the Company were issued, and no other shares of such stock or
securities were reserved for issuance, issuable or outstanding. All outstanding
Shares are, and all Shares which may be issued will be, when issued in
accordance with the terms of the agreements, plans or other documents governing
their issuance, duly authorized, validly issued, fully paid and nonassessable
and not subject to or issued in violation of any purchase option, call option,
right of first refusal, preemptive right, subscription right or any similar
right under any provision of the DGCL, the Certificate of Incorporation or the
Bylaws of the Company or any contract, agreement, arrangement or understanding
to which the Company is a party or otherwise bound. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. Except as set
forth above, there are not any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any of its subsidiaries is a party or by which any of them is bound
obligating the Company or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of the Company or any of its subsidiaries, or securities
convertible into or exercisable for or exchangeable into any such shares, or
obligating the Company to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment,
<PAGE> 20
15
agreement, arrangement or undertaking. There are not any outstanding contractual
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries. Neither the Company nor any of its subsidiaries is a party to any
voting agreement with respect to the voting of any of its securities.
SECTION 4.04. Authority. Except as set forth in Schedule 4.04
of the Company Disclosure Schedule, the Company has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of a majority of the
Shares if required by law (the "Company Stockholder Approval")). The execution,
delivery and performance of this Agreement and the consummation by the Company
of the Merger and of the other transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated (in
each case, other than, with respect to the Merger, the Company Stockholder
Approval if required by law and except as set forth in Schedule 4.04 to the
Company Disclosure Schedule). This Agreement has been duly executed and
delivered by the Company and, assuming this Agreement constitutes a legal, valid
and binding obligation of Parent and Sub, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
SECTION 4.05. Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act (including the
filing with the SEC of the Schedule 14D-9 and a proxy or information statement
relating to any required approval by or meeting of the Company's stockholders
with respect to this Agreement (the "Proxy Statement")), the Merger Control Laws
(as defined below), the DGCL and the laws of other states in which the Company
is qualified to do or is doing business, neither the execution, delivery and
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or the Bylaws of the
Company, (ii) require any filing with, or permit, authorization, consent or
approval of, any Federal, state or local government or any court, tribunal,
administrative agency or commission or other governmental or other
<PAGE> 21
16
regulatory authority or agency, domestic, foreign or supranational (a
"Governmental Entity"), (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its subsidiaries is a party or by which any of them or any
of their properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its subsidiaries or any of their properties or assets, except in the case of
clause (ii), (iii) and (iv) for failures, violations, breaches or defaults that
individually or in the aggregate would not have a Material Adverse Effect on the
Company. "Merger Control Laws" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and all other applicable
bills, acts, decrees, regulations or ordinances relating thereto.
SECTION 4.06. SEC Documents; Financial Statements. The Company
has filed with the SEC all reports, forms, schedules and statements and other
documents required to be filed by it since January 1, 1997 (the "SEC
Documents"). As of their respective filing dates, (i) the SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and (ii) none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any SEC Document has been revised or superseded by
a later-filed SEC Document, none of the SEC Documents contained at the date of
filing any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. There has been no Material Adverse Change with respect to the
Company since the last SEC Document was filed. The financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied
<PAGE> 22
17
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present, in all material respects, the
consolidated financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). Except
as set forth or reflected in the most recent financial statements included in
the Filed SEC Documents, or incurred in the ordinary course of business
consistent with past practice since the date of such statements, neither the
Company nor any of its subsidiaries has any liabilities of any nature (whether
accrued, absolute, contingent or otherwise) which individually or in the
aggregate are reasonably likely to have a Material Adverse Effect on the
Company.
SECTION 4.07. Information Supplied. None of the information
supplied or to be supplied by the Company in writing for inclusion or
incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9,
(iii) the information to be filed by the Company in connection with the Offer
pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information
Statement") or (iv) the Proxy Statement will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. In the case of the
Offer Documents, the Schedule 14D-9 and the Information Statement the foregoing
representation and warranty shall be effective at the respective times the Offer
Documents, the Schedule 14D-9 and the Information Statement are filed with the
SEC and when they are first published, sent or given to the Company's
stockholders. In the case of the Proxy Statement (as it may be amended or
supplemented), the foregoing representation and warranty shall be effective at
the time the Proxy Statement is first mailed to the Company's stockholders and
at the time of the Stockholders Meeting (as defined in Section 7.01). The
Schedule 14D-9, the Information Statement and the Proxy Statement will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, except that no representation or warranty
is made by the Company with respect to statements made or incorporated by
reference therein based on written information supplied by Parent or Sub
specifically for inclusion or incorporation by reference therein.
SECTION 4.08. Absence of Certain Changes or Events. Since the
date of the most recent financial statements included in the Filed SEC
Documents, the Company and its subsidiaries have conducted their respective
<PAGE> 23
18
businesses only in the ordinary course consistent with past practice, and there
has not been (i) any Material Adverse Change in the Company, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
capital stock, (iii) any split, combination or reclassification of any of its
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iv) (A) any granting by the Company or any of its subsidiaries
to any director, officer or key employee (as defined below) of any increase in
compensation, except in the ordinary course of business consistent with past
practice or as was required under employment agreements in effect as of the date
of the most recent financial statements included in the Filed SEC Documents, (B)
any granting by the Company or any of its subsidiaries to any director, officer
or key employee of any increase in severance or termination pay, except as was
required under any employment, severance or termination agreements in effect as
of the date of the most recent financial statements included in the Filed SEC
Documents or (C) any entry by the Company or any of its subsidiaries into, or
amendment of, any employment, severance or termination agreement with any
director, officer or key employee except for employment agreements with Andrew
Thompson and George Savage entered into concurrently herewith, (v) any damage,
destruction or loss to property, whether or not covered by insurance, that
individually or in the aggregate has or might have a Material Adverse Effect on
the Company, (vi) any change in accounting methods, principles or practices by
the Company materially affecting its assets, liabilities or business except
insofar as may have been required by a change in GAAP, or (vii) any tax election
that individually or in the aggregate might have a Material Adverse Effect on
the Company.
SECTION 4.09. Litigation. Except as disclosed in Schedule 4.09
of the Company Disclosure Schedule, there is no suit, action or proceeding
pending or, to the knowledge of the Company, threatened in writing against the
Company or any of its subsidiaries that individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect on the Company, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company having, or which, insofar as
reasonably can be foreseen, in the future could reasonably be expected to have,
a Material Adverse Effect.
<PAGE> 24
19
SECTION 4.10. Contracts. (a) Except as disclosed in the Filed
SEC Documents, there are no contracts or agreements that are material contracts
(as defined in Securities Act Regulation 601(b)(10)) with respect to the Company
and its subsidiaries taken as a whole. Neither the Company nor any of its
subsidiaries is in violation of or in default under (nor does there exist any
condition which, upon the passage of time or the giving of notice or both, would
cause such a violation of or default under) any material lease, permit,
concession, franchise, license or any other contract or agreement to which it is
a party or by which it or any of its properties or assets is bound, except for
violations or defaults that individually or in the aggregate would not result in
a Material Adverse Effect on the Company.
(b) Section 4.10(b) of the Company Disclosure Schedule sets
forth a complete list of each contract or agreement to which the Company or any
of its subsidiaries is a party or bound (A) with any affiliate of the Company
other than any direct or indirect wholly-owned subsidiary of the Company or (B)
that includes any non-competition or similar provisions. The Company has made
available to Parent and its representatives true and correct copies of all the
agreements, contracts and arrangements set forth in Section 4.10(b) of the
Company Disclosure Schedule.
SECTION 4.11. Compliance with Laws. Each of the Company and
its subsidiaries is in compliance with all applicable statutes, laws,
ordinances, regulations, rules, judgments, decrees and orders of any
Governmental Entity applicable to its business or operations, including the
Federal Food, Drug, and Cosmetic Act (the "FDC Act") and regulations of the
Federal Food and Drug Administration (the "FDA"), except for instances of actual
or possible noncompliance that individually or in the aggregate would not have a
Material Adverse Effect on the Company. Except as disclosed in the Filed SEC
Documents, each of the Company and its subsidiaries has in effect all Federal,
state, local and foreign governmental approvals, authorizations, certificates,
filings, franchises, licenses, notices, permits and rights, including all
authorizations under Environmental Laws (as defined in Section 4.12(a))
(collectively, "Permits"), necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, except for
the failure to have such Permits that individually or in the aggregate would not
have a Material Adverse Effect on the Company. There has occurred no default
under any Permit, except for defaults under Permits that individually or in the
aggregate would not have a Material Adverse Effect on the Company. No
<PAGE> 25
20
investigation or review by any Governmental Entity with respect to the Company
or any of its subsidiaries is pending or, to the best knowledge of the Company,
threatened, nor has any Governmental Entity indicated an intention to conduct
any investigation or review, other than, in each case, those the outcome of
which individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect on the Company.
SECTION 4.12. Environmental Matters. (a) None of the Company
or any of its subsidiaries has received written notice that it is not in
compliance with all applicable Environmental Laws, except for actual or possible
noncompliance which individually or in the aggregate would not have a Material
Adverse Effect on the Company. The term "Environmental Laws" means any
applicable and binding Federal, state, provincial, regional, municipal, local or
foreign judgment, order, decree, statute, law, ordinance, rule, regulation,
code, permit, consent, approval, license, writ, decree, directive, injunction or
other enforceable requirement, including any registration requirement, relating
to: (A) Releases (as defined below) or threatened Releases of Hazardous
Materials (as defined below) into the environment; (B) the generation,
treatment, storage, disposal, use, handling, manufacturing, transportation or
shipment of Hazardous Materials; or (C) otherwise relating to pollution or
protection of health or safety or the environment.
(b) There has been no Release or threatened Release of
Hazardous Materials, in, on, under or affecting any property owned, leased or
operated by the Company or any of its subsidiaries or, to the knowledge of the
Company, any adjacent site or any property previously owned, leased or operated
by the Company or any of its subsidiaries, except in each case for those
Releases which individually or in the aggregate would not have a Material
Adverse Effect on the Company. The term "Release" has the meaning set forth in
42 U.S.C. Section 9601(22). The term "Hazardous Materials" means (1) hazardous
substances (as defined in 42 U.S.C. Section 9601(14) (2) petroleum, crude oil
and any fractions thereof, (3) natural gas, synthetic gas and any mixtures
thereof, (4) asbestos or asbestos-containing material, (5) radon and (6)
polychlorinated biphenyls ("PCBs"), or materials or fluids containing PCBs.
(c) Neither the Company nor any of its subsidiaries has
received any notice of a pending or threatened action, demand, investigation or
inquiry by any Governmental Entity or other person relating to any actual or
potential violations of Environmental Law or any actual or potential obligation
to
<PAGE> 26
21
investigate or remediate a Release or threatened Release of any Hazardous
Materials.
(d) Neither the Company nor any of its subsidiaries has
assumed, whether by contract or, to the best of Company's knowledge, operation
of law, any liabilities or obligations arising under Environmental Laws in
connection with formerly owned, leased or operated properties or facilities or
in connection with any formerly owned divisions, subsidiaries, companies or
other entities.
SECTION 4.13. Absence of Changes in Benefit Plans; Labor
Relations. Since the date of the most recent financial statements included in
the Filed SEC Documents, there has not been any adoption or amendment in any
material respect by the Company or any of its subsidiaries of any employment
contract, collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan or arrangement providing
benefits to any current or former employee, officer or director of the Company
or any of its subsidiaries. Except as disclosed in Schedule 4.13 to the Company
Disclosure Schedule, there exist no employment, consulting, severance,
termination or indemnification agreements or arrangements between the Company or
any of its subsidiaries and any current or former key employee, officer or
director of the Company or any of its subsidiaries. There are no collective
bargaining or other labor union agreements to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound. Neither the Company nor any of its subsidiaries had any actual employee
strikes, work stoppages, slowdowns, lockouts or labor union organizing activity
nor, to the best of Company's knowledge, has it been subject to any threatened
employee strikes, work stoppages, slowdowns or lockouts, or labor union
organizing activity.
SECTION 4.14. ERISA Compliance. (a) Schedule 4.14(a) to the
Company Disclosure Schedule contains a list of all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension
Plans"), severance, termination or change in control plans and all other stock
option, stock purchase, equity based, deferred compensation or incentive plans
or programs (in each case, whether or not subject to ERISA) maintained or
contributed to by the Company, any of its subsidiaries or any other person or
entity that, together with the Company and its subsidiaries, is treated as a
single
<PAGE> 27
22
employer under Section 414(b), (c), (m) or (o) of the Code (the Company and each
such other person or entity, a "Commonly Controlled Entity") for the benefit of
any current or former employees, officers or directors of the Company or any of
its subsidiaries (collectively, "Benefit Plans"). The Company has delivered or
made available to Parent true, complete and correct copies of (i) each Benefit
Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof),
(ii) the most recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Benefit Plan (if any such report was required),
(iii) the most recent summary plan description for each Benefit Plan for which
such summary plan description is required, (iv) the most recent financial or
actuarial valuation, if any, prepared with respect to any Benefit Plan and (v)
each trust agreement and group annuity contract relating to any Benefit Plan.
Each Benefit Plan has been administered in all material respects in accordance
with its terms. Each of the Company and its subsidiaries and all the Benefit
Plans are all in compliance in all material respects with applicable provisions
of ERISA, the Code (as applicable to such Plans) and all other applicable laws,
rules or regulations thereunder.
(b) All Pension Plans intended to qualify under Section 401(a)
of the Code have been the subject of determination letters from the Internal
Revenue Service to the effect that such Pension Plans are qualified and exempt
from Federal income taxes under Section 401(a) and 501(a), respectively, of the
Code, and no such determination letter has been revoked nor has any such Pension
Plan been amended since the date of its most recent determination letter or
application therefor in any respect that would adversely affect its
qualification or materially increase its costs. All amendments to Pension Plans
required under ERISA and the Code to be adopted by the Company by the date of
this Agreement have been adopted.
(c) Neither the Company nor its subsidiaries has within the
five-year period immediately preceding the date of this Agreement maintained,
contributed to or been obligated to contribute to any Benefit Plan that is
subject to Title IV of ERISA. Neither the Company nor its subsidiaries is
required to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan where such
withdrawal has resulted or would result in any "withdrawal liability" (within
the meaning of Section 4201 of ERISA) that has not been fully paid. There is no
material unsatisfied liability with respect to any Benefit Plan. No event has
occurred with respect to any Pension Plan, other than a Benefit Plan, maintained
or contributed
<PAGE> 28
23
to by any Commonly Controlled Entity which has resulted or will likely result in
the Company or any of its subsidiaries becoming subject to liability under Title
IV of ERISA or the minimum funding requirements of Section 412 of the Code or
Part 3 of Title I of ERISA, including withdrawal liability with respect to any
multiemployer plan.
(d) With respect to any plan that is an employee welfare
benefit plan of the Company or its subsidiaries, (i) except to the extent
required under Federal "COBRA" law, no such plan provides post-retirement
benefits to former employees and (ii) there are no understandings, agreements or
undertakings, written or oral, that would prevent any such plan (including any
such plan covering retirees or other former employees) from being amended or
terminated without material liability to the Company on or at any time after the
Effective Time.
(e) Schedule 4.14(e) to the Company Disclosure Schedule lists
all outstanding Stock Options as of September 30, 1998, showing for each such
Option: the number of Shares issuable, the date of grant and the exercise price.
(f) No employee of the Company or any of its subsidiaries will
be entitled to any additional compensation or benefits or any acceleration of
the time of payment or vesting of any compensation or benefits under any Benefit
Plan as a result of the transactions contemplated by this Agreement except for
the acceleration of all unvested options disclosed in Schedule 4.14(c) of the
Company Disclosure Schedule. Any equity-related, bonus or incentive compensation
program maintained by the Company or its subsidiaries to provide payments or
benefits to any current or former employee or director of the Company or any of
its subsidiaries satisfies the requirements of Section 162(m) of the Code, to
the extent that such programs reasonably may be expected to provide remuneration
with respect to one or more covered employees in excess of One Million Dollars.
Actions taken by Parent or the Company after the Effective Time shall not be
taken into account for purposes of the preceding sentence.
(g) There are no pending or, to the knowledge of the Company,
threatened claims, suits, investigations or audits involving the Benefit Plans
(other than claims for benefits in the ordinary course).
<PAGE> 29
24
SECTION 4.15. Taxes. (a) Each of the Company and its
subsidiaries has filed all material tax returns and reports required to be filed
by it prior to the date hereof (after giving effect to properly requested
extensions) with respect to the tax periods ending on or before the date hereof,
which tax returns and reports are true, complete and accurate in all material
respects, and has paid all material taxes due and required to be paid by it, and
the most recent financial statements contained in the Filed SEC Documents
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date of
such financial statements. No deficiencies for any taxes which remain
outstanding have been proposed, asserted or assessed in writing against the
Company or any of its subsidiaries, and no requests for waivers of the time to
assess any such taxes are pending. Neither the Company nor any of its
subsidiaries has or will have any material liability with respect to taxes of
any person (other than the Company or any of its subsidiaries) which,
immediately prior to the consummation of the Offer, is an affiliate of the
Company or of any of its subsidiaries.
(b) None of the Federal consolidated income tax returns of the
Company or of any of its affiliates that have joined in the filing of such
returns have been examined by and settled with the United States Internal
Revenue Service for all years through the date hereof.
(c) Except as set forth in Schedule 4.15 to the Company
Disclosure Schedule, none of the Company or any of its subsidiaries is a party
to or is bound by any agreement, arrangement or practice with respect to taxes
(including any tax sharing agreements with any taxing authority). The Company
has delivered to Parent and Sub complete and accurate copies of any such written
agreement, arrangement or practice, and complete and accurate descriptions of
any such oral agreement, arrangement or practice.
(d) The Company is not, and has not been during the five-year
period ending on the date on which the Effective Time occurs, a "United States
real property holding corporation" within the meaning of Section 897(c) of the
Code.
(e) As used in this Agreement, "taxes" shall mean all Federal,
state, local and foreign income, franchise, property, sales, excise, employment,
payroll, social security, value-added, ad valorem, transfer, withholding and
other taxes, tariffs, levies, impositions, assessments or other governmental
<PAGE> 30
25
charges in the nature of a tax as well as any interest, penalties and additions
to tax.
SECTION 4.16. No Excess Parachute Payments. No amount that
would be received, or benefit provided, in connection with any of the
transactions contemplated by this Agreement by any employee, officer or director
of the Company or any of its subsidiaries who is a "disqualified individual" (as
such term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Benefit Plan currently in effect would be an "excess parachute payment" (as
such term is defined in Section 280G(b)(1) of the Code). To the best knowledge
of the Company, no disqualified individual is entitled to receive any additional
payment from the Company or any of its subsidiaries, the Surviving Corporation,
or any other person referred to in Q&A 10 under proposed Treasury Regulation
Section 1.280G-1 (a "Parachute Gross-Up Payment") in the event that the excise
tax of Section 4999(a) of the Code is imposed on such person. The Board of
Directors of the Company has not during the six months prior to the date of this
Agreement granted to any officer, director or employee of the Company any right
to receive any Parachute Gross-Up Payment.
SECTION 4.17. Title to Properties. (a) Each of the Company and
its subsidiaries has good and valid title to, or valid leasehold interests in or
valid rights to, all its material tangible properties and assets except for such
as are no longer used or useful in the conduct of its businesses or as have been
disposed of in the ordinary course of business and except for defects in title,
easements, restrictive covenants and similar encumbrances that individually or
in the aggregate do not materially interfere with its ability to conduct its
business as currently conducted. All such material tangible assets and
properties, other than assets and properties in which the Company or any of its
subsidiaries has a leasehold interest, are free and clear of all Liens except
for Liens that individually or in the aggregate do not materially interfere with
the ability of the Company and its subsidiaries to conduct their respective
businesses as currently conducted.
(b) Each of the Company and its subsidiaries has complied in
all material respects with the terms of all material leases to which it is a
party and under which it is in occupancy, and all such leases are in full force
and effect. Each of the Company and its subsidiaries enjoys peaceful and
undisturbed
<PAGE> 31
26
possession under all such material leases, except for failures to do so that
individually or in the aggregate would not have a Material Adverse Effect on the
Company.
SECTION 4.18. Intellectual Property. Each of the Company and
its subsidiaries owns, or is validly licensed or otherwise has the right to use,
without any obligation to make any fixed or contingent payments, including any
royalty payments, all patents, patent rights, trademarks, trademark rights,
trade names, trade name rights, service marks, service mark rights, copyrights
and other proprietary intellectual property rights and computer programs
(certain of which computer programs may require royalty payments) that are
material to the conduct of its business as now operated (collectively,
"Intellectual Property Rights"), except as disclosed in Schedule 4.18 to the
Company Disclosure Schedule. Schedule 4.18 to the Company Disclosure Schedule
sets forth a description of all patents, trademarks and copyrights and
applications therefor owned by or licensed to the Company or any of its
subsidiaries that are material to the conduct of the business of the Company or
any of its subsidiaries as now operated. Except as disclosed on Schedule 4.18 to
the Company Disclosure Schedule, no claims are pending or, to the knowledge of
the Company, threatened that the Company or any of its subsidiaries is
infringing or otherwise adversely affecting the rights of any person with regard
to any Intellectual Property Right. To the knowledge of the Company, no person
is infringing the rights of the Company or any of its subsidiaries with respect
to any Intellectual Property Right except as disclosed on Schedule 4.18 to the
Company Disclosure Schedule. Neither the Company nor any of its subsidiaries has
licensed, or otherwise granted, to any third party, any rights in or to any
Intellectual Property Rights except as disclosed on Schedule 4.18 to the Company
Disclosure Schedule.
SECTION 4.19. Material Agreements. Schedule 4.19 to the
Company Disclosure Schedule is a complete list of all material contracts or
agreements to which the Company or any of its subsidiaries is a party.
SECTION 4.20. Voting Requirements. Except as set forth in
Schedule 4.20 to the Company Disclosure Schedule, the affirmative vote of the
holders of a majority of the outstanding Shares is the only vote of the holders
of any class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement.
<PAGE> 32
27
SECTION 4.21. State Takeover Statutes. The Board of Directors
of the Company has approved the Merger, this Agreement and the form of
agreements between Parent, Sub and certain stockholders of the Company
(collectively, the "Stockholder Agreements"), and such approval is sufficient to
render inapplicable to the Merger, this Agreement, the Stockholder Agreements
and the transactions contemplated hereby and thereby the provisions of Section
203 of the DGCL.
SECTION 4.22. Brokers; Schedule of Fees and Expenses. (a) No
broker, investment banker, financial advisor or other person, other than WDR,
the fees and expenses of which will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. The amount of such fees and
expenses payable in connection with this Agreement and the transactions
contemplated by this Agreement (other than printing and mailing costs and
expenses), including the fees and expenses of WDR, Ernst & Young LLP, the
Company's independent public accountants, and Cooley Godward LLP, the Company's
legal advisor, will be as set forth on Schedule 4.22(a) to the Company
Disclosure Schedule.
(b) Except as otherwise contemplated by this Agreement, the Company has
no liability for borrowed money. Except as described in Schedule 4.22(b) to the
Company Disclosure Schedule, the Company has no capitalized lease obligations.
SECTION 4.23. Opinion of Financial Advisor. The Board of
Directors of the Company has received the opinion of WDR that, as of the date
thereof and based upon and subject to the matters set forth therein, the cash
consideration to be offered by Parent to the holders of the Company's common
stock in the Offer and the Merger is fair, from a financial point of view, to
such stockholders, a signed copy of which opinion has been delivered to Parent.
<PAGE> 33
28
ARTICLE V
Representations and Warranties
of Parent and Sub
Parent and Sub represent and warrant to the Company as
follows:
SECTION 5.01. Organization. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to carry on its business as now being conducted. Each of Parent
and Sub is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed and
in good standing individually or in the aggregate would not prevent or
materially delay the consummation of the Offer or the Merger. Parent has made
available to the Company complete and correct copies of its certificate of
incorporation and bylaws and the certificate of incorporation and bylaws of Sub,
in each case as amended to the date of this Agreement.
SECTION 5.02. Authority. Parent and Sub have the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement, have been duly authorized by all
necessary corporate action on the part of Parent and Sub and no other corporate
proceedings on the part of Parent and Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. No vote of
Parent stockholders is required to approve this Agreement or the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Sub, and, assuming such agreement constitutes a valid and binding
obligation of the other parties thereto, constitutes a valid and binding
obligation of Parent and Sub enforceable against Parent and Sub in accordance
with its terms.
SECTION 5.03. Consents and Approvals; No Violations. Except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act (including the
<PAGE> 34
29
filing with the SEC of the Offer Documents), the Merger Control Laws, the DGCL
and the laws of other states in which Parent is qualified to do or is doing
business, neither the execution, delivery and performance of this Agreement by
Parent and Sub, nor the consummation by Parent and Sub of the transactions
contemplated hereby and thereby will (i) conflict with or result in any breach
of any provision of the respective certificate of incorporation or bylaws of
Parent or Sub, (ii) require any filing with, or permit, authorization, consent
or approval of, any Governmental Entity, (iii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which any of them or any of their properties or assets may be bound or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent or any of its subsidiaries or any of their properties or
assets, except in the case of clauses (ii), (iii) and (iv) for violations,
breaches or defaults that individually or in the aggregate would not prevent or
materially delay the consummation of the Offer or the Merger.
SECTION 5.04. Information Supplied. None of the information
supplied or to be supplied by Parent or Sub in writing for inclusion or
incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9,
(iii) the Information Statement, or (iv) the Proxy Statement will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. In the
case of the Offer Documents, the Schedule 14D-9 and the Information Statement,
the foregoing representation and warranty shall be effective at the respective
times the Offer Documents, the Schedule 14D-9 and the Information Statement are
filed with the SEC and when they are first published, sent or given to the
Company's stockholders. In the case of the Proxy Statement (as it may be amended
or supplemented), the foregoing representation and warranty shall be effective
at the time the Proxy Statement is first mailed to the Company's stockholders
and at the time of the Stockholders Meeting (as defined in Section 7.01). The
Schedule 14D- 9, the Information Statement and the Proxy Statement will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder, except that no representation or
warranty is made by Parent or Sub with respect to statements
<PAGE> 35
30
made or incorporated by reference therein based on written information supplied
by the Company specifically for inclusion or incorporation by reference therein.
SECTION 5.05. Interim Operations of Sub. Sub (and any other
wholly-owned subsidiary of Parent which may be used to effect the Offer and the
Merger pursuant to Section 2.01) was formed solely for the purpose of engaging
in the transactions contemplated hereby, has engaged in no other business
activities and has conducted its operations only as contemplated hereby.
SECTION 5.06. Brokers. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
SECTION 5.07. Financing. At the expiration of the Offer and at
the Effective Time, Parent and Sub will have available all the funds necessary
to purchase all the Shares pursuant to the Offer and the Merger and to pay all
fees and expenses payable by Parent or Sub related to the transactions
contemplated by this Agreement.
SECTION 5.08. Section 203. Neither Parent nor Sub is an
"interested stockholder" within the meaning of Section 203 of the DGCL. Neither
Parent nor any of Parent's affiliates beneficially owns any Shares.
<PAGE> 36
31
ARTICLE VI
Covenants
SECTION 6.01. Conduct of Business. During the period from the
date of this Agreement to the Effective Time or termination of this Agreement
pursuant to Section 9.01 hereof, except as otherwise contemplated hereby or to
the extent that Parent shall otherwise consent in writing, the Company shall,
and shall cause each of its subsidiaries to, carry on its business in the
ordinary course consistent with past practice and, to the extent consistent
therewith, use reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers, licensors, licensees,
distributors and others having significant business dealings with it. Parent
acknowledges that the announcement of this Agreement may impair the Company's
business or employee relationships. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, or termination of this Agreement pursuant to Section 9.01 hereof, the
Company shall not, and shall not permit any of its subsidiaries to (except as
expressly permitted by this Agreement or as set forth in Schedule 6.01 to the
Company Disclosure Schedule or to the extent that Parent shall otherwise consent
in writing):
(i) other than dividends and distributions by a direct or
indirect wholly-owned subsidiary of the Company to its parent, (A)
declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (B) split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (C) purchase, redeem
or otherwise acquire any shares of its capital stock or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than the issuance of shares of Company Common Stock upon the
exercise of Company Stock Options -- outstanding on the date of this
Agreement in accordance with their present terms or as accelerated as
described in Section 7.05(a) hereof);
<PAGE> 37
32
(iii) amend its Certificate of Incorporation or Bylaws or
other comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets or any stock of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof or (B) except as set forth on Schedule
6.01(iv) to the Company Disclosure Schedule, any assets that are
material, individually or in the aggregate, to the Company, except
purchases of inventory in the ordinary course of business consistent
with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets, except sales of inventory or sales or licenses of immaterial
assets, in each case in the ordinary course of business consistent with
past practice;
(vi) (A) except as otherwise provided in Section 7.13 of this
Agreement and paragraph (h) of Exhibit A, incur or suffer to exist any
indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, or (B) make any
loans, advances (other than to employees of the Company in the ordinary
course of business) or capital contributions to, or investments in, any
other person;
(vii) except as set forth on Schedule 6.01(vii) to the Company
Disclosure Schedule, make or agree to make any capital expenditure or
expenditures with respect to property, plant or equipment in excess of
$25,000 in the aggregate;
(viii) make any material tax election or settle or compromise
any material income tax liability or make any change in accounting
methods, principles or practices, except insofar as may have been
required by a change in generally accepted accounting principles;
<PAGE> 38
33
(ix) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Filed SEC Documents or incurred thereafter in the ordinary course of
business consistent with past practice, or waive any material benefits of,
or agree to modify in any material respect, any confidentiality,
standstill or similar agreements to which the Company or any of its
subsidiaries is a party;
(x) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any
of its subsidiaries is a party, or knowingly waive, release or assign any
material rights or claims;
(xi) enter into any material contracts or agreements relating to the
distribution, sale or marketing by third parties of the products of, or
products licensed by, the Company or any of its subsidiaries;
(xii) except as required to comply with applicable law or
agreements, plans or arrangements existing on the date hereof or as set
forth in Schedule 6.01(xii) of the Company Disclosure Schedule, (A) adopt,
enter into, terminate or amend any employment agreement or Benefit Plan
for the benefit or welfare of any director, officer or current or former
employee, (B) increase in any material respect the compensation or fringe
benefits of, or pay any bonus to, any director, officer or key employee,
(C) pay any material benefit not provided for under any Benefit Plan, (D)
grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Benefit Plan (including the grant of
stock options, stock appreciation rights, stock based or stock related
awards, performance units or restricted stock, or the removal of existing
restrictions in any Benefit Plans or agreement or awards made thereunder
except as provided in Schedule 6.01(xii) of the Company Disclosure
Schedule), or (E) take any action other than in the ordinary course of
business to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement
<PAGE> 39
34
or Benefit Plan or except for the acceleration of Company Stock Options as
described in Section 7.05(a);
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions.
SECTION 6.02. No Solicitation. (a) The Company shall not, and shall
not authorize or permit any of its subsidiaries or any of its or their officers,
directors or employees to, and shall use its reasonable efforts to cause any
investment banker, financial advisor, attorney, accountant or other
representative of the Company or of any of its subsidiaries not to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), 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 Takeover Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; provided, however,
that, in the event that prior to the acceptance for payment of Shares pursuant
to the Offer an unsolicited Takeover Proposal is made and the Board of Directors
of the Company determines in good faith, after consultation with outside
counsel, that failure to do so would be inconsistent with its fiduciary duties
to the Company's stockholders under applicable law, the Company may deliver a
written notice to the effect to Parent and thereafter, subject to compliance
with Section 6.02(c), (x) furnish, pursuant to a confidentiality agreement that
is not less favorable to the Company than the Confidentiality Agreement, dated
September 17, 1998, between the Company and Ethicon, Inc., an Affiliate of
Parent (the "Confidentiality Agreement"), information with respect to the
Company to the person making such unsolicited Takeover Proposal and (y)
participate in discussions or negotiations regarding such Takeover Proposal. For
purposes of this Agreement, "Takeover Proposal" means any proposal or offer from
any person relating to any direct or indirect acquisition or purchase of 50% or
more of the assets of the Company and its subsidiaries, taken as a whole, or 50%
or more of any class of outstanding equity securities of the Company or any of
its subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 50% or more of any class of equity
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination, sale of substantially all the assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries, other than the transactions contemplated by
this Agreement.
<PAGE> 40
35
(b) Except as set forth in this Section 6.02(b), neither the Board
of Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent, the
approval or recommendation by such Board of Directors or such committee of the
Offer, this Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Takeover Proposal or (iii) cause the Company to enter
into any letter of intent, agreement in principle, acquisition agreement or
other agreement (an "Acquisition Agreement") with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to the
acceptance for payment of Shares pursuant to the Offer, the Board of Directors
of the Company determines in good faith, after consultation with outside
counsel, that failure to do so would be inconsistent with its fiduciary duties
to the Company's stockholders under applicable law, the Board of Directors of
the Company may withdraw or modify its adoption, approval or recommendation of
the Offer, this Agreement and the Merger at any time following Parent's receipt
of written notice (a "Notice of Superior Proposal") advising Parent that the
Board of Directors of the Company has received a Superior Proposal. For purposes
of this Agreement, a "Superior Proposal" means any bona fide Takeover Proposal
for all outstanding Shares on terms that the Board of Directors of the Company
determines in its good faith judgment (based on the written opinion of WDR or
another financial advisor of nationally recognized reputation, which opinion
takes into account all the terms and conditions of the Takeover Proposal,
including any break-up fees, expense reimbursement provisions and conditions to
consummation) are not more favorable to the person of persons making such
Takeover Proposal and provide greater present value to all the Company's
stockholders, in each case, than this Agreement, the Offer and the Merger taken
as a whole.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.02, the Company shall immediately
advise Parent orally and in writing of any Takeover Proposal, any request for
information concerning the Company or its subsidiaries in relation to or any
inquiry regarding the making of a Takeover Proposal, and, unless to do so would
be inconsistent with the fiduciary duties of the Board of Directors, the
material terms and conditions of such Takeover Proposal, request for information
or inquiry and the identity of the person making such Takeover Proposal, request
for information or inquiry. The Company will keep Parent fully informed of the
status and, unless to do so would be inconsistent with the
<PAGE> 41
36
fiduciary duties of the Board of Directors to the Company's stockholders under
applicable law, the material terms (including amendments or proposed amendments)
of any such Takeover Proposal, request for information or inquiry.
(d) Nothing contained in this Section 6.02 shall prohibit the
Company from at any time taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act
or from making any disclosure to the Company's stockholders if the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that failure to so disclose would be inconsistent with its
fiduciary duties to the Company's stockholders under applicable law; provided,
however, neither the Company nor its Board of Directors nor any committee
thereof shall, except as permitted by Section 6.02(b) hereof, withdraw or
modify, or propose to withdraw or modify, its position with respect to the
Offer, the Merger or this Agreement or approve or recommend, or propose to
approve or recommend, a Takeover Proposal.
SECTION 6.03. Certain Tax Matters. From the date hereof until the
Effective Time, (i) the Company and each of its subsidiaries will timely file
all tax returns and reports ("Post-Signing Returns") required to be filed (in
each case, at the Company's own cost and expense and in a manner that is
consistent with past practice and that is not likely to materially defer income
to a tax period that ends after the Closing Date or to materially accelerate
deductions to a tax period that ends on or before the Closing Date, except to
the extent that any such deferral of income or acceleration of deductions is
required by applicable law); (ii) the Company and each of its subsidiaries will
timely pay all taxes shown as due and payable on their Post-Signing Returns that
are so filed; (iii) the Company and each of its subsidiaries will make provision
for all taxes payable by the Company and each of its subsidiaries for which no
Post-Signing Return is due prior to the Effective Time; and (iv) the Company
will promptly notify Parent of any action, suit, proceeding, claim or audit
pending against or with respect to the Company or any of its subsidiaries in
respect of any tax where there is a reasonable possibility of a determination or
decision which might have a significant adverse effect on the tax liabilities or
tax attributes of the Company or any of its subsidiaries.
SECTION 6.04. Other Actions. Except as otherwise contemplated by
this Agreement, neither the Company nor any of its subsidiaries, on the one
hand, nor the Parent nor Sub or any of their respective
<PAGE> 42
37
subsidiaries on the other hand, shall take any action that would reasonably be
expected to result in (i) any of the representations and warranties of the
Company on the one hand, or of Parent or Sub on the other hand, set forth in
this Agreement that are qualified as to materiality becoming inaccurate, which
inaccuracy would have a Material Adverse Effect on the Company, (ii) any of such
representations and warranties that are not so qualified becoming inaccurate in
any material respect, which inaccuracy would have a Material Adverse Effect on
the Company or (iii) except as otherwise permitted by Section 6.02, any of the
Offer Conditions not being satisfied.
SECTION 6.05. Advice of Changes; Filings. The Company shall confer
with Parent on a regular and frequent basis as reasonably requested by Parent
concerning operational matters and promptly advise Parent orally and in writing
of any Material Adverse Change with respect to the Company. The Company shall
promptly provide to Parent (or its counsel) copies of all filings made by the
Company with any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE VII
Additional Agreements
SECTION 7.01. Company Stockholder Approval; Preparation of Proxy
Statement. (a) If the Company Stockholder Approval is required by law, the
Company will, as soon as practicable following the acceptance for payment of,
and payment for, Shares by Sub pursuant to and subject to the conditions of the
Offer, duly call, give notice of, convene and hold a meeting of its stockholders
(the "Stockholders Meeting") for the purpose of obtaining the Company
Stockholder Approval. The Company will, through its Board of Directors,
recommend to its stockholders that the Company Stockholder Approval be given,
except to the extent that the Board of Directors of the Company shall have
withdrawn or modified its approval or recommendation of the Offer, this
Agreement or the Merger as permitted by Section 6.02(b). Notwithstanding the
foregoing, if Sub or any other subsidiary of Parent shall acquire at least 90%
of the outstanding Shares, the parties shall, at the request of Parent, take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the expiration of the Offer without a stockholders meeting
in accordance with Section 253 of the DGCL.
<PAGE> 43
38
(b) If the Company Stockholder Approval is required by law, the
Company will, at Parent's request, as soon as practicable following the
expiration of the Offer, prepare and file a preliminary Proxy Statement with the
SEC and will use its best efforts to respond to any comments of the SEC or its
staff and to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after responding to all such comments to
the satisfaction of the staff. The Company will notify Parent promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. If at any time prior to the Stockholders Meeting there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company will promptly prepare and mail to its stockholders and
file with the SEC such an amendment or supplement. The Company will not mail any
Proxy Statement, or any amendment or supplement thereto, to which Parent
reasonably objects; provided, that Parent shall identify its objections and
fully cooperate with the Company to create a mutually satisfactory Proxy
Statement.
(c) Parent agrees to cause all Shares purchased pursuant to the
Offer and all other Shares owned by Parent or any subsidiary of Parent to be
voted in favor of the Company Stockholder Approval.
<PAGE> 44
39
SECTION 7.02. Access to Information; Confidentiality. Upon
reasonable notice, the Company shall, and shall cause each of its subsidiaries
to, afford to Parent, and to Parent's officers, employees, accountants, counsel,
financial advisers and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel (including
consultants and independent public accountants) and records and, during such
period, the Company shall furnish promptly to Parent (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state securities laws and (b)
all other information concerning its business, properties and personnel as
Parent may reasonably request (including patent applications filed or being
prepared to be filed with the U.S. Patent and Trademark Office or analogous
foreign authorities, filings made or proposed to be made with the FDA pursuant
to the FDC Act and applicable regulations of the FDA and all correspondence with
the FDA); provided, however, that the Company shall be required to disclose
information that would otherwise jeopardize protections offered under the
attorney-client privilege or the work-product doctrine or might violate any
confidentiality obligations of the company only to appropriate counsel to the
parties -whose access to such information would not jeopardize such privileges.
Except as required by law, Parent will hold, and will cause its officers,
employees, accountants, counsel, financial advisers and other representatives
and affiliates to hold, any and all information received from the Company or any
of its subsidiaries, directly or indirectly, in confidence, according to the
terms of the Confidentiality Agreement dated September 17, 1998 between the
Company and Ethicon, Inc., an Affiliate of Parent (the "Confidentiality
Agreement").
<PAGE> 45
40
SECTION 7.03. Reasonable Efforts; Notification. (a) Upon the terms
and subject to the conditions set forth in this Agreement, unless, to the extent
permitted by Section 6.02(b), the Board of Directors of the Company approves or
recommends a Superior Proposal, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Offer and the Merger, and the other
transactions contemplated by this Agreement, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of
all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of any of the
transactions contemplated hereby or thereby, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, the Company and its Board of Directors shall (i) take
all reasonable actions available to them to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Offer,
the Merger, this Agreement, or any of the other transactions contemplated by
this Agreement and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to the Offer, the Merger, this Agreement, or any
other transaction contemplated by this Agreement, take all reasonable actions
available to them to ensure that the Offer, the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Offer, the Merger, this
Agreement, and the other transactions contemplated by this Agreement.
Notwithstanding the foregoing, the Board of Directors of the Company shall not
be prohibited from taking any action permitted by Section 6.02(b). Nothing in
this Agreement shall be deemed to require Parent to agree to dispose of any
significant assets or businesses of the Company, Parent or any of their
respective subsidiaries.
<PAGE> 46
41
(b) The Company shall give prompt notice to Parent and Parent or Sub
shall give prompt notice to the Company, of (i) any representation or warranty
made by it contained in this Agreement that is qualified as to materiality
becoming untrue or inaccurate in any respect or any such representation or
warranty that is not so qualified becoming untrue or inaccurate in any material
respect, which untruth or inaccuracy would have a Material Adverse Effect or
(ii) the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement and which failure would have a Material Adverse Effect; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
SECTION 7.04. Cooperation. Without limiting the generality of
Section 7.03, Parent, Sub and Company shall together, or pursuant to an
allocation of responsibility to be agreed between them, coordinate and cooperate
(i) in determining whether any action by or in respect of, or filing with, any
governmental body, agency or official, or authority is required and (ii) in
promptly seeking any such action or permit or making any such filing, furnishing
information required in connection therewith and seeking timely to obtain any
such actions or permits.
<PAGE> 47
42
SECTION 7.05. Stock Option Plans / Employee Stock Purchase Plan. (a)
As soon as practicable after the date of this Agreement, the Board of Directors
of the Company (or, if appropriate, any committee administering the Company
stock option plan) shall adopt such resolutions and take such other actions, if
any, as may be required to adjust the terms of each Company Stock Option listed
in Schedule 4.14(e) of the Company Disclosure Schedule to provide that (i) five
business days prior to the earliest date on which Sub can purchase any Shares
pursuant to the Offer (and contingent upon such purchase), such option shall
vest and become exercisable in full, (ii) upon the consummation of the Offering
each outstanding option to purchase Shares (a "Company Stock Option") heretofore
granted under any stock option, stock appreciation right, stock purchase program
or arrangement of the Company (other than the Employee Stock Purchase Plan
("ESPP") which is dealt with in Section 7.05(b)) that is outstanding immediately
prior to the consummation of the Offer, whether or not then exercisable, shall
be cancelled concurrently with (and contingent upon) the consummation of the
Offering. The Company (or, if appropriate, the Board of Directors of the Company
or any committee administering the Stock Option Plans) shall take actions such
that immediately prior to the Effective Time the Company Stock Options set forth
on Schedule 4.14(c) to the Company Disclosure Schedule are canceled as set forth
above. The Company shall not make, or agree to make, any payment of any kind to
any holder of a Company Stock Option without the consent of Parent.
(b) As of the date of the consummation of the Offering (and
contingent thereon), the ESPP shall terminate. All funds deposited with the
Company in connection with the ESPP shall be returned to the respective
participant, without interest, as soon as practicable after the consummation of
the Offering. Prior to the consummation of the Offering, the Company shall take
all actions (including, if appropriate, amending the terms of the ESPP) that are
necessary to give effect to the transactions contemplated by this Section
7.05(b).
(c) Subject to Section 7.05(a), all Stock Option Plans shall
terminate as of the Effective Time and the provisions in any other Benefit Plan
providing for the issuance, transfer or grant of any capital stock of the
Company or any interest in respect of any capital stock of the Company shall be
deleted as of the Effective Time. The Company shall ensure that following the
consummation of the Offer no holder of a Company Stock Option or any participant
in any Stock Option Plan shall have any right thereunder to acquire any capital
stock of the Company, Parent or the Surviving Corporation, and the
<PAGE> 48
43
Company shall use its reasonable best efforts to ensure that following the
Effective Time, no holder of a Company Stock Option set forth on Schedule
4.14(c) to the Company Disclosure Schedule or any participant in any Stock
Option Plan shall have any right thereunder to acquire any capital stock of the
Company, Parent or the Surviving Corporation.
SECTION 7.06. Indemnification, Exculpation and Insurance. (a)
Through the sixth anniversary of the Effective Time, Parent shall maintain in
effect for the benefit of current or former directors and officers of the
Company, the current level and scope of directors' and officers' liability
insurance policies; provided, however, that in no event shall Parent be required
to expend an aggregate amount in excess of One Hundred Fifty Thousand Dollars
($150,000.00) for such insurance, it being understood that if the aggregate
premium payable for such insurance coverage exceeds such amount, Parent shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount. (b) Parent agrees that all rights to indemnification and
exculpation (including the advancement of expenses) from liabilities for acts or
omissions occurring at or prior to the time of the consummation of the offer
(including with respect to the transactions contemplated by this Agreement)
existing now or at the time of the consummation of the offer in favor of the
current or former directors or officers of the Company as provided in its
Certificate of Incorporation, its Bylaws (each as in effect on the date hereof)
and indemnification agreements shall be assumed and performed by the Surviving
Corporation in the Merger, without further action, as of the time of the
consummation of the offer and shall survive the Merger and shall continue in
full force and effect without amendment, modification or repeal in accordance
with their terms; provided, however, that if any claims are asserted or made
during the continuance of such terms, all rights to indemnification (and to
advancement of expenses) hereunder in respect of any such claims shall continue,
without diminution, until disposition of any and all such claims.
(c) In the event that Parent, the Surviving Corporation or any of
their successors or assigns (i) consolidates with or merges into any other
person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person, then, and in each such case, proper
provision will be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall expressly assume the
obligations set forth in this Section 7.06. In the event the Surviving
Corporation transfers any material
<PAGE> 49
44
portion of its assets, in a single transaction or in a series of transactions,
Parent will either guarantee the indemnification obligations referred to in
Section 7.06(a) or take such other action to insure that the ability of the
Surviving Corporation, legal and financial, to satisfy such indemnification
obligations will not be diminished in any material respect.
(d) The provisions of this Section 7.06 (i) are intended to be for
the benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 7.07. Directors.
Promptly upon the acceptance for payment of, and payment for, any
Shares by Sub pursuant to the Offer, the number of directors on the Board of
Directors of the Company shall be reduced to five (5) and Sub shall be entitled,
subject to compliance with Section 14(f) of the Exchange Act, to designate three
(3) of such number of directors on the Board of Directors of the Company, such
that Sub will control a majority of such directors, and the Company and its
Board of Directors shall, at such time, take all such action needed to cause
Sub's designees to be appointed to the Company's Board of Directors. Subject to
applicable law, the Company shall take all action requested by Parent necessary
to effect any such election, including mailing to its stockholders the
Information Statement containing the information required by Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company agrees
to make such mailing with the mailing of the Schedule 14D-9 (provided that Sub
shall have provided to the Company on a timely basis all information required to
be included in the Information Statement with respect to Sub's designees).
SECTION 7.08. Fees and Expenses. (a) All fees and expenses incurred
in connection with the Offer, the Merger, this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such fees or
expenses, whether or not the Offer or the Merger is consummated. The Company
shall use reasonable efforts to cause each firm described in Section 4.22(a) to
render a final bill for its services in connection with the this Agreement and
related transactions on the day prior to the date then most-recently set for the
consummation of the purchase of the Shares pursuant to the
<PAGE> 50
45
Tender Offer, and the legal fees set forth in Schedule 4.22(a) to the Company
Disclosure Schedule plus reasonable expenses incurred to such date shall be paid
on the date of the consummation of the Offer.
SECTION 7.09. FIRPTA Certificate. The Company shall deliver to
Parent and Sub a certificate in form and substance satisfactory to Parent, duly
executed and acknowledged, certifying facts that would exempt the transactions
contemplated hereby from withholding pursuant to the provisions of the Foreign
Investment in Real Property Tax Act.
SECTION 7.10. Public Announcements. Parent and Sub, on the one hand,
and the Company, on the other hand, will consult with each other before issuing,
and provide each other with a reasonable opportunity to review and comment upon,
any press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Offer and the Merger, and shall
not issue, or permit any of their respective subsidiaries to issue, any such
press release or make any such public statement prior to such consultation,
except as may be required by applicable law, court process or by obligations
pursuant to any listing agreement with any national securities exchange or
national securities quotation system, in which case the party making such
release will use reasonable efforts to obtain comments from the other party
before issuance of such release or statement. The parties agree that the initial
press release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties.
SECTION 7.11. Arrangements for Key Employees. At and after the date
hereof, the Company shall cooperate with Sub as may reasonably be required to
encourage key employees to enter into agreements acceptable to such key
employees and to Sub relating to their employment with the Company at and after
the Effective Time if the Merger shall be consummated. The foregoing provisions
of this Section 7.11 shall not, however, require that Sub or Parent or both
proceed with or consummate the Offer or the Merger except upon satisfaction of
and in accordance with the express terms and conditions of this Agreement
(including without limitation Exhibit A hereto).
SECTION 7.12. Stop Transfer. The Company shall not register the
transfer of any certificate representing any Subject Shares (as defined in the
Stockholder Agreements), unless such transfer is made to Parent or Sub or
otherwise in compliance with the Stockholder Agreements. The Company will
<PAGE> 51
46
inscribe upon any certificates representing Subject Shares tendered by a
Stockholder (as defined in the Stockholder Agreements) for such purpose the
following legend: "The shares of Common Stock, $0.001 par value, of FemRx, Inc.
represented by this certificate are subject to a Stockholder Agreement dated as
of October 3, 1998, and may not be sold or otherwise transferred, except in
accordance therewith. Copies of such Agreement may be obtained at the principal
executive offices of FemRx, Inc."
SECTION 7.13 Credit Facility. Sub shall establish a credit facility
to provide loans to the Company in an aggregate amount of up to Three Million
Five Hundred Thousand Dollars ($3,500,000.00) for working capital needs from the
date hereof to the date on which the Stockholder Agreements terminate pursuant
to their terms. Such advances shall be documented by a promissory note payable
to the order of Sub in such form as Sub may reasonably request. Such facility
shall provide that the Company may require advances of up to Two Hundred Fifty
Thousand Dollars ($250,000.00) every two weeks, commencing on November 2, 1998,
provided that (i) Company is not then in default under this Agreement (provided
that the foregoing condition shall be deemed waived in the event that the
Company shall have terminated this Agreement pursuant to Section 9.01(g)
hereof), (ii) Company shall not have provided to Sub a Notice of Superior
Proposal, and (iii) this Agreement shall not have been terminated by any of the
parties in accordance with its terms other than by the Company as permitted
pursuant to Section 9.01(g) hereof. The aggregate principal amount of all such
advances shall be payable to Sub in cash on December 31, 1999 by wire transfer
of immediately available funds. Interest shall accrue on each such advance from
the date of such advance to the date of repayment at a per annum rate equal to
Prime plus two percent. Interest shall be payable quarterly beginning April 1,
1999 and at maturity. All such advances and accrued interest shall be secured by
a first priority security interest in all of the Company's patents. The Company
shall cooperate with Sub as may reasonably be required to document, record,
file, maintain and perfect such security interest. Any advances made by Sub to
the Company under this provision shall be deemed disclosed in the Company
Disclosure Schedule.
SECTION 7.14 Information Agent. Parent shall or shall cause Sub to
engage a reputable agent, such as D.F. King or Georgeson & Co. to provide
information to stockholders of the Company with respect to the Offer subsequent
to its commencement and to encourage stockholders to tender their shares to the
Offer. The fees and expenses of such agent shall be borne by
<PAGE> 52
47
Parent or Sub, but Parent and Sub together shall not be required to spend in the
aggregate more than $25,000 for such fees and expenses.
ARTICLE VIII
Conditions
SECTION 8.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction or waiver prior to the Closing Date of the following
conditions:
(a) Company Stockholder Approval. If required by applicable law, the
Company Stockholder Approval shall have been obtained; provided that
Parent and Sub shall vote all their Shares in favor of the Merger.
(b) No Injunctions or Restraints. No statute, rule, decision,
regulation, executive order, decree, temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other Governmental Entity or other legal
restraint or prohibition preventing the consummation of the Merger shall
be in effect; provided, however, that the party seeking to invoke such
condition shall have performed its obligations under Sections 7.03 and
7.04.
(c) Purchase of Shares. Sub shall have previously accepted for
payment and paid for Shares pursuant to the Offer.
ARTICLE IX
Termination and Amendment
SECTION 9.01. Termination. This Agreement may be terminated
at any time prior to the Effective Time, whether before or after approval of the
terms of this Agreement by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
<PAGE> 53
48
(b) by either Parent or the Company:
(i) if, as the result of the failure of any of the conditions
set forth in Exhibit A to this Agreement, Sub shall have terminated
the Offer in accordance with its terms without Sub having purchased
any Shares pursuant to the Offer; provided, however, that the right
to terminate this Agreement pursuant to this Section 9.01(b)(i)
shall not be available to any party whose failure to fulfill any of
its obligations under, or breach of any provisions of, this
Agreement or results in the failure of any such condition;
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the acceptance for payment of,
or payment for, Shares pursuant to the Offer or the Merger and such
order, decree or ruling or other action shall have become final and
nonappealable; provided, however, that the Party seeking to
terminate this Agreement pursuant to this Section 9.01(b)(ii) shall
have performed its obligations under Section 7.03 and 7.04.
(c) by the Company if (i) the Company shall have given Parent a
Notice of Superior Proposal with respect to a Takeover Proposal, (ii) at
least five business days later, the Board of Directors of the Company
shall have determined in good faith (based on the written opinion of WDR
or another financial advisor of nationally recognized reputation, which
opinion takes in account all the terms and conditions of the Takeover
Proposal including any break-up fees, expense reimbursement provision and
conditions to consummation) that the terms of such Takeover Proposal are
not more favorable to the person or persons making such Takeover Proposal
and provide greater present value to all the Company's stockholders, in
each case, than this Agreement, the Offer and the Merger taken as a whole
in light of any improved terms proposed by Parent or Sub prior to the
expiration of such five business day period, and (iii) the Company shall
have paid to Parent the fee required pursuant to Section 9.02;
(d) by Parent or Sub prior to Sub's obligation to accept Shares for
payment pursuant to the Offer in the event of a breach by the Company of
any representation, warranty, covenant or other agreement contained in
<PAGE> 54
49
this Agreement which (i) would give rise to the failure of a condition set
forth in paragraph (d) or (e) of Exhibit A and (ii) cannot be or has not
been cured within 20 days after the giving of written notice to the
Company;
(e) by the Company, if Sub or Parent shall have (A) failed to
commence the Offer within five business days after the public announcement
(on the date hereof or the following day) by Parent and the Company of
this Agreement, (B) failed to pay for Shares pursuant to the Offer in
accordance with Section 1.01(a) hereof or (C) breached in any material
respect any of their respective representations, warranties, covenants or
other agreements contained in this Agreement, which breach or failure to
perform in respect of clause (C) is incapable of being cured or has not
been cured within 20 days after the giving of written notice to Parent or
Sub, as applicable, except, in any case under clause (C), such breaches
and failures which individually or in the aggregate are not reasonably
likely to affect adversely Parent's or Sub's ability to complete the Offer
or the Merger subject to the terms and conditions of this Agreement;
(f) by Parent if (i) Parent shall not have materially breached this
Agreement and (ii) the Company's Board of Directors shall have failed to
recommend that the Company's stockholders accept the Offer or shall have
withdrawn or amended, in a manner materially adverse to Parent, its
recommendation that the Company's stockholders accept the Offer, or shall
have recommended acceptance of any Superior Proposal; or
(g) by the Company if the Offer shall not have been consummated by
December 30, 1998.
SECTION 9.02. Effect of Termination. In the event of a termination
of this Agreement by either the Company or Parent as provided in Section 9.01,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except with respect to the last sentence of Section
1.02(c), Section 5.06, the last sentence of Section 7.02, Section 7.08, Section
7.13, this Section 9.02 and Article X; provided, however, that nothing herein
shall relieve any party for liability for any willful and intentional breach
hereof. Further, if Parent and Sub shall terminate this Agreement as a result of
<PAGE> 55
50
a breach by the Company of any of the provisions of Section 6.02(a) or (b), or
the Company shall terminate this Agreement pursuant to Section 9.01(c), the
Company shall pay to Parent the amount of Eight Hundred Eighty Thousand Dollars
($880,000.00) as liquidated damages and not as a penalty. The parties agree that
such amount is a reasonable estimate of the costs and expenses that would be
incurred and the value of services consumed by and on behalf of Parent and Sub
if the transactions contemplated hereunder were not to go forward as a result of
such a breach.
SECTION 9.03. Amendment. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after obtaining the Company Stockholder
Approval (if required by law), but, after any such approval, no amendment shall
be made which by law requires further approval by such shareholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
SECTION 9.04. Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) subject
to Section 9.03, waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.
SECTION 9.05. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 9.01, an amendment
of this Agreement pursuant to Section 9.03 or an extension or waiver pursuant to
Section 9.04 shall, in order to be effective, require in the case of Parent, Sub
or the Company, action by its Board of Directors or the duly authorized designee
of its Board of Directors; provided, however, that in the event that Sub's
designees are appointed or elected to the Board of Directors of the Company as
provided in Section 7.07, after the acceptance for payment and payment of Shares
pursuant to and subject to the Conditions of the Offer and
<PAGE> 56
51
prior to the Effective Time, the affirmative vote of a majority of the directors
of the Company that were not designated by Parent or Sub shall be required by
the Company to (i) amend or terminate this Agreement by the Company, (ii)
exercise or waive any of the Company's rights or remedies under this Agreement,
(iii) extend the time for performance of Parent's and Sub's respective
obligations under this Agreement or (iv) take any action to amend or otherwise
modify the Company's Certificate of Incorporation or Bylaws.
ARTICLE X
Miscellaneous
SECTION 10.01. Nonsurvival of Representations, Warranties and
Agreements. Except as otherwise provided in this Section 10.01, none of the
representations, warranties or covenants in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time or, in the
case of the Company, shall survive the acceptance for payment of, and payment
for, any Shares by Sub pursuant to the Offer. This Section 10.01 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 10.02. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
by facsimile (which is confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses or by facsimile numbers (or at such
other address or facsimile number for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Attention: General Counsel
Facsimile No.: (732) 524-2788
<PAGE> 57
52
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Robert A. Kindler, Esq.
Facsimile No.: (212) 474-3700
and
(b) if to the Company, to
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
Attention: President
Facsimile No.: (408) 752-8590
with a copy to:
Cooley Godward LLP
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, CA 94025
Attention: Craig E. Dauchy
Facsimile No.: (650) 854-2691
SECTION 10.03. Interpretation. When a reference is made in this
Agreement to an Article or a Section, such reference shall be to an Article or a
Section of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement,
including Exhibit A, they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, including Exhibit A, the term
"subsidiary" of any person means another person whether foreign or domestic, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
<PAGE> 58
53
of Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person. As used in this Agreement, a corporate party's "knowledge"
means the actual knowledge of any director or executive officer. As used in this
Agreement, including Exhibit A, the term "affiliate" of any person means any
person, whether foreign or domestic, that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, such first person. As used in this Agreement, including Exhibit A, the
term "key employee" shall mean those employees identified in a separate letter
dated approximately the date hereof from Sub to the Company. As used in this
Agreement, including Exhibit A, "Material Adverse Effect" means, when used in
connection with the Company, any effect that is materially adverse to the
business, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or would prevent or materially delay the
consummation of the Offer or the Merger; provided, however, that in determining
whether there has been a "Material Adverse Effect on the Company," the following
shall be disregarded: any material adverse effect that results substantially
from (i) the taking of any action required by this Agreement, (ii) the breach by
Parent of this Agreement, (iii) the announcement or pendancy of the Offer, the
Merger or any of the transactions contemplated by this Agreement or (iv) any
decline in the Company's stock price (which shall not, in and of itself,
constitute a "Material Adverse Effect"). As used in this Agreement, including
Exhibit A, "Material Adverse Change" means any change that is reasonably likely
to have a Material Adverse Effect. "Prime" shall mean the rate per annum
announced by The Chase Manhattan Bank, New York, NY as its prime rate, as such
rate shall change from time to time.
SECTION 10.04. Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
SECTION 10.05. Entire Agreement; Third Party Beneficiaries. This
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein) (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided
<PAGE> 59
54
in Article III and Section 7.06 and Section 7.11, are not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
SECTION 10.06. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware regardless
of the laws that might otherwise govern under applicable principles of conflicts
of law thereof.
SECTION 10.07. Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned, in whole or in
part, by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Parent or to any direct or indirect wholly-owned
subsidiary of Parent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 10.08. Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in a Delaware state court
pursuant to Section 10.11(g) below. With Respect to any such court proceeding,
each of the parties hereto (i) consents to submit such party to the personal
jurisdiction of any Federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that such party will not
bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other than a Federal court sitting in the State
of Delaware or a Delaware state court and (iv) waives any right to trial by jury
with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
SECTION 10.09. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
<PAGE> 60
55
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
SECTION 10.10. Compliance with Law. Nothing in this Agreement,
including Section 1.02 or 6.02, shall in any way prevent the Company or the
Board of Directors of the Company from making any disclosure to the stockholders
of the Company, or taking any position, that is required by Federal or state
law. Nothing in this Agreement, including Section 6.01, shall require the
Company or any of its subsidiaries to take any action prohibited by, or refrain
from taking any action required by, applicable Merger Control Laws.
SECTION 10.11. Dispute Resolution
(a) Notwithstanding the provision of Section 10.08 above, any
dispute, claim or controversy arising from or related in any way to this
Agreement or the interpretation, application, breach, termination or validity
thereof, including without limitation any claim of inducement of this agreement
by fraud or otherwise, or to any transactions contemplated thereby shall be
submitted for resolution to arbitration pursuant to the commercial arbitration
rules then pertaining of the Center for Public Resources ("CPR"), New York, NY,
except where those rules conflict with these provisions, in which case these
provisions control. The arbitration shall be held in Dover, Delaware unless the
parties agree otherwise.
(b) The arbitration panel shall consist of three arbitrators chosen
from the CPR Panels of Distinguished Neutrals for Delaware each of whom shall be
either (1) a lawyer specializing in business litigation with at least 15 years
experience with a law firm having more than 25 lawyers or (2) a judge of a court
of general jurisdiction in Delaware. Notwithstanding the foregoing, in the event
the aggregate damages sought by the claimant are stated to be less than Five
Million Dollars, and the aggregate damages sought by the counterclaimant are
stated to be less than Five Million Dollars, and neither party seeks equitable
relief, then a single arbitrator shall be chosen, having the same qualifications
and experience specified above.
<PAGE> 61
56
(c) The parties agree to cooperate (1) to obtain selection of the
arbitrator(s) within 30 days after initiation of the arbitration, (2) to meet
with the arbitrator(s) within 30 days after selection and (3) to agree at that
meeting or before upon procedures for discovery and as to the conduct of the
hearing which shall result in the hearing being concluded within no more than 9
months after selection of the arbitrator(s) and in the award being rendered
within 60 days after the conclusion of the hearings, or of any post-hearing
briefing, which briefing shall be completed by both sides within 20 days after
the conclusion of the hearings. In the event no such agreement is reached, the
CPR shall select arbitrator(s), allowing appropriate strikes for reasons of
conflict or other cause and three peremptory challenges for each side. The
arbitrator(s) shall set a date for the hearing, commit to the rendering of the
award within 60 days after the conclusion of the presentation of evidence at the
hearing, or of any post-hearing briefing (which briefing shall be completed by
both parties in no more than 20 days after the conclusion of the hearings), and
provide for discovery according to these time limits, giving recognition to the
understanding of the parties hereto that they contemplate reasonable discovery,
including document demands and depositions, but that such discovery be limited
so that the time limits specified herein may be met without undue difficulty. In
no event shall the arbitrator(s) allow either side to obtain more than a total
of 40 hours of deposition testimony from all witnesses, including both fact and
expert witnesses. In the event multiple hearing days are required, they shall be
scheduled consecutively to the greatest extent possible.
(d) The arbitrator(s) shall be bound by, and this Agreement shall be
governed by, the substantive law of Delaware, exclusive of conflict of laws
rules. Further, the arbitrator(s) shall be bound by the express terms of this
Agreement. The arbitrator(s) shall render a written opinion setting forth
findings of fact and conclusions of law with the reasons therefor stated. A
transcript of the evidence adduced at the hearing shall be made and shall, upon
request, be made available to each party.
(e) To the extent possible, the arbitration hearings and award shall
be maintained in confidence.
(f) The United States District Court for the District of Delaware
may enter judgment upon any award. In the event the panel's award exceeds Five
Million Dollars in monetary damages or includes or consists of equitable
<PAGE> 62
57
relief, then such court shall vacate, modify or correct any award where the
arbitrator's or arbitrators' findings of fact are clearly erroneous, and/or
where the arbitrators' conclusions of law are erroneous. It is the intention of
the parties that such court shall undertake the same review as if it were a
Federal appellate court reviewing a district court's findings of fact and
conclusions of law rendered after a bench trial. An award for less than Five
Million Dollars in damages and not including equitable relief may be vacated,
modified or corrected only upon the grounds for such an action specified in the
Federal Arbitration Act. The parties consent to the jurisdiction of the
above-specified Court for the enforcement of these provisions, the entry of
judgment on any award, and the vacatur, modification and correction of any award
as above specified. In the event such Court lacks jurisdiction, then any court
having jurisdiction of this matter may enter judgment upon any award and provide
the same relief, and undertake the same review, as specified herein.
(g) Each party has the right before or during the arbitration to
seek and obtain from the appropriate court provisional remedies such as
attachment, preliminary injunction, replevin, etc. to avoid irreparable harm,
maintain the status quo, or preserve the subject matter of the arbitration.
(h) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE BY
JURY.
(i) EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE OR EXEMPLARY
DAMAGES FROM THE OTHER.
(j) EACH PARTY HERETO WAIVES ANY CLAIM OF CONSEQUENTIAL DAMAGES FROM
THE OTHER UNLESS (1) THE FORESEEABILITY OF SUCH DAMAGES AT THE TIME OF THE
CONTRACT AND (2) THE AMOUNT OF SUCH DAMAGES ARE PROVEN BY CLEAR AND CONVINCING
EVIDENCE.
SECTION 10.12. Mediation. (a) Any dispute, controversy or claim
arising out of or related to this agreement, or the interpretation, application,
breach, termination or validity thereof, including any claim of inducement by
fraud or otherwise, or any transaction contemplated hereby which claim would,
but for this provision, be submitted to arbitration pursuant to Section 10.11
above shall, before submission to arbitration, first be mediated
<PAGE> 63
58
through non-binding mediation in accordance with the Model Procedures for the
Mediation of Business Disputes then in effect promulgated by the Center for
Public Resources ("CPR"), except where those rules conflict with the provisions
of this Agreement, in which case these provisions control. The mediation shall
be conducted in Dover, Delaware and shall be attended by a senior executive of
each party to this Agreement with authority to resolve the dispute.
(b) The mediator shall be appointed from the list of neutrals
maintained by CPR and shall be either (1) an attorney specializing in business
litigation who has at least 15 years of experience as a lawyer with a law firm
having more than 25 lawyers, or (2) a former judge of a court of general
jurisdiction.
(c) The parties shall promptly confer in an effort to select a
mediator by mutual agreement. In the absence of such an agreement, the mediator
shall be selected from a list generated by CPR with each party having the right
to exercise challenges for cause and two peremptory challenges within 72 hours
of receiving the CPR list.
(d) The mediator shall confer with the parties to design procedures
to conclude the mediation within no more than 45 days after initiation. Under no
circumstances shall the commencement of arbitration under Section 10.11 above be
delayed more than 45 days by the mediation process specified herein.
(e) Each party agrees to toll all applicable statutes of limitation
during the mediation process and not to use the period or pendancy of the
mediation to disadvantage the other party procedurally or otherwise. No
statements made by either side during the mediation may be used by the other
during any subsequent arbitration or other proceedings.
(f) Each party has the right to pursue from any court of competent
jurisdiction provisional relief, such as attachment, preliminary injunction,
replevin, etc., to avoid irreparable harm, maintain the status quo, or preserve
the subject matter of the arbitration, even though mediation has not been
commenced or completed.
SECTION 10.13. Obligation of Parent. Parent shall cause Sub and the
Surviving Corporation to have sufficient resources to perform, satisfy and
discharge on a timely basis each of the covenants, obligations and liabilities
of Sub and the Surviving Corporation under this Agreement.
<PAGE> 64
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
JOHNSON & JOHNSON,
By:/s/ James Lenehan
________________________________
Name: James Lenehan
Title: Member, Executive Committee
ET/FM ACQUISITION CORP.,
By:/s/ Philip P. Crowley
________________________________
Name: Philip P. Crowley
Title: Vice President
FEMRX, INC.,
By:/s/ Andrew M. Thompson
________________________________
Name: Andrew M. Thompson
Title: President, Chief Executive Officer
<PAGE> 65
EXHIBIT A Conditions of the Offer A-1
<PAGE> 66
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares tendered pursuant
to the Offer unless the number of Shares tendered and not withdrawn not later
than the date of expiration of the Offer, shall equal at least 90% of the Fully
Diluted Shares (defined below) (such number of Shares, the "Minimum Tender
Condition"). For purposes of this Agreement: (i) "Fully Diluted Shares" shall
mean all outstanding securities entitled generally to vote in the election of
directors of the Company after giving effect to the exercise or conversion of
all options, rights and securities exercisable or convertible into such voting
securities with exercise or conversion prices at or below the Offer Price, and
(ii) both "Shares tendered" and "Fully Diluted Shares" shall include those
shares that would be received upon the exercise of stock options contingently
tendered to the Offer. Furthermore, notwithstanding any other term of the Offer,
Sub shall not be required to accept for payment or, subject as aforesaid, to pay
for any Shares not theretofore accepted for payment or paid for, and may
terminate the Offer if, at any time on or after the date of this Agreement and
before the acceptance of such Shares for payment or the payment therefor, any of
the following conditions exists:
(a) there shall be issued by any U.S. Federal or state court of
competent jurisdiction in connection with any legal proceeding, any order
or ruling (that has not been vacated, withdrawn or overturned), (i)
restraining or prohibiting the acquisition by Parent or Sub of any Shares
under the Offer or pursuant to the Stockholder Agreements or the making or
consummation of the Offer or the Merger or the performance of any of the
other transactions contemplated by this Agreement or the Stockholder
Agreements, or obtaining from the Company, Parent or Sub any damages in
connection with the aforesaid transactions that are material in relation
to the Company and its subsidiaries taken as a
1
<PAGE> 67
whole, (ii) prohibiting or materially limiting the ownership or operation
by a whole, (ii) prohibiting or materially limiting the ownership or
operation by the Company, Parent or any of their respective subsidiaries
of a material portion of the business or assets of the Company and its
subsidiaries, or Parent and its subsidiaries, in each case taken as a
whole, or compelling the Company or Parent to dispose of or hold separate
any material portion of the business or assets of the Company and its
subsidiaries, or Parent and its subsidiaries, in each case taken as a
whole, as a result of the Offer or any of the other transactions
contemplated by this Agreement or the Stockholder Agreements, (iii)
seeking to impose material limitations on the ability of Parent or Sub to
acquire or hold, or exercise full rights of ownership of, any Shares to be
accepted for payment pursuant to the Offer including, without limitation,
the right to vote such Shares on all matters properly presented to the
stockholders of the Company, or (iv) prohibiting Parent or any of its
subsidiaries from effectively controlling in any material respect any
significant portion of the business or operations of the Company and its
subsidiaries taken as a whole;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
Governmental Entity or court, that results, directly or indirectly, in any
of the consequences referred to in clauses (i) through (iv) of paragraph
(a) above;
(c) there shall have occurred any Material Adverse Change with
respect to the Company;
(d) (i) the Board of Directors of the Company or any committee
thereof shall have (A) withdrawn or modified in a manner adverse to Parent
or Sub its approval or recommendation of the Offer, the Merger or this
Agreement or (B) approved or recommended any Takeover Proposal, (ii) the
Company shall have entered into any agreement with respect to any Takeover
Proposal or (iii) the Board of Directors of the Company or any committee
thereof shall have resolved to do any of the foregoing;
(e) any of the representations and warranties of the Company set
forth in this Agreement that are qualified as to materiality shall not be
true and correct or any such
2
<PAGE> 68
representations and warranties that are not so qualified shall not be true
and correct in any material respect, in each case at the date of the
Agreement and at the scheduled or extended expiration of the Offer (except
to the extent that any such representation or warranty refers specifically
to another date, in which case such representation or warranty shall be
accurate as of such other date) and, individually or in the aggregate,
such untruth or incorrectness has a Material Adverse Effect on the
Company;
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under this Agreement, which failure to perform or
comply is not substantially cured within 15 days after Parent provide the
Company with notice of such failure;
(g) this Agreement shall have been terminated in accordance
with its terms; or
(h) the Company shall have any debt for borrowed money other than as
permitted under Section 7.13 hereof or under the Company's lease line of
credit in an aggregate amount not exceeding Three Hundred Thousand Dollars
($300,000.00).
which, in the reasonable judgment of Parent or Sub in any such case makes it
inadvisable to proceed with such acceptance for payment or payments therefor.
The foregoing conditions in paragraphs (a) through (h) are for the sole
benefit of Sub and Parent and may, subject to the terms of this Agreement, be
waived by Sub and Parent in whole or in part at any time and from time to time
in their sole discretion. The failure by Parent or Sub at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right, the
waiver of any such right with respect to particular facts and circumstances
shall not be deemed a waiver with respect to any other facts and circumstances
and each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time. Terms used herein but not defined herein shall have
the meanings assigned to such terms in the Agreement of which this Exhibit A is
a part.
3
<PAGE> 1
EXHIBIT 2
Following is the form of Stockholder Agreement
entered into by each Stockholder.
Following the form are schedules
and conformed signature pages for
each Stockholder Agreement.
<PAGE> 2
STOCKHOLDER AGREEMENT dated as of October 3,
1998, among JOHNSON & JOHNSON, a New Jersey
corporation ("Parent"), ET/FM ACQUISITION CORP., a
Delaware corporation and a wholly owned subsidiary of
Parent ("Sub") and _________ (the "Stockholder").
Preliminary Statement
Parent, Sub and FemRx, Inc., a Delaware corporation (the
"Company"), propose to enter into an Agreement and Plan of Merger dated as of
the date hereof (as the same may be amended or supplemented, the "Merger
Agreement") providing for (i) the making of a cash tender offer (as such offer
may be amended from time to time as permitted under the Merger Agreement, the
"Offer") by Sub for all the outstanding shares of common stock, par value $0.001
per share, of the Company ("Company Common Stock") and (ii) for the merger of
Sub with and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth in the Merger Agreement. Each Stockholder is the record and
beneficial owner of the number of shares of Company Common Stock set forth
opposite such Stockholder's name on Schedule A attached hereto (such shares of
Company Common Stock, together with any other shares of capital stock of the
Company acquired by the Stockholder after the date hereof and during the term of
this Agreement (including through the exercise of any stock options, warrants or
similar instruments), being collectively referred to herein as the "Subject
Shares"). As a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have requested that the Stockholder enter into this
Agreement.
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
<PAGE> 3
1. Purchase and Sale of Shares. (a) The Stockholder hereby
agrees to sell to Sub, and Sub hereby agrees to purchase, all Subject Shares of
such Stockholder at a price equal to the Offer Price; provided that such
obligation to sell and such obligation to purchase are subject to Sub having
accepted shares of Company Common Stock for payment under the Offer in
accordance with Section 1.01 of the Merger Agreement. Each Stockholder may
tender its Subject Shares into the Offer and Sub may direct that each
Stockholder tender its Subject Shares. Any Subject Shares not purchased in the
Offer will be purchased by Sub immediately following the purchase of shares of
Company Common Stock in the Offer. Sub shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement such amounts
as may be required to be deducted and withheld with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended, or under any
provision of state, local or foreign tax law.
(b) The Stockholder shall not be required to tender its
Subject Shares in the event of any amendment to the Merger Agreement that
creates any additional Offer Condition, reduces the Offer Price or otherwise
adversely affects the Stockholder without the prior written approval of the
Stockholder.
2. Representations and Warranties of the
Stockholder. The Stockholder hereby represents and warrants
to Parent and Sub as follows:
<PAGE> 4
3
(a) Authority. Each Stockholder has all requisite corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by each Stockholder, and the
consummation of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of each
Stockholder. This Agreement has been duly executed and delivered by
each Stockholder and constitutes a valid and binding obligation of each
Stockholder enforceable against each such Stockholder in accordance
with its terms. Except for the expiration or termination of the
applicable waiting periods, if any, under the Merger Control Laws (as
defined below) and required filings with the Securities and Exchange
Commission, the execution and delivery of this Agreement do not, and
the consummation by Stockholder of the transactions contemplated hereby
and compliance with the terms hereof will not, (i) conflict with, or
result in any violation of, or default (with or without notice or lapse
of time or both) under any provision of, any trust agreement, loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license,
judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to any Stockholder or to the property or assets
of any Stockholder, (ii) require any filing with, or permit,
authorization, consent or approval of, any Federal, state or local
government or any court, tribunal, administrative agency or commission
or other governmental or regulatory authority or agency, domestic,
foreign or supranational, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any Stockholder or
any of the properties or assets of any Stockholder, including the
Subject Shares. "Merger Control Laws" means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and all
amendments of, and all other applicable bills, acts, decrees,
regulations or ordinances relating thereto.
<PAGE> 5
4
(b) Capitalization. At the close of business on September 30,
1998, the Stockholder was the record and beneficial owner of the number
of Shares set forth in Schedule A hereto.
(c) The Subject Shares. Each Stockholder is the record and
beneficial owner of, and has good and valid title to, the Subject
Shares set forth opposite its name on Schedule A attached hereto, free
and clear of any claims, liens, encumbrances, security interests,
options, charges and restrictions of any kind (other than restrictions
pursuant to applicable securities laws). Each Stockholder does not own,
of record or beneficially, any shares of capital stock of the Company
other than the Subject Shares set forth opposite its name on Schedule A
attached hereto. Each Stockholder has the sole right to vote such
Subject Shares, and none of such Subject Shares are subject to any
voting trust or other agreement, arrangement or restriction with
respect to the voting of such Subject Shares, except as contemplated by
this Agreement, except for __________ shares that are subject to a
right of repurchase by the Company that will expire upon the
consummation of the Offer.
(d) Brokers. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Stockholder.
<PAGE> 6
5
3. Representation and Warranty of Parent and Sub. Parent and
Sub hereby jointly and severally represent and warrant to the Stockholder as
follows:
(a) Authority. Parent and Sub have all requisite corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by each of Parent and Sub,
and the consummation of the transactions contemplated hereby, have been
duly authorized by all necessary corporate action on the part of each
of Parent and Sub. This Agreement has been duly executed and delivered
by Parent and Sub and constitutes a valid and binding obligation of
Parent and Sub enforceable against Parent and Sub in accordance with
its terms. Except for the expiration or termination of the applicable
waiting periods under the Merger Control Laws and required filings with
the Securities and Exchange Commission, the execution and delivery of
this Agreement do not, and the consummation by Parent and Sub of the
transactions contemplated hereby and compliance with the terms hereof
will not, (i) conflict with, or result in any violation of, or default
(with or without notice or lapse of time or both) under any provision
of, any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, notice, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Sub
or to the property or assets of Parent or Sub, (ii) require any filing
with, or permit, authorization, consent or approval of, any Federal,
state or local government or any court, tribunal, administrative agency
or commission or other governmental or regulatory authority or agency,
domestic, foreign or supranational, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent or
Sub or any of the properties or assets of Parent or Sub.
<PAGE> 7
6
(b) Securities Act. The Subject Shares will be acquired in
compliance with, and Sub will not offer to sell or otherwise dispose of
any Shares so acquired by it in violation of the registration
requirements of, the Securities Act of 1933, as amended.
(c) Financing. Sub has, or will have at the time that any
payment is required to be made to any Stockholder hereunder, the funds
necessary to make such payment to such Stockholder.
(d) Brokers. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Sub.
4. Covenants of Stockholder. The Stockholder
agrees as follows:
(a) At any meeting of stockholders of the Company called to
vote upon the Merger and the Merger Agreement or at any adjournment
thereof or in any other circumstances upon which a vote, consent or
other approval (including by written consent) with respect to the
Merger and the Merger Agreement is sought, the Stockholder shall vote
(or cause to be voted) the Subject Shares in favor of the Merger, the
adoption by the Company of the Merger Agreement and the approval of the
terms thereof and each of the other transactions contemplated by the
Merger Agreement; provided that no amendment to the Merger Agreement
will be made that creates additional Offer Conditions, reduces the
Offer Price or otherwise adversely affects the Stockholder without the
prior approval of the Stockholder.
(b) At any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which the
Stockholder's votes, consents or other approvals are sought, the
Stockholder shall vote (or cause to be voted) the Subject Shares
against (i) any Takeover Proposal (as such term is
<PAGE> 8
7
defined in Section 6.02 of the Merger Agreement) and (ii) any amendment
of the Company's Certificate of Incorporation or Bylaws or other
proposal or transaction involving the Company, which amendment or other
proposal or transaction would be reasonably likely to impede,
frustrate, prevent, delay or nullify the Offer, the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement or change in any manner the voting rights of any class of
Company Common Stock or other voting securities of the Company. The
Stockholder further agrees not to enter into any agreement inconsistent
with the foregoing.
(c) The Stockholder shall not (i) sell, transfer, give,
pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or consent to any Transfer of, any or all
of such Subject Shares or any interest therein or enter into any
contract, option or other arrangement (including any profit sharing
arrangement) with respect to the Transfer of, the Subject Shares to any
person other than pursuant to the terms of the Offer or the Merger or
otherwise to Sub in accordance with Section 1 or (ii) enter into any
voting arrangement, whether by proxy, voting agreement, voting trust,
power-of-attorney or otherwise, with respect to the Subject Shares in
connection with, directly or indirectly, any Takeover Proposal. The
Stockholder shall not commit or agree to take any of the foregoing
actions.
(d) The Stockholder shall not, and shall use its reasonable
efforts to cause any investment banker, financial advisor, attorney,
accountant or other representative of any such Stockholder not to,
directly or indirectly, (i) solicit, initiate or encourage (including
by way of furnishing information), 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 Takeover
Proposal or (ii) participate in any discussions or negotiations
regarding any Takeover Proposal. The
<PAGE> 9
8
foregoing provisions of this Paragraph (d) shall not, however, prohibit
an individual Stockholder, or any partner, stockholder, officer or
affiliate of a Stockholder that is a legal entity, who is a director of
the Company from performing his or her legally required fiduciary
duties as a director of the Company as permitted or required under the
Merger Agreement.
5. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Each
Stockholder hereby irrevocably grants to, and appoints, Sub and Howard
Zauberman, Philip P. Crowley and James Bergin, in their respective capacities as
officers of Sub, and any individual who shall hereafter succeed to any such
office of Sub, and each of them individually, such Stockholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of such Stockholder, to vote such Stockholder's Subject Shares, or
grant a consent or approval in respect of such Subject Shares against (i) any
Takeover Proposal or (ii) any amendment of the Company's Certificate of
Incorporation or Bylaws, or other proposal or transaction (including any consent
solicitation to remove or elect any directors of the Company) involving the
Company which amendment or other proposal or transaction would be reasonably
likely to impede, frustrate, prevent, delay or nullify the Offer, the Merger,
the Merger Agreement or any of the other transactions contemplated by the Merger
Agreement.
(b) Each Stockholder represents that any proxies heretofore
given in respect of such Stockholder's Subject Shares are not irrevocable, and
that any such proxies are hereby revoked.
(c) Each Stockholder hereby affirms that the irrevocable proxy
set forth in this Section 5 is given in connection with the execution of the
Merger Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of such Stockholder in accordance with this Agreement.
Such Stockholder hereby further affirms that the irrevocable proxy is coupled
with an interest and may under no circumstances be revoked. Such Stockholder
hereby ratifies and confirms all that such
<PAGE> 10
9
irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 212(e) of the Delaware General Corporation Law (the
"DGCL"). Such irrevocable proxy shall be valid until the earlier to occur of (i)
eleven months from the date hereof or (ii) the termination of this Agreement
pursuant to Section 9.
6. Further Assurances. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use all
reasonable efforts (as described in Section 7.03(a) of the Merger Agreement) to
consummate and make effective, in the most expeditious manner practicable, the
Offer and the Merger, and the other transactions contemplated by this Agreement
and the Merger Agreement. The foregoing provisions of this Section shall not,
however, prohibit an individual Stockholder, or any partner, stockholder,
officer or affiliate of a Stockholder that is a legal entity, who is a director
of the Company from performing his or her legally required fiduciary duties as a
director of the Company as permitted or required under the Merger Agreement.
7. Certain Events. (a) Each Stockholder agrees that this
Agreement and the obligations hereunder shall attach to such Stockholder's
Subject Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Subject Shares shall pass, whether by operation of
law or otherwise, including such Stockholder's administrators or successors. In
the event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the Company
affecting the Company Common Stock, or the acquisition of additional shares of
Company Common Stock or other voting securities of the Company by any
Stockholder, the number of Subject Shares listed in Schedule A beside the name
of such Stockholder shall be deemed adjusted appropriately and this Agreement
and the obligations hereunder shall attach to any additional shares of Company
Common Stock or other voting securities of the Company issued to or acquired by
such Stockholder.
<PAGE> 11
10
(b) Each Stockholder agrees that it will deliver to the
Company, within 10 business days after the date hereof (or, in the event Subject
Shares are acquired subsequent to the date hereof within 10 business days after
the date of such acquisition), any and all certificates representing such
Stockholder's Subject Shares solely for the purpose of the Company inscribing
upon such certificates the following legend:
"The shares of Common Stock, $0.001 par value, of FemRx, Inc.
represented by this certificate are subject to a Stockholder Agreement
dated as of October 3, 1998, and may not be sold or otherwise
transferred, except in accordance therewith. Copies of such Agreement
may be obtained at the principal executive offices of FemRx, Inc."
8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that (i) Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any U.S. subsidiary of Parent that may be substituted
for Sub as contemplated by Section 2.01 of the Merger Agreement, and (ii) Parent
may assign, in its sole discretion, any and all of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent, provided that Parent will remain liable for its obligations hereunder in
the event of any assignment pursuant to this clause (ii). Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
9. Termination. This Agreement, and all rights and obligations
of the parties hereunder, shall terminate as follows: (i) in the case of a
termination of the Merger Agreement by the Company pursuant to Section 9.01(c)
or Section 9.01(g) thereof, on the date 120 days after the date of such
termination of the Merger Agreement, provided, that Sub continues to fulfill its
obligations under the credit
<PAGE> 12
11
arrangement entered into pursuant to Section 7.13 of the Merger Agreement, and,
if Sub shall cease to fulfill such obligations after such a termination pursuant
to Section 9.01(c) or Section 9.01(g), then on the date five days after the date
of such cessation, and (ii) in the case of a termination of the Merger Agreement
other than pursuant to Section 9.01(c) or Section 9.01(g) thereof, on the date
five days after the date of such termination of the Merger Agreement.
Notwithstanding the foregoing, Sections 8, 9 and 10 shall survive any
termination of this Agreement.
10. General Provisions.
(a) Amendments. This Agreement may not be
amended except by an instrument in writing signed by each of
the parties hereto.
(b) Notice. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed), sent by overnight courier (providing proof of
delivery) or mailed by registered or certified mail (return receipt requested)
to Parent and Sub in accordance with Section 10.02 of the Merger Agreement and
to the Stockholder at its address or telecopier number set forth on Schedule A
attached hereto (or at such other address or telecopier number for a party as
shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". Capitalized terms used and not otherwise defined in this Agreement
shall have the respective meanings assigned to them in the Merger Agreement.
<PAGE> 13
12
(d) Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each of the parties and delivered to the other party, it being understood
that each party need not sign the same counterpart.
(e) Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof.
(g) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
11. Public Announcements. Parent and Sub, on the one hand, and
the Stockholder, on the other hand, will consult with each other before issuing,
and provide each other with a reasonable opportunity to review and comment upon,
any press release or other public statements with respect to the transactions
contemplated by this Agreement
<PAGE> 14
13
and the Merger Agreement, including the Offer and the Merger, and shall not
issue, or permit any of their respective subsidiaries to issue, any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law, court process or by obligations pursuant to
any listing agreement with any national securities exchange or national
securities quotation system, in which case the party making such release will
use reasonable efforts to obtain comments from the other party before issuance
of such release or statement.
12. Dispute Resolution. (a) Any dispute, claim or controversy
arising from or related in any way to this Agreement or the interpretation,
application, breach, termination or validity thereof, including without
limitation any claim of inducement of this agreement by fraud or otherwise, or
to any transactions contemplated thereby shall be submitted for resolution to
arbitration pursuant to the commercial arbitration rules then pertaining of the
Center for Public Resources ("CPR"), New York, NY, except where those rules
conflict with these provisions, in which case these provisions control. The
arbitration shall be held in Dover, Delaware unless the parties agree otherwise.
(b) The arbitration panel shall consist of three arbitrators
chosen from the CPR Panels of Distinguished Neutrals for Delaware each of whom
shall be either (1) a lawyer specializing in business litigation with at least
15 years experience with a law firm having more than 25 lawyers or (2) a judge
of a court of general jurisdiction in Delaware. Notwithstanding the foregoing,
in the event the aggregate damages sought by the claimant are stated to be less
than Five Million Dollars, and the aggregate damages sought by the
counterclaimant are stated to be less than Five Million Dollars, and neither
party seeks equitable relief, then a single arbitrator shall be chosen, having
the same qualifications and experience specified above.
(c) The parties agree to cooperate (1) to obtain selection of
the arbitrator(s) within 30 days after
<PAGE> 15
14
initiation of the arbitration, (2) to meet with the arbitrator(s) within 30 days
after selection and (3) to agree at that meeting or before upon procedures for
discovery and as to the conduct of the hearing which shall result in the hearing
being concluded within no more than 9 months after selection of the
arbitrator(s) and in the award being rendered within 60 days after the
conclusion of the hearings, or of any post-hearing briefing, which briefing
shall be completed by both sides within 20 days after the conclusion of the
hearings. In the event no such agreement is reached, the CPR shall select
arbitrator(s), allowing appropriate strikes for reasons of conflict or other
cause and three peremptory challenges for each side. The arbitrator(s) shall set
a date for the hearing, commit to the rendering of the award within 60 days
after the conclusion of the presentation of evidence at the hearing, or of any
post-hearing briefing (which briefing shall be completed by both parties in no
more than 20 days after the conclusion of the hearings), and provide for
discovery according to these time limits, giving recognition to the
understanding of the parties hereto that they contemplate reasonable discovery,
including document demands and depositions, but that such discovery be limited
so that the time limits specified herein may be met without undue difficulty. In
no event shall the arbitrator(s) allow either side to obtain more than a total
of 40 hours of deposition testimony from all witnesses, including both fact and
expert witnesses. In the event multiple hearing days are required, they shall be
scheduled consecutively to the greatest extent possible.
(d) The arbitrator(s) shall be bound by, and this Agreement
shall be governed by, the substantive law of Delaware, exclusive of conflict of
laws rules, except for such matters as are expressly governed by the DGCL.
Further, the arbitrator(s) shall be bound by the express terms of this
Agreement. The arbitrator(s) shall render a written opinion setting forth
findings of fact and conclusions of law with the reasons therefor stated. A
transcript of the evidence adduced at the hearing shall be made and shall, upon
request, be made available to each party.
<PAGE> 16
15
(e) To the extent possible, the arbitration hearings and award
shall be maintained in confidence.
(f) The United States District Court for the District of
Delaware may enter judgment upon any award. In the event the panel's award
exceeds Five Million Dollars in monetary damages or includes or consists of
equitable relief, then such court shall vacate, modify or correct any award
where the arbitrator's or arbitrators' findings of fact are clearly erroneous,
and/or where the arbitrators' conclusions of law are erroneous. It is the
intention of the parties that such court shall undertake the same review as if
it were a Federal appellate court reviewing a district court's findings of fact
and conclusions of law rendered after a bench trial. An award for less than Five
Million Dollars in damages and not including equitable relief may be vacated,
modified or corrected only upon the grounds for such an action specified in the
Federal Arbitration Act. The parties consent to the jurisdiction of the
above-specified Court for the enforcement of these provisions, the entry of
judgment on any award, and the vacatur, modification and correction of any award
as above specified. In the event such Court lacks jurisdiction, then any court
having jurisdiction of this matter may enter judgment upon any award and provide
the same relief, and undertake the same review, as specified herein.
(g) Each party has the right before or during the arbitration
to seek and obtain from the appropriate court provisional remedies such as
attachment, preliminary injunction, replevin, etc. to avoid irreparable harm,
maintain the status quo, or preserve the subject matter of the arbitration.
(h) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE
BY JURY.
(i) EACH PARTY HERETO WAIVES ANY CLAIM TO PUNITIVE OR
EXEMPLARY DAMAGES FROM THE OTHER.
(j) EACH PARTY HERETO WAIVES ANY CLAIM OF CONSEQUENTIAL
DAMAGES FROM THE OTHER UNLESS (1) THE
<PAGE> 17
16
FORESEEABILITY OF SUCH DAMAGES AT THE TIME OF THE CONTRACT AND (2) THE AMOUNT OF
SUCH DAMAGES ARE PROVEN BY CLEAR AND CONVINCING EVIDENCE.
13. Mediation. (a) Any dispute, controversy or claim arising
out of or related to this agreement, or the interpretation, application, breach,
termination or validity thereof, including any claim of inducement by fraud or
otherwise, or any transaction contemplated hereby which claim would, but for
this provision, be submitted to arbitration pursuant to Section 12 above shall,
before submission to arbitration, first be mediated through non-binding
mediation in accordance with the Model Procedures for the Mediation of Business
Disputes then in effect promulgated by the Center for Public Resources ("CPR"),
except where those rules conflict with the provisions of this Agreement, in
which case these provisions control. The mediation shall be conducted in Dover,
Delaware and shall be attended by a senior executive of each party to this
Agreement with authority to resolve the dispute.
(b) The mediator shall be appointed from the list of neutrals
maintained by CPR and shall be either (1) an attorney specializing in business
litigation who has at least 15 years of experience as a lawyer with a law firm
having more than 25 lawyers, or (2) a former judge of a court of general
jurisdiction.
(c) The parties shall promptly confer in an effort to select a
mediator by mutual agreement. In the absence of such an agreement, the mediator
shall be selected from a list generated by CPR with each party having the right
to exercise challenges for cause and two peremptory challenges within 72 hours
of receiving the CPR list.
(d) The mediator shall confer with the parties to design
procedures to conclude the mediation within no more than 45 days after
initiation. Under no circumstances shall the commencement of arbitration under
Section 10.11 above be delayed more than 45 days by the mediation process
specified herein.
<PAGE> 18
17
(e) Each party agrees to toll all applicable statutes of
limitation during the mediation process and not to use the period or pendancy of
the mediation to disadvantage the other party procedurally or otherwise. No
statements made by either side during the mediation may be used by the other
during any subsequent arbitration or other proceedings.
(f) Each party has the right to pursue from any court of
competent jurisdiction provisional relief, such as attachment, preliminary
injunction, replevin, etc., to avoid irreparable harm, maintain the status quo,
or preserve the subject matter of the arbitration, even though mediation has not
been commenced or completed.
<PAGE> 19
18
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have
caused this Agreement to be duly executed and delivered as of the date first
written above.
JOHNSON & JOHNSON,
By:___________________________
Name:
Title:
ET/FM ACQUISITION CORP.,
By:___________________________
Name:
Title:
[NAME OF STOCKHOLDER]
By:___________________________
Name:
Title:
<PAGE> 20
SCHEDULE A
Name, Address Number of Shares
and Telecopier of Company Common
Number of Stockholder Stock Owned of Record
<PAGE> 21
Following are schedules and
conformed signature pages
for each Stockholder Agreement.
<PAGE> 22
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
------------------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
------------------------------------
Name:
Title:
ANDREW M. THOMPSON
/s/ Andrew M. Thompson
- ---------------------------------------
<PAGE> 23
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- ----------------------------------- --------------------------------
Andrew M. Thompson -0-
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
(408) 752-8594
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------- -------------- ----------------------------
<S> <C> <C>
03/03/97 $2.9375 80,000
</TABLE>
<PAGE> 24
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
---------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
---------------------------
Name:
Title:
ANDREW MARKHAM THOMPSON AND
SYLVIA ASTRID KISTLER THOMPSON
TTEES THOMPSON FAMILY TRUST
U/A DTD 04/22/93
By: /s/ Andrew M. Thompson
---------------------------
Andrew M. Thompson
Trustee
<PAGE> 25
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- ----------------------------------- ----------------------------------
Andrew Markham Thompson and Sylvia 448,128
Astrid Kistler Thompson TTEES Thompson
Family Trust U/A DTD 04/22/93
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, Ca 94089
(408)752-8594
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ------------------- ---------------------- ---------------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 26
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
------------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /S/ P. Crowley
-------------------------------
Name:
Title:
BRINSON TRUST COMPANY AS TRUSTEE
OF THE BRINSON MAP VENTURE CAPITAL
FUND III
By: /s/ Terry Gould
-------------------------------
Name: Terry Gould
Title: Assistant Trust Officer
<PAGE> 27
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- --------------------------------------- ----------------------------
Brinson Trust Company as Trustee of the 61,345
Brinson MAP Venture Capital Fund III
209 South LaSalle Street, Suite 114
Chicago, IL 60604
(312) 220-7110
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ----------------- ------------------- ----------------------------
<S> <C> <C>
0
</TABLE>
<PAGE> 28
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
-------------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
-------------------------------
Name:
Title:
BRINSON VENTURE CAPITAL FUND III, L.P.
By: /s/ Terry Gould
-------------------------------
Name:
Title:
<PAGE> 29
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDERS COMMON STOCK OWNED OF RECORD
- ------------------------------------- ----------------------------
Brinson Venture Capital Fund III, L.P. 376,154
209 South LaSalle Street, #114
Chicago, IL 60604
(312) 220-7110
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------------------- ---------------- ----------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 30
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
--------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
--------------------------
Name:
Title:
DLJ CAPITAL CORPORATION
By: /s/ Kathleen LaPorte
--------------------------
Name: Kathleen LaPorte
Title: Attorney In Fact
<PAGE> 31
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- ------------------------------------- ----------------------------
DLJ Capital Corporation 113,181
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
(650) 854-8779
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------------------- ---------------- ----------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 32
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
------------------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
------------------------------------
Name:
Title:
EDWARD W. UNKART
/s/ Edward W. Unkart
- ---------------------------------------
<PAGE> 33
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- -------------------------------- -----------------------------
Edward W. Unkart 15,105
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
(408) 734-8231
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------- -------------- ----------------------------
<S> <C> <C>
03/03/97 $2.9375 75,000
</TABLE>
<PAGE> 34
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
--------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
--------------------------
Name:
Title:
EDWARD W. UNKART AND MICHELE T.
UNKART, TRUSTEES OF THE TAKEI UNKART
FAMILY TRUST U/D/A AUGUST 26, 1987
By: /s/ Edward W. Unkart
--------------------------
Edward W. Unkart
Trustee
<PAGE> 35
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- ---------------------------------- --------------------------------
Edward W. Unkart and Michele T. Takei, 78,125
Trustees of the Takei Unkart Family Trust
U/D/A August 26, 1987
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
(408) 752-8594
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
----------- ---------------- ------------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 36
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
---------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
---------------------------
Name:
Title:
GEORGE M. SAVAGE
/s/ George M. Savage
- ---------------------------
<PAGE> 37
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- --------------------------------- -----------------------------
George M. Savage, M.D. -0-
FernRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
(408)752-8594
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------------- --------------------- --------------------------------
<S> <C> <C>
03/03/97 $2,9375 80,000
</TABLE>
<PAGE> 38
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
---------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
---------------------------
Name:
Title:
GEORGE M. SAVAGE AND NANCY SAVAGE,
TRUSTEES OF THE GEORGE AND NANCY
SAVAGE LIVING TRUST
By: /s/ George M. Savage
---------------------------
George M. Savage
Trustee
<PAGE> 39
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- --------------------------------- -----------------------------
George M. Savage and Nancy Savage, Trustees 458,128
of the George and Nancy Savage Living Trust
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
(408)752-8594
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------------- --------------------- --------------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 40
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
--------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
--------------------------
Name:
Title:
KRESCH MEDICAL RESEARCH, L.L.C.
By: /s/ Arnold J. Kresch, M.D.
-------------------------
Arnold J. Kresch, M.D.
Manager
<PAGE> 41
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED AND RECORD
- -------------------------------- -----------------------------
Kresch Medical Research, L.L.C. 451,626
780 Welch Road, Suite 206
Palo Alto, CA 94304
(650) 833-7909
<TABLE>
<CAPTION>
GRANT DATA EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ------------------- --------------------- -------------------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 42
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
-------------------------------
Name:
Title:
ET/FM ACQUISITION CORP.
By: /s/ P. Crowley
--------------------------------
Name:
Title:
SAVAGE-THOMPSON MANAGEMENT
By: /s/ Andrew M. Thompson
-------------------------------
Andrew M. Thompson
Partner
<PAGE> 43
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- ----------------------------------- ----------------------------------
Savage-Thompson Management 10,000
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
(408) 752-8594
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------------- -------------------- ----------------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 44
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
----------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
----------------------
Name:
Title:
SECOND VENTURES II, L.P.
By: Presidio Management Group; its General Partner
By: /s/ Philip M. Young
-------------------------
Name: Philip M. Young
Title:General Partner
<PAGE> 45
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- ------------------------------------ --------------------------------------
Second Ventures II, L.P. 114,843
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
(650) 854-3018
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- -------------- ---------------------- ------------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 46
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
------------------------------
name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
------------------------------
Name:
Title:
SPROUT CAPITAL VI, L.P.
By: DLJ Capital Corporation
Its Managing General Partner
By: /s/ Kathleen La Porte
------------------------------
Name: Kathleen La Porte
Title: General Partner and
Attorney In Fact
<PAGE> 47
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- ----------------------------------- ------------------------------------
Sprout Capital VI, L.P. 714,700
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
(650) 854-8779
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ----------------- ------------------ ----------------------------------
<S> <C> <C>
0
</TABLE>
<PAGE> 48
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
-------------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
-------------------------------
Name:
Title:
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Its Managing General Partner
By: /s/ Kathleen LaPorte
-------------------------------
Name: Kathleen LaPorte
Title: General Partner and
Attorney In Fact
<PAGE> 49
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- --------------------------------------- ----------------------------
Sprout Capital VII, L.P. 1,359,618
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
(650) 854-8779
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ----------------- ------------------- ----------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 50
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
--------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
--------------------------
Name:
Title:
U.S. VENTURE PARTNERS IV, L.P.
By: Presidio Management Group IV, L.P.
Its General Partner
By: /s/ Philip M. Young
--------------------------
Name: Philip M. Young
Title: General Partner
<PAGE> 51
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- -------------------------------- -----------------------------
U.S. Venture Partners IV, L.P. 946,093
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
(650) 854-3018
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ---------- --------------- ----------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 52
IN WITNESS WHEREOF, Parent, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
JOHNSON & JOHNSON,
By: /s/ J. Lenehan
-------------------------
Name:
Title:
ET/FM ACQUISITION CORP.,
By: /s/ P. Crowley
-------------------------
Name:
Title:
USVP ENTREPRENEUR PARTNERS II, L.P.
By: /s/ Philip M. Young
-------------------------
Name: Philip M. Young
Title: General Partner
<PAGE> 53
SCHEDULE A
NAME, ADDRESS AND NUMBER OF SHARES OF COMPANY
TELECOPIER NUMBER OF STOCKHOLDER COMMON STOCK OWNED OF RECORD
- --------------------------------------- ----------------------------
USVP Entrepreneur Partners II, L.P. 32,812
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
(650) 854-3018
<TABLE>
<CAPTION>
GRANT DATE EXERCISE PRICE NUMBER OF OUTSTANDING SHARES
- ----------------- ------------------- ----------------------------
<S> <C> <C>
-0-
</TABLE>
<PAGE> 1
EXHIBIT 3
[LETTERHEAD OF ETHICON, INC.]
October 1, 1998
Subject: Employment Agreement -- Andrew Thompson
This serves to document the following understanding between Ethicon, Inc. and
Andrew Thompson:
1. As cofounder of FemRx, Andrew has expressed his commitment to assist, as
needed, with the transition and integration of FemRx, with Ethicon, Inc.
2. While Andrew's role in the transition is not fully defined, it is agreed
that Ethicon, Inc. would capitalize upon his experience as founder and
leader of the organization in making the transition successful.
3. The duration of the commitment will be determined as integration plans are
finalized; however Ethicon, Inc. commits to 6 months salary compensation
at the current base salary beginning upon the closing date.
4. While any salary or separation payments are being made by Ethicon, Inc.,
it is agreed that Andrew will not take employment with nor actively engage
in the development of businesses that directly compete with FemRx products
without the prior written consent of Ethicon, Inc.
5. In no event shall Andrew Thompson have any commitment to Ethicon, Inc.
beyond May 30, 1999 unless there is a separate agreement.
Signature of this document denotes acceptance by the signing parties.
/s/ Andrew M. Thompson /s/ Gary Loudamy
- ---------------------------------- ----------------------------------------
Andrew M. Thompson Gary Loudamy
President & CEO, FemRx Director, HR Systems and Business
Improvement
1.
<PAGE> 1
EXHIBIT 4
[LETTERHEAD OF ETHICON, INC.]
October 1, 1998
Subject: Employment Agreement -- George Savage, M.D.
As co-founder of FemRx, George Savage has expressed his commitment to assist
Ethicon, Inc. in the successful transition and integration of FemRx with
Ethicon, Inc.
The duration of George's commitment to Ethicon, Inc. is undeclared at this
point. Ethicon, Inc. would like to accept the offer of 6 months of continued
service beyond the close date in George's current capacity and requests a
commitment at least through June 30, 2000.
Details of a retention agreement will be finalized during discussion with
George over the next 2 weeks.
While any separation payments are being made, it is agreed that George will not
take employment with nor actively engage in the development of businesses that
directly compete with the FemRx products without the prior consent of Ethicon,
Inc.
Signature of this document denotes acceptance. Additional details will be
developed through discussion during the next 2 weeks.
It is our intent that this agreement will be replaced by a more detailed
agreement within one month from this date.
In no event shall George Savage have any commitment to Ethicon, Inc. beyond May
30, 1999 unless there is a separate agreement.
/s/ George Savage /s/ Gary Loudamy
- ------------------------------------- ---------------------------------------
George Savage, M.D. Gary Loudamy
Sr. Vice-President, Research & Director, HR Systems and Business
Development Improvement
1.
<PAGE> 1
EXHIBIT 5
Contacts: Johnson & Johnson
Robert V. Andrews
732 524-3348
FemRx, Inc.
Ed Unkart
408 752-8580; Ext. 105
FOR IMMEDIATE RELEASE
Johnson & Johnson to Acquire FemRx, Inc.
New Brunswick, NJ (October 5, 1998) - Johnson & Johnson (NYSE:JNJ), the
health care products manufacturer, and FemRx, Inc. (Nasdaq:FMRX), a leader in
the development of innovative products for gynecological disorders, announced
today that they have entered into a definitive merger agreement through which
Johnson & Johnson, on behalf of its Ethicon, Inc. subsidiary, will purchase all
of the outstanding common shares of FemRx.
Under the agreement, Johnson & Johnson will shortly commence a tender
offer to purchase all of FemRx's approximately 9.4 million shares of common
stock and common stock equivalents for $2.35 per share in cash, or approximately
$22 million. The offer is conditioned on the tender of 90% of the outstanding
shares of common stock and common stock equivalents, and certain other
conditions.
FemRx, Inc., headquartered in Sunnyvale, CA, has developed proprietary
surgical systems that enable surgeons to perform less invasive alternatives to
hysterectomy.
Through its Gynecare Division, Ethicon, Inc. offers innovative surgical
solutions for women in the areas of uterine disorders, infertility, incontinence
and adhesion prevention.
Johnson & Johnson is the world's most comprehensive and broadly-based
manufacturer of health care products, as well as a provider of related services,
for the consumer, pharmaceutical and professional markets.
# # #
<PAGE> 1
EXHIBIT 6
[FEMRX LOGO]
October 9, 1998
Dear Stockholder:
We are pleased to inform you that on October 3, 1998, the Company entered
into an agreement and plan of merger (the "Merger Agreement") providing for the
acquisition of the Company by Johnson & Johnson. Pursuant to the Merger
Agreement, Johnson & Johnson, through a wholly-owned subsidiary, has commenced a
tender offer for all outstanding shares of the Company's common stock at the
offer price of $2.35 in cash per share. The Merger Agreement provides that,
subject to satisfaction of certain conditions, the tender offer is to be
followed by a merger in which the holders of any remaining Company shares (other
than dissenting shares) will receive $2.35 in cash per share. The tender offer
is currently scheduled to expire at 12:00 midnight New York City time on Friday,
November 6, 1998.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND FOUND ADVISABLE THE
MERGER AGREEMENT WITH JOHNSON & JOHNSON AND HAS DETERMINED THAT THE OFFER AND
THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS
AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS TENDER THEIR SHARES PURSUANT TO
THE TENDER OFFER.
The Merger Agreement represents the culmination of a comprehensive effort
by your Board to develop a transaction that would provide maximum benefits to
stockholders. In pursuit of this goal, your Board, with the assistance of its
financial advisor, Warburg Dillon Read, sought to elicit the highest and best
proposals to acquire the Company from all credible interested parties and
evaluated various alternative transactions.
In determining to approve the Merger Agreement and the transactions
contemplated thereby, your Board gave careful consideration to a number of
factors described in the attached Schedule 14D-9 that has been filed with the
Securities and Exchange Commission. Among other things, your Board considered
the opinion of Warburg Dillon Read, dated October 2, 1998, (a copy of which is
included with the Schedule 14D-9) that the cash consideration to be offered by
Johnson & Johnson in the transaction is fair, from a financial point of view, to
the stockholders of the Company.
The enclosed Schedule 14D-9 describes the Board's decision and contains
other important information relating to such decision. We urge you to read it
carefully.
Accompanying this letter and the Schedule 14D-9 is the Offer to Purchase
and related materials, including a Letter of Transmittal to be used for
tendering your shares. These documents describe the terms and conditions of the
tender offer and provide instructions regarding how to tender your shares. We
urge you to read the enclosed material carefully.
Very truly yours,
/s/ ANDREW M. THOMPSON
ANDREW M. THOMPSON
President and Chief Executive Officer
1221 Innsbruck Drive
Sunnyvale, California 94089
408-752-8580 fax 408-752-8590
<PAGE> 1
EXHIBIT 7
[FEMRX LOGO]
October 9, 1998
Dear Option Holder:
We are pleased to inform you that on October 3, 1998, the Company entered
into an agreement and plan of merger (the "Merger Agreement") providing for the
acquisition of the Company by Johnson & Johnson. Pursuant to the Merger
Agreement, Johnson & Johnson, through a wholly-owned subsidiary, has commenced a
tender offer for all outstanding shares of the Company's common stock at the
offer price of $2.35 in cash per share (the "Offer Price"). As an option holder
you have the opportunity to participate in the tender offer by exercising your
options and tendering the shares you receive upon exercise into the tender
offer.
You currently hold at least one grant of stock options. The exercise price
of your options will vary depending on when your options were granted. As a
result of, and contingent upon, the closing of the tender offer, all of your
options will be vested prior to the closing of the tender. As explained in the
enclosed Offer to Purchase and Letter of Transmittal, you can "contingently"
exercise all or any of your options by following the instructions in the Offer
to Purchase and the Letter of Transmittal. This exercise is "contingent" because
it will be done if, but only if, the tender offer is consummated. In summary,
you are required to deliver a Letter of Transmittal that indicates which, if
any, options you wish to exercise. In addition to instructions regarding your
contingent exercise, such Letter of Transmittal will instruct First Chicago
Trust Company of New York (which is acting as depositary for the shares in the
tender offer) to send to the Company from the tender offer proceeds, an amount
equal to the exercise price for the options you wish to exercise. You will
receive from such proceeds, on a per share basis, the Offer Price less the
exercise price of the option (subject to such wage and employment withholding
taxes and any other withholding that may be required, as described in the Offer
to Purchase and the Letter of Transmittal). Of course, you are not required to
exercise "contingently"; you can exercise by direct payment of the exercise
price to the Company or choose not to exercise at all.
ALTHOUGH YOU ARE NOT REQUIRED TO EXERCISE YOUR OPTIONS AS A RESULT OF THIS
TRANSACTION, YOU SHOULD BE AWARE THAT UPON THE CONSUMMATION OF THE TENDER OFFER,
ANY OPTIONS THAT YOU HAVE NOT EXERCISED (EITHER BEFORE THE DATE OF SUCH
CONSUMMATION OR CONTINGENTLY UPON THE CONSUMMATION OF THE TENDER OFFER) WILL BE
TERMINATED AS OF THE CONSUMMATION OF THE TENDER OFFER.
The tender offer is currently scheduled to expire at 12:00 midnight New
York City time on Friday, November 6, 1998.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND FOUND
ADVISABLE THE MERGER AGREEMENT WITH JOHNSON & JOHNSON AND HAS DETERMINED THAT
THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS AND HAS RECOMMENDED TO THE COMPANY'S STOCKHOLDERS THAT THEY TENDER
THEIR SHARES PURSUANT TO THE TENDER OFFER.
1221 Innsbruck Drive
Sunnyvale, California 94089
408-752-8580 fax 408-752-8590
<PAGE> 2
The Merger Agreement represents the culmination of a comprehensive effort
by the Board to develop a transaction that would provide maximum benefits to
stockholders and option holders. In pursuit of this goal, the Board, with the
assistance of its financial advisor, Warburg Dillon Reed, sought to elicit the
highest and best proposals to acquire the Company from all credible interested
parties and evaluated various alternative transactions.
In determining to approve the Merger Agreement and the transactions
contemplated thereby, the Board gave careful consideration to a number of
factors described in the attached Schedule 14D-9 that has been filed with the
Securities and Exchange Commission. Among other things, the Board considered the
opinion of Warburg Dillon Reed, dated October 2, 1998, that the cash
consideration to be offered by Johnson & Johnson in the transaction is fair,
from a financial point of view, to the stockholders of the Company.
The enclosed Schedule 14D-9 describes the Board's decision and contains
other important information relating to such decision. We urge you to read it
carefully.
Accompanying this letter and the Schedule 14D-9 is the Offer to Purchase
and related materials, including a Letter of Transmittal to be used for
tendering your shares or contingently exercising any or all of your options.
These documents describe the terms and conditions of the tender offer and
provide instructions regarding how to participate in the tender offer with
respect to your options. WE URGE YOU TO READ THE ENCLOSED MATERIAL CAREFULLY.
If you need information about the exercise price of your options or have
other questions about your options or how to participate in the tender offer,
please contact Edward W. Unkart at the Company at (408) 752-8580 ext. 105.
Very truly yours,
/s/ ANDREW M. THOMPSON
ANDREW M. THOMPSON
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 8
[LETTERHEAD OF WARBURG DILLON READ LLC]
October 2, 1998
The Board of Directors
FemRx, Inc.
1221 Innsbruck Drive
Sunnyvale, CA 94089
We understand that Johnson & Johnson ("Johnson & Johnson" or the
"Acquirer") is considering a transaction whereby the Acquirer will acquire
control of FemRx, Inc. ("FemRx" or the "Company"). Pursuant to the terms of an
Agreement and Plan of Merger (the "Merger Agreement"), the Acquirer will make an
all-cash tender offer for all of the issued and outstanding shares of the common
stock of FemRx for an aggregate amount of approximately $22.0 million (the
"Consideration"), or approximately $2.35 per share (the "Transaction").
The terms and conditions of the Transaction are more fully set forth in the
Merger Agreement to be dated October 2, 1998.
You have requested our opinion as to whether, as of the date hereof, the
Consideration to be paid by the Acquirer to the Company in the Transaction is
fair, from a financial point of view, to the holders of the Company stock (the
"Opinion").
Warburg Dillon Read LLC ("WDR") and its predecessors have acted as
financial advisor to the Board of Directors of the Company in connection with
the Transaction and will receive a fee upon the consummation thereof. In the
past, WDR and its predecessors have provided investment banking services to the
Company and received customary compensation for the rendering of such services.
In the ordinary course of business, WDR, its predecessors and affiliates may
have traded securities of the Company for their own accounts and, accordingly,
may at any time hold a long or short position in such securities.
Our Opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any stockholder of the
Company as to whether such stockholder should tender the shares of the Company's
common stock in the Transaction.
At your direction, we have not been asked to, nor do we, offer any opinion
as to the material terms of the Merger Agreement or the form of the Transaction.
In rendering this Opinion, we have assumed, with your consent, that the final
executed form of the Merger Agreement does not differ in any material respect
from the draft that we have examined, and that the Acquirer and the Company will
comply with all the material terms of the Merger Agreement.
In arriving at our Opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company, (ii) reviewed certain internal financial information
and other data relating to the business and financial prospects of the Company,
including estimates and financial forecasts prepared by the management of the
Company, that were provided to us by the Company and not publicly available,
(iii) conducted discussions with members of the senior management of the
Company, (iv) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business which we believe to be
generally comparable to those of the Company, (v) compared the financial terms
of the Transaction with the publicly available financial terms of certain other
transactions which we believe to be generally relevant, (vi) reviewed the
historical market prices of the Company's common stock, (vii) reviewed drafts of
the Merger Agreement, and (viii) conducted such other financial studies,
analyses, and investigations, and considered such other information as we deemed
necessary or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this Opinion and have, at your direction, relied on its
being complete and accurate in all material respects. In addition, at your
direction, we
<PAGE> 2
have not made or received any independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of the Company, nor have we been
furnished with any such evaluation or appraisal. With respect to the financial
forecasts, estimates and projections referred to above, we have assumed, at your
direction, that they have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company as to its future performance. Our Opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us as of October 1, 1998.
Based upon and subject to the foregoing, it is our Opinion that, as of the
date hereof, the Consideration to be offered by the Acquirer to the stockholders
of the Company in the Transaction is fair, from a financial point of view, to
such stockholders.
Very truly yours,
/s/ WARBURG DILLON READ LLC
Warburg Dillon Read LLC
