<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CELL PATHWAYS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 23-246900
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
CELL PATHWAYS HOLDINGS, INC.
702 ELECTRONIC DRIVE
HORSHAM, PENNSYLVANIA 19044
TELEPHONE: (215) 706-3800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. TOWARNICKI
CHIEF EXECUTIVE OFFICER
CELL PATHWAYS HOLDINGS, INC.
702 ELECTRONIC DRIVE
HORSHAM, PENNSYLVANIA 19044
TELEPHONE: (215) 706-3800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JAMES C.T. LINFIELD, ESQ. RICHARD H. TROY STEPHEN M. GOODMAN, ESQ.
REX R. O'NEAL, ESQ. SENIOR VICE PRESIDENT -- CORPORATE MICHAEL J. SHIM, ESQ.
COOLEY GODWARD LLP DEVELOPMENT AND GENERAL COUNSEL MORGAN, LEWIS & BOCKIUS LLP
2595 CANYON BOULEVARD, SUITE 250 CELL PATHWAYS HOLDINGS, INC. 2000 ONE LOGAN SQUARE
BOULDER, COLORADO 80302 702 ELECTRONIC DRIVE PHILADELPHIA, PENNSYLVANIA 19103
(303) 546-4000 HORSHAM, PENNSYLVANIA 19044 (215) 963-5000
(215) 706-3800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement and the
effective time of (i) the proposed merger (the "Tseng Merger") of Tseng Sub,
Inc. with and into Tseng Labs, Inc. ("Tseng") and (ii) the proposed merger (the
"CPI Merger") of CPI Sub, Inc. with and into Cell Pathways, Inc. ("CPI"), as
described in the Agreement and Plan of Reorganization, dated as of June 23, 1998
(the "Reorganization Agreement"), attached as Appendix A to the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement. The CPI
Merger and the Tseng Merger are referred to herein together as the
"Transactions."
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(a) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share.................... 19,990,964 $0.0033(2) $66,637(2) $4,950
-----------------------------------------------------------------
6,009,036 $2.78125(3) $16,712,632(3)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement relates to the maximum number of securities of
the Registrant that may be issued in the proposed Transactions. This number
consists of 6,009,036 shares of the Registrant's Common Stock which may be
issued upon conversion of shares of Tseng common stock and 19,990,964 shares
of the Registrant's Common Stock which may be issued upon conversion of
shares of CPI capital stock. Such amounts also include shares of the
Registrant's Common Stock that may be issuable after the effective date of
this registration statement and prior to the consummation of the
Transactions as a result of the exercise of outstanding CPI options and
warrants and outstanding Tseng options. Promptly upon the effectiveness of
the Transactions, the Registrant intends to file new registration statements
on Form S-8 with respect to such options.
(2) There is no established trading market for the shares of Common Stock of the
Registrant. In accordance with Rule 457(f)(2) under the Securities Act of
1933, as amended, the proposed maximum aggregate offering price has been
calculated with respect to that portion of the offering being made to CPI
stockholders, as CPI has an accumulated capital deficit, on the basis of
one-third of the aggregate par value of the CPI shares, which equals
$200,058 on July 15, 1998, the most recent practicable date for
determination.
(3) In accordance with Rule 457(f)(1) under the Securities Act of 1933, as
amended, the proposed maximum aggregate offering price, calculated with
respect to that portion of the offering being made to Tseng stockholders, on
the basis of the price of the Tseng shares (calculated in accordance with
Rule 457(c)), where the average of the high and low prices as of July 17,
1998, the most recent practicable date for determination, was $2.78125.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
, 1998
LOGO
CELL PATHWAYS, INC.
702 ELECTRONIC DRIVE
HORSHAM, PENNSYLVANIA 19044
Dear Stockholder:
As previously announced, Cell Pathways, Inc., a Delaware corporation
("CPI"), and Tseng Labs, Inc., a Utah corporation ("Tseng"), have entered into
an Agreement and Plan of Reorganization, dated June 23, 1998 (the
"Reorganization Agreement"), in order to provide further financing of the
programs of CPI. Through the reorganization, the stockholders of Tseng will
exchange their Tseng capital stock for approximately 23% of the outstanding
equity of a newly-formed holding company of CPI and CPI will obtain the benefit
of the substantial cash assets of Tseng.
The Reorganization Agreement provides for (i) the formation of Cell
Pathways Holdings, Inc., a Delaware corporation ("CPHI"), (ii) the merger of
Tseng Sub, Inc., a wholly-owned subsidiary of CPHI, with and into Tseng (the
"Tseng Merger"), (iii) the merger of CPI Sub, Inc., a wholly-owned subsidiary of
CPHI, with and into CPI (the "CPI Merger" and, together with the Tseng Merger,
the "Transactions") and (iv) the issuance of approximately 23% of the
outstanding shares of the common stock of CPHI ("CPHI Common Stock") to the
Tseng stockholders and approximately 77% of the outstanding shares of CPHI
Common Stock to the CPI stockholders. As a result of the Transactions, Tseng and
CPI would become wholly-owned subsidiaries of CPHI. Effective upon the
consummation of the Transactions, CPHI will change its name to Cell Pathways,
Inc. Upon completion of the Transactions, the shares of Tseng common stock will
no longer be traded on the Nasdaq National Market and the shares of the new Cell
Pathways, Inc. Common Stock will be listed for trading on the Nasdaq National
Market under the trading symbol "CLPA".
A special meeting of the stockholders of CPI will be held at the offices of
CPI, located at 702 Electronic Drive, Horsham, Pennsylvania, on ,
1998 at a.m., local time (including any adjournments or postponements
thereof, the "CPI Special Meeting"). Stockholders of record of CPI as of
, 1998 will be entitled to attend and vote at the CPI Special
Meeting. At the CPI Special Meeting, you will be asked to consider and vote upon
a proposal to adopt and approve the Reorganization Agreement and the
transactions contemplated thereby (including the CPI Merger) (the "CPI Merger
Proposal"). As a result of the CPI Merger, each outstanding share of CPI common
stock and preferred stock will be converted into the right to receive one share
of the CPHI Common Stock and all outstanding options and warrants to acquire CPI
common stock or preferred stock will become options and warrants to acquire CPHI
Common Stock. The number of shares of CPHI Common Stock to be issued in the CPI
Merger in exchange for the outstanding shares of CPI common stock and preferred
stock will, based upon shares currently outstanding, be approximately 18.7
million shares. The Transactions and the Reorganization Agreement are described
more fully in the accompanying Joint Proxy Statement/Prospectus.
After careful consideration, the Board of Directors of CPI (the "CPI
Board") has unanimously approved the Reorganization Agreement and the CPI
Merger, and has concluded that they are fair to, and in the best interests of,
CPI and its stockholders. The CPI Board unanimously recommends that you vote in
favor of the CPI Merger Proposal.
At the CPI Special Meeting, you will also be asked to consider and vote
upon a proposal to approve and adopt an amendment to the CPI Sixth Amended and
Restated Certificate of Incorporation which provides that the holders of CPI
preferred stock will receive only the consideration for their shares set forth
in the
<PAGE> 3
Reorganization Agreement (the "CPI Certificate Proposal"). Consummation of the
Transactions is contingent upon approval of the CPI Certificate Proposal. The
CPI Board unanimously recommends a vote in favor of the adoption and approval of
the CPI Certificate Proposal.
In the materials accompanying this letter, you will find a Notice of
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to
the proposals to be voted upon at the CPI Special Meeting and a proxy card. The
Joint Proxy Statement/Prospectus more fully describes the CPI Merger Proposal,
the CPI Certificate Proposal and the actions contemplated thereby.
All stockholders are cordially invited to attend the CPI Special Meeting in
person. If you attend the CPI Special Meeting, you may vote in person if you
wish even though you have previously returned your completed proxy. WHETHER OR
NOT YOU PLAN TO ATTEND THE CPI SPECIAL MEETING, IT IS IMPORTANT THAT YOUR SHARES
BE REPRESENTED AND VOTED, REGARDLESS OF HOW MANY SHARES YOU HOLD. THEREFORE,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
PLEASE DO NOT SEND IN THE STOCK CERTIFICATE(S) REPRESENTING YOUR CPI COMMON
STOCK OR PREFERRED STOCK AT THIS TIME.
On behalf of the CPI Board, I thank you for your support and ask you to
vote in favor of the CPI Merger Proposal and the CPI Certificate Proposal.
Sincerely,
Robert J. Towarnicki
Chief Executive Officer
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY PROMPTLY
<PAGE> 4
[CELL PATHWAYS LOGO]
CELL PATHWAYS, INC.
702 ELECTRONIC DRIVE
HORSHAM, PENNSYLVANIA 19044
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
------------------------
TO THE STOCKHOLDERS OF CELL PATHWAYS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Cell
Pathways, Inc., a Delaware corporation ("CPI"), will be held on ,
1998 at a.m. local time at the offices of CPI located at 702 Electronic
Drive, Horsham, Pennsylvania (including any adjournments or postponements
thereof, the "CPI Special Meeting") to consider and vote upon the following
proposals:
1. To (i) adopt and approve the Agreement and Plan of Reorganization,
dated as of June 23, 1998 (the "Reorganization Agreement"), between CPI and
Tseng Labs, Inc., a Utah corporation, and (ii) approve the merger of CPI
Sub, Inc., a wholly-owned subsidiary of Cell Pathways Holdings, Inc., a
Delaware corporation ("CPHI"), with and into CPI (the "CPI Merger").
Pursuant to the CPI Merger, CPI would become a wholly-owned subsidiary of
CPHI and the stockholders of CPI would receive shares representing
approximately 77% of the outstanding shares of CPHI Common Stock in
exchange for their CPI common stock and preferred stock. A copy of the
Reorganization Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To adopt and approve an amendment to the CPI Sixth Amended and
Restated Certificate of Incorporation which provides that the holders of
CPI preferred stock will receive only the consideration for their shares
set forth in the Reorganization Agreement (the "CPI Certificate Proposal").
3. To transact such other business as may properly come before the CPI
Special Meeting.
The Reorganization Agreement, the proposed CPI Merger, the CPI Certificate
Proposal and other related matters are more fully described in the attached
Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on , 1998 are
entitled to notice of, and to vote at, the CPI Special Meeting and any
adjournments or postponements thereof.
Commencing ten days prior to , 1998, a list of stockholders
entitled to vote at the CPI Special Meeting shall be open to examination by any
CPI stockholder for any purpose germane to the CPI Special Meeting at CPI's
offices at 702 Electronic Drive, Horsham, Pennsylvania 19044.
All stockholders are cordially invited to attend the CPI Special Meeting in
person. Whether or not you plan to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the CPI Board
Richard H. Troy
Secretary
Horsham, Pennsylvania
, 1998
<PAGE> 5
, 1998
TSENG LABS, INC. LOGO
TSENG LABS, INC.
18 WEST AIRY STREET
SUITE 100
NORRISTOWN, PENNSYLVANIA 19401
Dear Stockholder:
As previously announced, Tseng Labs, Inc., a Utah corporation ("Tseng"),
and Cell Pathways, Inc., a Delaware corporation ("CPI"), have entered into an
Agreement and Plan of Reorganization, dated June 23, 1998 (the "Reorganization
Agreement"). Through the reorganization, the stockholders of Tseng will exchange
their Tseng common stock for approximately 23% of the total outstanding equity
of a newly-formed holding company of CPI.
The Reorganization Agreement provides for (i) the formation of Cell
Pathways Holdings, Inc., a Delaware corporation ("CPHI"), (ii) the merger of
Tseng Sub, Inc., a wholly-owned subsidiary of CPHI, with and into Tseng (the
"Tseng Merger"), (iii) the merger of CPI Sub, Inc., a wholly-owned subsidiary of
CPHI, with and into CPI (the "CPI Merger" and, together with the Tseng Merger,
the "Transactions") and (iv) the issuance of approximately 23% of the
outstanding shares of the common stock of CPHI ("CPHI Common Stock") to the
Tseng stockholders and approximately 77% of the outstanding shares of CPHI
Common Stock to the CPI stockholders. Effective upon the consummation of the
Transactions, Tseng will become a wholly-owned subsidiary of CPHI and CPHI will
change its name to Cell Pathways, Inc. Upon completion of the Transactions, the
shares of Tseng common stock will no longer be traded on the Nasdaq National
Market and the shares of the new Cell Pathways, Inc. Common Stock will be listed
for trading on the Nasdaq National Market under the trading symbol "CLPA".
A special meeting of the stockholders of Tseng will be held at
on , 1998 at a.m., local time
(including any adjournments or postponements thereof, the "Tseng Special
Meeting"). The Tseng Board has set , 1998 as the record date of the
Tseng Special Meeting for purposes of determining the stockholders entitled to
attend and vote at the Tseng Special Meeting. At the Tseng Special Meeting, you
will be asked to consider and vote upon a proposal to approve and adopt the
Reorganization Agreement and approve the transactions contemplated thereby
(including the Tseng Merger) (the "Tseng Merger Proposal"). As a result of the
Tseng Merger, each outstanding share of common stock of Tseng will be converted
into the right to receive shares of CPHI Common Stock and all outstanding
options to acquire Tseng common stock will become options to acquire CPHI Common
Stock. The number of shares of CPHI Common Stock to be issued in the Tseng
Merger in exchange for the outstanding shares of Tseng common stock will, based
upon shares currently outstanding, be approximately 5.478 million shares, or
.3631326 per share of Tseng common stock. The Tseng Merger and the
Reorganization Agreement are described more fully in the accompanying Joint
Proxy Statement/Prospectus.
The Bylaws of Tseng and the rules of the Nasdaq National Market require
that the Tseng Merger Proposal be approved by a majority of the outstanding
shares having voting power. Consummation of the Transactions is conditioned
upon, among other things, the receipt of such stockholder approval. After
careful consideration, the Board of Directors of Tseng (the "Tseng Board") has
unanimously approved the Reorganization Agreement and the Tseng Merger and has
concluded that they are fair to, and in the best interests of, Tseng and its
stockholders. The Tseng Board unanimously recommends that you vote in favor of
the Tseng Merger Proposal.
In the materials accompanying this letter, you will find a Notice of
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to
the proposals to be voted upon at the Tseng Special Meeting and a proxy card.
The Joint Proxy Statement/Prospectus more fully describes the proposed
Transactions and the proposals before the stockholders.
<PAGE> 6
All stockholders are cordially invited to attend the Tseng Special Meeting
in person. If you attend the Tseng Special Meeting, you may vote in person if
you wish even though you have previously returned your completed proxy. WHETHER
OR NOT YOU PLAN TO ATTEND THE TSENG SPECIAL MEETING, IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AND VOTED, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.
THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE. PLEASE DO NOT SEND IN THE STOCK CERTIFICATE(S) REPRESENTING YOUR TSENG
COMMON STOCK AT THIS TIME.
On behalf of the Tseng Board, we thank you for your support and ask you to
vote in favor of the Tseng Merger Proposal.
Sincerely,
John J. Gibbons
Chairman of the Board of Directors
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY PROMPTLY
<PAGE> 7
TSENG LABS, INC. LOGO
TSENG LABS, INC.
18 WEST AIRY STREET
SUITE 100
NORRISTOWN, PENNSYLVANIA 19401
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
------------------------
TO THE STOCKHOLDERS OF TSENG LABS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Tseng
Labs, Inc., a Utah corporation ("Tseng"), will be held on , 1998, at
a.m., local time, at (including any adjournments
or postponements thereof, the "Tseng Special Meeting") to consider and vote upon
the following proposals:
1. To (i) approve and adopt the Agreement and Plan of Reorganization,
dated as of June 23, 1998, (the "Reorganization Agreement"), between Tseng
and Cell Pathways, Inc., a Delaware corporation, and (ii) approve the
merger of Tseng Sub, Inc., a wholly-owned subsidiary of Cell Pathways
Holdings, Inc., a Delaware corporation ("CPHI"), with and into Tseng (the
"Tseng Merger") and the filing of Articles of Merger with the Secretary of
State of Utah. Pursuant to the Tseng Merger, Tseng will become a
wholly-owned subsidiary of CPHI and the stockholders of Tseng will receive
shares of CPHI Common Stock in exchange for their Tseng Common Stock. A
copy of the Reorganization Agreement is attached as Appendix A to the Joint
Proxy Statement/Prospectus accompanying this Notice.
2. To vote upon and authorize the adjournment of the Tseng Special
Meeting, if necessary, to allow for the collection of additional
stockholder votes to obtain a quorum or in order to obtain more votes in
favor of the approval and adoption of the Reorganization Agreement and the
approval of the Tseng Merger.
3. To transact such other business as may properly come before the
Tseng Special Meeting.
The Reorganization Agreement, the proposed Tseng Merger and other related
matters are more fully described in the attached Joint Proxy
Statement/Prospectus.
Stockholders of record at the close of business on , 1998 are
entitled to notice of, and to vote at, the Tseng Special Meeting and any
adjournments or postponements thereof.
Commencing ten days prior to , 1998, a list of stockholders
entitled to vote at the Tseng Special Meeting shall be open to examination by
any Tseng stockholder for any purpose germane to the Tseng Special Meeting at
Tseng's office at 18 West Airy Street, Suite 100, Norristown, Pennsylvania
19401.
All stockholders are cordially invited to attend the Tseng Special Meeting
in person. Whether or not you plan to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Tseng Board
Barbara J. Hawkins
Secretary
Norristown, Pennsylvania
, 1998
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION JULY 22, 1998
TSENG LABS, INC.
AND
CELL PATHWAYS, INC.
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS TO BE HELD ON , 1998
------------------------
CELL PATHWAYS HOLDINGS, INC.
(TO BE RENAMED "CELL PATHWAYS, INC."
UPON CONSUMMATION OF THE TRANSACTIONS DESCRIBED HEREIN)
PROSPECTUS
FOR UP TO 26,000,000 SHARES OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, $0.005 par value per share ("Tseng Common Stock"), of Tseng Labs,
Inc., a Utah corporation ("Tseng"), in connection with the solicitation of
proxies by the Board of Directors of Tseng (the "Tseng Board") for use at a
special meeting of the stockholders of Tseng to be held on , 1998,
as well as at any adjournments or postponements thereof (the "Tseng Special
Meeting"). This Joint Proxy Statement/Prospectus is also being furnished to
holders of common stock, $0.01 par value per share ("CPI Common Stock"), and
preferred stock, $0.01 par value per share ("CPI Preferred Stock" and, together
with CPI Common Stock, "CPI Capital Stock"), of Cell Pathways, Inc., a Delaware
corporation ("CPI"), in connection with the solicitation of proxies by the Board
of Directors of CPI (the "CPI Board") for use at a special meeting of the
stockholders of CPI to be held on , 1998, as well as at any
adjournments or postponements thereof (the "CPI Special Meeting").
The Tseng Special Meeting is being called to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Reorganization dated as
of June 23, 1998 between CPI and Tseng (the "Reorganization Agreement") and
approve the merger of Tseng Sub, Inc., a Utah corporation ("Tseng Sub") and
wholly-owned subsidiary of Cell Pathways Holdings, Inc. ("CPHI"), with and into
Tseng (the "Tseng Merger"). The CPI Special Meeting is being called to consider
and vote upon a proposal to (i) approve and adopt the Reorganization Agreement
and the merger of CPI Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of CPHI ("CPI Sub"), with and into CPI as set forth in the
Reorganization Agreement (the "CPI Merger") and (ii) approve and adopt an
amendment to the CPI Sixth Amended and Restated Certificate of Incorporation
(the "CPI Certificate of Incorporation") which provides that the holders of CPI
Preferred Stock will receive only the consideration for their shares set forth
in the Reorganization Agreement (the "CPI Certificate Proposal"). The
stockholders of CPI and Tseng also will consider and vote upon other proposals
at the CPI Special Meeting and the Tseng Special Meeting, respectively. Such
proposals are discussed more fully elsewhere in this Joint Proxy
Statement/Prospectus.
Upon consummation of the proposed Tseng Merger and proposed CPI Merger
(together, the "Transactions"), (i) Tseng will become a wholly-owned subsidiary
of CPHI, each outstanding share of Tseng Common Stock will be converted into the
right to receive .3631326 of a share of CPHI Common Stock (the "Tseng Exchange
Ratio") and all outstanding options to acquire Tseng Common Stock will become
options to acquire CPHI Common Stock (subject to adjustment based upon the Tseng
Exchange Ratio), and (ii) CPI will become a wholly-owned subsidiary of CPHI,
each outstanding share of CPI Capital Stock will be converted into the right to
receive one share of CPHI Common Stock and all outstanding options and warrants
to acquire CPI Capital Stock will become options and warrants to acquire CPHI
Common Stock. The number of shares of CPHI Common Stock to be outstanding after
consummation of the Transactions will be approximately 24.2 million, based upon
the number of shares currently outstanding.
<PAGE> 9
The obligations of CPI and Tseng to effect the Transactions contemplated by
the Reorganization Agreement are subject to the satisfaction or waiver of
various conditions, including (i) approval of the CPI Merger by holders of a (a)
majority of the shares of CPI Common Stock, (b) majority of the shares of CPI
Series A Preferred Stock and CPI Series B Preferred Stock, voting together as a
single class, and (c) majority of the shares of CPI Series C Preferred Stock,
CPI Series D Preferred Stock, CPI Series E Preferred Stock, CPI Series F
Preferred Stock and CPI Series G Preferred Stock, voting together as a single
class, (ii) approval of the Tseng Merger by the holders of a majority of the
outstanding shares of Tseng Common Stock and (iii) the approval of the CPI
Certificate Proposal by the holders of a (a) majority of the shares of CPI
Common Stock and CPI Preferred Stock, voting together as a single class, and (b)
majority of the shares of each series of CPI Preferred Stock, each such series
voting as a separate class. The Transactions are expected to be consummated
within ten business days after such approvals are obtained and the other
conditions to the consummation of the Transactions are satisfied or waived. It
is currently anticipated that the Transactions will be consummated in
1998.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of CPHI
included as a part of a registration statement filed with the Securities and
Exchange Commission relating to up to 26,000,000 shares of CPHI Common Stock
issuable in connection with the Transactions.
All information contained herein concerning CPHI has been furnished by
CPHI, all information contained herein concerning CPI has been furnished by CPI
and all information contained herein concerning Tseng has been furnished by
Tseng.
This Joint Proxy Statement/Prospectus does not cover any resales of the
CPHI Common Stock issuable in the Transactions by any stockholders deemed to be
affiliates of CPI or Tseng. No person is authorized to make use of this Joint
Proxy Statement/Prospectus in connection with any such resale.
Holders of CPI Capital Stock will be entitled to appraisal rights with
respect to the proposed CPI Merger by complying with the procedures set forth in
Section 262 of the Delaware General Corporation Law ("DGCL"). Holders of Tseng
Common Stock have no appraisal rights in connection with the Tseng Merger.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxies
are first being mailed to stockholders of CPI and Tseng on or about
, 1998.
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF CPI AND TSENG ARE STRONGLY URGED TO READ
AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN THEIR ENTIRETY, INCLUDING THE MATTERS
REFERRED TO UNDER "RISK FACTORS" BEGINNING AT PAGE 18.
------------------------
THE SHARES OF CPHI COMMON STOCK TO BE ISSUED IN THE TRANSACTIONS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1998.
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SUMMARY..................................................... 3
The Companies............................................. 3
Cell Pathways, Inc. ................................... 3
Tseng Labs, Inc. ...................................... 4
Cell Pathways Holdings, Inc. .......................... 5
CPI Sub, Inc. ......................................... 5
Tseng Sub, Inc. ....................................... 5
The CPI Special Meeting................................... 5
Time, Date, Place and Purpose.......................... 5
Record Date and Vote Required.......................... 6
The Tseng Special Meeting................................. 6
Time, Date, Place and Purpose.......................... 6
Record Date and Vote Required.......................... 6
The CPI Merger............................................ 6
General................................................ 6
Stock Ownership Following the CPI Merger............... 7
Exchange of CPI Stock Certificates..................... 7
CPI's Reasons for the CPI Merger....................... 7
Recommendation of the CPI Board........................ 8
Appraisal Rights....................................... 8
The Tseng Merger.......................................... 8
General................................................ 8
Stock Ownership Following the Tseng Merger............. 9
Exchange of Tseng Stock Certificates................... 9
Tseng's Reasons for the Tseng Merger................... 9
Recommendation of the Tseng Board...................... 9
Opinion of Financial Advisor to Tseng.................. 9
Appraisal Rights....................................... 9
Interests of Certain Parties........................... 10
The Transactions.......................................... 10
Effective Time; Closing Date........................... 10
Non-Solicitation....................................... 10
Conduct of Business.................................... 10
Composition of the CPHI Board.......................... 10
Conditions to the Transactions......................... 11
Termination............................................ 11
Expenses and Termination Fees.......................... 12
Interests of Certain Persons in the Transactions....... 12
Registration Rights.................................... 13
Comparison of Stockholder Rights....................... 13
Material Federal Income Tax Consequences............... 13
Accounting Treatment................................... 13
Risk Factors........................................... 13
Markets and Market Prices.............................. 13
</TABLE>
i
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The CPI Certificate Proposal.............................. 14
CPI and CPHI Summary Financial Information................ 15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 17
RISK FACTORS................................................ 18
Risks Related to the Transactions and CPHI................ 18
Risks Related to the Business and Operations of CPI....... 19
Risks Related to the Business and Operations of Tseng..... 28
INTRODUCTION................................................ 30
THE CPI SPECIAL MEETING..................................... 30
Purpose of the CPI Special Meeting........................ 30
Date, Time and Place of Meeting........................... 30
Record Date; Voting Rights and Outstanding Shares......... 30
Solicitation of Proxies; Expenses......................... 30
Quorum; Vote Required..................................... 31
Effect of Abstentions..................................... 31
Voting and Revocability of Proxies........................ 31
THE TSENG SPECIAL MEETING................................... 32
Purpose of the Tseng Special Meeting...................... 32
Date, Time and Place of Meeting........................... 32
Record Date; Voting Rights and Outstanding Shares......... 32
Solicitation of Proxies; Expenses......................... 32
Quorum; Vote Required..................................... 32
Effect of Abstentions and Broker Nonvotes................. 32
Voting and Revocability of Proxies........................ 33
STOCK PRICE AND DIVIDEND INFORMATION........................ 34
APPROVAL OF THE TRANSACTIONS................................ 35
Background of the Transactions............................ 35
CPI's Reasons for the Transactions........................ 36
CPI Board Recommendation.................................. 37
Tseng's Reasons for the Transactions...................... 37
Tseng Board Recommendation................................ 38
Opinion of Financial Advisor to Tseng..................... 38
Interests of Certain Persons in the Transactions.......... 41
Market Stand-Off Agreements............................... 42
Material Federal Income Tax Consequences.................. 42
Anticipated Accounting Treatment.......................... 44
Regulatory Matters........................................ 44
Rights of Dissenting Stockholders......................... 45
Resale of CPHI Common Stock............................... 46
Nasdaq National Market Listing............................ 46
THE REORGANIZATION AGREEMENT................................ 47
General................................................... 47
Transaction Consideration................................. 47
No Fractional Shares...................................... 47
Stock Options and Warrants................................ 47
Stock Ownership Following the Transactions................ 48
Conversion of Shares; Procedures for Exchange of
Certificates........................................... 48
Effect on Certificates.................................... 49
</TABLE>
ii
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Corporate Matters; Composition of the CPHI Board.......... 49
Conditions to the Transactions............................ 49
Representations and Warranties............................ 52
Covenants................................................. 53
Termination............................................... 58
Expenses and Termination Fees............................. 59
AMENDMENT OF THE CPI CERTIFICATE OF INCORPORATION........... 60
Effect of Amendment....................................... 60
Required Vote............................................. 60
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION............................................... 61
CPHI'S BUSINESS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 65
CPI BUSINESS................................................ 66
Overview.................................................. 66
Business Strategy......................................... 66
Carcinogenesis............................................ 67
CPI Technology............................................ 68
Products in Development................................... 70
National Cancer Institute and Other Third-Party
Arrangements........................................... 74
Scientific Advisory Board................................. 75
Patents and Proprietary Technology........................ 76
Competition............................................... 78
Government Regulation..................................... 79
Manufacturing............................................. 82
Marketing and Sales....................................... 82
Employees................................................. 83
Facilities................................................ 83
Legal Proceedings......................................... 83
CPI AND CPHI SELECTED FINANCIAL INFORMATION................. 84
CPI AND CPHI CAPITALIZATION................................. 86
CPI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 87
Overview.................................................. 87
Results of Operations..................................... 87
Liquidity and Capital Resources........................... 88
Inflation................................................. 89
Income Taxes.............................................. 89
Recent Accounting Pronouncements.......................... 89
Risks Associated with the Year 2000....................... 90
MANAGEMENT OF CPHI AND EXECUTIVE COMPENSATION............... 91
Executive Officers and Directors.......................... 91
Director Nominee.......................................... 93
Key Employees............................................. 93
Compensation of Directors................................. 94
Compensation of Executive Officers of CPI................. 95
Employment Agreements of CPI Executive Officers........... 95
Stock Option Grants and Exercises of CPI Executive
Officers............................................... 96
</TABLE>
iii
<PAGE> 13
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECURITY OWNERSHIP OF CPI AND CPHI.......................... 98
CERTAIN TRANSACTIONS........................................ 102
DESCRIPTION OF CPHI CAPITAL STOCK........................... 105
CPHI Authorized Capital Stock............................. 105
CPHI Common Stock......................................... 105
CPHI Preferred Stock...................................... 105
Certain Anti-Takeover Provisions.......................... 106
Listing................................................... 106
Transfer Agent and Registrar.............................. 106
COMPARISON OF STOCKHOLDER RIGHTS............................ 107
Comparison of Stockholder Rights with Respect to CPHI and
CPI.................................................... 107
Comparison of Stockholder Rights with Respect to CPHI and
Tseng.................................................. 111
STOCKHOLDER PROPOSAL........................................ 118
EXPERTS..................................................... 118
LEGAL MATTERS............................................... 118
REPRESENTATIVES OF INDEPENDENT ACCOUNTANTS.................. 118
INDEX TO CPI FINANCIAL STATEMENTS........................... F-1
APPENDIX A -- Agreement and Plan of Reorganization.......... A-1
APPENDIX B -- Proposed Amendments to CPHI Certificate of
Incorporation............................................. B-1
APPENDIX C -- Opinion of Janney Montgomery Scott Inc. ...... C-1
APPENDIX D -- Section 262 of the Delaware General
Corporation Law........................................... D-1
</TABLE>
iv
<PAGE> 14
AVAILABLE INFORMATION
Tseng is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Commission's regional offices at CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material may
also be obtained from the Commission at prescribed rates by writing to the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549. Tseng Common Stock is listed on the Nasdaq National Market and
reports and other information concerning Tseng may be inspected at the offices
of the National Association of Securities Dealers, Inc., 1735 K. Street, N.W.,
Washington, D.C. 20006.
Under the rules and regulations of the Commission, the vote on the CPI
Merger Proposal by holders of CPI Capital Stock and the vote on the Tseng Merger
Proposal by holders of Tseng Common Stock constitute offerings of the CPHI
Common Stock to be issued in connection with the Transactions. Accordingly, CPHI
has filed with the Commission a Registration Statement on Form S-4 (together
with all amendments and exhibits thereto, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to such CPHI Common Stock. This Joint Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission and to which portions reference is hereby made.
Statements contained in this Joint Proxy Statement/Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. For further information with respect to CPHI,
CPI, Tseng, the Transactions, the securities offered hereby and related matters,
reference is made to the Registration Statement. The Registration Statement and
the exhibits thereto may be inspected, without charge, at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained from the Commission at prescribed rates.
The Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
------------------------
This Joint Proxy Statement/Prospectus is being furnished to CPI's
stockholders in connection with the solicitation of proxies by the CPI Board for
use at the CPI Special Meeting and to Tseng's stockholders in connection with
the solicitation of proxies by the Tseng Board for use at the Tseng Special
Meeting. Each copy of this Joint Proxy Statement/ Prospectus mailed to the CPI
stockholders is accompanied by a form of proxy for use at the CPI Special
Meeting and each copy of this Joint Proxy Statement/Prospectus mailed to the
Tseng stockholders is accompanied by a form of proxy for use at the Tseng
Special Meeting. This Joint Proxy Statement/Prospectus is also being furnished
by CPHI to holders of CPI Capital Stock and holders of Tseng Common Stock as a
prospectus in connection with the shares of CPHI Common Stock to be issued upon
consummation of the Transactions.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATION MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY CPHI, CPI OR TSENG. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF CPHI, CPI OR TSENG
SINCE THE DATE HEREOF.
------------------------
This Joint Proxy Statement/Prospectus contains trademarks of CPI as well as
trademarks of other companies.
1
<PAGE> 15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Tseng with the Commission under
the Exchange Act are incorporated herein by reference:
1. Tseng's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "Tseng Form 10-K");
2. Tseng's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998 (the "Tseng Form 10-Qs"); and
3. Tseng's Current Reports on Form 8-K dated February 5, 1998 and June
25, 1998 (the "Tseng Form 8-Ks" and, collectively with the Tseng Form 10-K
and the Tseng Form 10-Qs, the "Tseng Reports").
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed documents that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
All information contained or incorporated by reference in the Joint Proxy
Statement/Prospectus relating to Tseng has been supplied by Tseng.
COPIES OF THE TSENG FORM 10-K, THE MARCH 31, 1998 TSENG FORM 10-Q AND THE
JUNE 30, 1998 TSENG FORM 10-Q ARE BEING DELIVERED TO EACH CPI STOCKHOLDER AND
EACH TSENG STOCKHOLDER CONCURRENTLY WITH THIS JOINT PROXY STATEMENT/ PROSPECTUS.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST BY
ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED FROM
TSENG LABS, INC., 18 WEST AIRY STREET, SUITE 100, NORRISTOWN, PENNSYLVANIA
19401, ATTENTION: SHAREHOLDER SERVICES; TELEPHONE NUMBER (610) 313-9388. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS,
ANY SUCH REQUEST SHOULD BE MADE BY , 1998.
2
<PAGE> 16
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus or incorporated by reference herein. This
summary is not, and is not intended to be, complete by itself. This Joint Proxy
Statement/Prospectus contains forward-looking statements that involve risks and
uncertainties. CPI's, Tseng's and CPHI's actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Joint Proxy Statement/Prospectus. This summary is qualified in its entirety
by reference to the more detailed information contained elsewhere in this Joint
Proxy Statement/Prospectus, the appendices attached hereto and the documents
incorporated by reference herein. Stockholders of CPI and Tseng are urged to
review carefully all of the information contained in this Joint Proxy
Statement/Prospectus, the Reorganization Agreement attached hereto as Appendix A
and the other appendices attached hereto and the documents incorporated herein
by reference. Upon consummation of the Transactions, CPHI will change its name
to Cell Pathways, Inc.
THE COMPANIES
CELL PATHWAYS, INC.
CPI is a pharmaceutical company focused on the development and
commercialization of products to prevent and treat cancer. CPI has ongoing
clinical trials of its lead compound FGN-1(TM) (exisulind) in five indications
and is planning clinical trials in three additional indications. In January
1998, CPI completed enrollment of 74 patients for its ongoing pivotal Phase III
clinical trial for Adenomatous Polyposis Coli ("APC"), a disease characterized
by numerous precancerous polyps of the colon. CPI anticipates filing a New Drug
Application ("NDA") with the U.S. Food and Drug Administration ("FDA") in the
first quarter of 1999, which will seek approval to market FGN-1(TM)(exisulind)
for the prevention of precancerous adenomatous polyps in APC patients. There can
be no assurance that such filing will not be delayed or that the Phase III
studies will show that FGN-1(TM) (exisulind) is sufficiently safe and effective
for marketing approval by the FDA. In July 1998, the FDA granted FGN-1(TM)
(exisulind) Fast Track designation for expedited review for this indication. In
December 1997, CPI initiated Phase II/III trials of FGN-1(TM) (exisulind) for
sporadic adenomatous colonic polyps and for the prevention of prostate cancer
recurrence as well as a pilot study in lung cancer. In February 1998, CPI
initiated a Phase II/III trial of FGN-1(TM) (exisulind) for the prevention of
breast cancer recurrence. CPI also plans to initiate Phase II trials for the
treatment of Barrett's Esophagus and bronchial dysplasia in the fourth quarter
of 1998. CPI's technology is based upon its discovery of a novel mechanism which
CPI believes, based on its research, can be targeted to induce selective
apoptosis, or programmed cell death, in precancerous and cancerous cells without
affecting normal cells. Utilizing this proprietary knowledge, CPI has created
over 450 new chemical compounds, over 200 of which display significantly greater
apoptotic potency than FGN-1(TM) (exisulind).
CPI's objectives are to be a leader in cancer chemoprevention and to build
an integrated pharmaceutical company focused on the oncology market. To meet
these objectives, CPI intends to: (i) pursue accelerated clinical development of
FGN-1(TM) (exisulind); (ii) leverage CPI's technology to develop additional
agents for cancer therapy and chemoprevention; (iii) commercialize products
directly to focused physician groups; (iv) develop strategic collaborations for
selected indications and geographical markets; and (v) acquire technology and
products focused in cancer treatment and prevention.
CPI's clinical trial strategy for its targeted indications is to identify
subsets of larger patient populations in which clinical endpoints occur in high
frequency and in a relatively short time frame. CPI plans to utilize data
obtained in its completed clinical trials in its initial indications to provide
a basis for commencing more advanced clinical trials in other indications. CPI
believes that this strategy may allow it to reduce the size and duration of
clinical trials, thereby generating statistically significant clinical results
more quickly and cost-effectively.
Adenomatous Polyposis Coli. Consistent with its clinical trial strategy,
CPI has chosen APC as its initial indication and has obtained Orphan Drug status
and Fast Track designation for FGN-1(TM) (exisulind) in the treatment of APC. In
a Phase I/II study completed in January 1997, 18 APC patients were treated with
FGN-1(TM) (exisulind) for six months. At the end of the study, all patients
elected to continue in an open label
3
<PAGE> 17
extension of the study, and the majority of patients have exceeded 24 months on
the drug. In this study and its extension, nearly all patients have been
observed to experience a dose-related reduction in the number and size of
exophytic (i.e., raised over the surface) precancerous rectal polyps that were
six millimeters or less in diameter at the beginning of the study. In the
extended study, no progressive increase in polyp size or volume was observed in
13 of the 14 patients who have remained in the study and have been maintained on
the optimal dose. There have been no withdrawals from the study or its extension
attributable to serious adverse events. After reviewing the results of the Phase
I/II trial with the FDA, CPI initiated a pivotal Phase III study in the second
quarter of 1997 at 12 centers worldwide. CPI has also initiated a concurrent
Phase III study in patients with high rates of polyp formation who otherwise
would have been excluded from the first Phase III study. There can be no
assurance that the results of the Phase I/II study will be indicative of results
in the Phase III studies or that the Phase III studies will show that FGN-1(TM)
(exisulind) is sufficiently safe and effective for marketing approval by the FDA
or other regulatory authorities.
Sporadic Adenomatous Colonic Polyps. Sporadic adenomatous colonic polyps
occur in more than 30% of people in the U.S. over the age of 50 and are
histologically and genetically indistinguishable from the polyps of APC. In
September 1997, CPI completed a Phase IB study in 18 patients with a history of
sporadic adenomatous colonic polyps and/or cervical dysplasia. CPI initiated a
multi-center, pivotal Phase II/III trial in the fourth quarter of 1997 to
evaluate the safety and efficacy of different doses of FGN-1(TM) (exisulind) in
the treatment of existing sporadic adenomatous colonic polyps.
Prostate, Breast and Lung Cancers. CPI is testing FGN-1(TM) (exisulind)
for certain cancers, including prostate, breast and lung cancer. It is estimated
that in 1997 there were approximately 209,000 new cases of prostate cancer and
approximately 185,000 new cases of breast cancer in the U.S. CPI initiated Phase
II/III clinical studies in the fourth quarter of 1997 and the first quarter of
1998 to evaluate the safety and efficacy of different doses of FGN-1(TM)
(exisulind) in preventing the recurrence of prostate cancer and breast cancer,
respectively. It is estimated that in 1997 there were approximately 177,000 new
cases of lung cancer in the U.S. In the fourth quarter of 1997, the Company
initiated a pilot study of the safety and efficacy of FGN-1(TM) (exisulind) in
patients with advanced lung cancer.
Additional Indications. CPI plans to commence clinical trials of FGN-1(TM)
(exisulind) for other precancerous indications. CPI plans to initiate Phase
II/III studies in the fourth quarter of 1998 to evaluate the safety and efficacy
of different doses of FGN-1(TM) (exisulind) for the treatment of Barrett's
Esophagus and bronchial dysplasia. Barrett's Esophagus is a precancerous
condition of the lower esophagus. An estimated 2 million people in the U.S. have
Barrett's Esophagus, but only one-half have symptoms that could lead to
diagnosis. Up to two-thirds of heavy smokers develop bronchial dysplasia, a
precancerous condition of the lower respiratory tract. CPI is also designing a
clinical trial to evaluate the safety and efficacy of FGN-1(TM) (exisulind) for
the treatment of cervical dysplasia, a relatively common precancerous lesion of
the cervix that is easily diagnosed by Pap smears.
CPI has, to date, retained all rights to FGN-1(TM)(exisulind) and its other
compounds, and plans to establish its own sales force to promote FGN-1(TM)
(exisulind) for indications treated by relatively small well-defined groups of
clinical specialists. To reach larger physician groups, such as gynecologists,
CPI may enter into marketing agreements with pharmaceutical or biotechnology
companies. CPI also plans to seek partners for international development and
commercialization of its products in all indications. See "CPI Business".
The business of CPI began operating in partnership form in 1990. CPI was
incorporated in Delaware in November 1992, and served as the general partner of
the partnership until September 1993, when it acquired the partnership's assets.
CPI's principal executive offices are located at 702 Electronic Drive, Horsham,
Pennsylvania 19044. CPI's telephone number is (215) 706-3800.
TSENG LABS, INC.
Tseng, until the sale of substantially all of its graphics development
assets to ATI Technologies, Inc. in December 1997, was a supplier of high
performance video graphic controller chips. These chips were designed to enhance
the personal computer's performance by off-loading the graphics and video
functions from the central processing unit to the graphics accelerator chip.
4
<PAGE> 18
It is anticipated that, after consummation of the Transactions, Tseng will
have no continuing operations. Currently, Tseng expects limited future revenues
and expenses from its operations as it supports existing customers through
third-party agreements through March 1999, and offers customers the opportunity
to purchase additional quantities of Tseng's product necessary to support their
ongoing product requirements, if any.
Following the sale of its development assets in December 1997, Tseng
pursued the acquisition of or investment in a growth-stage company or companies.
Tseng evaluated investment and/or acquisition opportunities with nearly 100
companies in addition to CPI. As a result of its search, Tseng entered into the
Reorganization Agreement with CPI on June 23, 1998.
Tseng was incorporated in Utah in 1983. The principal executive offices of
Tseng are located at 18 West Airy Street, Suite 100, Courthouse Plaza,
Norristown, Pennsylvania 19041. Tseng's telephone number is (610)313-9388.
CELL PATHWAYS HOLDINGS, INC.
CPHI is a corporation recently organized by CPI for the purpose of
effecting the Transactions. CPHI has no material assets and has not engaged in
any activities except in connection with the Transactions. As a result of the
Transactions, CPI and Tseng will become wholly-owned subsidiaries of CPHI. The
business of CPHI will be the business currently conducted by CPI. Effective upon
the consummation of the Transactions, CPHI will change its name to Cell
Pathways, Inc.
The principal executive offices of CPHI are located at 702 Electronic
Drive, Horsham, Pennsylvania 19044. CPHI's telephone number is (215)706-3800.
CPI SUB, INC.
CPI Sub is a corporation recently organized as a wholly-owned subsidiary of
CPHI for the purpose of effecting the CPI Merger. CPI Sub has no material assets
and has not engaged in any activities except in connection with the CPI Merger.
The principal executive offices of CPI Sub are located at 702 Electronic
Drive, Horsham, Pennsylvania 19044. CPI Sub's telephone number is (215)706-3800.
TSENG SUB, INC.
Tseng Sub is a corporation recently organized as a wholly-owned subsidiary
of CPHI for the purpose of effecting the Tseng Merger. Tseng Sub has no material
assets and has not engaged in any activities except in connection with the Tseng
Merger.
The principal executive offices of Tseng Sub are located at 702 Electronic
Drive, Horsham, Pennsylvania 19044. Tseng Sub's telephone number is
(215)706-3800.
THE CPI SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The CPI Special Meeting will be held at the offices of CPI, located at 702
Electronic Drive, Horsham, Pennsylvania, on , 1998, at a.m.
local time. The purpose of the CPI Special Meeting is to vote upon proposals to
(i) approve and adopt the Reorganization Agreement, attached hereto as Appendix
A, and the transactions contemplated thereby (including the CPI Merger) (the
"CPI Merger Proposal") and (ii) approve an amendment of the CPI Certificate of
Incorporation, attached hereto as Appendix B, which provides that the holders of
CPI Preferred Stock will receive only the consideration for their shares as set
forth in the Reorganization Agreement (the "CPI Certificate Proposal"). Approval
of the CPI Certificate Proposal is a condition to consummation of the
Transactions and will be implemented only if the Transactions are consummated.
Holders of CPI Capital Stock may also consider and vote upon such other matters
as may be properly brought before the CPI Special Meeting or any postponements
or adjournments thereof.
5
<PAGE> 19
RECORD DATE AND VOTE REQUIRED
Only CPI stockholders of record at the close of business on , 1998
(the "CPI Record Date") are entitled to vote at the CPI Special Meeting.
Approval of the CPI Merger Proposal will require approval by the affirmative
vote of each of (i) a majority of the shares of CPI Common Stock, (ii) a
majority of the shares of CPI Series A Preferred Stock and CPI Series B
Preferred Stock, voting together as a single class, and (iii) a majority of the
shares of CPI Series C Preferred Stock, CPI Series D Preferred Stock, CPI Series
E Preferred Stock, CPI Series F Preferred Stock and CPI Series G Preferred
Stock, voting together as a single class (the "Required CPI Merger Stockholder
Vote"). Approval of the CPI Certificate Proposal requires the affirmative vote
of (i) a majority of the shares of CPI Common Stock and CPI Preferred Stock,
voting together as a single class, and (ii) a majority of the shares of each
series of CPI Preferred Stock, each such series voting as a separate class (the
"Required CPI Certificate Stockholder Vote").
This Joint Proxy Statement/Prospectus and accompanying CPI Notice of
Special Meeting of Stockholders are being mailed to all of the holders of record
of CPI Capital Stock as of the CPI Record Date and constitute notice of the CPI
Special Meeting in conformity with the requirements of the DGCL.
THE TSENG SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Tseng Special Meeting will be held at on ,
1998, at a.m. local time. The purpose of the Tseng Special Meeting is to
vote upon (i) the proposal to approve and adopt the Reorganization Agreement,
attached hereto as Appendix A, and the transactions contemplated thereby
(including the Tseng Merger) (the "Tseng Merger Proposal") and (ii) the proposal
to authorize the adjournment of the Tseng Special Meeting for the collection of
additional votes, if necessary (the "Tseng Adjournment Proposal"). Tseng
stockholders may also consider and vote upon such other matters as may be
properly brought before the Tseng Special Meeting or any postponements or
adjournments thereof.
RECORD DATE AND VOTE REQUIRED
Only Tseng stockholders of record at the close of business on , 1998
(the "Tseng Record Date") are entitled to vote at the Tseng Special Meeting. The
Tseng Merger Proposal will require approval by the affirmative vote of the
holders of a majority of the outstanding shares of Tseng Common Stock (the
"Required Tseng Merger Stockholder Vote"). The Tseng Adjournment Proposal will
require approval by the affirmative vote of the holders of a majority of the
shares of Tseng Common Stock present at the Tseng Special Meeting and entitled
to vote thereon.
This Joint Proxy Statement/Prospectus and accompanying Notice of Special
Meeting of Stockholders are being mailed to all Tseng stockholders of record as
of the Tseng Record Date and constitute notice of the Tseng Special Meeting in
conformity with the requirements of the Utah Business Corporation Act ("UBCA").
THE CPI MERGER
GENERAL
At the Effective Time (as defined below), CPI Sub will merge with and into
CPI, the separate existence of CPI Sub will cease and CPI will become a
wholly-owned subsidiary of CPHI. It is currently anticipated that the Effective
Time will occur during 1998. In addition, the Reorganization Agreement
provides that, subject to the terms and conditions thereof, at the Effective
Time, the following will occur:
Conversion of CPI Capital Stock. Subject to the provisions contained in
the Reorganization Agreement relating to the payment of cash in lieu of
fractional shares and CPI Dissenting Shares (defined below), each share of CPI
Capital Stock then outstanding will be converted into the right to receive one
share of CPHI Common Stock. Based upon the numbers of shares of CPI Capital
Stock currently outstanding, the number of shares of CPHI Common Stock to be
issued in the CPI Merger in exchange for the outstanding shares of CPI Capital
Stock will be approximately 18.7 million shares. Each share of CPI Capital Stock
issued and
6
<PAGE> 20
outstanding immediately prior to the Effective Time (other than any shares held
by a holder who has not voted in favor of approval and adoption of the CPI
Merger Proposal, who has demanded and perfected appraisal rights for such shares
in accordance with the applicable provisions of the DGCL and who has not
withdrawn or lost such rights ("CPI Dissenting Shares")) will be canceled and
extinguished and be converted automatically into the right to receive one share
of CPHI Common Stock, upon surrender of the certificate representing such share
of CPI Capital Stock in the manner provided in a letter of transmittal to be
sent to each record holder of CPI Capital Stock promptly following the Effective
Time.
CPI Stock Options. Each unexpired and unexercised option to purchase
shares of CPI Common Stock granted under the 1997 Equity Incentive Plan, under
the 1997 Non-Employee Director Stock Option Plan or outside such plans
(collectively, "CPI Options") will be assumed by CPHI and become exercisable for
CPHI Common Stock. Each CPI Option so assumed by CPHI will continue to have, and
be subject to, substantially the same terms and conditions set forth in the
documents governing such CPI Option immediately prior to the Effective Time. As
promptly as possible after the Effective Time, CPHI will file a Registration
Statement on Form S-8 to register the shares of CPHI Common Stock issuable upon
an exercise of the CPI Options. See "The Reorganization Agreement -- Stock
Options and Warrants".
CPI Warrants. CPI has outstanding warrants to purchase shares of CPI
Series E Preferred Stock, CPI Series F Preferred Stock, CPI Series G Preferred
Stock and CPI Common Stock ("CPI Warrants"). Each CPI Warrant will be assumed by
CPHI and become exercisable for CPHI Common Stock, except for the warrants to
purchase CPI Series E Preferred Stock which will expire if not exercised prior
to the consummation of the Transactions. Each CPI Warrant so assumed by CPHI
will continue to have, and be subject to, substantially the same terms and
conditions set forth in the documents governing such CPI Warrants immediately
prior to the Effective Time. See "The Reorganization Agreement -- Stock Options
and Warrants".
STOCK OWNERSHIP FOLLOWING THE CPI MERGER
Based on the number of shares of CPI Capital Stock outstanding as of July
15, 1998 and the anticipated redemption of the Redeemable Preferred Stock,
18,687,093 shares of CPHI Common Stock will be issued to holders of CPI Capital
Stock upon consummation of the Transactions. CPI Warrants will be exercisable
for 427,188 shares of CPHI Common Stock. CPI has outstanding options that, when
fully vested, will be exercisable for 1,221,255 shares of CPHI Common Stock.
Assuming exercise and non-forfeiture of all CPI Warrants and CPI Options, a
maximum of 20,335,536 shares of CPHI Common Stock may be issued to holders of
CPI Capital Stock, CPI Warrants and CPI Options.
EXCHANGE OF CPI STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, an exchange
agent to be selected by CPHI (the "Exchange Agent") will mail to the holders of
CPI Capital Stock (i) a letter of transmittal (the "CPI Letter of Transmittal")
with respect to the surrender of valid certificates representing shares of CPI
Capital Stock ("CPI Stock Certificates") in exchange for certificates
representing CPHI Common Stock and (ii) instructions for use of the CPI Letter
of Transmittal. CPI STOCKHOLDERS SHOULD NOT SURRENDER THEIR CPI STOCK
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A CPI LETTER OF TRANSMITTAL. See
"The Reorganization Agreement -- Conversion of Shares; Procedures for Exchange
of Certificates".
CPI'S REASONS FOR THE CPI MERGER
In approving the Reorganization Agreement and the CPI Merger, the CPI Board
considered a number of factors, including that: (i) the combination of CPI's
technology, research, development, clinical programs and organization combined
with Tseng's cash resources would offer CPI's stockholders an opportunity to
realize appropriate value from their investment in CPI; (ii) consummation of the
Transactions would provide CPI's stockholders with liquidity;(iii) the
Transactions compare favorably with other means of financing the continuing
research and development programs of CPI; and (iv) the Transactions are expected
to provide CPI
7
<PAGE> 21
with substantially greater resources, including cash and a publicly traded
security, to fund internal research and clinical development work, leverage
CPI's technology platform and pursue strategic transactions on an opportunistic
basis, including acquisitions of businesses or technologies and strategic
partnerships. See "Approval of the Transactions -- CPI's Reasons for the
Transactions" and "Approval of the Transactions -- CPI Board Recommendation".
RECOMMENDATION OF THE CPI BOARD
The CPI Board has unanimously approved the Reorganization Agreement and the
CPI Merger and has unanimously recommended a vote FOR approval of the CPI Merger
Proposal and the CPI Certificate Proposal.
APPRAISAL RIGHTS
Holders of CPI Capital Stock are generally entitled to appraisal rights
with respect to the CPI Merger under the DCGL. If the CPI Merger Proposal is
approved by the Required CPI Merger Stockholder Vote and is not terminated in
accordance with the Reorganization Agreement, CPI's stockholders who do not vote
for the CPI Merger Proposal and who comply with all applicable provisions of the
DCGL will have the right to exercise appraisal rights and receive the "fair
value" of their shares of CPI Capital Stock for cash. A dissenting stockholder
of CPI must follow the appropriate procedures under the DGCL or suffer the
termination or waiver of such appraisal rights. For a more detailed description
of the procedures applicable to the exercise of appraisals rights, see "Approval
of the Transactions -- Rights of Dissenting Stockholders". The full text of the
pertinent statutory provisions of the DCGL relating to the proper exercise of
such appraisal rights is attached hereto as Appendix D and should be read
carefully and in its entirety.
THE TSENG MERGER
GENERAL
At the Effective Time, Tseng Sub will merge with and into Tseng, the
separate existence of Tseng Sub will cease and Tseng will become a wholly-owned
subsidiary of CPHI. It is currently anticipated that the Effective Time will
occur during , 1998. In addition, the Reorganization Agreement
provides that, subject to the terms and conditions thereof, at the Effective
Time, the following will occur:
Conversion of Tseng Common Stock. Subject to the provisions contained in
the Reorganization Agreement relating to the payment of cash in lieu of
fractional shares, each share of Tseng Common Stock then outstanding will be
converted into the right to receive .3631326 shares of CPHI Common Stock (the
"Tseng Exchange Ratio"). Based upon the number of shares of Tseng Common Stock
currently outstanding, the number of shares of CPHI Common Stock to be issued in
the Tseng Merger in exchange for the outstanding shares of Tseng Common Stock
will be approximately 5.478 million. Each share of Tseng Common Stock issued and
outstanding immediately prior to the Effective Time will be canceled and
extinguished and be converted automatically into the right to receive a fraction
of a share of CPHI Common Stock equal to the Tseng Exchange Ratio, upon
surrender of the certificate representing such share of Tseng Common Stock in
the manner provided in a letter of transmittal to be sent to each record holder
of Tseng Common Stock promptly following the Effective Time.
Tseng Stock Options. Each unexpired and unexercised option to purchase
shares of Tseng Common Stock granted under the 1991 Stock Option Plan, 1995
Stock Option Plan and 1991 Special Director's Stock Option Plan ("Tseng
Options") will be assumed by CPHI and become exercisable for CPHI Common Stock.
Each Tseng Option so assumed by CPHI will continue to have, and be subject to,
substantially the same terms and conditions set forth in the documents governing
such Tseng Options immediately prior to the Effective Time (subject to
appropriate adjustments to the exercise price and number of shares subject
thereto based upon the Tseng Exchange Ratio). Upon the consummation of the Tseng
Merger, CPHI will file a Registration Statement on Form S-8 to register the
shares of CPHI Common Stock issuable upon the exercise of Tseng Options. See
"The Reorganization Agreement -- Stock Options and Warrants".
8
<PAGE> 22
STOCK OWNERSHIP FOLLOWING THE TSENG MERGER
Based on the number of shares of Tseng Common Stock outstanding as of July
15, 1998, 5,477,614 shares of CPHI Common Stock will be issued to holders of
Tseng Common Stock. Tseng has outstanding options that upon consummation of the
Transactions will be exercisable for 531,422 shares of CPHI Common Stock.
Assuming exercise of all Tseng Options, a maximum of 6,009,036 shares of CPHI
Common Stock will be issued to holders of Tseng Common Stock and Tseng Options.
EXCHANGE OF TSENG STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to the holders of Tseng Common Stock (i) a letter of transmittal
(the "Tseng Letter of Transmittal") with respect to the surrender of valid
certificates representing shares of Tseng Common Stock ("Tseng Stock
Certificates") in exchange for certificates representing CPHI Common Stock and
(ii) instructions for use of the Tseng Letter of Transmittal. TSENG STOCKHOLDERS
SHOULD NOT SURRENDER THEIR TSENG STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY
RECEIVE A TSENG LETTER OF TRANSMITTAL. See "The Reorganization
Agreement -- Conversion of Shares; Procedures for Exchange of Certificates".
TSENG'S REASONS FOR THE TSENG MERGER
In approving the Reorganization Agreement and the Tseng Merger, the Tseng
Board considered a number of factors, including that: (i) the Transactions
presented Tseng's stockholders with the highest potential return relative to
other transactions evaluated; (ii) the terms and conditions of the
Reorganization Agreement, including the amount and form of the consideration,
represented the most favorable transaction relative to the terms and conditions
of other transactions evaluated; (iii) the respective businesses, patent
portfolios, prospects, financial performance, financial condition and operations
of CPI and Tseng as a combined entity were favorable relative to other
alternatives for Tseng; and (iv) the structure of the Transactions would permit
the holders of Tseng Common Stock to exchange their shares on a tax-free basis.
See "Approval of the Transactions -- Tseng's Reasons for the Transactions" and
"Approval of the Transactions -- Tseng Board Recommendation."
RECOMMENDATION OF THE TSENG BOARD
The Tseng Board has unanimously approved the Reorganization Agreement and
the Tseng Merger and has unanimously recommended a vote FOR approval of the
Tseng Merger Proposal and the Tseng Adjournment Proposal.
OPINION OF FINANCIAL ADVISOR TO TSENG
Janney Montgomery Scott Inc. ("JMS") delivered its opinion dated June 23,
1998 (the "JMS Opinion") to the Tseng Board that, as of the date of such opinion
and subject to the various considerations set forth therein, the Tseng Exchange
Ratio is fair to the holders of Tseng Common Stock. The full text of the JMS
Opinion, which sets forth, among other things, assumptions made, matters
considered and limitations on the scope of the review undertaken in connection
with the JMS Opinion, is attached hereto as Appendix C and is incorporated
herein by reference. Holders of Tseng Common Stock are urged to, and should,
read the JMS Opinion in its entirety. See "Approval of the
Transactions -- Opinion of Financial Advisor to Tseng".
APPRAISAL RIGHTS
Pursuant to the UBCA, holders of Tseng Common Stock will not be entitled to
exercise appraisal rights with respect to the Tseng Merger.
9
<PAGE> 23
INTERESTS OF CERTAIN PARTIES
Tseng is a party to a severance agreement with each of John J. Gibbons and
Mark Karsch, Chief Executive Officer and Chief Financial Officer of Tseng,
respectively. It is expected that neither Mr. Gibbons nor Mr. Karsch will be
employed by CPHI, CPI or Tseng after the consummation of the Transactions.
Therefore, as a result of the Transactions, severance payments under such
severance agreements will be triggered and Mr. Gibbons and Mr. Karsch shall
receive $350,000 and $290,000, respectively.
THE TRANSACTIONS
EFFECTIVE TIME; CLOSING DATE
The Transactions will become effective at the later of (i) the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware and
(ii) the filing of Articles of Merger with the Secretary of State of Utah (the
"Effective Time"). The consummation of the transactions contemplated by the
Reorganization Agreement will take place on a date to be agreed upon by CPI and
Tseng (the "Closing Date"), which will be no later than the tenth business day
after the satisfaction or waiver of all of the conditions of the Transactions
set forth in the Reorganization Agreement. Assuming that all of the conditions
to the Transactions are satisfied or waived, it is anticipated that the
Transactions will be consummated on , 1998. See "The
Reorganization Agreement -- Conditions to the Transactions".
NON-SOLICITATION
Pursuant to the Reorganization Agreement, CPI and Tseng each have agreed
not to directly or indirectly solicit or initiate discussions or negotiations
relating to a substitute transaction involving a merger, consolidation, sale or
similar transaction involving a significant portion of the stock or assets of
CPI or Tseng, respectively and, in the case of CPI, CPI shall not engage in any
offering of CPI Capital Stock that is registered under Section 5 of the
Securities Act. However, CPI and Tseng may each furnish information and enter
into discussions or negotiations in response to a bona fide, unsolicited
acquisition proposal if and only to the extent that the board of directors of
the company receiving the proposal determines in good faith (i) after
consultation with its outside counsel, that the acquisition proposal is
reasonably likely to result in an offer superior to the one proposed in the
Reorganization Agreement and (ii) after consultation with its outside counsel,
that such actions are required in order for such board of directors to comply
with its fiduciary obligations. See "The Reorganization
Agreement -- Covenants -- Non-Solicitation".
CONDUCT OF BUSINESS
Pursuant to the Reorganization Agreement, each of CPI and Tseng has made
certain covenants regarding the conduct of its respective business during the
period from the date of the execution of the Reorganization Agreement through
the Effective Time, including, without limitation, covenants to: (i) conduct its
business and operations (a) in the ordinary course and in accordance with the
operating plans of such company and (b) in compliance with all applicable legal
requirements and material contracts; (ii) use all reasonable efforts to preserve
its business organization and the services of its current officers and employees
and maintain its relations and goodwill with suppliers, customers, landlords,
creditors, licensors, licensees, employees and other persons; (iii) maintain
insurance policies; (iv) provide all reasonable notices, assurances and support
required by any material contract relating to proprietary assets; and (v) cause
its officers to report regularly concerning the status of its business to the
other party. See "The Reorganization Agreement -- Covenants -- Conduct of
Tseng's Business" and "The Reorganization Agreement -- Covenants -- Conduct of
CPI's Business".
COMPOSITION OF THE CPHI BOARD
The CPHI Board consists of all of the members of the current CPI Board and,
upon consummation of the Transactions, will include two designees of Tseng. The
CPI Board members are Robert J. Towarnicki, Richard H. Troy, William A. Boeger,
Thomas M. Gibson, Judith A. Hemberger, Roger J. Quy, Bruce R.
10
<PAGE> 24
Ross, Peter G. Schiff and Randall M. Toig. Tseng expects one of its two
designees to the CPHI Board to be John J. Gibbons. See "Management of CPHI and
Executive Compensation".
CONDITIONS TO THE TRANSACTIONS
The obligations of CPI to effect the CPI Merger and otherwise consummate
the transactions contemplated by the Reorganization Agreement are subject to the
satisfaction or waiver of certain conditions relating to, among other things:
(i) the accuracy of the representations and warranties of Tseng contained in the
Reorganization Agreement (subject to certain materiality limitations); (ii) the
performance in all material respects by Tseng of certain covenants and
obligations contained in the Reorganization Agreement; (iii) the effectiveness
of this Registration Statement; (iv) the approval of the CPI Merger Proposal by
CPI's stockholders, the approval of the Tseng Merger by Tseng's stockholders and
the approval of the CPI Certificate Proposal by CPI's stockholders; (v) the
receipt of certain certificates and legal opinions; (vi) the absence of any
material adverse change to Tseng; (vii) the absence of restraining orders,
injunctions and other orders preventing the consummation of the Transactions;
(viii) the delivery of affiliate agreements by certain directors and officers of
Tseng and CPI; (ix) the receipt of certain consents; (x) the receipt of all
necessary approvals by state securities commissions; (xi) the receipt of all
approvals for the listing of the CPHI Common Stock on the Nasdaq National
Market; and (xii) the absence of certain litigation or administrative actions or
proceedings.
The obligations of Tseng to effect the Tseng Merger and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction or waiver of certain conditions relating to, among
other things: (i) the accuracy of the representations and warranties of CPI
contained in the Reorganization Agreement (subject to certain materiality
limitations); (ii) the performance in all material respects by CPI of certain
covenants and obligations contained in the Reorganization Agreement; (iii) the
effectiveness of this Registration Statement; (iv) the approval of the CPI
Merger Proposal by CPI's stockholders, the approval of the Tseng Merger by
Tseng's stockholders and the approval of the CPI Certificate Proposal by CPI's
stockholders; (v) the receipt of certain consents; (vi) the receipt of certain
legal opinions and certificates; (vii) the absence of any material adverse
change to CPI; (viii) the taking of all actions necessary by CPI to cause the
CPHI Board to consist of the individuals specified in the Reorganization
Agreement; (ix) the receipt of all necessary approvals by state securities
commissions; (x) the receipt of all approvals for the listing of the CPHI Common
Stock on the Nasdaq National Market; (xi) the delivery of affiliate agreements
by certain officers and directors of CPI and Tseng; (xii) the absence of
restraining orders, injunctions and other orders preventing the consummation of
the Transactions; (xiii) the absence of certain litigation or administrative
actions or proceedings; and (xiv) the delivery of market stand-off agreements by
certain officers and directors of CPI. See "The Reorganization
Agreement -- Covenants" and "The Reorganization Agreement -- Conditions to the
Transactions".
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time
(whether before or after approval of the CPI Merger Proposal by the Required CPI
Merger Vote and the approval of the Tseng Merger Proposal by the Required Tseng
Stockholder Vote): (i) by mutual written consent of CPI and Tseng; (ii) subject
to certain exceptions, by either CPI or Tseng, if the Transactions shall not
have been consummated by November 30, 1998; (iii) by either CPI or Tseng, in
connection with certain legal or governmental actions having the effect of
permanently restraining, enjoining or otherwise prohibiting the Transactions;
(iv) by CPI or Tseng, if the CPI Special Meeting shall have been held and the
CPI Merger Proposal and the CPI Certificate Proposal shall not have been
approved by CPI's stockholders; (v) by CPI or Tseng, if the Tseng Special
Meeting shall have been held and the Tseng Merger Proposal shall not have been
approved by the Required Tseng Stockholder Vote; (vi) by Tseng, if (a) the CPI
Board shall have failed to recommend or shall have withdrawn or amended in a way
adverse to Tseng its unanimous recommendation in favor of the CPI Merger,
approval of the Reorganization Agreement and approval of the CPI Certificate
Proposal, (b) CPI shall have failed to include in this Joint Proxy
Statement/Prospectus such recommendation of its board, (c) the CPI Board fails
to reaffirm its unanimous recommendation within five business days of
11
<PAGE> 25
Tseng's request, (d) the CPI Board shall have approved, endorsed or recommended
a proposal (other than the CPI Merger) for the acquisition of CPI, (e) CPI shall
have entered into any letter of intent relating to such an acquisition, (f) CPI
shall have failed to timely hold the CPI Special Meeting, (g) subject to certain
limitations, a tender or exchange offer for CPI securities shall have been
commenced and CPI does not within five days recommend rejection of such tender
or exchange offer or (h) a proposal (other than the CPI Merger) to acquire CPI
is publicly announced and CPI does not issue a press release announcing its
opposition to the proposal within five days or otherwise fails actively to
oppose such proposal (any such event, a "CPI Triggering Event"); (vii) by CPI,
if (a) the Tseng Board shall have failed to recommend or shall have withdrawn or
amended in a way adverse to CPI its unanimous recommendation in favor of the
Tseng Merger and approval of the Reorganization Agreement, (b) Tseng shall have
failed to include in this Joint Proxy Statement/Prospectus such recommendation
of its board, (c) the Tseng Board fails to reaffirm its unanimous recommendation
within five business days of CPI's request, (d) the Tseng Board shall have
approved, endorsed or recommended a proposal (other than the Tseng Merger) for
the acquisition of Tseng, (e) Tseng shall have entered into any letter of intent
relating to such an acquisition, (f) Tseng shall have failed to timely hold the
Tseng Special Meeting, (g) subject to certain limitations, a tender or exchange
offer for Tseng's securities shall have been commenced and Tseng does not within
five business days recommend rejection of such tender or exchange offer or (h) a
proposal (other than the Tseng Merger) to acquire Tseng is publicly announced
and Tseng does not issue a press release announcing its opposition to the
proposal within five business days or otherwise fails actively to oppose such
proposal (any such event, a "Tseng Triggering Event"); (viii) by Tseng, subject
to certain limitations, if any of CPI's representations and warranties contained
in the Reorganization Agreement shall be or shall have become materially
inaccurate or if any of CPI's covenants in the Reorganization Agreement shall
have been breached; or (ix) by CPI, subject to certain limitations, if any of
Tseng's representations and warranties contained in the Reorganization Agreement
shall be or shall have become materially inaccur ate or if any of Tseng's
covenants contained in the Reorganization Agreement shall have been breached.
See "The Reorganization Agreement -- Termination".
EXPENSES AND TERMINATION FEES
Pursuant to the Reorganization Agreement, except as set forth below, all
fees and expenses incurred in connection with the Reorganization Agreement and
the transactions contemplated by the Reorganization Agreement shall be paid by
the party incurring such expenses, whether or not the Transactions are
consummated; provided, however, that CPI and Tseng shall share equally all fees
and expenses, other than attorneys' fees, incurred in connection with the
printing, filing and mailing of this Joint Proxy Statement/ Prospectus and the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part.
In the event that the Reorganization Agreement is terminated by (i) Tseng
following the occurrence of a CPI Triggering Event or (ii) CPI or Tseng
following the failure of the CPI stockholders to approve the CPI Merger Proposal
and the CPI Certificate Proposal, then CPI shall pay Tseng a termination fee of
$1,500,000 plus the amount of professional fees and expenses (not to exceed
$250,000) incurred by Tseng in connection with the Transactions. Similarly, in
the event that the Reorganization Agreement is terminated by (i) CPI following
the occurrence of a Tseng Triggering Event or (ii) CPI or Tseng following the
failure of the Tseng stockholders to approve the Tseng Merger Proposal, then
Tseng shall pay CPI a termination fee of $1,500,000 plus the amount of
professional fees and expenses (not to exceed $250,000) incurred by CPI in
connection with the Transactions. See "The Reorganization Agreement -- Expenses
and Termination Fees".
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the CPI Board and the Tseng Board
with respect to the Reorganization Agreement and transactions contemplated
thereby, CPI and Tseng stockholders should be aware that certain members of
CPI's management, the CPI Board, Tseng's management and the Tseng Board have
interests in the Transactions that are in addition to the interests of each
corporation's stockholders generally. These interests arise from, among other
things, directorships and employment with CPHI, CPI and/or Tseng, directors and
officers insurance, stock option programs, employment agreements, severance
agreements and registration rights. FOR A DISCUSSION AND QUANTIFICATION OF THESE
INTERESTS, SEE "APPROVAL OF THE TRANSACTIONS -- INTERESTS OF CERTAIN PERSONS IN
THE TRANSACTIONS".
12
<PAGE> 26
REGISTRATION RIGHTS
CPHI will assume CPI's obligations to persons who have registration rights
with CPI under the CPI Fourth Amended and Restated Stockholders' Agreement (the
"CPI Stockholders' Agreement"). CPI shall, however, use all reasonable efforts
to provide that any Holder (as defined in the CPI Stockholders' Agreement) shall
not request any registration until the earlier of (i) 90 days after the
effective date of a registration statement for the first public offering of
securities of CPHI following the Effective Time and (ii) the first anniversary
of the Effective Time. FOR A DISCUSSION OF THESE REGISTRATION RIGHTS, SEE "THE
REORGANIZATION AGREEMENT -- COVENANTS".
COMPARISON OF STOCKHOLDER RIGHTS
In the event that the Transactions are consummated, holders of CPI Capital
Stock and holders of Tseng Common Stock will become holders of shares of CPHI
Common Stock. The rights of stockholders of CPHI differ from the rights of CPI
stockholders and Tseng stockholders with respect to certain matters. FOR A
SUMMARY OF THESE DIFFERENCES, SEE "COMPARISON OF STOCKHOLDER RIGHTS".
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
It is the opinion of counsel to CPI and counsel to Tseng that the
Transactions will qualify as tax-deferred transactions under the Internal
Revenue Code of 1986, as amended (the "Code"), so that no gain or loss will be
recognized by CPI stockholders on the exchange of CPI Capital Stock for CPHI
Common Stock or by the Tseng stockholders on the exchange of Tseng Common Stock
for CPHI Common Stock, except to the extent that any such stockholders receive
cash pursuant to the exercise of appraisal rights or in lieu of fractional
shares. The obligations of CPI and Tseng to consummate the Transactions are
conditioned on receipt by CPI of an opinion from Cooley Godward LLP, counsel to
CPI, and by Tseng of an opinion from Morgan, Lewis & Bockius LLP, counsel to
Tseng, in each case based on certain factual representations and assumptions set
forth in such opinions, that the Transactions so qualify. See "Approval of the
Transactions -- Material Federal Income Tax Consequences."
ACCOUNTING TREATMENT
As it is anticipated that Tseng will have no operations after the
consummation of the Transactions, the Transactions will be accounted for as a
reorganization of CPI into CPHI with the sale of approximately 23% of CPHI
Common Stock in exchange for Tseng's cash and other net assets. CPI's historical
financial statements will be the financial statements of the combined company.
See "Approval of the Transactions -- Anticipated Accounting Treatment".
RISK FACTORS
The Transactions and an investment in securities of CPHI involve certain
risks and uncertainties, including risks related to the respective businesses of
CPI and Tseng and other risks and uncertainties discussed under "Risk Factors"
and elsewhere in this Joint Proxy Statement/Prospectus. See "Risk Factors".
MARKETS AND MARKET PRICES
CPI is privately held and no established trading market exists for the CPI
Capital Stock. Information with respect to the market price of CPI Capital Stock
on a historical and equivalent per share basis has been omitted.
Tseng Common Stock is listed on the Nasdaq National Market under the symbol
"TSNG". On June 23, 1998, the last trading day before the announcement by CPI
and Tseng that they had entered into the Reorganization Agreement, the closing
sale price of Tseng Common Stock as reported on the Nasdaq National Market was
$2.6875 per share. On July 17, 1998, the closing sale price of Tseng Common
Stock as reported on the Nasdaq National Market was $2.8125. There can be no
assurance as to the actual market price of Tseng Common Stock prior to or at the
Effective Time.
13
<PAGE> 27
Pursuant to the Reorganization Agreement, CPHI will apply to have the CPHI
Common Stock issuable upon the consummation of the Transactions in exchange for
CPI Capital Stock and Tseng Common Stock approved for quotation by the Nasdaq
National Market under the symbol "CLPA". There can be no assurance as to the
actual market price of CPHI Common Stock at or any time following the Effective
Time.
THE CPI CERTIFICATE PROPOSAL
The CPI Certificate Proposal, which would be implemented only if the
Transactions are consummated, would amend the CPI Certificate of Incorporation
to provide that holders of CPI Preferred Stock will receive only the
consideration for their shares set forth in the Reorganization Agreement.
Consummation of the Transactions is contingent upon approval of the CPI
Certificate Proposal. Approval of the CPI Certificate Proposal allows the sole
consideration for conversion of CPI Preferred Stock in connection with the CPI
Merger to be limited to the consideration set forth in the Reorganization
Agreement, rather than any additional consideration set forth in the CPI
Certificate of Incorporation. See "Amendment of the CPI Certificate of
Incorporation".
The CPI Board has unanimously approved the proposed change to the CPI
Certificate of Incorporation and has unanimously recommended a vote FOR approval
of the CPI Certificate Proposal.
14
<PAGE> 28
CPI AND CPHI SUMMARY FINANCIAL INFORMATION
The following tables set forth certain summary financial data of CPI and
CPHI. This data is derived from and should be read in conjunction with, and is
qualified in its entirety by, the financial statements, including the notes
thereto, of CPI appearing elsewhere in this Joint Proxy Statement/Prospectus.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year of any future
period. No cash dividends have ever been declared or paid on CPI Common Stock.
The summary financial data set forth below should be read in conjunction with
the financial statements, including the notes attached thereto, and "CPI
Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the "Unaudited Pro Forma Condensed Consolidated Financial
Information".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CPI STATEMENT OF OPERATIONS DATA:
Expenses:
Research and development....... $ 1,623 $ 2,429 $ 2,575 $ 4,163 $ 8,757 $ 3,224 $ 6,898
General and administrative..... 698 705 644 663 950 342 1,966
Provision for redemption of CPI
Redeemable Preferred Stock... -- -- -- -- 1,017 -- --
--------- --------- --------- --------- ---------- --------- ----------
Total expenses........... 2,321 3,134 3,219 4,826 10,724 3,566 8,864
Interest income.................. 52 24 28 91 427 123 244
--------- --------- --------- --------- ---------- --------- ----------
Net loss......................... $ (2,269) $ (3,110) $ (3,191) $ (4,735) $ (10,297) $ (3,443) $ (8,620)
========= ========= ========= ========= ========== ========= ==========
Net loss per common share(1)..... $ (1.00) $ (1.36) $ (1.39) $ (1.83) $ (3.63) $ (1.27) $ (2.88)
========= ========= ========= ========= ========== ========= ==========
Shares used in computing net loss
per common share............... 2,279,500 2,291,306 2,296,167 2,587,552 2,838,814 2,718,845 2,990,095
========= ========= ========= ========= ========== ========= ==========
Pro forma net loss per common
share(2)....................... $ (.82) $ (.55)
========== ==========
Shares used in computing pro
forma net loss per common
share.......................... 12,601,942 15,586,473
========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------------
CPHI CPHI
PRO FORMA PRO FORMA
CPI BEFORE AFTER
ACTUAL TSENG MERGER(3) TRANSACTIONS(4)
-------- --------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 20,349 $ 20,020 $ 44,789
Working capital........................................... 18,747 18,418 42,143
Total assets.............................................. 22,332 22,003 50,230
Redeemable Preferred Stock................................ 1,092 -- --
Accumulated deficit....................................... (34,605) (34,605) (34,605)
Total stockholders' equity................................ 19,200 19,963 46,171
Book value (deficit) per common share(5).................. (11.95) 1.06 1.91
</TABLE>
- ---------------
(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of net loss per common share.
(2) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per common share.
(3) Includes the (i) conversion of all shares of outstanding CPI Series A, B, C,
D, E, F and G Preferred Stock into the rights to receive 15,614,266 shares
of CPHI Common Stock, (ii) redemption of all shares
15
<PAGE> 29
of the CPI Redeemable Preferred Stock for $546,000 of cash consideration and
82,732 shares of CPI Common Stock and (iii) the exercise of all warrants to
purchase Series E Preferred Stock into 69,044 shares of CPI Series E
Preferred Stock at $3.15 per share which will be converted into the same
number of shares of CPHI Common Stock. All of the shares of CPI Common Stock
then outstanding will be converted into the same number of shares of CPHI
Common Stock. See "The Transactions" and "Unaudited Pro Forma Condensed
Consolidated Financial Information."
(4) Includes the sale of 5,477,614 shares of CPHI Common Stock in exchange for
Tseng's cash and other net assets less estimated Transactions costs of
approximately $1,700,000 consisting principally of investment banking and
other professional fees and the payment of $640,000 related to severance to
be triggered by the Transactions and paid to Tseng employees after
consummation of the Transactions. The pro forma information is subject to
the assumptions set forth in the notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "The Transactions" and "Unaudited Pro Forma
Condensed Consolidated Financial Information."
(5) Book value per common share is computed by dividing stockholders' equity
less the Series A, B, C, D, E, F and G Preferred Stock at the higher of
stated, redemption or liquidation value, as well as the increase of the
Redeemable Preferred Stock to redemption value by the number of shares of
CPI Common Stock outstanding. Pro forma book value per common share is
computed by dividing stockholders' equity by the pro forma number of
estimated shares of CPHI Common Stock outstanding at June 30, 1998. The
calculations excludes CPHI Common Stock equivalents as they would be
anti-dilutive. The equivalent book deficit per common share is $(32.92) as
of June 30, 1998. The pro forma equivalent book value per common share is
$2.93 and $5.25 per share before the Tseng Merger and after the
Transactions, respectively. The equivalent amounts are computed by dividing
the book and pro forma book value (deficit) by the Tseng Exchange Ratio.
16
<PAGE> 30
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in the "Summary," "Risk Factors," "CPI
Management's Discussion and Analysis of Financial Condition and Results of
Operation," "CPHI's Business and Management's Discussion and Analysis of
Financial Condition and Results of Operation," "CPI Business" and in the
documents incorporated herein by reference, including statements regarding the
anticipated development and expansion of the business of CPI or CPHI, the
products which CPI or CPHI expects to offer, anticipated research and
development expenditures and regulatory reform, the intent, belief or current
expectations of CPI, Tseng or CPHI, their directors or their officers, primarily
with respect to the future operating performance of CPI or CPHI, and other
statements contained herein regarding matters that are not historical facts are
forward-looking statements. Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause results to
differ materially from those expressed or implied by such forward-looking
statements include, but are not limited to, the factors set forth in "Risk
Factors," "CPI Management's Discussion and Analysis of Financial Condition and
Results of Operation," CPHI's Business and Management's Discussion and Analysis
of Financial Condition and Results of Operation," "CPI Business" and in the
documents incorporated herein by reference.
17
<PAGE> 31
RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted upon by the stockholders of CPI and Tseng and in
evaluating an investment in the CPHI Common Stock offered hereby. For periods
following the Transactions, references to the products, businesses, results of
operations or financial condition of CPHI should be considered to refer to CPHI
and its subsidiaries, including CPI and Tseng, unless the context otherwise
requires.
RISKS RELATED TO THE TRANSACTIONS AND CPHI
Dependence Upon CPI Business, Operations and Management. Following the
Transactions, CPHI's business, operations and management will consist of the
business, operations and management of CPI as existing prior to the
Transactions. Tseng stockholders should be aware that the Transactions represent
the investment of all of Tseng's existing resources into a new and different
line of business, and that CPHI's future performance will be almost entirely
dependent upon (and subject to the risks relating to) CPI's business, strategy,
operations, management and personnel. There can be no assurance that the
combined company will be able to realize value from CPI's and Tseng's tangible
and intangible assets after the Transactions. In addition, there can be no
assurance that stockholders of CPI and Tseng would not achieve greater returns
on their investment if CPI and Tseng were to remain independent companies.
Potential Market Effect to Tseng Stockholders. After the Transactions,
CPHI will report a net loss per share whereas Tseng currently reports net income
per share. After consummation of the Transactions and the conversion of the
Tseng Common Stock, the market price of CPHI Common Stock could be less than the
market price of Tseng Common Stock on an as-converted basis.
Absence of Prior Trading Market; Potential Volatility of Stock Price; No
Dividends. Prior to the Transactions, there has been no public market for CPHI
Common Stock. There can be no assurance that an active market will develop or,
if one develops, that it will be maintained. The consideration given in
connection with the Transactions may not be indicative of prices that will
prevail in the market subsequent to the consummation of the Transactions. The
market price of CPHI Common Stock, like that of the common stock of many other
early-stage pharmaceutical and biotechnology companies, is likely to be highly
volatile. Factors such as the fluctuation in CPHI's operating results, comments
by research analysts, announcements of technological innovations or new
commercial products by CPHI (or its subsidiaries) or its competitors, progress
with clinical trials, governmental regulations, changes in reimbursement
policies, developments in patent or other proprietary rights of CPI or its
competitors, including litigation, developments in CPI's relationships with
collaborative partners, if any, public concern as to the safety and efficacy of
drugs developed by CPHI (or its subsidiaries) and its competitors, general
market conditions and market conditions affecting the pharmaceutical and
biotechnology sectors particularly may have a significant effect on the market
price of CPHI Common Stock. CPI has never paid any cash dividends and Tseng has
not paid any cash dividends since 1995. CPHI does not anticipate paying cash
dividends in the foreseeable future.
Shares Eligible for Future Sale. If the Transactions are consummated, CPHI
will issue to securityholders of CPI and securityholders of Tseng approximately
24.2 million shares of CPHI Common Stock. Substantial sales of such shares of
CPHI Common Stock could occur after the Transactions. Immediately upon
consummation of the Transactions, all of the shares will be freely-tradable.
Based on the number of CPI Options, CPI Warrants and Tseng Options outstanding
as of July 15, 1998, assuming full vesting and non-forfeiture, approximately two
million additional shares of CPHI Common Stock will be issuable upon the
exercise of outstanding CPI Options, CPI Warrants and Tseng Options to be
assumed by CPHI in the Transactions.
In addition, under the CPI Stockholders' Agreement, holders of CPI Warrants
(which will be assumed by CPHI pursuant to the Transactions) have certain
rights, when certain conditions are met, to require that a registration
statement be filed with the Commission with respect to their shares. Pursuant to
Reorganization Agreement, CPHI will assume these obligations. The Reorganization
Agreement, however, requires that CPI use all reasonable efforts to provide that
no Holder (as defined in the CPI Stockholders' Agreement) shall require
registration or participation in a registration statement of CPHI Common Stock
until the earlier of
18
<PAGE> 32
(a) a date 90 days after the effective date of a registration statement for the
first public offering of CPHI Common Stock following the Effective Time and (b)
the first anniversary of the Effective Time. See "Comparison of Stockholder
Rights".
In addition, pursuant to the Reorganization Agreement and as a condition to
Tseng's obligation to close the Transactions, CPI shall obtain the agreement of
each director and executive officer of CPI that such person shall not directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any CPHI
Common Stock beneficially owned by such person for 180 days from the Effective
Time. Furthermore, CPI shall use reasonable best efforts to obtain the agreement
of each of the remaining holders of CPI Capital Stock that such CPI stockholder
shall not directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any CPHI Common Stock beneficially owned by such person for 90 days from
the Effective Time.
Future sales of a substantial number of such shares of CPHI Common Stock
could adversely affect or cause substantial fluctuations in the market price of
CPHI Common Stock.
Ownership by Directors and Executive Officers; Anti-Takeover
Provisions. Upon the closing of the Transactions, CPHI's directors and
executive officers will, in the aggregate, beneficially own approximately 23.1%
of the outstanding shares of CPHI Common Stock. Accordingly, these stockholders,
if they act in concert with others, might be able to control many matters
requiring approval by the stockholders of CPHI, including the election of
directors. Moreover, CPHI's Certificate of Incorporation does not provide for
cumulative voting with respect to the election of directors. Consequently, the
directors and executive officers will be able to exercise substantial influence
over the election of the members of the CPHI Board. Such concentration of
ownership could have an adverse effect on the price of the CPHI Common Stock or
have the effect of delaying or preventing a change in control of CPHI. In
addition, certain provisions of Delaware law and the CPHI Certificate of
Incorporation, including the provision in the Certificate for a classified board
of directors could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of CPHI. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of CPHI Common Stock. These provisions
of Delaware law and the CPHI Certificate of Incorporation may also have the
effect of discouraging or preventing certain types of transactions involving an
actual or threatened change of control of CPHI (including unsolicited takeover
attempts) even though such a transaction may offer CPHI's stockholders the
opportunity to sell their stock at a price above the prevailing market price.
Certain of these provisions allow CPHI to issue preferred stock without any vote
or further action by the stockholders, require stockholders to provide advance
notice prior to bringing proposals before a meeting and prevent or eliminate
cumulative voting in the election of directors. These provisions may make it
more difficult for stockholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of CPHI. See
"Description of CPHI Capital Stock".
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF CPI
History of Operating Losses; Accumulated Deficit; Expected Future
Losses. CPI and its predecessor have experienced significant operating losses
since inception in 1990. As of June 30, 1998, CPI had an accumulated deficit of
approximately $34.6 million. CPI expects to incur additional operating losses
over the next several years and expects cumulative losses to increase
substantially as CPI's research and development efforts and preclinical and
clinical testing expand. CPI's ability to achieve profitability is dependent on
its ability, alone or with others, to complete the development of its proposed
products successfully, obtain the required regulatory approvals, manufacture and
market its proposed products successfully or have such products manufactured and
marketed by others and gain market acceptance for such products. There can be no
assurance if or when CPI will achieve profitability. See "CPI Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Early Stage of Development; Absence of Developed Products; Uncertainty of
Clinical Trials. CPI is at an early stage of development and must be evaluated
in light of the uncertainties and complications present in a development stage
company. CPI has no products approved for sale in any country and does not
expect to
19
<PAGE> 33
have any products available to be marketed in the near future. CPI has only one
product candidate in clinical trials, FGN-1(TM) (exisulind). CPI has only
completed limited human clinical trials designed to demonstrate the safety and
efficacy of FGN-1(TM) (exisulind) and has not commenced such trials for any
other compounds. CPI has not generated any revenue from product sales to date.
Before obtaining regulatory approval for the commercial sale of any of its
product candidates, CPI must demonstrate through preclinical and clinical trials
that the product is safe and effective for use in each target indication. The
results from preclinical and early clinical trials may not be predictive of
results that will be obtained in later stage clinical trials. There can be no
assurance that clinical trials of CPI's product candidates will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or
will result in marketable products. Clinical trials are often conducted with
patients who are critically ill. During the course of treatment these patients
may die or suffer other adverse medical events for reasons that may not be
related to the pharmaceutical agent being tested, but which can nevertheless
affect clinical trial results. A number of companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in advanced clinical
trials, even after achieving promising results in earlier trials.
The completion of clinical trials of CPI's product candidates could be
delayed by many factors and there can be no assurance that such delays or
terminations will not occur. One such factor is the rate of enrollment of
patients, which generally varies throughout the course of a clinical trial and
which depends on the size of the patient population, the number of clinical
trial sites, the proximity of the patients to clinical trial sites, the
eligibility criteria for the clinical trial and the existence of competitive
clinical trials. CPI cannot control the rate at which patients present
themselves for enrollment, and there can be no assurance that the rate of
patient enrollment will be consistent with CPI's expectations or be sufficient
to enable clinical trials of CPI's product candidates to be completed in a
timely manner. CPI has completed a Phase I/II trial in APC (as defined below)
and in January 1998 completed enrollment of 74 patients for its ongoing pivotal
Phase III study of FGN-1(TM) (exisulind) for APC. In addition, CPI continues to
enroll patients in other APC studies and has initiated clinical trials in four
other indications. CPI has limited experience managing clinical trials and any
delays or terminations of such trials could have a material adverse effect on
CPI's business, financial condition and results of operations.
Trials to date have involved only a limited number of patients. No
assurance can be given as to the ability of CPI to submit an NDA to the FDA or
the foreign equivalent with respect to FGN-1(TM) (exisulind) on a timely basis,
if at all, for APC or any other indication. In addition, results obtained in
clinical trials for the treatment of APC may not be predictive of results of
clinical trials for other indications. If CPI's product candidates are not shown
to be safe and effective in clinical trials for one or more indications, there
would be a material adverse effect on CPI's business, financial condition and
results of operations.
No assurance can be given that CPI will be able to submit an IND or foreign
equivalents with respect to any new chemical entities or follow-on compounds,
that CPI will be permitted to undertake human clinical testing of such
additional compounds, or, if permitted, that such compounds will be demonstrated
to be safe and effective. CPI's compounds may prove to have undesirable and
unintended side effects or other characteristics that may prevent or limit their
commercial use. Products, if any, resulting from CPI's research and development
programs may not be commercially available for a number of years even if they
are successfully developed and proven to be safe and effective. Thus, there can
be no assurance that any of CPI's product development efforts will be
successfully completed, that regulatory approvals will be obtained or will be as
broad as sought, that CPI's products will be capable of being produced in
commercial quantities at a reasonable cost or that any products, if introduced,
will achieve market acceptance. The failure of CPI to complete clinical trials,
obtain regulatory approval or successfully market its products, if approved,
would have a material adverse effect on CPI's business, financial condition and
results of operations. See "CPI Business -- Products in Development" and "CPI
Business -- Government Regulation".
Dependence on FGN-1(TM) (exisulind). CPI has one compound, FGN-1(TM)
(exisulind), in clinical trials, and does not expect to have additional
compounds in clinical trials until it is able to file an IND as described in the
preceding paragraph. FGN-1(TM) (exisulind) has not been approved for marketing
by the FDA for any indication and trials to date have involved only a limited
number of patients. There can be no assurance that
20
<PAGE> 34
marketing approval for FGN-1(TM) (exisulind) will be obtained. If approved for
marketing, there can be no assurance that FGN-1(TM) (exisulind) will gain market
acceptance. In addition, competition to FGN-1(TM) (exisulind) may develop from
other new or existing products. The failure of FGN-1(TM) (exisulind) to be
approved for marketing or to gain market acceptance would have a material
adverse effect on CPI's business, financial condition and results of operations.
The number of APC patients in the U.S. is limited and may be as few as
25,000. In order to increase the potential applications for which FGN-1(TM)
(exisulind) may be used, CPI must successfully complete lengthy clinical trials
and thereafter receive marketing clearance from the FDA for each additional
indication. There can be no assurance that CPI will successfully complete these
clinical trials and receive appropriate regulatory clearance on a timely basis,
if at all. The inability to achieve marketing clearance of FGN-1(TM) (exisulind)
for at least one indication in addition to APC would be expected to materially
limit the commercial potential of FGN-1(TM) (exisulind) and thereby have a
materially limiting and adverse effect upon CPI's business, financial condition
and results of operations. There can be no assurance that the Orphan Drug or
Fast Track designations will provide any meaningful competitive advantage to
CPI. See "CPI Business -- Government Regulation".
Technological Uncertainty. To date, the FDA has not approved any drug for
the prevention of precancerous lesions or cancer, and there can be no assurance
that CPI will be able to develop successfully such a chemoprevention drug, that
such drug could be developed within CPI's proposed timeline or that such drug
will be commercially viable or will achieve market acceptance. CPI's area of
focus, oncology in general and chemoprevention in particular, is not thoroughly
understood and there can be no assurance that the products CPI is seeking to
develop will prove to be safe and effective in preventing or treating
precancerous lesions or cancer.
CPI believes that FGN-1(TM) (exisulind) and its other compounds selectively
induce apoptosis through a novel mechanism. Additional research by CPI or others
may cause CPI to revise or abandon this approach, adversely affecting CPI's
ability to develop products on a timely basis, if at all. There can be no
assurance that the use of CPI's technology will lead to the development and
approval of commercial pharmaceutical products that are safe and efficacious or
that CPI's competitors will not develop safer and more effective products,
obtain patent protection or intellectual property rights that limit CPI's
ability to commercialize products that may be developed or commercialize
products earlier than CPI. See "CPI Business -- CPI Technology".
Future Capital Needs; Uncertainty of Additional Funding. Development of
CPI's initial product candidate, FGN-1(TM) (exisulind), and additional compounds
will require substantial additional funds to conduct research, development and
clinical trials necessary to bring such products to market and to establish
manufacturing, marketing and distribution capabilities. CPI's future capital
requirements will depend on many factors, including, among others: scientific
progress in its research and development programs; progress with preclinical and
clinical trials; progress in obtaining regulatory approvals; the costs involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims;
competing technological efforts and market developments; changes in CPI's
existing research relationships; the ability of CPI to establish sales and
marketing capabilities; the extent of competition; and the ability of CPI to
establish collaborative arrangements to the extent necessary. Based on current
projections, CPI estimates that its existing capital resources, and the
additional proceeds made available pursuant to the Transactions, together with
facility and equipment financing, will be sufficient to fund CPI's capital
requirements through approximately the end of 2000, although there can be no
assurance that CPI will not require additional financing earlier. There is a
risk of delay or failure at any stage of developing a product candidate, and the
time required and costs involved in successfully accomplishing CPI's objectives
cannot be predicted. Actual drug research and development costs could
substantially exceed budgeted amounts, which could have a material adverse
effect on CPI's business, financial condition and results of operations.
There can be no assurance that CPI's revenue and expense forecasts will
prove to be accurate. To the extent necessary, CPI will need to seek additional
funding through public or private equity or debt financings, collaborative
relationships, capital lease transactions or other available financing
transactions. However, there can be no assurance that additional financing will
be available on acceptable terms, if at all, and such
21
<PAGE> 35
financings could be dilutive to stockholders. Moreover, in the event that
additional funds are obtained through arrangements with collaborative partners,
such arrangements may require CPI to relinquish rights to certain of its
technologies, product candidates or products that CPI would otherwise seek to
develop or commercialize itself. If adequate funds are not available, CPI may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs. The failure of CPI to obtain adequate financing when
needed and on acceptable terms would have a material adverse effect on CPI's
business, financial condition and results of operations. See "CPI Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Uncertainty of Protection of Patents and Proprietary Rights. CPI's success
will depend, in part, on its ability to obtain patents, operate without
infringing the proprietary rights of others and maintain trade secrets, both in
the U.S. and other countries. Patent matters in the pharmaceutical industry can
be highly uncertain and involve complex legal and factual questions.
Accordingly, the validity, breadth, and enforceability of CPI's patents and the
existence of potentially blocking patent rights of others cannot be predicted,
either in the U.S. or in other countries.
As of July 1998, CPI held title or exclusive licenses to two issued U.S.
patents and six other pending U.S. patent applications relating to the
therapeutic use of FGN-1(TM) (exisulind) in the treatment of neoplasia,
precancerous lesions and/or other indications. The sulfone derivative of
sulindac, now named exisulind, was described in the scientific and patent
literature over 20 years ago and, as a result, CPI is unable to obtain a
composition of matter patent on FGN-1(TM) (exisulind). Thus, CPI's current
patent rights relating to FGN-1(TM) (exisulind) are limited to a series of
patents and patent applications pertaining to various specific uses of FGN-1(TM)
(exisulind). CPI has also been issued or holds exclusive licenses to 13 foreign
patents (including patents in various European countries, Australia, Canada and
Japan), as well as one other pending patent application in South Korea relating
to the use of FGN-1(TM) (exisulind) in pharmaceutical compositions for the
treatment of neoplasia and/or precancerous lesions. In Europe, CPI's patent
rights relating to FGN-1(TM) (exisulind) are directed to the use of FGN-1(TM)
(exisulind) in the manufacture of pharmaceutical compositions for the treatment
of precancerous lesions. CPI also holds title or exclusive licenses to three
U.S. patents, two U.S. patent applications which have been allowed, 30 other
pending U.S. patent applications, five issued foreign patents and 18 pending
foreign applications on other compounds, or therapeutic methods involving such
compounds, for the treatment of colonic polyps, precancerous lesions, and/or
neoplasia. CPI also has filed two U.S. and 13 foreign patent applications on
methods for screening compounds for their usefulness in selectively inducing
apoptosis involving an apoptosis regulatory element ("ARE"). CPI intends to file
additional applications, as appropriate, for patents on new compounds, products,
or processes discovered or developed through application of CPI's technology.
Beyond the patents granted to date, there can be no assurance that CPI will
discover or develop patentable products or processes, that patents will issue
from any of the currently pending patent applications, or that claims granted on
issued patents will be sufficient to protect CPI's technology. Potential
competitors or other researchers in the field may have filed patent
applications, been issued patents, published articles or otherwise created prior
art that could restrict or block CPI's efforts to obtain additional patents.
There also can be no assurance that CPI's issued patents or pending patent
applications, if issued, will not be challenged, invalidated or circumvented or
that the rights granted thereunder will provide proprietary protection or
competitive advantages to CPI. CPI's patent rights also depend on its compliance
with technology and patent licenses upon which its patent rights are based and
upon the validity of assignments of patent rights from consultants and other
inventors that were, or are, not employed by CPI.
In addition, competitors may manufacture and sell CPI's potential products
in those foreign countries where CPI has not filed for patent protection or
where patent protection may be unavailable, not obtainable or ultimately not
enforceable. The ability of such competitors to sell such products in the U.S.
or in foreign countries where CPI has obtained patents is usually governed by
the patent laws of the countries in which the product is sold.
22
<PAGE> 36
In addition, to the extent that clinical uses of FGN-1(TM) (exisulind) are
discovered beyond those set forth in CPI's patent claims, CPI may not be able to
enforce its patent rights against companies marketing FGN-1(TM) (exisulind) for
such other clinical uses.
The success of CPI also will depend, in part, on CPI's not infringing
patents issued to others. Pharmaceutical companies, biotechnology companies,
universities, research institutions and others may have filed patent
applications or have received, or may obtain, issued patents in the U.S. or
elsewhere relating to aspects of CPI's technology. It is uncertain whether the
issuance of any third-party patents will require CPI to alter its products or
processes, obtain licenses or cease certain activities. Some third-party
applications or patents may conflict with CPI's issued patents or pending
applications. Such conflict could result in a significant reduction of the
coverage of CPI's issued or licensed patents. In addition, if patents are issued
to other companies which contain blocking, dominating or conflicting claims and
such claims are ultimately determined to be valid, CPI may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If any
licenses are required, there can be no assurance that CPI will be able to obtain
any such licenses on commercially favorable terms, if at all, and if these
licenses are not obtained, CPI might be prevented from pursuing the development
of certain of its potential products. CPI's failure to obtain a license to any
technology that it may require to commercialize its products may have a material
adverse impact on CPI's business, financial condition and results of operations.
Litigation, which could result in substantial costs to CPI, may also be
necessary to enforce any patents issued or licensed to CPI or to determine the
scope and validity of the proprietary rights of others. In this connection,
under the Abbreviated New Drug Application provisions of U.S. law, after four
years from the date marketing approval is granted to CPI by the FDA for a
patented drug, a generic drug company may submit an Abbreviated New Drug
Application to the FDA to obtain approval to market in the U.S. a generic
version of the drug patented by CPI. If approval is given to the generic drug
company, CPI would be required to promptly initiate patent litigation to prevent
the marketing of such a generic version prior to the normal expiration of the
patent. There can be no assurance that CPI's issued or licensed patents would be
held valid by a court of competent jurisdiction. In addition, if competitors of
CPI file patent applications in the U.S. that claim technology also claimed by
CPI, CPI may have to participate in interference proceedings to determine
priority of invention. These proceedings, if initiated by the U.S. Patent and
Trademark Office, could result in substantial cost to CPI, even if the eventual
outcome is favorable to CPI. An adverse outcome with respect to a third-party
claim or in an interference proceeding could subject CPI to significant
liabilities, require disputed rights to be licensed from third parties, or
require CPI to cease using such technology, any of which could have a material
adverse effect on CPI's business, financial condition and results of operations.
CPI also relies on trade secrets to protect technology, especially where
patent protection is not believed to be appropriate or obtainable or where
patents have not issued. CPI attempts to protect its proprietary technology and
processes, in part, by confidentiality agreements and assignment of invention
agreements with its employees and confidentiality agreements with its
consultants and certain contractors. There can be no assurance that these
agreements will not be breached, that CPI would have adequate remedies for any
breach, or that CPI's trade secrets will not otherwise become known or be
independently discovered by competitors. Such trade secrets or other
intellectual property of CPI, should they become known to its competitors, could
result in a material adverse effect on CPI's business, financial condition and
results of operations. To the extent that CPI or its consultants or research
collaborators use intellectual property owned by others in their work for CPI,
disputes may also arise as to the rights to related or resulting know-how and
inventions.
Intense Competition; Rapid Technological Change. The industry in which CPI
competes is characterized by extensive research and development efforts and
rapid technological progress. New developments occur and are expected to
continue to occur at a rapid pace, and there can be no assurance that
discoveries or commercial developments by CPI's competitors will not render some
or all of CPI's potential products obsolete or non-competitive, which would have
a material adverse effect on CPI's business, financial condition and results of
operations. CPI's competitive position also depends on its ability to attract
and retain qualified scientific and other personnel, develop effective
proprietary products, implement development and marketing plans, obtain patent
protection and secure adequate capital resources.
23
<PAGE> 37
In the fields of cancer therapy and the prevention of precancerous and
cancerous lesions, other products are being developed that may compete directly
with the products that CPI is seeking to develop and market. CPI is aware of
clinical trials in which a number of pharmaceutical and nutritional agents are
being examined for their potential usefulness in the treatment of precancerous
lesions and cancer. These include studies of NSAID-like compounds,
cyclooxygenase inhibitors, difluoromethylornithine ("DFMO") and natural
nutrients in the treatment of APC and sporadic colonic polyps, studies of
retinoids and DFMO in the treatment of cervical dysplasia and studies of
tamoxifen for the prevention of breast cancer. Additional compounds being tested
in various epithelial lesions include compounds related to aspirin, various
vitamins and nutritional supplements, oltipraz, N-acetyl cysteine and compounds
that interfere with hormone activities. The studies are being conducted by
pharmaceutical and biotechnology companies, major academic institutions and
government agencies. There are other agents, including certain prescription
drugs, that have been observed to have an effect on the ARE. Although CPI is not
aware of any third party that has demonstrated the preclinical utility of these
compounds in the treatment of precancerous or cancerous lesions, there can be no
assurance that such existing or new agents will not ultimately be found to be
useful, and therefore competitive with any future products of CPI.
Near-term competition from fully integrated and more established
pharmaceutical and biotechnology companies is expected. Most of these companies
have substantially greater financial, research and development, manufacturing
and marketing experience and resources than CPI and represent substantial
long-term competition for CPI. Such companies may succeed in discovering and
developing pharmaceutical products more rapidly than CPI or pharmaceutical
products that are safer, more effective or less costly than any that may be
developed by CPI. Such companies also may be more successful than CPI in
production and marketing. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Academic institutions,
governmental agencies and other public and private research organizations also
conduct clinical trials, seek patent protection and establish collaborative
arrangements for the development of oncology products.
CPI will face competition based on product efficacy and safety, the timing
and scope of regulatory approvals, availability of supply, marketing and sales
capabilities, reimbursement coverage, price and patent position. There can be no
assurance that CPI's competitors will not develop safer and more effective
products or obtain patent protection or intellectual property rights that limit
CPI's ability to commercialize products that may be developed or commercialize
products earlier than CPI. There can be no assurance that CPI's issued patents
or pending patent applications, if issued, will not be challenged, invalidated
or circumvented or that the rights granted thereunder will provide proprietary
protection or competitive advantage to CPI.
Dependence on Third-Party Relationships. CPI's development and clinical
testing efforts are dependent on third-party contractors, such as contractors
for animal toxicology studies and contract research organizations. Loss, failure
or delay in respect of any material portion of such contracting activity could
delay CPI's development efforts and could have a material adverse effect on
CPI's business, financial condition and results of operations.
CPI has entered into a Clinical Trials Agreement (the "Agreement") with the
National Cancer Institute (the "NCI"), pursuant to which the NCI has agreed to
sponsor clinical trials of FGN-1(TM) (exisulind) for the prevention of
precancerous colonic polyps and for at least one other cancer prevention
indication. To date, the NCI has sponsored one trial. When the NCI sponsors a
trial, the NCI contracts directly with third parties to conduct such trials. The
NCI has the right to conduct as many additional clinical trials with FGN-1(TM)
(exisulind) in any cancer prevention treatment indication as it would like, and
CPI is obligated to provide FGN-1(TM) (exisulind) for such trials. In the event
that CPI elects to have the NCI conduct trials needed for regulatory approval,
there can be no assurance that the NCI procedures or changes in policy will not
cause such trials or regulatory filings to be completed on a slower schedule
than if CPI were directly conducting such trials. See "CPI Business -- National
Cancer Institute and Other Third-Party Arrangements".
CPI's strategy for commercialization of its proposed products for certain
indications and markets includes collaborating with corporate partners and
others, and, to the extent that such corporate partnerships may be entered into,
is dependent upon the subsequent success of these outside parties in performing
their
24
<PAGE> 38
responsibilities. CPI currently does not have any collaborations for the
commercialization of products. There can be no assurance that CPI will be able
to negotiate any collaborative arrangements in the future on acceptable terms,
if at all, or that such collaborative arrangements will be maintained or be
successful. To the extent that such arrangements are negotiated, the amount and
timing of resources to be devoted to these activities are not within the
complete control of CPI. There can be no assurance that such partners will
perform their obligations as expected or that CPI will derive any revenue from
such arrangements. There can be no assurance that CPI's future collaborators
will not pursue their existing or alternative technologies or product candidates
in preference to those being developed in collaboration with CPI. In addition,
there can be no assurance that CPI's future collaborators will pay license fees
to CPI, that they will develop and market any products under the agreements or
that they will commit to fund product development costs. To the extent that CPI
chooses not to enter into collaborative relationships, or is unable to establish
such arrangements, CPI would be required to continue to undertake research,
development and marketing of its proposed products at its own expense. In
addition, CPI may encounter significant delays in introducing its proposed
products into certain markets or find that the development, manufacture or sale
of its proposed products in such markets is adversely affected by the absence of
such collaborative agreements. See "CPI Business -- Products in Development",
"CPI Business -- Manufacturing" and "CPI Business -- Marketing and Sales".
Extensive Government Regulation; No Assurance of Necessary FDA and Other
Regulatory Approvals. The research, design, testing, manufacturing, labeling,
marketing, distribution and advertising of pharmaceutical products such as CPI's
proposed products are subject to extensive regulation by governmental regulatory
authorities in the U.S. and other countries. The drug development and approval
process is generally lengthy, expensive and subject to unanticipated delays.
Data obtained from preclinical and clinical testing are subject to varying
interpretations that could delay, limit or prevent FDA approval. In addition,
delays or rejections may be encountered based upon changes in FDA policy for
drug approval during the period of development and FDA regulatory review of each
submitted NDA. Satisfaction of such regulatory requirements, which includes
demonstrating to the satisfaction of the FDA that the relevant product is both
safe and effective, typically takes several years or more depending upon the
type, complexity and novelty of the product and requires the expenditure of
substantial resources. There can be no assurance that CPI will not encounter
problems in clinical trials which would cause CPI or the FDA to delay or suspend
clinical trials or that CPI will not encounter delays in the FDA approval
process. Any such delay or suspension could have a material adverse effect on
CPI's business, financial condition and results of operations. See "CPI
Business -- Products in Development" and "CPI Management's Discussion and
Analysis of Financial Condition and Results of Operations".
CPI has not completed testing any of its products for safety or efficacy in
humans. The pivotal Phase III study of FGN-1(TM) (exisulind) for APC, and the
additional trials of FGN-1(TM) (exisulind) for sporadic adenomatous colonic
polyps, prevention of breast cancer recurrence, prevention of prostate cancer
recurrence, lung cancer and other indications (if and when initiated) will seek
efficacy data as well as additional safety data and will require substantial
time and significant funding. There can be no assurance that clinical studies
for any of CPI's compounds currently under development will be completed
successfully within any specified time period, if at all. Further, there can
also be no assurance that such testing will show FGN-1(TM) (exisulind) or any
other product to be safe or effective. There can be no assurance that CPI will
not encounter problems in clinical trials that will cause CPI to delay or
suspend clinical trials. See "CPI Business -- Products in Development".
CPI's current clinical trial strategy for the development of drugs for the
prevention of precancerous lesions assumes that the FDA will accept reduction in
the formation of precancerous lesions as an endpoint for precancer trials. To
date, the FDA has not approved any chemoprevention compounds and there can be no
assurance that the FDA will approve such compounds in the future. Should the FDA
require CPI to demonstrate the efficacy of FGN-1(TM) (exisulind) in the
reduction of certain cancers or in overall mortality rates resulting from
certain cancers, CPI's clinical trial strategy would be materially and adversely
affected, as significant additional time and funding would be required to
demonstrate such efficacy. There can be no assurance that CPI will be able to
successfully develop a safe and effective chemoprevention product or that such
product will be commercially viable or will achieve market acceptance.
25
<PAGE> 39
CPI has obtained Orphan Drug status for FGN-1(TM) (exisulind) for the
treatment of APC. In order to obtain the benefits of Orphan Drug status, the
applicant must be the sponsor of the first NDA approved for that drug and
indication. Moreover, amendment of the Orphan Drug Act by the U.S. Congress and
reinterpretation by the FDA are frequently discussed. Therefore, there can be no
assurance as to the precise scope of protection that may be afforded by Orphan
Drug status in the future, or that the current level of exclusivity will remain
in effect.
CPI has been granted Fast Track designation for FGN-1(TM) (exisulind) for
the treatment of APC. However, there can be no assurance that FGN-1(TM)
(exisulind) will be approved for marketing sooner than would be traditionally
expected. In addition, the FDA may require post-marketing studies for a Fast
Track drug. If such studies were required as a condition of approval of
FGN-1(TM) (exisulind) and the studies showed that FGN-1(TM) (exisulind) is not
safe or effective or failed to demonstrate any clinical benefit, it is likely
that FGN-1(TM) (exisulind) would be required to be withdrawn from the market for
such an indication.
There can be no assurance even after such time has been expended and
expenses incurred that regulatory approval will be obtained for any therapeutic
products being developed by CPI. Further, even if such regulatory approval is
obtained, CPI, its products, its contract manufacturers and its commercial
collaborators are subject to continual regulatory review in both the U.S. and
other countries, and later discovery of previously unknown problems with regard
to such a product, distributor or manufacturer may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market and disqualification or decertification of the distributor or
manufacturer.
CPI cannot predict when, if ever, it might submit for regulatory review
additional compounds currently under development. Once CPI submits its potential
products for review, there can be no assurance that FDA or other regulatory
approvals for any pharmaceutical products developed by CPI will be granted on a
timely basis, if at all. The FDA and comparable agencies in foreign countries
impose substantial requirements on the introduction of new pharmaceutical
products through lengthy and detailed preclinical and clinical testing
procedures, sampling activities and other costly and time-consuming compliance
procedures. Clinical trials are vigorously regulated and must meet requirements
for FDA review and oversight and requirements under Good Clinical Practice
("GCP") guidelines. A new drug may not be marketed in the U.S. until it has been
approved by the FDA. There can be no assurance that CPI will not encounter
delays or rejections or that the FDA will not make policy changes during the
period of product development and FDA regulatory review of each submitted NDA. A
delay in obtaining or failure to obtain such approvals would have a material
adverse effect on CPI's business, financial condition and results of operations.
Even if regulatory approval is obtained, it would be limited as to the indicated
uses for which the product may be promoted or marketed. A marketed product, its
manufacturer and the facilities in which it is manufactured are subject to
continual review and periodic inspections. If marketing approval is granted, CPI
would be required to comply with FDA requirements for manufacturing, labeling,
advertising, record keeping and reporting of adverse experiences and other
information. In addition, CPI would be required to comply with federal and state
anti-kickback and other health care fraud and abuse laws that pertain to the
marketing of pharmaceuticals. Failure to comply with regulatory requirements and
other factors could subject CPI to regulatory or judicial enforcement actions,
including, but not limited to, product recalls or seizures, injunctions,
withdrawal of the product from the market, civil penalties, criminal
prosecution, refusals to approve new products and withdrawals of existing
approvals, as well as enhanced product liability exposure, any of which could
have a material adverse effect on CPI's business, financial condition and
results of operations. Sales of CPI's products outside the U.S. will be subject
to foreign regulatory requirements governing clinical trials, marketing
approval, manufacturing and pricing. Non-compliance with these requirements
could result in enforcement actions or penalties or could delay introduction of
CPI's products in certain countries. See "CPI Business -- Manufacturing" and
"CPI Business -- Marketing and Sales".
Potential Limitations on Third-Party Reimbursement and Health Care
Reform. In both U.S. and foreign markets, sales of CPI's proposed products will
depend in part on the availability of reimbursement from third-party payors such
as government health administration authorities, private health insurers and
other organizations. The levels of revenues and profitability of pharmaceutical
companies may be affected by the continuing efforts of governmental and
third-party payors to contain or reduce the costs of health care.
26
<PAGE> 40
CPI cannot predict the effect that private sector or governmental health care
reforms may have on its business, and there can be no assurance that any such
reforms will not have a material adverse effect on CPI's business, financial
condition and results of operations. In addition, in both the U.S. and
elsewhere, sales of prescription drugs are dependent in part on the availability
of reimbursement to the consumer from third-party payors, such as government and
private insurance plans. Third-party payors are increasingly challenging the
price and cost-effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products. There can be no assurance that CPI's proposed products will be
considered cost-effective or that adequate third-party reimbursement will be
available to enable CPI to maintain price levels sufficient to realize an
appropriate return on its investment in product development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before any of
CPI's proposed products are approved for marketing. Adoption of such legislation
could further limit reimbursement for medical products and services. As a
result, CPI may elect not to market future products in certain markets.
Lack of Manufacturing Experience; Reliance on Contract Manufacturers and
Suppliers. CPI does not have facilities to manufacture and produce its
compounds for preclinical, clinical or commercial purposes. CPI's product
candidates have never been manufactured for commercial purposes and there can be
no assurance that such products can be manufactured at a cost or in quantities
necessary to make them commercially viable, although CPI's lead compound,
FGN-1(TM) (exisulind), has been manufactured by CPI's contractors at commercial
scale. If CPI is unable to manufacture or contract for a sufficient supply of
its compounds on acceptable terms, or if it should encounter delays or
difficulties in its relationships with manufacturers, CPI's preclinical and
human clinical testing schedule would be delayed, resulting in delay of the
submission of products for regulatory approval or delay of the market
introduction and subsequent sales of such products, which would have a material
adverse effect on CPI's business, financial condition and results of operations.
Furthermore, CPI or contract manufacturers must supply all necessary
documentation in support of CPI's NDA on a timely basis and must adhere to Good
Laboratory Practice ("GLP") and current Good Manufacturing Practice ("cGMP")
regulations enforced by the FDA through its facilities inspection program. If
these facilities cannot pass a pre-approval plant inspection, the FDA approval
of the products will not be granted.
CPI currently does not have long term supply agreements. There can be no
assurance that CPI's current suppliers will continue to make available to CPI
the required quantities of FGN-1(TM) (exisulind) on reasonable terms, if at all.
If CPI's current manufacturing sources are unable or unwilling to make FGN-1(TM)
(exisulind) available to CPI in required quantities, there can be no assurance
that CPI will be able to identify and contract with alternative contract
manufacturers. CPI would incur significant costs and delays to qualify an
alternative manufacturer, which could have a material adverse effect on CPI's
business, financial condition and results of operations. The availability and
price of FGN-1(TM) (exisulind) may be subject to curtailment or change due to
limitations that may be imposed under governmental regulations, suppliers'
allocations to meet the demand of other purchasers, interruptions in production
by suppliers and market and other events and conditions, which could have a
material adverse effect on CPI's business, financial condition and results of
operations. See "CPI Business -- Manufacturing".
Absence of Sales and Marketing Experience; Dependence on Third
Parties. CPI has no experience in sales, marketing or distribution. Depending
upon the marketing strategy ultimately adopted with respect to each relevant
market, CPI intends either to market its products, if developed and approved, on
its own or through relationships with pharmaceutical companies that have
established distribution systems and direct sales forces. To market any of its
products directly, CPI must develop a marketing and sales force with technical
expertise and with supporting distribution capabilities. There can be no
assurance that CPI will be able to establish in-house sales, marketing and
distribution capabilities or relationships with third parties, or that it will
be successful in gaining market acceptance for its products. To the extent that
CPI enters into co-promotion or other licensing arrangements, any revenues
received by CPI will depend upon the efforts of third parties, and there can be
no assurance that such efforts will be successful. See "CPI
Business -- Marketing and Sales".
27
<PAGE> 41
Need to Attract and Retain Key Employees and Consultants. Because of the
specialized scientific nature of CPI's business, its success is highly dependent
upon its ability to attract and retain qualified scientific and technical
personnel. CPI is highly dependent on the principal members of its scientific
and management staff and the loss of any of their services might significantly
delay or prevent the achievement of research, development or business
objectives. CPI does not maintain key-man life insurance with respect to any of
its employees, nor does it intend to secure such insurance. CPI also relies on
consultants and advisors, including the members of its Scientific Advisory
Board, to assist CPI in formulating its research and development strategy.
Retaining and attracting qualified personnel, consultants and advisors is
critical to CPI's success. In order to pursue its product development and
marketing and sales plans, CPI will be required to hire additional qualified
scientific personnel to perform research and development, as well as personnel
with expertise in clinical testing, government regulation, manufacturing and
marketing and sales. CPI faces competition for qualified individuals from
numerous pharmaceutical and biotechnology companies, universities and other
research institutions. There can be no assurance that CPI will be able to
attract and retain such individuals on acceptable terms, if at all, and the
failure to do so could have a material adverse effect on CPI's business,
financial condition and results of operations.
Risks Associated with Acquisition Strategy. CPI may seek to acquire and
further develop complementary technologies, products and/or companies focused in
the prevention, diagnosis and treatment of cancer, consistent with the objective
of building an integrated pharmaceutical company focused in oncology. However,
there can be no assurance that CPI will be successful in completing any such
transactions. In addition, to the extent that CPI undertakes or completes any
such acquisitions, such activities may place a strain on CPI's financial and
management resources, which could have a material adverse effect on CPI's
business, financial condition and results of operations.
Potential Product Liability; Possible Insufficiency of Insurance. CPI's
business will expose it to potential product liability risks that are inherent
in the testing, manufacturing and marketing of human therapeutic products.
Clinical research involves the testing of new drugs on human volunteers pursuant
to a research plan, and such testing involves a risk of liability for personal
injury or death to patients due to, among other reasons, possible unforeseen
adverse side effects or improper administration of the new drug. Many of these
patients are already seriously ill and are at risk of further illness or death.
CPI currently has clinical trial liability insurance but there can be no
assurance that it will be able to maintain such insurance. CPI could be
materially and adversely affected if it were required to pay damages or incur
defense costs: (i) in connection with a claim outside the scope of indemnity or
insurance coverage; (ii) if the indemnity, although applicable, is not performed
in accordance with the terms of the relevant contract; or (iii) if CPI's
liability exceeds the amount of applicable insurance. In addition, there can be
no assurance that insurance will continue to be available on terms acceptable to
CPI, if at all, or that, if obtained, the insurance coverage will be sufficient
to cover any potential claims or liabilities. Similar risks would exist upon the
commercialization or marketing of any products by CPI or its partners.
Handling and Disposal of Hazardous Materials. CPI's research and
development involves the controlled use of hazardous materials, chemicals and
various radioactive compounds. Although CPI believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, CPI could be held liable for any damages that
result and any such liability could exceed the resources of CPI. CPI may incur
substantial costs to comply with environmental regulations if it develops
manufacturing capacity.
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF TSENG
Risks Associated with Acquisition or Investment Strategy. In the event
that the Transactions are not consummated, Tseng will continue its strategic
focus on the acquisition of or investment in growth-stage companies. The
competition to identify and acquire or invest in such target companies is
intense. Many competitors for such target companies, including venture capital
firms, corporate strategic partners and investment banks, have greater financial
resources and experience in identifying and closing such transactions than
Tseng. There can be no assurance that Tseng will be able to identify one or more
of such transactions on
28
<PAGE> 42
terms acceptable to Tseng, if at all. In addition, Tseng may require additional
capital financing to consummate such transactions. There can be no assurance
that financing will be available on terms satisfactory to Tseng, if at all.
Potential Claims Related to Prior Operations. In December 1997, Tseng sold
substantially all of its graphics development assets. Prior to that time, Tseng
was a supplier of high performance video graphic controller chips and therefore
remains subject to claims, if any, which may be asserted by third parties
related to such operations. In the event that the Transactions are consummated,
CPHI and CPI might, depending upon future facts and circumstances, become
subject to exposure to such claims as the successor to Tseng. An adverse outcome
of a claim asserted against Tseng after the consummation of the Transactions
could have a material adverse effect on CPHI's business, financial condition and
results of operations.
29
<PAGE> 43
INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the CPI Board to be used at the CPI Special Meeting
and the Tseng Board to be used at the Tseng Special Meeting. This Joint Proxy
Statement/Prospectus is also furnished by CPHI to CPI stockholders and Tseng
stockholders in connection with the issuance of shares of CPHI Common Stock in
connection with the Transactions described herein.
The information set forth herein concerning CPHI has been furnished by
CPHI, the information set forth herein concerning CPI has been furnished by CPI
and the information set forth herein concerning Tseng has been furnished by
Tseng.
THE CPI SPECIAL MEETING
PURPOSE OF THE CPI SPECIAL MEETING
The purpose of the CPI Special Meeting is to consider and vote upon (i) the
approval and adoption of the Reorganization Agreement, attached hereto as
Appendix A, and the transactions contemplated thereby (including the CPI Merger)
and (ii) the approval of an amendment to the CPI Certificate of Incorporation to
provide that the holders of CPI Preferred Stock will receive only the
consideration for their shares set forth in the Reorganization Agreement (the
"CPI Certificate Proposal"). The CPI Certificate Proposal will be implemented
only if the Transactions are consummated. Approval of the CPI Certificate
Proposal is a condition to the consummation of the Transactions. CPI
stockholders will also consider and vote upon such other matters, if any, as may
be properly brought before the CPI Special Meeting.
THE CPI BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT, THE
CPI MERGER AND THE CPI CERTIFICATE PROPOSAL AND HAS UNANIMOUSLY RECOMMENDED A
VOTE FOR ADOPTION AND APPROVAL OF THE CPI MERGER PROPOSAL AND THE CPI
CERTIFICATE PROPOSAL.
DATE, TIME AND PLACE OF MEETING
The CPI Special Meeting will be held at the offices of CPI, located at 702
Electronic Drive, Horsham, Pennsylvania, on , 1998, at a.m.,
local time.
RECORD DATE; VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of CPI Common Stock and CPI Preferred Stock at the
close of business on , 1998 (the "CPI Record Date")
will be entitled to notice of and to vote at the CPI Special Meeting. On that
date, there were shares of CPI Common Stock and shares of
CPI Preferred Stock (comprised of shares of CPI Series A Preferred
Stock, shares of CPI Series B Preferred Stock, shares of CPI
Series C Preferred Stock, shares of CPI Series D Preferred Stock,
shares of CPI Series E Preferred Stock, shares of CPI Series
F Preferred Stock and shares of CPI Series G Preferred Stock)
outstanding and entitled to vote. Except for the stockholders identified herein
under "Security Ownership of CPI and CPHI," as of the CPI Record Date, to the
knowledge of CPI, no other person beneficially owned more than five percent of
the outstanding CPI Capital Stock or any series of CPI Preferred Stock. See
"Security Ownership of CPI and CPHI."
Each holder of record of CPI Capital Stock on the CPI Record Date will be
entitled to one vote for each share held on all matters to be voted upon at the
CPI Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of proxies from holders of CPI Capital Stock
and all related costs will be borne by CPI. In addition, CPI may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Original
30
<PAGE> 44
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of CPI.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
QUORUM; VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the issued and outstanding shares of CPI Capital Stock entitled to
vote at the CPI Special Meeting is necessary to constitute a quorum.
Approval of the CPI Merger Proposal requires the affirmative vote of each
of (i) a majority of the shares of CPI Common Stock, (ii) a majority of the
shares of CPI Series A Preferred Stock and CPI Series B Preferred Stock, voting
together as a single class, and (iii) a majority of the shares of CPI Series C
Preferred Stock, CPI Series D Preferred Stock, CPI Series E Preferred Stock, CPI
Series F Preferred Stock and CPI Series G Preferred Stock, voting together as a
single class (the "Required CPI Merger Stockholder Vote").
Approval of the CPI Certificate Proposal requires the affirmative vote of
(i) a majority of the shares of CPI Common Stock and CPI Preferred Stock, voting
together as a class, and (ii) a majority of the shares of each series of CPI
Preferred Stock, each such series voting as a separate class (the "Required CPI
Certificate Stockholder Vote").
EFFECT OF ABSTENTIONS
Abstentions may be specified on the CPI Merger Proposal and the CPI
Certificate Proposal. If an executed CPI proxy is returned and the stockholder
has specifically abstained from voting on the CPI Merger Proposal or the CPI
Certificate Proposal, the shares represented by such proxy will be considered
present at the CPI Special Meeting for purposes of determining a quorum, but
will not be considered to have been voted in favor of such matter. Accordingly,
abstentions will have the effect of a negative vote with respect to the CPI
Merger Proposal and the CPI Certificate Proposal.
VOTING AND REVOCABILITY OF PROXIES
All shares of CPI Capital Stock that are entitled to vote and are
represented at the CPI Special Meeting, either in person or by properly executed
proxies received prior to or at the CPI Special Meeting and not duly and timely
revoked, will be voted at the CPI Special Meeting in accordance with the
instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted FOR approval of the CPI Merger Proposal and FOR
approval of the CPI Certificate Proposal.
If any other matters are properly presented for consideration at the CPI
Special Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the CPI Special
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of CPI, at or before the taking of the vote at the CPI
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of CPI before the taking of the vote at the CPI
Special Meeting or (iii) attending the CPI Special Meeting and voting in person
(although attendance at the CPI Special Meeting will not in and of itself
constitute a revocation of proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Cell Pathways, Inc. at
702 Electronic Drive, Horsham, Pennsylvania 19044, Attention: Corporate
Secretary, or hand-delivered to the Secretary at CPI, in each case at or before
the taking of the vote at the CPI Special Meeting.
31
<PAGE> 45
THE TSENG SPECIAL MEETING
PURPOSE OF THE TSENG SPECIAL MEETING
The purpose of the Tseng Special Meeting is to consider and vote upon (i)
the Tseng Merger Proposal and (ii) the Tseng Adjournment Proposal. Tseng
stockholders will also consider and vote upon such other matters, if any, as may
be properly brought before the Tseng Special Meeting.
THE TSENG BOARD UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
TSENG MERGER AND HAS UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL OF THE TSENG
MERGER PROPOSAL AND THE TSENG ADJOURNMENT PROPOSAL.
DATE, TIME AND PLACE OF MEETING
The Tseng Special Meeting will be held at on ,
1998, at , local time.
RECORD DATE; VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Tseng Common Stock at the close of business on
, 1998 (the "Tseng Record Date") will be entitled to notice of and to
vote at the Tseng Special Meeting. On that date, there were shares
of Tseng Common Stock outstanding and entitled to vote. Except as previously
disclosed on documents incorporated herein by reference, as of the Tseng Record
Date, to the knowledge of Tseng, no other person beneficially owns more than
five percent of the outstanding Tseng Common Stock.
Each holder of record of Tseng Common Stock on the Tseng Record Date will
be entitled to one vote for each share held on all matters to be voted upon at
the Tseng Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of proxies from holders of Tseng Common Stock
and all related costs will be borne by Tseng. In addition, Tseng may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of Tseng or, at Tseng's request, . No additional
compensation will be paid to directors, officers or other regular employees for
such services, but will be paid its customary fee, estimated to
be approximately $ plus reasonable expenses, to assist in the
solicitation of proxies.
QUORUM; VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Tseng Common Stock entitled to vote at the
Tseng Special Meeting is necessary to constitute a quorum.
Approval of the Tseng Merger Proposal will require approval by the
affirmative vote of the holders of a majority of the outstanding shares of Tseng
Common Stock. Approval of the Tseng Adjournment Proposal will require approval
by the affirmative vote of the holders of a majority of Tseng Common Stock
present at the Tseng Special Meeting and entitled to vote thereon.
EFFECT OF ABSTENTIONS AND BROKER NONVOTES
Abstentions may be specified on the Tseng Merger Proposal and the Tseng
Adjournment Proposal. If an executed Tseng proxy is returned and the stockholder
has specifically abstained from voting, the shares represented by such proxy
will be considered present at the Tseng Special Meeting for purposes of
determining a quorum, but will not be considered to have been voted in favor of
such matter. Abstentions will have the effect of a negative vote with respect to
the Tseng Merger Proposal. Abstentions will have no effect with respect to the
Tseng Adjournment Proposal.
32
<PAGE> 46
Brokerage firms who hold shares in street name for customers have authority
to vote those shares with respect to certain matters if they do not receive
instructions from a beneficial owner. Brokers will not have the authority to
vote Tseng Common Stock with respect to the Tseng Merger Proposal if they have
not received instructions from the beneficial owners of such shares. If a broker
fails to vote shares because the broker has not received instructions from the
beneficial owner (a "broker nonvote"), such shares will be considered present
for purposes of determining a quorum. Broker nonvotes will have the effect of a
negative vote with respect to the Tseng Merger Proposal, but will have no effect
with respect to the Tseng Adjournment Proposal.
VOTING AND REVOCABILITY OF PROXIES
All shares of Tseng Common Stock that are entitled to vote and are
represented at the Tseng Special Meeting either in person or by properly
executed proxies received prior to or at the Tseng Special Meeting and not duly
and timely revoked will be voted at the Tseng Special Meeting in accordance with
the instructions indicated on such proxies. If no such instructions are
indicated, such proxies will be voted for the approval of the Tseng Merger
Proposal and the Tseng Adjournment Proposal.
If any other matters are properly presented for consideration at the Tseng
Special Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Tseng Special
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Tseng, at or before the taking of the vote at the Tseng
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Tseng before the taking of the vote at the
Tseng Special Meeting or (iii) attending the Tseng Special Meeting and voting in
person (although attendance at the Tseng Special Meeting will not in and of
itself constitute a revocation of proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Tseng Labs, Inc. at 18
West Airy Street, Suite 100, Norristown, Pennsylvania 19401, Attention:
Corporate Secretary, or hand-delivered to the Secretary at Tseng, in each case
at or before the taking of the vote at the Tseng Special Meeting.
33
<PAGE> 47
STOCK PRICE AND DIVIDEND INFORMATION
No established trading market exists for CPI Capital Stock. Until
consummation of the Transactions and the listing of CPHI Common Stock on the
Nasdaq National Market, no established trading market will exist for CPHI Common
Stock. Information with respect to the market price of CPI Capital Stock and
CPHI Common Stock has been omitted.
The last sales price per share of Tseng Common Stock, as reported by the
Nasdaq National Market, was $2.6875 on June 23, 1998, the last trading day
preceding the public announcement of the proposed Transactions on June 24, 1998.
On July 17, 1998, the last reported sales price per share of Tseng Common Stock
on the Nasdaq National Market was $2.8125.
Additional information with respect to the stock price of, and dividend
information relating to, Tseng Common Stock is included in the Tseng Reports
incorporated by reference in this Joint Proxy Statement/ Prospectus. See
"Available Information" and "Incorporation of Certain Documents by Reference".
As of the CPI Record Date and the Tseng Record Date respectively, there
were approximately
record holders of CPI Capital Stock, and record holders of Tseng
Common Stock. CPI has never paid cash dividends on its capital stock. Tseng has
not paid a cash dividend on its capital stock since 1995. The policies of CPI
and Tseng are to retain earnings for use in their respective businesses. It is
expected that CPHI will not, for the foreseeable future, pay cash dividends with
respect to the CPHI Common Stock.
CPI STOCKHOLDERS AND TSENG STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR TSENG CAPITAL STOCK.
34
<PAGE> 48
APPROVAL OF THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
During 1997, CPI made preparations for an Initial Public Offering ("IPO")
of its Common Stock. In October 1997, market conditions led CPI to defer its
plans for an IPO. As a result, CPI began to consider alternative financing
strategies, including the acquisition of companies which had substantially
discontinued operations, but which had substantial cash assets.
In October 1997, Tseng publicly announced that it would explore
opportunities to utilize its cash and stock to make acquisitions of, or
investments in, a growth-stage company or companies, including but not limited
to those that are technology-based. In December 1997, Tseng sold substantially
all of its graphics design assets and reaffirmed its focus on its
investment/acquisition strategy. From October 1997 through June 1998, Tseng
evaluated nearly 100 potential investment or acquisition transactions.
In February 1998, the possibility of engaging in a transaction between CPI
and Tseng was brought to the attention of Robert Towarnicki, CPI's President and
Chief Executive Officer, by an outside advisor to CPI. Mr. Towarnicki contacted
Tseng's legal counsel and expressed an interest in discussing with Tseng a
possible transaction between CPI and Tseng.
On March 3, 1998, Mr. Towarnicki and John Gibbons, Tseng's Chief Executive
Officer, met to discuss the possibility of CPI and Tseng entering into an
investment or combination transaction. On March 4, 1998 and March 5, 1998, the
parties entered into nondisclosure agreements for the purpose of facilitating
the exchange of certain confidential information in order that each party could
better assess the desirability of entering into such a transaction. While
evaluating a possible transaction with CPI, Tseng continued to explore possible
transactions with other companies. Between mid-March 1998 and late-March 1998,
Tseng explored the possibility of entering into a transaction with another
company.
In late March 1998, the Tseng Board determined to continue its
consideration of transactions with other companies. On April 1, 1998, Tseng
contacted CPI to express its interest in further discussions with CPI regarding
a possible transaction. On April 6, 1998, at the request of Tseng, Mr.
Towarnicki and Dr. Rifat Pamukcu, Chief Scientific Officer of CPI, met with a
research analyst and other members of the investment banking group at JMS to
discuss the status of CPI's clinical trials and product development programs.
JMS, which was not formally engaged as Tseng's financial advisor until after
April 17, 1998, informally advised Mr. Gibbons of its preliminary evaluation of
the status of CPI's business. JMS had previously provided financial advisory
services to CPI for which JMS earned no compensation.
On April 13, 1998, Brian Hayden and Richard Troy, CPI's Chief Financial
Officer and General Counsel, respectively, visited Tseng's offices to commence
CPI's due diligence investigation of Tseng. On April 17, 1998, certain members
of CPI's management team provided the Tseng Board with an overview of CPI's
business, operations, prospects and strategy at a meeting of the Tseng Board.
Following the April 17th meeting, Tseng formally engaged scientific,
intellectual property and financial advisors to assist Tseng in its evaluation
of the business of CPI.
On April 27, 1998, Messrs. Towarnicki and Gibbons met to discuss proposed
terms of a possible transaction.
In late May 1998, the scientific and intellectual property advisors to
Tseng met and commenced discussions with Dr. Pamukcu and Robert Stevenson, Vice
President of Intellectual Property of CPI, to conduct due diligence with regard
to the status of CPI's technology and intellectual property. In addition, JMS
conducted other financial and business due diligence interviews with Mr.
Towarnicki, Dr. Pamukcu and members of CPI's Scientific Advisory Board. In late
May 1998, the parties provided additional disclosure to each other and commenced
the preparation and negotiation of the Reorganization Agreement. On June 10,
1998, the advisors to Tseng met with the Tseng Board and advised the Tseng Board
of the initial results of their review of CPI's business.
35
<PAGE> 49
During this period and through June 23, 1998, the date of execution of the
Reorganization Agreement, Tseng continued exploring potential transactions with
other companies. On June 19, 1998 and June 22, 1998, respectively, the Tseng
Board and the CPI Board approved the Reorganization Agreement. On June 23, 1998,
the parties entered into the Reorganization Agreement.
CPI'S REASONS FOR THE TRANSACTIONS
In the course of reaching its decision to approve the Reorganization
Agreement and the Transactions, the CPI Board consulted with CPI's legal and
financial advisors, as well as with CPI's management and others, and considered
a number of factors, including that:
(1) The combination of CPI's technology, research, development,
clinical programs and organization with Tseng's cash resources would offer
CPI's stockholders an opportunity to realize appropriate value from their
investment in CPI;
(2) CPI's stockholders will receive CPHI Common Stock in which there
will be a public market, in contrast to the illiquid nature of their
present holdings in CPI;
(3) The Transactions compare favorably with other means of financing
the continuing research and development programs of CPI; and
(4) The Transactions are expected to provide CPI with substantially
greater resources, including cash and a publicly traded security, to fund
internal research and clinical development work, leverage CPI's technology
platform and pursue strategic transactions on an opportunistic basis,
including acquisitions of businesses and/or technologies and strategic
partnerships.
In the course of its deliberations, the CPI Board reviewed and considered a
number of other factors relevant to the Transactions and the Reorganization
Agreement, including:
(a) Information concerning the business, financial position, results
of operations, product development schedules and future expenses,
technologies and prospects of CPI;
(b) The current economic, financial and business climate, including
the states of the relevant segments of the healthcare industry, including
current and future competition, and consolidations within the industry
segments;
(c) Analysis from management concerning due diligence conducted with
respect to Tseng's previous business and operations and Tseng's financial
statements and condition;
(d) Presentations from management and legal representatives concerning
the specific terms of the Reorganization Agreement and related documents,
including the obligations of CPI to refrain from soliciting or encouraging
other proposals with respect to a substitute transaction, provisions
relating to the possible payment of a termination fee, the possible
circumstances under which the Reorganization Agreement could be terminated
and the conditions precedent to a closing of the Transactions;
(e) The historical price and trading volume for Tseng Common Stock as
well as the composition of Tseng's stockholder base;
(f) Other alternatives available to CPI in both the near-term and
long-term to achieve CPI's funding, liquidity and other strategic
objectives;
(g) The expectation that the CPI Merger will be tax free for federal
income tax purposes to CPI's stockholders; and
(h) The requirements that the CPI Merger Proposal and the CPI
Certificate Proposal be approved by votes of the CPI stockholders and that
the Tseng Merger Proposal be approved by vote of the Tseng stockholders.
The CPI Board also considered certain potentially negative factors in its
deliberations concerning the Transactions, including (i) the possibility that
the anticipated benefits of the Transactions would not be
36
<PAGE> 50
realized, (ii) the risk associated with the integration into a combined company,
(iii) the risk of unknown contingent liabilities associated with the act of
acquiring another company, (iv) the possibility that the Transactions would not
be consummated and (v) other risks described above under "Risk Factors." The CPI
Board concluded that the potential benefits of the Transactions to CPI and its
stockholders substantially outweighed the potential risks.
The foregoing discussion of the information and factors considered by the
CPI Board is not intended to be exhaustive, but is believed to include the
material information and factors considered by the CPI Board. In reaching a
determination whether to approve the Reorganization Agreement and the
Transactions, in view of the variety of factors considered, the CPI Board did
not find it practicable to, and did not, quantify or otherwise attempt to assign
relative or specific weights to the information and factors considered in
reaching its determinations, and individual directors may have given differing
weights to different factors.
CPI BOARD RECOMMENDATION
FOR THE REASONS DISCUSSED ABOVE, THE CPI BOARD HAS DETERMINED THAT THE
TERMS OF THE REORGANIZATION AGREEMENT AND THE TRANSACTIONS ARE FAIR TO, AND IN
THE BEST INTERESTS OF, CPI AND THE CPI STOCKHOLDERS. ACCORDINGLY, THE CPI BOARD
HAS UNANIMOUSLY RECOMMENDED THAT CPI STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
CPI MERGER PROPOSAL AND THE CPI CERTIFICATE PROPOSAL.
TSENG'S REASONS FOR THE TRANSACTIONS
In reaching its determination to approve the Tseng Merger Proposal, the
Tseng Board consulted with its legal counsel and financial advisor and gave
significant consideration to a number of factors, including the factors referred
to below:
(1) The opinion of the Tseng Board that the Transactions presented
Tseng's stockholders with the highest potential return based upon the
evaluation of nearly 100 other investment opportunities, in addition to the
Transactions;
(2) The terms and conditions of the Reorganization Agreement,
including the amount and form of the consideration, which the Tseng Board
believed represented the most favorable transaction with CPI for the Tseng
stockholders;
(3) The respective businesses, patent portfolios, prospects, financial
performance, financial condition and operations of CPI and Tseng;
(4) A financial presentation by JMS, including (1) certain
quantitative analyses of factors relating to the financial implications of
the Transactions and the prospects for CPI and (2) the written opinion of
JMS to the effect that, as of June 23, 1998 and based on, and subject to,
the assumptions, limitations and qualifications set forth in such opinion
letter, the Tseng Exchange Ratio was fair to the holders of Tseng Common
Stock from a financial point of view (see "-- Opinion of Financial Advisor
to Tseng");
(5) Reports from the management of Tseng and the financial and legal
advisors to Tseng as to the results of their due diligence investigation of
CPI;
(6) The favorable report of Louis M. Weiner, M.D., Chairman of the
Medical Oncology Department of Fox Chase Cancer Center, which is one of 31
NCI-designated Comprehensive Cancer Centers in the United States, regarding
the properties and potential of FGN-1(TM) (exisulind), particularly with
regard to its mechanism of action and potential for use as an agent in the
chemoprevention and chemotherapy of cancer;
(7) The report of Panitch Schwarze Jacobs & Nadel, P.C. regarding due
diligence investigations of the patent portfolio of CPI performed on behalf
of the Tseng Board; and
(8) The structure of the Transactions, which will permit the holders
of Tseng Common Stock to exchange their shares for CPHI Common Stock on a
tax-free basis.
37
<PAGE> 51
The Tseng Board also considered a number of potential risks in its
deliberations concerning the Transactions. In particular, the Tseng Board
considered, among other things (i) the risk that the technological potential of
FGN-1(TM) (exisulind) and other products currently under development by CPI
shall not prove efficacious or economically feasible in clinical trials or the
marketplace, (ii) the risk that the Transactions would not be consummated due to
the failure of the parties to satisfy conditions to the Transactions, (iii) the
risk that litigation against the CPI's patent portfolio may be initiated by
competitors of CPI and (iv) the other risks described above under "Risk
Factors."
The Tseng Board concluded that the benefits of the Transactions to Tseng
and its stockholders outweighed the risks associated with the foregoing factors.
The foregoing discussion of the factors considered by the Tseng Board is
not intended to be exhaustive but is intended to include the material factors
considered by the Tseng Board. In view of the complexity and variety of factors
considered by the Tseng Board, the Tseng Board did not consider it practical to
quantify or otherwise attempt to assign any relative or specific weights to the
specific factors considered, and individual directors may have given differing
weights to different factors.
TSENG BOARD RECOMMENDATION
FOR THE REASONS DISCUSSED ABOVE, THE TSENG BOARD HAS DETERMINED THAT THE
TERMS OF THE REORGANIZATION AGREEMENT AND THE TRANSACTIONS ARE FAIR TO, AND IN
THE BEST INTERESTS OF, TSENG AND THE TSENG STOCKHOLDERS. ACCORDINGLY, THE TSENG
BOARD HAS UNANIMOUSLY RECOMMENDED THAT TSENG STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE TSENG MERGER PROPOSAL.
OPINION OF FINANCIAL ADVISOR TO TSENG
Tseng retained JMS to act as its financial advisor in connection with the
Transactions. JMS rendered to the Tseng Board on June 23, 1998 its written
opinion (the "JMS Opinion") that, as of such date and based on, and subject to,
the assumptions, limitations and qualifications set forth in the JMS Opinion,
the Tseng Exchange Ratio was fair to Tseng's stockholders from a financial point
of view.
THE FULL TEXT OF THE JMS OPINION IS INCLUDED AS APPENDIX C TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. TSENG'S STOCKHOLDERS ARE URGED TO READ THE JMS
OPINION FOR A DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN BY JMS IN RENDERING THE JMS OPINION. THE SUMMARY OF THE
JMS OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE JMS OPINION.
The JMS Opinion was prepared for the Tseng Board and is directed only to
the fairness of the Tseng Exchange Ratio to Tseng and Tseng's stockholders from
a financial point of view. The JMS Opinion does not constitute a recommendation
to any stockholder of Tseng as to how such stockholder should vote at the Tseng
Special Meeting nor does it constitute an opinion as to the price at which CPHI
Common Stock will actually trade at any time. In arriving at its opinion, JMS
did not ascribe a specific range of value to CPI, but rather JMS made its
determination as to the fairness, from a financial point of view, of the Tseng
Exchange Ratio to be offered to Tseng's stockholders on the basis of the
financial and comparative analyses described below. JMS was not requested to and
did not make any recommendation as to the form or amount of the consideration to
be received by Tseng's stockholders in the Transactions, which was determined
through arm's-length negotiations between the parties. Tseng imposed no
restrictions or limitations upon JMS with respect to the investigations made or
the procedures followed by JMS in rendering its opinion.
In arriving at its opinion, JMS reviewed and analyzed (i) the
Reorganization Agreement and the specific terms of the Transactions, (ii) the
confidential private placement memorandum for CPI dated April 1998, which
included audited financial statements of CPI for fiscal years 1995, 1996 and
1997, (iii) financial and operating information with respect to the business,
operations and prospects of CPI furnished to JMS by CPI,
38
<PAGE> 52
(iv) a comparison of the historical financial results and present financial
condition of CPI with those of other companies that JMS deemed relevant and (v)
a comparison of the financial terms of the Transactions with the financial terms
of other transactions that JMS deemed relevant. In addition, JMS had discussions
with the management of CPI concerning business, operations, assets, financial
conditions and prospects and undertook such other studies, analyses and
investigations, as JMS deemed appropriate.
In arriving at its opinion, JMS assumed and relied upon the accuracy and
completeness of the financial and other information that was available from
public sources and that was provided to it by Tseng, CPI and their
representatives without assuming any responsibility for independent verification
of such information. Further, JMS relied upon the assurances of the management
of CPI that they were not aware of any facts or circumstances that would make
such information materially inaccurate or misleading. With respect to the
financial projections of CPI, JMS assumed that such projections were reasonably
prepared on a basis reflecting the best currently available estimates and
judgment of the management of CPI as to the future financial performance of CPI
and that CPI will perform substantially in accordance with such projections. JMS
did not conduct a physical inspection of the properties and facilities of CPI
and did not make or obtain any evaluations or appraisals of the assets or
liabilities of CPI. Upon the advice of Tseng and its legal and accounting
advisors, JMS assumed that the Transactions would qualify as a tax-free
reorganization under the Code to Tseng's stockholders and CPI.
In connection with the preparation of the JMS Opinion, JMS performed a
variety of financial and comparative analyses described below. The preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances, and therefore such an opinion
is not readily susceptible to summary description. Furthermore, in arriving at
its opinion, JMS did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. JMS did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to the fairness from a financial
point of view. Accordingly, JMS believes that its analyses must be considered as
a whole and that considering any portion of such analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. The JMS Opinion is necessarily based
on economic, market, financial and other conditions as they existed on, and on
the information made available to it as of, the date of the JMS Opinion. It
should be understood that, although subsequent developments may have affected
its opinion, JMS is not obligated to update, review or reaffirm the JMS Opinion.
Comparable Public Company Analysis. JMS compared the historical financial
and operating performance of certain publicly traded companies that it
considered relevant with the historical financial and operating performance of
CPI, based upon information provided to JMS by the management of CPI and
information that was publicly available. In particular, these companies were
analyzed with respect to their technology value (defined as market
capitalization plus debt minus cash and equivalents). JMS also made qualitative
judgments with respect to the corporate collaborations and the stage of
development of each of the companies.
JMS included the following companies in its universe of comparable
biotechnology companies: Celgene Corporation, Cell Therapeutics, Inc., Entremed,
Inc., LXR Biotechnology Inc., Magainin Pharmaceuticals Inc., Medarex, Inc., Onyx
Pharmaceuticals, Inc. and SUGEN, Inc. (collectively, the "Comparable
Companies"). As of June 23, 1998, the average and median technology values for
the Comparable Companies were $120.2 million and $103.5 million, respectively.
Based on the stage of development of CPI, the limited nature of its
collaborations and the lack of historical earnings, JMS deemed this valuation
methodology to have limited importance.
Analysis of Selected Comparable Transactions. JMS compared the financial
and operating performance of certain companies that had engaged in recent merger
transactions, and that JMS considered relevant, with the historical financial
and operating performance of CPI, based upon information provided to JMS by the
management of CPI and information that was publicly available. JMS analyzed the
tender/merger price per share for each of these transactions, including the
transaction technology value (defined as purchase consideration plus debt minus
cash and equivalents). The following transactions (the "Comparable Transac-
39
<PAGE> 53
tions") that JMS considered comparable to the Transactions were as follows
(target/acquiror): Transcell Technologies, Inc./Intercardia, Inc.; GenPharm
International, Inc./Medarex Inc.; Sequana Therapeutics, Inc./Arris
Pharmaceutical Corporation; ChemGenics Pharmaceuticals Inc./Millennium
Pharmaceuticals, Inc.; Somatix Therapy Corporation/Cell Genesys, Inc.; Athena
Neurosciences, Inc./Elan Corporation, plc; Viagene, Inc./Chiron Corporation; and
Synergen, Inc./Amgen Inc. The average and median transaction technology values
for the Comparable Transactions were $142.3 million and $89.3 million,
respectively. JMS also analyzed the ratio of transaction technology value to
capital invested in each company (defined as stockholders' equity excluding
accumulated deficits) as of the date of the transaction (the "Technology Value
Ratio"). The average and median Technology Value Ratios for the Comparable
Transactions were 1.4x and 1.2x, respectively.
Based on the transaction structures, stage of development, core
technologies and corporate collaborations at the time of the transactions, JMS
deemed this valuation methodology to be relevant.
Initial Public Offerings. JMS analyzed initial public offerings for
companies in the biotechnology industry, which were completed since January 1,
1997 (the "Comparable IPOs"). JMS included the following companies in its
universe of Comparable IPOs: Aastrom Biosciences, Inc., Ascent Pediatrics, Inc.,
Cell Therapeutics, Inc., Corixa Corporation, ILEX Oncology, Inc., Leukosite,
Inc., Megabios Corp., Nanogen, Inc., Progenics Pharmaceuticals, Inc., Transcend
Therapeutics, Inc., Trimeris, Inc. and ZymeTx, Inc. JMS compared the
pre-offering valuation for the Comparable IPOs to the post-offering valuations
after the last round of private financing for each of the Comparable IPOs in
order to determine the annualized return. The Comparable IPOs had adjusted
average, high and low annualized returns (eliminating the high and low values
before calculating the average) of 95%, 441.8% and 18.3%, respectively.
Based on the transaction structures, stage of development, core
technologies and corporate collaborations at the time of the transactions, JMS
deemed this valuation methodology to be relevant.
Discounted Cash Flow Analysis. JMS examined the financial projections of
CPI provided to JMS by CPI's management and performed a discounted cash flow
analysis utilizing the adjusted present value method. JMS noted that the
projections were prepared based on assumptions that included, among other
things, the success of each of its products in human clinical trials and in the
marketplace. JMS informed the Tseng Board that any forecast in the biotechnology
industry is subject to a number of variables, which present significant
obstacles. These variables include the ability to secure adequate funding to
bring the products to market, the technological feasibility of the products, the
receipt of marketing approval from relevant governmental regulatory agencies,
market acceptance of the products and the competitive risk presented by other
biotechnology companies with similar products and/or better resources.
JMS discounted to present value the projected stream of after-tax
unleveraged cash flows and the terminal year value (the "Terminal Value") of
CPI. The Terminal Value for the discounted cash flow analysis of the projections
was based upon a range of 6.5 to 8.5 times projected revenue in 2002. JMS used
discount rates ranging from 40 to 50 percent, which were based on such factors
as the inherent business risk of CPI and the biotechnology industry, the private
status of CPI and the cost of capital to CPI. The discounted cash flow analysis
yielded values ranging from $59.7 million to $114.5 million.
Due to the high unpredictability of future revenues from products currently
in clinical trials, JMS determined that this analysis does not fully reflect the
value of CPI's technology and intangible assets, such as intellectual property
rights and related expertise in apoptosis mechanisms. Therefore, this analysis
was deemed to be not meaningful.
JMS is a nationally recognized investment banking firm and, as part of its
investment banking activities, is regularly engaged in the evaluation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The Tseng Board selected JMS because of its expertise, reputation and
familiarity with CPI in particular and the biotechnology industry in general and
because its investment banking professionals have substantial experience in
transactions similar to the Transactions.
40
<PAGE> 54
Pursuant to an engagement letter with JMS dated April 24, 1998, Tseng has
paid JMS a $25,000 retainer fee and a fee of $25,000 for rendering its opinion
and has agreed to pay a fee of $50,000 upon consummation of the Transactions.
Tseng has also agreed to reimburse JMS for reasonable out-of-pocket expenses,
and to indemnify JMS, its affiliates, and their directors, agents, employees and
controlling persons against certain liabilities, including liabilities under
federal securities laws.
JMS is acting as financial advisor to Tseng in connection with the
Transactions. In the ordinary course of its business, JMS may actively trade in
the equity securities of Tseng for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Certain members of CPI's and Tseng's management and boards of directors may
be deemed to have certain interests in the Transactions that are in addition to
their interests as stockholders of CPI or Tseng generally. The Tseng Board and
the CPI Board were each aware of these interests and considered them, among
other matters, in approving the Reorganization Agreement and the transactions
contemplated thereby.
Directors and Officers of CPHI. All of the current directors of CPI are
directors of CPHI and, upon consummation of the Transactions, it is anticipated
that one current director of Tseng and an additional nominee of Tseng will
become directors of CPHI. See "The Reorganization Agreement -- Corporate
Matters; Composition of the CPHI Board". In addition, the executive officers of
CPI will become executive officers of CPHI. See "Management of CPHI and
Executive Compensation".
Directors and Officers Insurance. Under the Reorganization Agreement, the
parties have agreed that Tseng will continue directors and officers insurance
coverage in respect of acts prior to the Effective Time for the benefit of
Tseng's officers and directors for a period of five years after the Effective
Time.
Stock Option Programs. At the Effective Time, each outstanding CPI Option,
CPI Warrant and Tseng Option shall be assumed by CPHI in such a manner that it
is converted into an option to purchase shares of CPHI Common Stock (subject to
certain adjustments). As of July 15, 1998, directors and executive officers of
CPI held outstanding CPI Options to purchase 656,569 shares of CPI Common Stock
and outstanding CPI Warrants to purchase 25,232 shares of CPI Preferred Stock.
As of that same date, the directors of Tseng who will become directors of CPHI
held outstanding Tseng Options, which will become options to purchase 108,032
shares of CPHI Common Stock. See "The Reorganization Agreement -- Stock Options
and Warrants".
Employment Agreements. Certain directors and executive officers of CPI
have entered into employment agreements with CPI which will continue after
consummation of the Transactions. In addition, it is expected that certain of
those individuals will enter into employment agreements with CPHI after
consummation of the Transactions.
Severance Agreements. Tseng is a party to a severance agreement with each
of John J. Gibbons and Mark Karsch. Each severance agreement provides that, in
the event of Mr. Gibbons' or Mr. Karsch's termination of employment (on account
of death or disability, a reduction in authorities, duties or compensation, or
any reason other than cause), such executive will receive: (i) all earned but
unpaid compensation and benefits; (ii) a lump sum cash payment equal to the
annual base salary (twelve times the highest monthly base salary) for a two year
period after the termination date, paid no more than 15 days after a notice of
termination is received; (iii) continued benefits for employee and spouse or
dependents for two years after termination or a lump sum equal to the cost of
acquiring such coverage; (iv) COBRA health coverage after the two years after
termination; (v) full vesting of options and privilege to exercise options for
three years after termination (except as provided in the Tseng 1991 and 1995
Stock Option Plans); and (vi) a $10,000 cash payment or reimbursement for
outplacement services, including tax costs. Each severance agreement also
provides for a payment of compounded interest on amounts due and the payment of
expenses associated with enforcement should Tseng fail to make any severance
payments in the amount and time period as provided in the severance agreement.
In addition, the severance agreements provide for certain payments should it be
determined that the distributions pursuant to the severance agreements
constitute excess
41
<PAGE> 55
parachute payments. It is anticipated that following consummation of the
Transactions, neither Mr. Gibbons nor Mr. Karsch will be employed by CPHI, CPI
or Tseng and therefore upon consummation of the Transactions shall receive
$350,000 and $290,000, respectively.
Registration Rights. Pursuant to the Reorganization Agreement, CPHI shall
assume CPI's obligations under the CPI Stockholders' Agreement pursuant to which
certain CPI warrantholders, including certain directors and officers of CPI,
have rights to require the registration of the shares that they own pursuant to
such CPI Stockholders' Agreement. See "The Reorganization
Agreement -- Covenants".
MARKET STAND-OFF AGREEMENTS
Pursuant to the Reorganization Agreement, CPI has agreed that it shall
obtain the agreement of each director and executive officer of CPI that each
such person shall not, directly or indirectly, sell, offer to sell, contract to
sell, grant any option to purchase or otherwise transfer or dispose of (other
than to persons who agree to be similarly bound) any CPHI Common Stock
beneficially owned by such person for 180 days from the Effective Time. CPI has
also agreed that it shall use reasonable best efforts to obtain the agreement of
each of the remaining holders of CPI Common Stock and CPI Preferred Stock that
such person shall not, directly or indirectly, sell, offer to sell, contract to
sell, grant any option to purchase or otherwise transfer or dispose of (other
than to persons who agree to be similarly bound) any CPHI Common Stock
beneficially owned by such person for 90 days from the Effective Time.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the Transactions that are generally applicable to CPI, Tseng,
the CPI stockholders and the Tseng stockholders. The summary is based on
currently existing provisions of the Code, existing Treasury Regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to CPI, Tseng, CPI stockholders and Tseng
stockholders.
CPI stockholders and Tseng stockholders should be aware that the summary
does not purport to be a comprehensive description of all of the tax
consequences that may be relevant to particular stockholders in light of their
particular circumstances. For example, the summary does not address the tax
treatment to stockholders subject to special tax rules, such as banks, insurance
companies, tax-exempt organizations, dealers in securities, stockholders who are
subject to the alternative minimum tax provisions of the Code, stockholders who
are non-United States persons, stockholders who acquired their stock pursuant to
the exercise of employee stock options or otherwise as compensation or
stockholders who hold their shares as a hedge or as part of a hedging, straddle,
conversion or other risk reduction transaction. In addition, the summary only
applies to a holder who holds shares of CPI Capital Stock or Tseng Common Stock
as capital assets. Moreover, the summary does not address the tax consequences
of the Transactions under foreign, state or local laws or the tax consequences
of transactions effectuated prior to or after the Transactions (whether or not
such transactions are in connection with the Transactions). ACCORDINGLY, CPI AND
TSENG STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS AND AS
TO THE FOREIGN, STATE, LOCAL AND OTHER TAX CONSEQUENCES THEREOF.
It is the opinion of Cooley Godward LLP, counsel to CPI ("Cooley Godward"),
and Morgan, Lewis & Bockius LLP, counsel to Tseng ("Morgan, Lewis"), that the
Transactions will qualify as tax-deferred transactions under the Code
(collectively, the "Tax Opinions"). Specifically, Cooley Godward has provided a
Tax Opinion to CPI to the effect that neither CPI nor any of its stockholders
will recognize gain or loss for United States federal income tax purposes as a
result of the CPI Merger except to the extent that any CPI stockholders receive
cash pursuant to the exercise of appraisal rights, and accordingly that the CPI
Merger will have the consequences set forth below under "-- Material Tax
Consequences of the CPI Merger" to CPI and its stockholders. Morgan, Lewis has
provided an opinion to Tseng to the effect that, under current law, the
42
<PAGE> 56
transfer of Tseng Common Stock by the stockholders of Tseng to CPHI pursuant to
the Tseng Merger in exchange for the CPHI Common Stock will qualify as a
tax-deferred transaction under the Code, and accordingly that the Tseng Merger
will have the tax consequences set forth below under "-- Material Tax
Consequences of the Tseng Merger" to Tseng and its stockholders. Each of such
opinions is subject to the conditions, assumptions and qualifications set forth
below and has been filed as an exhibit to the Registration Statement.
In addition, the obligations of CPI and Tseng to consummate the
Transactions are conditioned on receipt by CPI of an opinion from Cooley Godward
that the CPI Merger qualifies as a tax-deferred transaction, and by Tseng of an
opinion from Morgan, Lewis, that the Tseng Merger qualifies as a tax-deferred
transaction (collectively, the "Closing Opinions"). The condition that CPI
receive a Closing Opinion and the condition that Tseng receive a Closing Opinion
will not be waived without a resolicitation of their respective stockholders'
consent. The Tax Opinions and the Closing Opinions (i) will not be binding on
the Internal Revenue Service ("IRS") nor preclude the IRS from adopting a
contrary position, (ii) will be based on assumptions discussed below, as well as
representations received from CPHI, Tseng and CPI, (iii) will be based on the
assumption that the Transactions will be consummated in accordance with the
terms of the Reorganization Agreement and (iv) will be subject to the
limitations discussed below. Neither CPI nor Tseng has requested, or will
request, a ruling from the IRS with regard to any of the federal income tax
consequences of the Transactions. The Tax Opinions and Closing Opinions assume
and are conditioned upon the following: (i) the truth and accuracy of the
statements, covenants, representations and warranties contained in the
Reorganization Agreement, in the representations received from CPHI, Tseng and
CPI to support the Tax Opinions and Closing Opinions (the "Tax Representations")
and in all other instruments and documents related to the formation,
organization and operation of CPHI, Tseng and CPI examined by and relied upon by
Cooley Godward and Morgan, Lewis in connection with the Transactions; (ii) that
original documents submitted to such counsel are authentic, documents submitted
to such counsel as copies conform to original documents, and that all such
documents have been (or will be by the Effective Time) duly and validly executed
and delivered where due execution and delivery are a prerequisite to the
effectiveness thereof; (iii) that all covenants contained in the Reorganization
Agreement and in the Tax Representations are performed without waiver or breach
of any material provision thereof; and (iv) that any representation or statement
made "to the best of knowledge" or similarly qualified is correct without such
qualification.
Material Tax Consequences of the CPI Merger
Tax Consequences to CPI Stockholders. Subject to the discussion below
concerning appraisal rights, CPI stockholders will not recognize income, gain or
loss upon the receipt of shares of CPHI Common Stock solely in exchange for
their shares of CPI Capital Stock in the CPI Merger. The tax basis of the shares
of CPHI Common Stock received by CPI stockholders will be the same as the tax
basis of the shares of CPI Capital Stock exchanged therefor. The holding period
of the shares of CPHI Common Stock received by CPI stockholders will include the
holding period of the shares of CPI Capital Stock surrendered in exchange
therefor.
Tax Consequences to CPI and CPHI. No income, gain or loss will be
recognized by CPI or CPHI pursuant to the CPI Merger.
Tax Consequences to CPI Stockholders upon Exercise of Appraisal Rights. A
holder of CPI Capital Stock who exercises and perfects appraisal rights with
respect to a share of CPI Capital Stock and receives a cash payment for such
share generally will recognize capital gain or loss equal to the difference
between the amount of cash received (other than in respect of any interest
awarded by a court) and such stockholder's tax basis in his, her or its share of
stock and the amount of cash received for such share, provided that such payment
is not "essentially equivalent to a dividend" within the meaning of Section 302
of the Code nor has the effect of a distribution of a dividend within the
meaning of Section 356(a)(2) of the Code after giving effect to the constructive
ownership rules of the Code (collectively, a "Dividend Equivalent Transaction").
A sale of shares pursuant to an exercise of appraisal rights generally will not
be a Dividend Equivalent Transaction if, as a result of such exercise, the
stockholder exercising the appraisal rights owns no shares of
43
<PAGE> 57
capital stock of CPHI (either actually or constructively within the meaning of
Section 318 of the Code) immediately after the CPI Merger.
Material Tax Consequences of the Tseng Merger
Tax Consequences to Tseng Stockholders. Subject to the discussion below
concerning fractional shares, Tseng stockholders will not recognize income, gain
or loss upon the receipt of shares of CPHI Common Stock solely in exchange for
their shares of Tseng Common Stock in the Tseng Merger. The tax basis of the
shares of CPHI Common Stock received by Tseng stockholders (including any
fractional shares of CPHI Common Stock not actually received) will be the same
as the tax basis of the shares of Tseng Common Stock exchanged therefor. The
holding period of the shares of CPHI Common Stock received by Tseng stockholders
will include the holding period of the shares of Tseng Common Stock surrendered
in exchange therefor.
Cash payments received by holders of Tseng Common Stock in lieu of
fractional shares of common stock of CPHI will be treated as if such fractional
shares had been issued in the Tseng Merger and then redeemed by CPHI. A Tseng
stockholder receiving such cash will recognize gain or loss upon such payment,
measured by the difference (if any) between the amount of the cash received and
the basis allocated to such fractional share. The gain or loss should be capital
gain or loss, provided that each such fractional share of common stock of CPHI
was held as a capital asset at the Effective Time of the Tseng Merger.
Tax Consequences to Tseng. No income, gain or loss will be recognized by
Tseng pursuant to the Tseng Merger.
Other Matters
Backup Withholding. Certain noncorporate holders may be subject to backup
withholding at a rate of 31% on payments of any cash with respect to fractional
shares. Backup withholding will not apply, however, to a stockholder who
furnishes a correct taxpayer identification number ("TIN") and certifies that
he, she or it is not subject to backup withholding on Form W-9, who provides a
certificate of foreign status on Form W-8 or who is otherwise exempt from backup
withholding. A stockholder who fails to provide the correct TIN on Form W-9 may
be subject to a $50 penalty imposed by the IRS.
Reporting Requirements. Each Tseng stockholder and each CPI stockholder
(other than stockholders who exercise and perfect appraisal rights) will be
required to retain records and consult with their tax advisor regarding
information to be included in their federal and state income tax returns.
ANTICIPATED ACCOUNTING TREATMENT
As it is anticipated that Tseng will have no operations after the
consummation of the Transactions, the Transactions will be accounted for as a
reorganization of CPI into CPHI with the sale of approximately 23% of CPHI
Common Stock in exchange for Tseng's cash and other net assets. CPI's historical
financial statements will be the financial statements of the combined company.
REGULATORY MATTERS
Antitrust. CPI and Tseng do not believe that any governmental filings with
the Federal Trade Commission ("FTC") are required with respect to the
Transactions. However, the FTC or the United States Department of Justice
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin
consummation of the Transactions or seeking to cause divestiture of significant
assets of CPI or Tseng. There can be no assurance that a challenge to the
Transactions on antitrust grounds will not be made, or, if such challenge is
made, of what the result would be. Consummation of the Transactions is
conditioned upon, among other things, the absence of any temporary restraining
order, preliminary or permanent injunction, or other order issued by any federal
or state court in the United States which prevents the consummation of the
Transactions.
Filing with the Delaware Secretary of State. A Certificate of Merger must
be filed with the Secretary of State of the State of Delaware in order to
consummate the CPI Merger.
44
<PAGE> 58
Filing with the Utah Secretary of State. Articles of Merger must be filed
with the Secretary of State of Utah in order to consummate the Tseng Merger.
Securities Laws. CPI and Tseng must comply with the federal securities
laws and applicable securities laws of various states.
RIGHTS OF DISSENTING STOCKHOLDERS
Stockholders of CPI may, under certain circumstances and by following the
procedure prescribed by the DGCL, exercise appraisal rights and receive cash for
their shares of CPI Capital Stock. The stockholders exercising appraisal rights
under the DGCL must follow the appropriate procedures under the DGCL or suffer
the termination or waiver of such rights.
If a holder of CPI Capital Stock exercises appraisal rights in connection
with the CPI Merger under Section 262 of the DGCL ("Section 262"), any shares of
CPI Capital Stock in respect of which such rights have been exercised and
perfected will not be converted into CPI Common Stock but instead will be
converted into the right to receive such consideration as may be determined by
the Delaware Court of Chancery (the "Court") to be due with respect to such
shares pursuant to the laws of the State of Delaware.
The following summary of the provisions of Section 262 is not intended to
be a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached to this
Joint Proxy Statement/Prospectus as Appendix D and incorporated herein by
reference.
Holders of shares of CPI Capital Stock who object to the CPI Merger
Proposal and who follow the procedures in Section 262 will be entitled to have
their shares of CPI Capital Stock appraised by the Court and to receive payment
of the "fair value" of such shares as of the Effective Time of the CPI Merger.
A stockholder of CPI electing to exercise appraisal rights must, prior to
the CPI Special Meeting, perfect his, her or its appraisal rights by demanding
in writing from CPI the appraisal of his, her or its shares of CPI Capital
Stock, as provided in Section 262. A holder who elects to exercise appraisal
rights should mail or deliver his, her or its written demand to CPI at 702
Electronic Drive, Horsham, Pennsylvania 19044, Attn: Corporate Secretary. The
demand should specify the holder's name and mailing address, the number of
shares of CPI Capital Stock owned and that such holder is demanding appraisal of
his, her or its shares. Only a holder of record of shares of CPI Capital Stock
(or his, her or its duly appointed representative) is entitled to assert
appraisal rights for the shares registered in that holder's name.
Within 120 days after the Effective Time of the CPI Merger, any stockholder
who has made a valid written demand and who has not voted in favor of approval
and adoption of the Reorganization Agreement and approval of the CPI Merger may
(i) file a petition in the Court demanding a determination of the value of
shares of CPI Capital Stock and (ii) upon written request, receive from CPI a
statement setting forth the aggregate number of shares of CPI Capital Stock not
voted in favor of approval and adoption of the Reorganization Agreement and
approval of the CPI Merger Proposal and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such statement must be mailed within ten days after the written request therefor
has been received by CPI.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court is required to determine the holders of CPI Capital Stock
entitled to appraisal rights and will determine the "fair value" of such CPI
Capital Stock exclusive of any element of value arising from the accomplishment
or expectation of the CPI Merger, together with a fair rate of interest, if any,
to be paid upon the value of such CPI Capital Stock. In determining the "fair
value" of such CPI Capital Stock, the Court is required to take into account all
relevant factors, including the market value of CPI Capital Stock and the net
asset and earnings value of CPI. In determining the fair value of interest, the
Court may consider all relevant factors including the rate of interest which CPI
would have had to pay to borrow money during the pendency of the proceedings.
Upon application by a stockholder, the Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts utilized in the appraisal proceeding, be
charged pro rata against the value of all the shares of CPI Capital Stock
entitled to appraisal.
45
<PAGE> 59
Any holder of CPI Capital Stock who has duly demanded an appraisal under
Section 262 will not, after the Effective Time of the CPI Merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on such CPI Capital Stock (except
dividends or other distributions payable to stockholders of record as of a date
prior to the Effective Time of the CPI Merger).
If any holder of shares of CPI Capital Stock who demands appraisal under
Section 262 effectively withdraws or loses his, her or its right to appraisal,
the shares of such holder will be converted into a right to receive that number
of shares of CPHI Common Stock as is determined in accordance with the
Reorganization Agreement. A holder will effectively lose his right to appraisal
if he, she or it votes in favor of approval and adoption of the Reorganization
Agreement and approval of the CPI Merger, if no petition for appraisal is filed
within 120 days after the Effective Time of the CPI Merger or if the holder
delivers to CPI a written withdrawal of such holder's demand for an appraisal
and an acceptance of the CPI Merger, except that any such attempt to withdraw
made more than 60 days after the Effective Time of the CPI Merger requires the
written approval of CPI. A holder of stock represented by certificates may also
lose his, her or its right of appraisal if he, she or it fails to comply with
the Court's direction to submit such certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings.
Holders of Tseng Common Stock are not entitled to appraisal rights under
the UBCA because Tseng Common Stock is listed on the Nasdaq National Market.
RESALE OF CPHI COMMON STOCK
CPHI Common Stock issued in connection with the Transactions will be freely
transferable, except that shares issued to any CPI stockholders or Tseng
stockholders who execute Market Stand-Off Agreements are subject to certain
restrictions on resale. Such Market Stand-off Agreements prohibit the sale,
transfer or other disposition of CPHI Common Stock received by such stockholders
in the Transactions, except under certain circumstances, in order to comply with
the requirements of certain federal securities laws. See "Approval of the
Transactions -- Market Stand-Off Agreements". Certain stockholders of CPI and
Tseng have also delivered to CPHI certificates certifying that such stockholders
have no present intention to dispose of certain of the shares of CPHI Common
Stock to be received by such stockholders in the Transactions in order to comply
with the requirements of certain United States federal tax laws. See
"-- Material Federal Income Tax Consequences".
NASDAQ NATIONAL MARKET LISTING
Pursuant to the Reorganization Agreement, CPHI will apply for the listing
of CPHI Common Stock on the Nasdaq National Market under the symbol "CLPA". It
is a condition to the consummation of the Transactions that the shares of CPHI
Common Stock to be issued pursuant to the Transactions shall have been approved
for listing on the Nasdaq National Market, subject only to official notice of
the issuance.
46
<PAGE> 60
THE REORGANIZATION AGREEMENT
The following is a summary of the material provisions of the Reorganization
Agreement, a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The following is
not a complete statement of all provisions of the Reorganization Agreement and
related agreements. Statements made in this Joint Proxy Statement/Prospectus
with respect to the terms of the Reorganization Agreement and such related
agreements are qualified in their respective entireties by reference to the more
detailed information set forth in the Reorganization Agreement and such related
agreements.
GENERAL
The Reorganization Agreement provides for the merger of CPI Sub with and
into CPI and the merger of Tseng Sub with and into Tseng. As a result of the
Transactions, both CPI Sub and Tseng Sub will cease to exist, CPI and Tseng will
become wholly-owned subsidiaries of CPHI and the former stockholders of CPI and
Tseng will become stockholders of CPHI. CPI and Tseng will continue as the
surviving corporations of the Transactions (in the case of CPI, the "CPI
Surviving Corporation," in the case of Tseng, the "Tseng Surviving Corporation"
and, together, the "Surviving Corporations"). The Transactions will become
effective upon the filing of a Certificate of Merger with the Secretary of State
of the State of Delaware and the filing of Articles of Merger with the Secretary
of State of Utah. Such filings are anticipated to take place as soon as
practicable after the receipt of all required regulatory approvals and the
satisfaction or waiver of the other conditions to the Transactions, including
the approval of the CPI Merger Proposal by the stockholders of CPI, approval of
the Tseng Merger Proposal by the stockholders of Tseng and approval of the CPI
Certificate Proposal by the stockholders of CPI. It is currently anticipated
that the Effective Time will occur on or about , 1998. There can be
no assurance, however, that the required regulatory approvals will be obtained,
that the other conditions to the Transactions will be satisfied by such date, or
at all, or that the Reorganization Agreement will not be terminated. See
"-- Conditions to the Merger" and "Approval of the Transactions -- Regulatory
Matters".
TRANSACTION CONSIDERATION
At the Effective Time, each share of CPI Capital Stock then outstanding
will be converted into the right to receive one share of CPHI Common Stock and
each share of Tseng Common Stock then outstanding will be converted into the
right to receive CPHI Common Stock based on the Tseng Exchange Ratio.
NO FRACTIONAL SHARES
No fractional shares of CPHI Common Stock will be issued in connection with
the Transactions, and no certificates for any such fractional shares will be
issued. In lieu of such fractional shares, any holder of Tseng Common Stock
(after aggregating all fractional shares of CPHI Common Stock issuable to such
holder) will, upon surrender of such holder's stock certificate(s) representing
Tseng Common Stock to the Exchange Agent, be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
(i) the fractional share interest to which such holder would otherwise be
entitled by (ii) the closing price of a share of Tseng Common Stock on the
Nasdaq National Market on the trading day immediately preceding the Effective
Time divided by the Tseng Exchange Ratio.
STOCK OPTIONS AND WARRANTS
At the Effective Time, each unexpired and unexercised CPI Option and Tseng
Option shall be assumed by CPHI and will continue to have and be subject to,
substantially the same terms and conditions set forth in the documents governing
such options immediately prior to the Effective Time, except that (i) such
options will be exercisable for that number of shares of CPHI Common Stock, (a)
in the case of CPI Options, equal to the number of shares of CPI Capital Stock
subject to such CPI Option immediately prior to the Effective Time, and (b) in
the case of Tseng Options, equal to the number of shares of Tseng Common Stock
subject to such Tseng Option immediately prior to the Effective Time multiplied
by the Tseng Exchange Ratio (rounded down to the nearest whole share of CPHI
Common Stock) and (ii) the per share exercise price of (a) CPI
47
<PAGE> 61
Options shall be the exercise price set forth in the documents governing such
CPI Options and (b) Tseng Options shall be equal to the exercise price per Tseng
share immediately prior to the Effective Time divided by the Tseng Exchange
Ratio (rounded up to the nearest whole cent). As soon as practicable after the
Effective Time, CPHI shall issue to each holder of a CPI Option or Tseng Option
assumed in connection with the Transactions a notice evidencing the stock option
assumption by CPHI. After the Transactions, CPHI will file a Form S-8
Registration Statement to register shares subject to the CPI Options and the
Tseng Options. After consummation of the Transactions, all formerly unvested
Tseng Options will become fully vested CPHI options.
Each CPI Warrant, with the exception of warrants to purchase Series E
Preferred Stock, shall be assumed by CPHI in connection with the Transactions.
Each warrant so assumed by CPHI under the Reorganization Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the respective warrant agreement governing such warrant immediately prior to the
Effective Time, except that each such warrant shall, following the Effective
Time, be exercisable only for shares of CPHI Common Stock at the exercise price
set forth in the applicable warrant agreement.
STOCK OWNERSHIP FOLLOWING THE TRANSACTIONS
In connection with the Transactions, 18,687,093 shares of CPHI Common Stock
will be issued to holders of CPI Capital Stock and 5,477,614 shares of CPHI
Common Stock will be issued to holders of Tseng Common Stock. In addition,
427,188 shares of CPHI Common Stock will be issued or issuable upon exercise of
outstanding CPI Warrants, 1,221,255 shares of CPHI Common Stock will be issued
or issuable upon exercise of the CPI Options, if and when vested and not
forfeited, and 531,422 shares of CPHI Common Stock will be issued or issuable
upon exercise of the Tseng Options, all of which will be fully vested upon
consummation of the Transactions.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, the Exchange Agent will
mail to the registered holders of CPI Capital Stock (i) a CPI Letter of
Transmittal and (ii) instructions for the use of the CPI Letter of Transmittal
in effecting the surrender of the CPI Stock Certificates in exchange for
certificates representing CPHI Common Stock. As soon as practicable after the
Effective Time, the Exchange Agent will mail to the registered holders of Tseng
Common Stock (i) a Tseng Letter of Transmittal and (ii) instructions for the use
of the Tseng Letter of Transmittal in effecting the surrender of the Tseng Stock
Certificates in exchange for certificates representing CPHI Common Stock. Upon
surrender of a CPI Stock Certificate or Tseng Stock Certificate to the Exchange
Agent for exchange, together with a duly executed CPI Letter of Transmittal or
Tseng Letter of Transmittal, as the case may be, and such other documents as may
reasonably be required by the Exchange Agent or CPHI, the holder of such CPI
Stock Certificate or Tseng Stock Certificate shall be entitled to receive in
exchange therefor a certificate representing the whole number of shares of CPHI
Common Stock that such holder has the right to receive. No fractional shares of
CPHI Common Stock will be issued in connection with the Transactions, and no
certificates for any such fractional shares will be issued.
If any CPI Stock Certificate or Tseng Stock Certificate has been lost,
stolen or destroyed, CPHI may require the owner of such lost, stolen or
destroyed CPI Stock Certificate or Tseng Stock Certificate, as the case may be,
to provide an appropriate affidavit and to deliver a bond as indemnity against
any claim that may be made against the Exchange Agent, CPHI or Tseng with
respect to such CPI Stock Certificate or Tseng Stock Certificate.
CPI STOCKHOLDERS AND TSENG STOCKHOLDERS SHOULD NOT SURRENDER THEIR STOCK
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A CPI LETTER OF TRANSMITTAL OR
TSENG LETTER OF TRANSMITTAL, RESPECTIVELY, FROM THE EXCHANGE AGENT.
48
<PAGE> 62
EFFECT ON CERTIFICATES
At the Effective Time, (i) all shares of CPI Capital Stock and Tseng Common
Stock outstanding immediately prior to the Effective Time will automatically be
canceled and retired and will cease to exist, (ii) all holders of certificates
representing shares of CPI Capital Stock or Tseng Common Stock that were
outstanding immediately prior to the Effective Time will cease to have any
rights as stockholders of CPI or Tseng, respectively, and (iii) the stock
transfer books of CPI and Tseng will be closed with respect to all shares of CPI
Capital Stock and Tseng Common Stock, respectively, outstanding immediately
prior to the Effective Time. No further transfer of any such shares of CPI
Capital Stock and Tseng Common Stock will be made on such stock transfer books
after the Effective Time. If, after the Effective Time, a CPI Stock Certificate
or a Tseng Stock Certificate is presented to the Exchange Agent (or to CPHI, CPI
or Tseng), such CPI Stock Certificate or Tseng Stock Certificate will be
canceled and will be exchanged as provided above under the caption
"-- Conversion of Shares; Procedures for Exchange of Certificates".
CORPORATE MATTERS; COMPOSITION OF THE CPHI BOARD
As of the Effective Time, the Certificate of Incorporation of CPI Sub will
be the Certificate of Incorporation of the CPI Surviving Corporation and the
Bylaws of CPI Sub will be the Bylaws of the CPI Surviving Corporation. As of the
Effective Time, the Articles of Incorporation of Tseng Sub will be the Articles
of Incorporation of the Tseng Surviving Corporation and the Bylaws of Tseng Sub
will be the Bylaws of the Tseng Surviving Corporation.
In addition to all of the directors of CPI, who also serve on the CPHI
Board, CPI has agreed to use all reasonable efforts to nominate and appoint two
persons, designated by Tseng in consultation with CPI, to join the CPHI Board to
serve in such capacity until CPHI's annual stockholder meeting in 2000. The
current members of the CPI Board and CPHI Board are Robert J. Towarnicki,
Richard H. Troy, William A. Boeger, Thomas M. Gibson, Judith A. Hemberger, Roger
J. Quy, Bruce R. Ross, Peter G. Schiff and Randall M. Toig. Tseng expects one of
its two designees to the CPHI Board to be John J. Gibbons.
CONDITIONS TO THE TRANSACTIONS
CPI. The obligations of CPI to effect the Transactions and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction, at or prior to the consummation of the transactions
contemplated by the Reorganization Agreement (the "Closing"), of each of the
following conditions:
(i) the representations and warranties of Tseng contained in the
Reorganization Agreement shall be true and correct in all material respects
as of the date of the Closing (the "Closing Date") with the same force and
effect as if made as of the Closing Date; provided, however, that such
representations and warranties shall be deemed true and correct unless the
failure or failures of such representations and warranties to be so true
and correct (without regard to materiality qualifiers contained therein),
individually or in the aggregate, results or would reasonably be expected
to result in a Material Adverse Effect (as defined below) on Tseng;
(ii) all of the covenants and obligations that Tseng is required to
comply with or to perform at or prior to the Closing shall have been
complied with and performed in all material respects;
(iii) this Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
shall have been issued by the Commission with respect to this Registration
Statement;
(iv) the CPI Merger Proposal shall have been approved by the Required
CPI Merger Stockholder Vote, the Tseng Merger Proposal shall have been
approved by the Required Tseng Merger Stockholder Vote and the CPI
Certificate Proposal shall have been approved by the Required CPI
Certificate Stockholder Vote;
49
<PAGE> 63
(v) CPI shall have received the following documents: (a) a legal
opinion of Morgan, Lewis, dated as of the Closing Date, in the form
reasonably satisfactory to CPI and its legal counsel, (b) a legal opinion
of Cooley Godward dated as of the Closing Date to the effect that the
Transactions will qualify as transfers subject to the provisions of Section
351(a) of the Code; and (c) a certificate executed on behalf of Tseng by
its Chief Executive Officer confirming that the conditions set forth in
clauses (i), (ii), (iv), (vi) and (xi) have been duly satisfied;
(vi) there shall have been no material adverse change in the business,
financial condition, assets, liabilities, operations or financial
performance of Tseng since the date of the Reorganization Agreement, it
being understood that a decline in Tseng's stock price shall not
constitute, in and of itself, a material adverse change;
(vii) no temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Transactions
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any legal requirement enacted or deemed
applicable to the Transactions that makes consummation of the Transactions
illegal;
(viii) the affiliate agreements referred to in the Reorganization
Agreement shall have been delivered;
(ix) all material consents required to be obtained in connection with
the Transactions and the other transactions contemplated by the
Reorganization Agreement shall have been obtained and shall be in full
force and effect;
(x) all regulatory approvals needed to ensure that the CPHI Common
Stock to be issued in the Transactions will be registered or qualified
under the securities law of every jurisdiction of the United States in
which any registered holder of CPI Common Stock or CPI Preferred Stock has
an address of record on the CPI Record Date shall have been obtained;
(xi) all regulatory approvals needed to ensure that the CPHI Common
Stock to be issued in the Transactions will be approved for quotation at
the Effective Time on the Nasdaq National Market shall have been obtained;
and
(xii) there shall not be (i) pending or threatened any legal
proceeding in which a governmental body is or is threatened to become a
party or is otherwise involved: (a) challenging or seeking to restrain or
prohibit the consummation of the Transactions or any of the other
transactions contemplated by the Reorganization Agreement; (b) relating to
the Transactions and seeking to obtain from Tseng or any of its
subsidiaries any damages that may be material to Tseng; (c) seeking to
prohibit or limit in any material respect CPHI's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with
respect to the stock of either Surviving Corporation; or (d) which would
materially and adversely affect the right of CPHI or either Surviving
Corporation to own the assets or operate the business of CPI, or (ii)
pending any legal proceeding in which there is a reasonable probability of
an outcome that would have a Material Adverse Effect on CPHI, CPI or Tseng:
(a) challenging or seeking to restrain or prohibit the consummation of the
Transactions or any of the other transactions contemplated by the
Reorganization Agreement; (b) relating to the Transactions and seeking to
obtain from Tseng or any of its subsidiaries any damages that may be
material to Tseng; (c) seeking to prohibit or limit in any material respect
CPHI's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporations; or (d) resulting in Tseng as constituted after the Effective
Time not containing all of the assets and business of Tseng as constituted
immediately prior to the Effective Time.
Tseng. The obligations of Tseng to effect the Transactions and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
(i) the representations and warranties of CPI contained in the
Reorganization Agreement shall have been true and correct in all material
respects as of the date of the Reorganization Agreement and, except
50
<PAGE> 64
to the extent such representations and warranties speak as of an earlier
date, shall also be true and correct on and as of the Closing Date with the
same force and effect as if made on and as of the Closing Date; provided,
however, that such representations and warranties shall be deemed to be
true and correct unless the failure or failures of such representations and
warranties to be so true and correct (without regard to materiality
qualifiers contained therein), individually or in the aggregate, results or
would reasonably be expected to result in a Material Adverse Effect on CPI
or CPHI;
(ii) CPI shall have complied with and performed in all material
respects each covenant contained in the Reorganization Agreement that is
required to be performed by CPI on or prior to the Closing Date;
(iii) this Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
shall have been issued by the Commission with respect to this Registration
Statement;
(iv) the CPI Merger Proposal shall have been approved by the Required
CPI Merger Stockholder Vote, the Tseng Merger Proposal shall have been duly
approved by the Required Tseng Stockholder Vote and the CPI Certificate
Proposal shall have been approved by the Required CPI Certificate
Stockholder Vote;
(v) all material consents required to be obtained in connection with
the Transactions and the other transactions contemplated by the
Reorganization Agreement shall have been obtained and shall be in full
force and effect;
(vi) Tseng shall have received the following legal documents, each of
which shall be in full force and effect: (a) a legal opinion of Cooley
Godward, dated as of the Closing Date, in a form reasonably satisfactory to
Tseng and its legal counsel; (b) a legal opinion of Morgan, Lewis, dated as
of the Closing Date and addressed to Tseng, to the effect that the
Transactions will qualify as transfers subject to the provisions of Section
351(a) of the Code; and (c) a certificate executed on behalf of CPI by its
Chief Executive Officer, confirming that conditions set forth in Sections
(i), (ii), (iv), (v) and (vii) have been duly satisfied;
(vii) there shall have been no material adverse change in CPI's
business, financial condition, capitalization, assets, liabilities,
operations or financial performance since the date of the Reorganization
Agreement, it being understood that material adverse change shall be deemed
to include any event, circumstance or occurrence, individually or in the
aggregate, causing, resulting in or reasonably likely to have a material
adverse effect upon CPI's business, results of operations or financial
condition (i) arising from or relating to any clinical trials or studies
conducted by CPI or (ii) arising from or related to the development or
commercialization of technology, processes or products relating to
adenomatous colonic polyps that are (or may reasonably be expected to be)
superior to CPI's technology, processes or products, and that a material
adverse change shall not include any event, circumstance or occurrence,
individually or in the aggregate, causing, resulting in, or reasonably
likely to have a material adverse effect upon CPI's business, results of
operations or financial condition (i) arising from or relating to general
business or economic conditions, (ii) relating to or affecting the
biotechnology industry generally or (iii) relating to or affecting the
colonic cancer therapeutics industry generally;
(viii) CPI and Tseng shall have taken all actions necessary to cause
the CPHI Board following the Effective Time to consist of those certain
individuals as set forth in the Reorganization Agreement;
(ix) all regulatory approvals needed to ensure that the CPHI Common
Stock to be issued in the Transactions will be registered or qualified
under the securities laws of every jurisdiction of the United States in
which any holder of Tseng Common Stock has an address of record on the
Tseng Record Date shall have been obtained;
(x) all regulatory approvals needed to ensure that the CPHI Common
Stock to be issued in the Transactions will be approved for quotation at
the Effective Time on the Nasdaq National Market shall have been obtained;
51
<PAGE> 65
(xi) the affiliate agreements referred to in the Reorganization
Agreement shall have been executed and delivered to CPI;
(xii) no temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of the Transactions
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any legal requirement enacted or deemed
applicable to the Transactions that makes consummation of the Transactions
illegal;
(xiii) there shall not be (i) pending or threatened any legal
proceeding to which a governmental body is or is threatened to become a
party or is otherwise involved: (a) challenging or seeking to restrain or
prohibit the consummation of the Transactions or any of the other
transactions contemplated by the Reorganization Agreement; (b) relating to
the Transactions and seeking to obtain from Tseng or any of its
subsidiaries any damages that may be material to Tseng; (c) seeking to
prohibit or limit in any material respect CPHI's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with
respect to the stock of either Surviving Corporation; or (d) that would
materially and adversely affect the right of CPHI or either Surviving
Corporation to own the assets or operate the business of CPI, or (ii)
pending any legal proceeding in which there is a reasonable probability of
an outcome that would have a Material Adverse Effect on CPHI, CPI or Tseng:
(a) challenging or seeking to restrain or prohibit the consummation of the
Transactions or any of the other transactions contemplated by the
Reorganization Agreement; (b) relating to the Transactions and seeking to
obtain from CPHI or Tseng or any of its subsidiaries any damages that may
be material to Tseng; (c) seeking to prohibit or limit in any material
respect CPHI's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the
Surviving Corporations; or (d) that would affect adversely the right of
CPHI or the Surviving Corporations to own assets or operate the business of
CPI; and
(xiv) each of CPI's directors and executive officers shall have
executed and delivered the Market Stand-off Agreements referred to in the
Reorganization Agreement.
For purposes of the Reorganization Agreement, an event, violation,
inaccuracy, circumstance or other matter will be deemed to have a "Material
Adverse Effect" on CPI if such event, violation, inaccuracy, circumstance or
other matter would have a material adverse effect on (i) the business, financial
condition, capitalization, assets, liabilities, operations or financial
performance of the CPI or (ii) the ability of the company to consummate the
Transactions or any of the other transactions contemplated by the Reorganization
Agreement or to perform obligations under the Reorganization Agreement. An
event, violation, inaccuracy, circumstance or other matter will be deemed to
have a "Material Adverse Effect" on Tseng if such event, violation, inaccuracy,
circumstance or other matter would have a material adverse effect on (i) the
business, financial condition, assets, liabilities, operations or financial
performance of Tseng and its subsidiaries (the "Tseng Corporations") taken as a
whole or (ii) the ability of Tseng to consummate the Transactions or any of the
other transactions contemplated by the Reorganization Agreement or to perform
its obligations under the Reorganization Agreement.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains certain representations and
warranties by Tseng as to: (i) due organization and subsidiaries; (ii) Tseng's
Articles of Incorporation and Bylaws; (iii) capitalization; (iv) filings with
the Commission and financial statements; (v) absence of certain changes; (vi)
title to assets; (vii) real property, equipment and leaseholds; (viii)
proprietary assets; (ix) material contracts; (x) liabilities; (xi) compliance
with legal requirements; (xii) certain business practices; (xiii) governmental
authorizations; (xiv) tax matters; (xv) employee and labor matters and benefit
plans; (xvi) environmental matters; (xvii) insurance; (xviii) transactions with
affiliates; (xix) legal proceedings and orders; (xx) authority and binding
nature of the Reorganization Agreement; (xxi) absence of existing discussions or
negotiations concerning other acquisition proposals; (xxii) vote required;
(xxiii) non-contravention and consents; (xxiv) fairness opinion; (xxv) valid
insurance and reservation of shares; (xxvi) financial advisor; and (xxvii) full
disclosure.
52
<PAGE> 66
The Reorganization Agreement also contains certain representations and
warranties by CPI as to: (i) organization, good standing and qualification; (ii)
the CPI Certificate of Incorporation and Bylaws; (iii) CPHI; (iv)
capitalization; (v) financial statements; (vi) absence of certain changes; (vii)
valid issuance; (viii) title to assets; (ix) real property, equipment and
leaseholds; (x) proprietary assets; (xi) material contracts; (xii) liabilities;
(xiii) compliance with legal requirements; (xiv) certain business practices;
(xv) governmental authorizations; (xvi) tax matters; (xvii) employee and labor
matters and benefit plans; (xiii) environmental matters; (xix) insurance; (xx)
transactions with affiliates; (xxi) legal proceedings and orders; (xxii)
authority and binding nature of the Reorganization Agreement; (xxiii) absence of
discussions or negotiations concerning other acquisition proposals; (xxiv) vote
required; (xxv) non-contravention and consents; (xxvi) financial advisor; and
(xxvii) full disclosure.
COVENANTS
Conduct of Tseng's Business. The Reorganization Agreement requires that,
during the period from the date of the Reorganization Agreement through the
Effective Time (the "Pre-Closing Period"): (i) Tseng shall ensure that each of
the Tseng Corporations conducts its business and described operations (A) in the
ordinary course and in accordance with the operating plan previously described
by Tseng to CPI and (B) in compliance with all applicable legal requirements and
the requirements of all Tseng material contracts; (ii) Tseng shall use all
reasonable efforts to ensure that each of the Tseng Corporations preserves
intact its current business organization, keeps available the services of its
current officers and employees and maintains its relations and goodwill with all
suppliers, customers, landlords, creditors, licensors, licensees, employees and
other persons having business relationships with the respective Tseng
Corporation; (iii) Tseng shall keep in full force certain insurance policies or
replace any such policies that terminate with comparable or superior policies;
(iv) Tseng shall provide all notices, assurances and support required by any
Tseng Contract relating to any proprietary asset in order to ensure that no
condition under such Tseng Contract occurs which could result in, or could
increase the likelihood of, any transfer or public disclosure by any Tseng
Corporation of any proprietary asset (where "Tseng Contract" shall mean any
contract: (a) to which any Tseng Corporation is a party; (b) by which any Tseng
Corporation or any asset of a Tseng Corporation may become bound or under which
any Tseng Corporation has, or may become subject to, any obligation; or (c)
under which any Tseng Corporation has or may acquire any right or interest); and
(v) Tseng shall (to the extent requested by CPI) cause its officers to report
regularly to CPI concerning the status of Tseng's business.
During the Pre-Closing Period, Tseng shall not and shall not permit any
other Tseng Corporation to:
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities, except for repurchases at less than fair market value pursuant
to employment or consulting agreements in effect prior to the date of the
Reorganization Agreement;
(ii) hire any new employees whose annual salary exceeds $80,000,
excluding those persons hired to replace employees who terminate their
employment with a Tseng Corporation during the Pre-Closing Period;
(iii) sell, issue, grant or authorize the issuance or grant of (a) any
capital stock or other security (except Tseng Common Stock upon the valid
exercise of Tseng Options), (b) any option, call, warrant or right to
acquire any capital stock or other security or (c) any instrument
convertible into or exchangeable for any capital stock or other security;
(iv) except as contemplated by the Reorganization Agreement, amend or
waive any of its rights under, or accelerate the vesting under, any
provision of any plan pursuant to which any Tseng Option was issued, any
provision of any agreement evidencing any outstanding stock option or any
restricted stock purchase agreement, or otherwise modify any of the terms
of any outstanding option, warrant or other security or any related
contract;
(v) take any action to permit holders of Tseng Options to receive cash
payments in connection with the transactions contemplated in the
Reorganization Agreement;
53
<PAGE> 67
(vi) except as contemplated by the Reorganization Agreement, amend or
permit the adoption of any amendment to the Tseng Certificate of
Incorporation or Bylaws or other charter or organizational documents, or
effect or become a party to any merger, consolidation, share exchange,
business combination, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(vii) except as contemplated by the Reorganization Agreement, form any
subsidiary or acquire any equity interest or other interest in any other
entity;
(viii) make any capital expenditure, except capital expenditures in an
aggregate amount of no more than $50,000;
(ix) establish, adopt or amend any employee benefit plan, pay any
bonus or make any profit sharing or similar payment greater than $10,000 in
any individual case or $50,000 in the aggregate, or increase the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees
greater than $10,000 in any individual case or $50,000 in the aggregate;
(x) change any of its methods of accounting or accounting practices in
any respect;
(xi) make any material tax election;
(xii) commence or settle any material legal proceeding;
(xiii) materially amend or otherwise modify any of the terms of its
engagement of the financial advisor set forth in the Reorganization
Agreement;
(xiv) enter into any material transaction or take any other material
action in each case either inconsistent with the operating plan previously
provided by Tseng to CPI, or outside the ordinary course of business; or
(xv) agree or commit to take any of the actions described in clauses
(i) through (xiv).
During the Pre-Closing Period, Tseng must promptly notify CPI in writing
of: (i) the discovery by Tseng of any event, condition, fact or circumstance
that occurred or existed on or prior to the date of the Reorganization Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by Tseng in the Reorganization Agreement; (ii) any event,
condition, fact or circumstance that occurs, arises or exists after the date of
the Reorganization Agreement and that would cause or constitute a material
inaccuracy in any representation or warranty made by Tseng in the Reorganization
Agreement if (a) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (b) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of the Reorganization Agreement; (iii)
any material breach of any covenant or obligation of Tseng; and (iv) any event,
condition, fact or circumstance that would make the timely satisfaction of any
of the conditions to closing set forth in the Reorganization Agreement
impossible or unlikely or that has had or could reasonably be expected to have a
Material Adverse Effect on the Tseng Corporations. No notification given to CPI
will limit or otherwise affect any of the representations, warranties, covenants
or obligations of Tseng contained in the Reorganization Agreement.
Conduct of CPI's Business. The Reorganization Agreement further provides
that during the Pre-Closing Period: (i) CPI shall conduct its business and
operations (A) in the ordinary course and in accordance with the operating plan
previously described by CPI to Tseng and (B) in compliance with all applicable
legal requirements and the requirements of all material contracts; (ii) CPI
shall use reasonable efforts to ensure that CPI preserves intact its current
business organization, keeps available the services of its current officers and
employees and maintains its relations and goodwill with all suppliers,
customers, landlords, creditors, licensors, licensees, employees and other
persons having business relationships with CPI; (iii) CPI shall keep in full
force all insurance policies or replace such policies that terminate with
comparable or superior policies; (iv) CPI shall provide all notices, assurances
and support required by any CPI Contract relating to any CPI proprietary asset
in order to ensure that no condition under such CPI Contract occurs which could
result in, or
54
<PAGE> 68
could increase the likelihood of, any transfer or public disclosure by CPI of
any proprietary asset (where "CPI Contract" shall mean any contract: (a) to
which CPI is a party; (b) by which CPI or any asset of CPI is or may become
bound or under which CPI has, or may become subject to, any obligation; or (c)
under which CPI has or may acquire any right or interest); and (v) CPI shall (to
the extent required by Tseng) cause its officers to report periodically to Tseng
concerning the status of CPI's business.
During the Pre-Closing Period, CPI shall not (without the prior written
consent of Tseng):
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other
securities, except for repurchases at less than fair market value pursuant
to employment or consulting agreements in effect prior to the date hereof
and except for the redemption, prior to the Effective Time, of the CPI
Redeemable Preferred Stock pursuant to the terms set forth in the
Reorganization Agreement;
(ii) sell, issue, grant or authorize the issuance or grant of any
capital stock or other security except: (a) CPI Common Stock or CPI
Preferred Stock upon the valid exercise of CPI Options or CPI Warrants
outstanding on the date of the Reorganization Agreement; (b) CPI Common
Stock or CPI Warrants issued pursuant to equipment lease financings and
similar transactions or otherwise in the ordinary course of business; (c)
CPI Series G Preferred Stock and CPI Warrants in completion of the Series G
financing; (d) stock options (and stock issuable upon exercise thereof) to
employees and directors under its existing stock option plans and in the
ordinary course of business with an exercise price of not less than $6.60
per share of CPI Common Stock; and (e) shares of CPI Common Stock, if any,
issued in connection with the redemption of the CPI Redeemable Preferred
Stock;
(iii) except as contemplated by the Reorganization Agreement, amend or
waive any of its rights under, or accelerate the vesting under, any
provision of any plan pursuant to which any CPI Stock Option was issued,
any provision of any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement, or otherwise modify any of the
terms of any outstanding option, warrant or other security or any related
contract; provided that CPI shall be entitled to make any changes that do
not materially increase CPI's obligations under any agreement evidencing
any outstanding stock option, restricted stock purchase agreement, warrant
or other security or any related contract;
(iv) except as contemplated by the Reorganization Agreement, amend or
permit the adoption of any amendment to its Certificate of Incorporation or
Bylaws or other charter or organizational documents, or effect or become a
party to any merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction which would materially adversely affect the
transactions provided in the Reorganization Agreement;
(v) except as discussed or projected in discussions with or
presentations to Tseng, enter into or become bound by, or permit any of the
assets owned or used by it to become bound by, any CPI material contract,
or amend or terminate, or waive or exercise any material right or remedy
under, any CPI material contract, provided that CPI shall be entitled to
make any changes that do not materially increase CPI's obligations under
any CPI material contract;
(vi) change any of its methods of accounting or accounting practices
in any respect;
(vii) make any material tax election;
(viii) amend or otherwise modify any of the terms of any CPI Warrants,
except to the extent necessary to terminate such warrants or reduce the
number of shares exercisable thereunder; or
(ix) agree or commit to take any of the actions described in clause
(i) through (viii).
During the Pre-Closing Period, CPI shall promptly notify Tseng in writing
of: (i) the discovery by CPI of any event, condition, fact or circumstance that
occurred or existed on or prior to the date of the Reorganization Agreement and
that caused or constitutes a material inaccuracy in any representation or
warranty made by CPI in the Reorganization Agreement; (ii) any event, condition,
fact or circumstance that occurs, arises or exists after the date of the
Reorganization Agreement and that would cause or constitute a material
inaccuracy in any representation or warranty made by CPI in the Reorganization
Agreement if (a) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (b) such event, condition, fact or circumstance had occurred,
55
<PAGE> 69
arisen or existed on or prior to the date of the Reorganization Agreement; (iii)
any material breach of any covenant or obligation of CPI; and (iv) any event,
condition, fact or circumstance that would make the timely satisfaction of any
of the conditions to closing impossible or unlikely or that has had or could
reasonably be expected to have a Material Adverse Effect on CPI. No notification
given to Tseng shall limit or otherwise affect any of the representations,
warranties, covenants or obligations of CPI contained in the Reorganization
Agreement.
Non-Solicitation. Pursuant to the Reorganization Agreement, Tseng has
agreed that it shall not, and shall not authorize or permit any of the other
Tseng Corporations or any representative of any of the Tseng Corporations, and
CPI has agreed that it shall not, and shall not authorize or permit any
representative of CPI, directly or indirectly, to (i) solicit, initiate,
knowingly encourage or induce the making, submission or announcement of any
Acquisition Proposal (as defined below) or take any similar action, (ii) furnish
any non-public information regarding any of the Tseng Corporations or CPI,
respectively, to any person in connection with or in response to an Acquisition
Proposal, (iii) engage in discussions or negotiations with any person with
respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal or (v) enter into any letter of intent or similar document
or any contract contemplating or otherwise relating to any Acquisition
Transaction (as such term is defined below). Tseng, CPI and their respective
boards of directors are not prevented, however, from (i) furnishing information
regarding any of the Tseng Corporations or CPI, respectively, to any person in
connection with or in response to a bona fide, unsolicited Acquisition Proposal
or engaging in discussions or negotiations with respect thereto if and only to
the extent that (a) the relevant board of directors determines in good faith,
after consultation with its financial advisor that such Acquisition Proposal is
reasonably likely to result in an offer for acquisition superior to the one
provided for in the Reorganization Agreement, (b) the relevant board of
directors determines in good faith, after consultation with its outside counsel,
including discussions of applicable legal standards under relevant state
corporate law, that such action is required in order for such board of directors
to comply with its fiduciary duties under applicable law, (c) the person who has
requested such information has executed and delivered to the relevant company a
non-disclosure agreement that is not less restrictive than the non-disclosure
agreement in effect between Tseng and CPI, and (d) Tseng or CPI, as the case may
be, has not breached its obligations concerning non-solicitation set forth
herein or (ii) complying with Exchange Act Rules 14e-2 and 14d-9.
Notwithstanding the foregoing, the CPI Board or the Tseng Board may recommend a
superior offer to its stockholders, if the relevant board of directors
determines, after consultation with its outside counsel, including discussions
of applicable legal standards under relevant state corporate law, that, in light
of such superior offer, such recommendation is required in order for the
relevant board of directors to comply with its fiduciary obligations to its
relevant stockholders under applicable law (which determination shall be made in
light of a revised proposal, if any, made by CPI or Tseng, as the case may be,
prior to the date of such determination); provided, however, that the relevant
party (i) shall provide the other party with at least 48 hours prior written
notice of its intentions to hold any meeting at which its board of directors is
reasonably expected to consider an Acquisition Proposal, or such lesser amount
of time as has been given to the relevant board of directors in relation to such
meeting, and (ii) shall not recommend to its stockholders a superior offer for
at least two (2) business days after such party has provided the other with the
material terms of such superior offer.
In addition, each of Tseng and CPI shall promptly advise the other orally
and in writing of any Acquisition Proposal (including the identity of the person
making or submitting such Acquisition Proposal and the terms thereof) that is
made or submitted by any person during the Pre-Closing Period. Each of Tseng and
CPI shall keep the other informed with respect to material changes to the terms
of any such Acquisition Proposal and any material modification or proposed
modifications thereto. Tseng and CPI shall both immediately cease and cause to
be terminated any existing discussions with any person that relate to any
Acquisition Proposal and shall request the return or destruction of any
confidential information previously disclosed to such person and shall use
commercially reasonable efforts to ensure that such information is destroyed or
returned.
An "Acquisition Proposal" is any offer or proposal (other than an offer or
proposal between CPI and Tseng) contemplating or otherwise relating to any
Acquisition Transaction in substitution for the transactions provided in the
Reorganization Agreement. An "Acquisition Transaction" shall mean any
transaction or series of related transactions involving: (i) any merger,
consolidation, share exchange, business combination, tender
56
<PAGE> 70
offer, exchange offer or other similar transaction in which a person or "group"
(as defined in the Exchange Act and the rules promulgated thereunder) of persons
directly or indirectly acquires CPI or Tseng or more than 50% of CPI's business
or Tseng's business, as the case may be; (ii) any sale, lease, exchange,
transfer, license, acquisition or disposition of more than 50% of the assets of
Tseng or CPI; (iii) any offering of CPI Capital Stock that is registered under
Section 5 of the Securities Act; or (iv) any liquidation or dissolution of Tseng
or CPI.
Meetings of Stockholders. Pursuant to the Reorganization Agreement, CPI
will take all action necessary in accordance with applicable law to convene and
hold the CPI Special Meeting to vote upon the approval of the CPI Merger
Proposal and the CPI Certificate Proposal. CPI's obligation to call, give notice
of, convene and hold the CPI Special Meeting will not be limited or otherwise
affected by the withdrawal, amendment or modification of the recommendation of
the CPI Board with respect to the Transactions, except as is required by
applicable law. Pursuant to the Reorganization Agreement, Tseng will take all
action necessary in accordance with applicable law to convene and hold the Tseng
Special Meeting to vote upon the approval of the Tseng Merger Proposal. Tseng's
obligation to call, give notice of, convene and hold the Tseng Special Meeting
will not be limited or otherwise affected by any withdrawal, amendment or
modification of the recommendation of the Tseng Board with respect to the
Transactions, except as is required by applicable law.
Election of Directors. CPI must use all reasonable efforts to nominate and
appoint two persons, designated by Tseng in consultation with CPI, to join the
CPHI Board. See "-- Corporate Matters; Composition of the CPHI Board".
Directors and Officers Insurance. Under the Reorganization Agreement,
Tseng has agreed to provide for the continuance of current Tseng directors and
officers insurance in respect of acts prior to the Effective Time for the
benefit of Tseng officers and directors for a period of five years after the
Effective Time.
Registration Rights. Pursuant to the Reorganization Agreement, CPHI shall
assume all of CPI's obligations to certain CPI stockholders under the CPI Fourth
Amended and Restated Stockholders' Agreement, dated as of April 1998, as amended
(the "Stockholders' Agreement"); provided, however, that CPI shall use all
reasonable efforts to provide that no Holder (as defined in the Stockholders'
Agreement) shall require registration or participation in a registration of CPHI
Common Stock until the earlier of (a) the date 90 days after the effective date
of a registration statement for the first public offering of CPHI's shares
following the Effective Time and (b) the first anniversary of the Effective
Time.
Market Stand-Off Agreements. CPI shall obtain the agreement of each
director and executive officer of CPI that such person shall not directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any CPHI Common Stock
beneficially owned by such person for 180 days from the Effective Time.
Furthermore, CPI shall use reasonable best efforts to obtain the agreement of
each of the remaining holders of CPI Capital Stock that such CPI stockholder
shall not directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any CPHI Common Stock beneficially owned by such person for 90 days from
the Effective Time.
CPI Redeemable Preferred Stock. Prior to the Effective Time, CPI shall
redeem all outstanding shares of CPI Redeemable Preferred Stock in accordance
with the Reorganization Agreement.
Nasdaq National Market Listing. CPI and Tseng shall obtain, prior to the
Effective Time, the approval for listing on the Nasdaq National Market,
effective upon official notice of issuance, of the shares of CPHI Common Stock
issuable in connection with the Transactions and which will be issuable upon
exercise of options assumed pursuant to the Reorganization Agreement.
Certain Other Covenants. The Reorganization Agreement contains certain
other covenants including covenants relating to (i) information and access, (ii)
preparation and filing of the Registration Statement, (iii) obtaining regulatory
approvals, (iv) public announcements, (v) tax qualification and opinion back-up
certificates, (vi) resignation of Tseng's officers and directors, (vii) the
Foreign Investment in Real Property Tax Act, (viii) affiliate agreements, (ix)
further action and (x) obtaining required consents.
57
<PAGE> 71
TERMINATION
The Reorganization Agreement may be terminated prior to the Effective Time
(whether before or after approval of the CPI Merger Proposal by the CPI Merger
Required Stockholder Vote and the Tseng Merger Proposal by the Required Tseng
Stockholder Vote):
(i) by mutual written consent of CPI and Tseng;
(ii) by either CPI or Tseng if the Transactions shall not have been
consummated by November 30, 1998 (unless the failure to consummate the
Transactions is attributable to a failure on the part of the party seeking
to terminate the Reorganization Agreement to perform any material
obligation required to be performed by such party at or prior to the
Effective Time);
(iii) by either CPI or Tseng if a court of competent jurisdiction or
other governmental body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect
of permanently restraining, enjoining or otherwise prohibiting the
Transactions;
(iv) by either CPI or Tseng if (i) the CPI Special Meeting shall have
been held and completed and (ii) the CPI Certificate Proposal shall not
have been approved at such meeting by the CPI Certificate Required Vote and
the CPI Merger Proposal shall not have been approved at such meeting by the
Required CPI Merger Stockholder Vote;
(v) by either CPI or Tseng if (i) the Tseng Special Meeting shall have
been held and completed and (ii) the Tseng Merger Proposal shall not have
been approved at such meeting by the Required Tseng Stockholder Vote;
(vi) by Tseng (at any time prior to the approval of the CPI Merger
Proposal by the Required CPI Merger Stockholder Vote and approval of the
Tseng Merger Proposal by the Required Tseng Stockholder Vote) if a CPI
Triggering Event (as such term is defined below) shall have occurred;
(vii) by CPI (at any time prior to the approval of the CPI Merger
Proposal by the Required CPI Merger Stockholder Vote and approval of the
Tseng Merger Proposal by the Tseng Required Stockholder Vote) if a Tseng
Triggering Event (as such term is defined below) shall have occurred;
(viii) by Tseng if any of CPI's representations and warranties
contained in the Reorganization Agreement shall be or shall have become
materially inaccurate, or if any of CPI's covenants contained in the
Reorganization Agreement shall have been breached, and such inaccuracy or
breach would cause the condition set forth in clauses (i) or (ii) under
"-- Conditions to the Transactions" to not be satisfied; provided, however,
that if an inaccuracy in CPI's representations and warranties or a breach
of a covenant by CPI is curable by CPI and CPI is continuing to exercise
all reasonable efforts to cure such inaccuracy or breach, then Tseng may
not terminate the Reorganization Agreement on account of such inaccuracy or
breach until 20 days after delivery of written notice of the inaccuracy or
breach to CPI by Tseng; or
(ix) by CPI if any of Tseng's representations and warranties contained
in the Reorganization Agreement shall be or shall have become materially
inaccurate, or if any of Tseng's covenants contained in the Reorganization
Agreement shall have been breached, and such inaccuracy or breach would
cause the condition set forth in clauses (i) or (ii) under "-- Conditions
to the Transactions" to not be satisfied; provided, however, that if an
inaccuracy in Tseng's representations and warranties or a breach of a
covenant by Tseng is curable by Tseng and Tseng is continuing to exercise
all reasonable efforts to cure such inaccuracy or breach, then CPI may not
terminate the Reorganization Agreement on account of such inaccuracy or
breach until 20 days after delivery of written notice of the breach or
inaccuracy to Tseng by CPI.
A "Triggering Event" of a party shall be deemed to have occurred if: (i)
the board of directors of the party shall have failed to recommend, or shall for
any reason have withdrawn or shall have amended or modified in a manner adverse
to the other party, its unanimous recommendation in favor of the Transactions or
approval of the Reorganization Agreement and, in the case of CPI, the CPI
Certificate Proposal; (ii) the party shall have failed to include in this Joint
Proxy Statement/Prospectus the unanimous recommendation of
58
<PAGE> 72
its board of directors in favor of approval of the Reorganization Agreement and
the Transactions; (iii) the board of directors of the party fails to unanimously
reaffirm its recommendation in favor of approval of the Reorganization Agreement
and the Transactions within five business days after the other party requests in
writing that such recommendation be reaffirmed; (iv) the board of directors of
the party shall have approved, endorsed or recommended any Acquisition Proposal;
(v) the party shall have entered into any letter of intent or similar document
or any contract relating to any Acquisition Proposal; (vi) the party shall have
failed to hold the relevant stockholders' meeting as promptly as practicable and
in any event within 45 days after this registration statement is declared
effective under the Securities Act; (vii) a tender or exchange offer relating to
securities of the party shall have been commenced and the party shall not have
sent to its security holders, within five business days after the commencement
of such tender or exchange offer, a statement disclosing that the party
recommends rejection of such tender or exchange offer; or (viii) an Acquisition
Proposal is publicly announced, and the party (A) fails to issue a press release
announcing its opposition to such Acquisition Proposal within five business days
after such Acquisition Proposal is announced or (B) otherwise fails to actively
oppose such Acquisition Proposal.
EXPENSES AND TERMINATION FEES
Pursuant to the Reorganization Agreement, except as provided below, all
fees and expenses incurred in connection with the Reorganization Agreement and
the transactions contemplated by the Reorganization Agreement shall be paid by
the party incurring such expenses, whether or not the Transactions are
consummated; provided, however, that CPI and Tseng shall share equally all fees
and expenses, other than attorneys' fees, incurred in connection with the
filing, printing and mailing of this registration statement and this Joint Proxy
Statement/Prospectus and any amendments or supplements thereto.
The Reorganization Agreements provides that if it is terminated by Tseng
following the occurrence of a CPI Triggering Event or by CPI or Tseng following
the failure of the CPI stockholders to approve the CPI Merger Proposal and the
CPI Certificate Proposal, then CPI must pay to Tseng, in cash, a termination fee
in the amount of $1,500,000 plus the amount of professional fees and expenses
which Tseng has incurred in connection with the Transactions, up to $250,000. If
the Reorganization Agreement is terminated by CPI following the occurrence of
Tseng Triggering Event or by CPI or Tseng following the failure of the Tseng
stockholders to approve the Tseng Merger Proposal, then Tseng shall pay to CPI,
in cash, a termination fee in the amount of $1,500,000, plus the amount of
professional fees and expenses which CPI has incurred in connection with the
Transactions, up to $250,000.
JMS has acted as a financial advisor to the Tseng Board in connection with
the Transactions. Pursuant to the terms of an engagement letter agreement with
JMS dated April 24, 1998, Tseng has paid a $25,000 retainer fee and a fee of
$25,000 for rendering its opinion that the Tseng Exchange Ratio is fair to the
Tseng stockholders from a financial viewpoint and has agreed to pay a fee of
$50,000 upon consummation of the Transactions. In addition, Tseng has agreed to
reimburse JMS for its reasonable out-of-pocket expenses and to indemnify JMS and
certain related persons against certain liabilities, including liabilities under
the federal securities laws, relating to or arising out of its engagement.
59
<PAGE> 73
AMENDMENT OF THE CPI CERTIFICATE OF INCORPORATION
The CPI Board has approved and submitted for a vote with the CPI
stockholders an amendment of the CPI Certificate of Incorporation ("CPI
Certificate of Amendment"). A copy of the proposed amendment is attached as
Exhibit C to the Reorganization Agreement attached hereto as Appendix A.
Conditioned upon the satisfaction or waiver of the various conditions to
closing the Transactions in the Reorganization Agreement, the CPI Certificate of
Amendment provides that the holders of CPI Preferred Stock will receive only the
consideration for their shares set forth in the Reorganization Agreement.
The Transactions are conditioned upon approval of the CPI Certificate
Proposal by the CPI stockholders. If the CPI Certificate Proposal is not
approved, then the Transactions will not be implemented.
EFFECT OF AMENDMENT
Holders of CPI Preferred Stock are entitled, under certain circumstances,
to receive payment of a preferential amount prior to any payments or
distributions in respect of CPI Common Stock. Under the CPI Certificate of
Incorporation, this preferred stock preference is available upon any acquisition
of CPI by means of a merger, consolidation or other form of corporate
reorganization in which all of the outstanding shares of CPI Capital Stock are
exchanged for securities (or other consideration issued) by the acquiring
corporation. The CPI Certificate of Incorporation also provides, however, that
the preferred stock preference is not available upon the merger of CPI with or
into any other corporation. Because of the legal structure of the Transactions,
there may be uncertainty as to whether the preferred stock preference applies to
the Transactions.
The CPI Certificate of Amendment clarifies that, despite the legal
structure of the Transactions, holders of CPI Preferred Stock will not receive,
in connection with the Transactions, any payments or amounts in preference to
the CPI Common Stock, but will receive only the consideration for their shares
specified in the Reorganization Agreement.
REQUIRED VOTE
Approval and adoption of the CPI Certificate Proposal require the
affirmative vote of the holders of (i) a majority of the shares of CPI Common
Stock and CPI Preferred Stock, voting together as a single class, and (ii) a
majority of the shares of each outstanding series of CPI Preferred Stock, each
such series voting as a separate class. The effect of an abstention or broker
nonvote on the proposal is the same as a vote against the proposal.
THE CPI BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE CPI
CERTIFICATE PROPOSAL.
60
<PAGE> 74
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On June 23, 1998, CPI and Tseng, entered into the Reorganization Agreement
to provide further financing of CPI's programs. Through the reorganization, the
stockholders of Tseng will exchange their Tseng Common Stock for an
approximately 23% equity interest in CPHI and CPI will obtain the benefit of the
substantial cash assets of Tseng. Effective upon the consummation of the
Transactions, CPHI will change its name to Cell Pathways, Inc. For financial
reporting purposes, the Transactions will be accounted for as a reorganization
of CPI into CPHI, together with the sale of CPHI Common Stock in exchange for
Tseng's cash and other net assets. CPI's historical financial statements will be
the financial statements of the combined company.
The following unaudited pro forma condensed consolidated balance sheet
gives effect to the consummation of the Transactions as if they had occurred
June 30, 1998. The unaudited condensed consolidated financial information and
notes thereto do not purport to represent the financial position of CPHI if the
Transactions had occurred on such date.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that CPI and Tseng management believe are
reasonable. The unaudited pro forma condensed consolidated financial information
and accompanying notes should be read in conjunction with the financial
statements and related notes thereto to both CPI and Tseng, and other financial
information pertaining to CPI and Tseng, including "CPI Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Joint Proxy Statement/Prospectus or incorporated herein by
reference.
61
<PAGE> 75
CPHI AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(A DEVELOPMENT STAGE COMPANY)
AS OF JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTIONS CPHI TSENG MERGER CPHI
ADJUSTMENTS PRO FORMA TRANSACTIONS PRO FORMA
CPI EXCLUDING BEFORE TSENG PRO FORMA AFTER
HISTORICAL TSENG MERGER TSENG MERGER HISTORICAL ADJUSTMENTS TRANSACTIONS
---------- ------------ ------------ ---------- ------------ ------------
(NOTE 3) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 20,349 $ (329) $ 20,020 $ 27,109 $ (2,340) $ 44,789
Other current assets................. 438 -- 438 975 -- 1,413
-------- -------- -------- -------- -------- --------
Total current assets.......... 20,787 (329) 20,458 28,084 (2,340) 46,202
PROPERTY AND EQUIPMENT, net............ 1,027 -- 1,027 48 -- 1,075
LAND AND BUILDING UNDER LEASE.......... -- -- -- 2,435 -- 2,435
RESTRICTED CASH........................ 401 -- 401 -- -- 401
OTHER ASSETS........................... 117 -- 117 -- -- 117
-------- -------- -------- -------- -------- --------
$ 22,332 $ (329) $ 22,003 $ 30,567 $ (2,340) $ 50,230
======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 947 $ -- $ 947 $ 336 $ -- $ 1,283
Accrued liabilities.................. 1,093 -- 1,093 1,683 -- 2,776
-------- -------- -------- -------- -------- --------
Total current liabilities..... 2,040 -- 2,040 2,019 -- 4,059
-------- -------- -------- -------- -------- --------
REDEEMABLE PREFERRED STOCK............. 1,092 (1,092) -- -- -- --
-------- -------- -------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock (CPHI pro forma after
Transactions) $0.01 par value,
5,000,000 shares authorized, none
issued and outstanding............. 53,571 (53,571) -- -- -- --
Common Stock (CPHI pro forma after
Transactions) $0.01 par value,
70,000,000 shares authorized,
24,233,751 shares issued and
outstanding........................ 30 158 188 98 (43) 243
Additional paid-in capital........... 456 54,176 54,632 11,009 15,144 80,785
Stock subscription receivable........ (252) -- (252) -- -- (252)
Accumulated earnings (deficit)....... (34,605) -- (34,605) 27,459 (27,459) (34,605)
-------- -------- -------- -------- -------- --------
19,200 763 19,963 38,566 (12,358) 46,171
Less--Treasury stock at cost......... -- -- -- (10,018) 10,018 --
-------- -------- -------- -------- -------- --------
Total stockholders' equity.... 19,200 763 19,963 28,548 (2,340) 46,171
-------- -------- -------- -------- -------- --------
$ 22,332 $ (329) $ 22,003 $ 30,567 $ (2,340) $ 50,230
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma balance sheet.
62
<PAGE> 76
CPHI AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
1. HISTORICAL
The historical balances represent the financial statements of CPI and Tseng
appearing elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus.
2. TRANSACTIONS ACCOUNTING TREATMENT
As it is anticipated that Tseng will have no operations after the
consummation of the Transactions, the Transactions will be accounted for as a
reorganization of CPI into CPHI with the sale of approximately 23% of the
outstanding shares of CPHI Common Stock in exchange for Tseng's cash and other
net assets. CPI's historical financial statements will be the financial
statements of the combined company. Note that CPI's management will be the
management of CPHI and the CPI Board will hold 9 seats of the 11 seats on CPHI
Board after the Transactions.
3. TRANSACTIONS PRO FORMA ADJUSTMENTS EXCLUDING TSENG MERGER
Excluding the Tseng Merger, upon consummation of the Transactions, (i) all
of the outstanding shares of CPI Series A, B, C, D, E, F and G Preferred Stock
will be converted into the rights to receive 15,614,266 shares of CPHI Common
Stock, (ii) all of the outstanding shares of CPI Redeemable Preferred Stock will
be redeemed for $546,000 of cash consideration and 82,732 shares of CPI Common
Stock and (iii) all warrants to purchase Series E Preferred Stock will be
exercised into 69,044 shares of CPI Series E Preferred Stock at $3.15 per share
which will be converted into the same number of shares of CPHI Common Stock. All
of the shares of CPI Common Stock then outstanding will be converted into the
same number of shares of CPHI Common Stock.
The following pro forma adjustments are reflected as if the above
transactions had occurred as of June 30, 1998:
(A) Conversion of CPI Preferred Stock into shares of CPHI Common Stock.
(B) Redemption of CPI Redeemable Preferred Stock.
(C) Exercise of warrants to purchase Series E Preferred Stock including
ultimate conversion.
<TABLE>
<CAPTION>
DEBIT (CREDIT)
------------------------------------------------------------------------
REDEEMABLE ADDITIONAL
CASH AND CASH PREFERRED PREFERRED COMMON PAID-IN
ADJUSTMENT EQUIVALENTS STOCK STOCK STOCK CAPITAL TOTAL
---------- ------------- ---------- ----------- ------ ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
A........................ $ -- $ -- $53,571 $(156) $(53,415) $ --
B........................ (546) 1,092 -- (1) (545) --
C........................ 217 -- -- (1) (216) --
----- ------ ------- ----- -------- -------
$(329) $1,092 $53,571 $(158) $(54,176) $ --
===== ====== ======= ===== ======== =======
</TABLE>
4. TSENG MERGER PRO FORMA ADJUSTMENTS
Upon consummation of the Transactions, each share of Tseng Common Stock
will be converted into .3631326 shares of CPHI Common Stock. Assuming the
transaction occurred on June 30, 1998, the number of shares of CPHI Common Stock
to be issued to the Tseng shareholders would be 5,477,614 shares. In addition,
existing Tseng Options will be exchanged for options to purchase 531,422 shares
of CPHI Common Stock with an average exercise price of $7.68 per share. As
discussed in Note 2, the Transactions will be accounted for as a reorganization
of CPI into CPHI with the sale of approximately 23% of the shares of outstanding
CPHI Common Stock in exchange for Tseng's cash and other net assets. The most
significant
63
<PAGE> 77
non-cash asset is Tseng's former operating facility (approximately $2.4 million
net book value at June 30, 1998.) Tseng's management has entered into a letter
of intent for the sale of the facility and is currently attempting to execute a
definite agreement for its sale at a price at least equal to the net book value.
The following pro forma adjustments are reflected as if the above
transaction had occurred as of June 30, 1998:
(D) Exchange of shares of Tseng Common Stock for CPHI Common Stock, less
estimated Transactions costs of approximately $1,700,000 consisting
principally of investment banking and other professional fees.
(E) The payment of $640,000 related to severance to be triggered by the
Transactions to be paid to Tseng employees after consummation of the
Transactions.
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------------------------------------------------------------------------
ADDITIONAL
CASH AND CASH COMMON PAID-IN ACCUMULATED TREASURY
ADJUSTMENT EQUIVALENTS STOCK CAPITAL EARNINGS (DEFICIT) STOCK TOTAL
---------- ------------- ------ ---------- ------------------ -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
D.................... $(1,700) $43 $(15,784) $27,459 $(10,018) $--
E.................... (640) -- 640 -- -- --
------- --- -------- ------- -------- --
$(2,340) $43 (15,144) $27,459 $(10,018) $--
======= === ======== ======= ======== ==
</TABLE>
64
<PAGE> 78
CPHI'S BUSINESS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CPHI has not conducted any substantial business activities to date, other
than those incident to its formation and its participation in the preparation of
this Joint Proxy Statement/Prospectus. Immediately following the Effective Time
and the consummation of the Transactions, CPHI will change its name to Cell
Pathways, Inc. and will become a holding company for CPI and Tseng. Accordingly,
the business of CPHI, through its wholly-owned subsidiaries CPI and Tseng, will
be the businesses currently conducted by CPI and Tseng. See "CPI Business". As
it is anticipated that Tseng will have no operations after the consummation of
the Transactions, the Transactions will be accounted for as a reorganization of
CPI into CPHI with the sale of approximately 23% of the CPHI Common Stock in
exchange for Tseng's cash and other net assets. CPI's historical Financial
Statements will be the Financial Statements of the combined company. See
"Approval of Transactions -- Anticipated Accounting Treatment".
65
<PAGE> 79
CPI BUSINESS
OVERVIEW
CPI is a pharmaceutical company focused on the development and
commercialization of products to prevent and treat cancer. CPI has started
clinical trials of its lead compound FGN-1(TM) (exisulind) in five indications
and is planning clinical trials in three additional indications. In January
1998, CPI completed enrollment of 74 patients for its ongoing pivotal Phase III
clinical trial for APC. CPI anticipates filing an NDA with the FDA in the first
quarter of 1999, which will seek approval to market FGN-1(TM) (exisulind) for
the prevention of precancerous adenomatous polyps in APC patients. There can be
no assurance that such filing will not be delayed or that the Phase III studies
will show that FGN-1(TM)(exisulind) is sufficiently safe and effective for
marketing approval by the FDA. In July 1998, the FDA granted FGN-1(TM)
(exisulind) Fast Track designation for expedited review for this indication. In
December 1997, CPI initiated Phase II/III trials of FGN-1(TM) (exisulind) for
sporadic adenomatous colonic polyps and for the prevention of prostate cancer
recurrence as well as a pilot study in lung cancer. In February 1998, CPI
initiated a Phase II/III trial of FGN-1(TM) (exisulind) for the prevention of
breast cancer recurrence. CPI also plans to initiate Phase II trials for the
treatment of Barrett's Esophagus and bronchial dysplasia in 1998. CPI's
technology is based upon its discovery of a novel mechanism which CPI believes,
based on its research, can be targeted to induce selective apoptosis, or
programmed cell death, in precancerous and cancerous cells without affecting
normal cells. Utilizing this proprietary knowledge, CPI has created over 450 new
chemical compounds, over 200 of which display significantly greater apoptotic
potency than FGN-1(TM) (exisulind).
BUSINESS STRATEGY
CPI's objectives are to be a leader in cancer chemoprevention and to build
an integrated pharmaceutical company focused on the oncology market. To meet
these objectives CPI intends to:
- Pursue accelerated clinical development of FGN-1(TM)
(Exisulind). CPI's development program for FGN-1(TM) (exisulind) is
initially focused on indications where small clinical trials with
clear endpoints are expected to yield statistically significant
results. CPI is currently conducting a Phase III trial of FGN-1(TM)
(exisulind) for APC, Phase II/III trials for the prevention of
sporadic colonic polyps, the prevention of recurrence of prostate
cancer and the prevention of recurrence of breast cancer, as well as
a pilot study in the treatment of lung cancer. In addition, CPI
plans to initiate clinical trials in two additional indications
(Barrett's Esophagus and bronchial dysplasia) in the fourth quarter
of 1998. By focusing initially on APC, an indication for which there
is a clear need for improved therapies and the potential to
demonstrate efficacy relatively quickly, CPI seeks to accelerate the
market introduction of FGN-1(TM) (exisulind).
- Leverage CPI's technology to develop additional agents for cancer
therapy and chemoprevention. Based on its proprietary technology and
its application of combinatorial and computational chemistry, CPI
intends to expand its library of compounds with the objective of
developing agents for the treatment of certain cancers and
precancerous lesions.
- Commercialize products directly to focused physician groups. CPI
intends to establish its own focused sales force to promote products
in the U.S. targeted at diseases that are treated by relatively
small, well-defined groups of physicians. These diseases include
APC, sporadic adenomatous colonic polyps, Barrett's Esophagus,
bronchial dysplasia and prostate cancer.
- Develop strategic collaborations for selected indications and
markets. CPI will seek to establish strategic relationships for the
development and commercialization of potential products for
indications, such as cervical dysplasia, that would require
significant marketing and sales resources. CPI is seeking partners
for international development and commercialization of potential
products. Until such strategic relationships are developed, CPI will
continue to pursue international clinical and regulatory approvals
as a means to increase the value of its development pipeline.
- Acquire technologies and products for the prevention, diagnosis and
treatment of cancer. CPI will seek to selectively and
opportunistically acquire and further develop synergistic
technologies, products and/or companies focused in the prevention,
diagnosis and treatment of cancer
66
<PAGE> 80
consistent with the objective of building an integrated pharmaceutical
company focused in oncology.
CARCINOGENESIS
Cancer results from a sequence of changes involving the genes of cells
which eventually leads to abnormal and uncontrolled cell proliferation. This
multi-stage process is known as carcinogenesis and generally results from a
combination of factors which occur over a period of years. Certain factors, such
as inherited genetic defects, are present at birth. Other factors that may
contribute to carcinogenesis include environmental exposures and the aging
process. Carcinogenesis is first recognized clinically when abnormal cells
become visible to a screening procedure or reach a size or location sufficient
to create clinical signs and symptoms. The clinical emergence may occur many
years following the events which first initiated carcinogenesis. Generally,
cells characterized by abnormal growth that may lead to cancer but have not yet
invaded surrounding tissue are termed precancerous.
Precancerous Lesions. Many cancers are preceded by precancerous lesions,
which are accumulations of abnormal cells. Because precancerous lesions are
usually asymptomatic, the ability to identify and monitor them and to intervene
clinically before the possible development of cancer is dependent upon
diagnostic screening tests. Recent years have seen broader applications of
screening tests, including the Pap smear, flexible sigmoidoscopy and the
Prostate Specific Antigen ("PSA") test. In addition, there have been recent
advances in genetic screening, such as the BRCA1 and BRCA2 tests to detect
individuals with a higher risk of developing breast cancer in the future.
Precancerous lesions are most often diagnosed in epithelial tissues, such
as the skin or the inside surface of organs, including the intestine, cervix,
bladder and prostate. The following table lists examples of epithelial
precancerous lesions, the types of cancer to which such lesions can progress and
the diagnostic screening tests currently in use to detect such lesions.
EXAMPLES OF EPITHELIAL PRECANCEROUS LESIONS
<TABLE>
<CAPTION>
TYPE OF LESION RELATED CANCER CONVENTIONAL METHOD OF DIAGNOSIS
- -------------- -------------- -------------------------------------
<S> <C> <C>
Actinic Keratosis Skin Visual examination
Adenomatous Colonic Polyp Colorectal Endoscopy (sigmoidoscopy or
colonoscopy)
Barrett's Esophagus Esophageal Endoscopy (esophagogastroscopy)
Bronchial or Lung Dysplasia Lung Sputum cytology
Cervical Intraepithelial Neoplasia Cervical Papanicolau (Pap) smear
Prostatic Intraepithelial Neoplasia Prostate Prostate Specific Antigen (PSA) and
digital rectal examination
Transitional Cell Carcinoma in situ Bladder Cystoscopy
(earliest stage)
</TABLE>
Patients with precancerous lesions are advised to follow a program of
regular monitoring and removal of lesions where appropriate. However, existing
techniques for treating precancerous lesions are often expensive, have
undesirable side effects or are of limited effectiveness. Endoscopic or surgical
removal can be effective for single lesions, but risks and costs increase
significantly if lesions recur, if there are numerous lesions or if lesions
occur in less accessible tissues. Because of their significant side effects,
systemic administration of most existing chemotherapeutic drugs is not
appropriate for treating precancerous lesions. Reduction of environmental risks
or change in diet are generally more effective in preventing the early stages of
carcinogenesis than in arresting or reversing the changes that occur in the
later stages of carcinogenesis. As a result of the inadequacy of current
treatments, there is a significant need for the development of new therapeutics
to treat precancerous lesions. If left untreated and not reversed by natural
processes, precancerous lesions may progress to cancer.
Cancer. The American Cancer Society estimates that over 1.4 million new
cases of cancer were diagnosed and approximately 560,000 cancer deaths occurred
in the U.S. in 1997. Cancer is the second leading cause of death in the U.S.,
and over 7.4 million people living in the U.S. have had cancer. Due in part
67
<PAGE> 81
to the development of new diagnostic procedures, the highest number of new
cancer diagnoses are currently occurring in the prostate, breast, lung and
colon/rectum, representing approximately 60% of all new cancer cases.
Cancer is generally treated by attempting to remove the cancerous cells,
either by surgery or by chemical or radiation therapies. Currently available
chemotherapies and radiation therapies target all rapidly dividing cells, both
cancerous and healthy, and therefore result in serious side effects. The limited
efficacy and harmful side effects of existing cancer treatments and the costs
associated with managing these side effects continue to drive the search for new
therapies.
CPI TECHNOLOGY
To address the need for new therapies, CPI's technology focuses on the
selective induction of apoptosis in cells that manifest abnormal growth
(neoplastic cells), such as precancerous and cancerous cells. Apoptosis is a
naturally occurring physiological process in which a number of components inside
the cell "program" the cell to die without causing harm to surrounding cells.
Apoptosis occurs in tissues that are continually renewing themselves, such as
the lining of the digestive system, or as a natural defense mechanism that
prevents the replication of cells that have undergone DNA damage. CPI's
technology is based upon its discovery of a novel mechanism which CPI believes,
based on its research, can be targeted to induce selective apoptosis in
neoplastic cells without affecting normal cells.
Many existing chemotherapeutic agents as well as radiation induce apoptosis
in rapidly proliferating cells without differentiating between neoplastic cells
and normal cells. This can result in toxicity, including suppression of the
immune system, hair loss and gastrointestinal disturbances. As a result of this
toxicity, most existing chemotherapeutic agents and radiation therapy are not
appropriate for treating precancerous lesions in otherwise healthy individuals
for whom safety and tolerability are essential for chronic or extended
therapeutic use.
Conventional Induction of Apoptosis in Cancer Therapy. Radiation therapy
and many existing chemotherapeutic agents act on proliferating cells by
disrupting cellular DNA synthesis to induce apoptosis. As depicted below, once
significant damage occurs to the DNA (1), a process is initiated that is
controlled by the gatekeeper protein p53 (2), and modulated by various proteins
such as bax and bcl-2 (3). This process results in the activation of caspases
(4), which trigger a cascade of events resulting in apoptosis (5). The end
result of apoptosis is the dismantling of the cell into apoptotic vesicles (6),
which are naturally cleared by the body. The apoptotic mechanism identified by
CPI does not appear to involve p53, or the modulator proteins, such as bax or
bcl-2.
[Graphic depiction of conventional induction of apoptosis in cancer therapy
appears here]
Discovery of Novel Apoptotic Mechanism. CPI believes it has discovered a
previously undefined mechanism for regulating apoptosis. Research suggests that
two key elements of this mechanism are an
68
<PAGE> 82
apoptosis inducing element ("AIE"), which is activated by naturally-occurring
triggers, and an apoptosis regulatory element ("ARE"), which plays a key role in
controlling levels of activated AIE. CPI has determined in colon cancer that the
neoplastic tissue has a higher level of ARE activity than neighboring normal
tissue, which may prevent neoplastic cells from responding to normal signals
that trigger apoptosis. When ARE activity increases, as in neoplastic cells, AIE
activity is reduced and activation of a critical downstream protein is
interrupted, subsequently preventing the activation of the caspases and
apoptosis.
Selective Induction of Apoptosis by CPI Compounds. Research suggests that
CPI's compounds, including FGN-1(TM) (exisulind), are targeted at inhibiting ARE
activity in neoplastic cells. As shown in the diagram below, CPI compounds (1)
reduce ARE activity (2), thereby preventing ARE from deactivating the active AIE
(3). Research suggests that the active AIE (4) is then available to trigger a
critical downstream protein (5), which leads to the activation of caspases (6).
As in the case of conventional cancer treatment, caspases then trigger a cascade
of events leading to apoptosis (7) and the resulting apoptotic vesicles (8).
[Graphic depiction of selective induction of apoptosis by CPI Compounds appears
here]
Research and Development Activities. CPI's Biological Discovery Group
consists of its research employees, members of its Scientific Advisory Board,
contract researchers and consultants. The Biological Discovery Group has
identified the specific intracellular protein targeted by FGN-1(TM) (exisulind)
and has made significant progress in sequencing the target protein's gene. CPI
has developed polymerase chain reaction ("PCR")-based probes that may be used to
identify additional indications to be targeted and to develop diagnostic tools.
CPI continues to identify additional elements involved in regulating the newly
identified apoptotic mechanism. CPI plans to investigate the potential
applicability of its novel apoptotic mechanism to other hyperproliferative
diseases, such as benign prostatic hyperplasia, coronary restenosis, psoriasis
and polycystic renal disease. There can be no assurance that CPI's investigation
will be successful.
Utilizing its understanding of chemical structure and biological activity,
CPI has created over 450 new chemical compounds in five chemical families and
over 27 chemical classes, over 200 of which display significantly greater
apoptotic potency than FGN-1(TM) (exisulind). CPI's new compounds are tested for
inhibitory effects on the growth of cancer cells in vitro, for the induction of
apoptosis and for activity against the intracellular target ARE.
A number of CPI compounds have shown activity against in vitro cultures of
transplantable human cancers of the breast, colon, lung and prostate.
Preliminary results of studies with CPI's compounds in primary cultures of human
cancers have shown activity against breast cancer. Using this data, CPI has
selected several new chemical entities ("NCEs"), as its next product development
candidates and is scaling the manufacture of these compounds to permit further
preclinical testing. CPI is conducting tests on other compounds and tissues as
well. Significant additional preclinical and clinical trials are necessary to
determine the activity of FGN-1(TM) (exisulind) and other CPI compounds in these
cancer indications. See "Risk Factors -- Risks Related to the Business and
Operations of CPI".
69
<PAGE> 83
CPI plans to leverage its understanding of the structure-activity
relationship of CPI's compounds by using combinatorial chemistry techniques and
high-throughput screening systems to expand its proprietary chemical library.
CPI has contracted with outside firms to create or purchase targeted chemical
libraries including thousands of diverse chemical classes. CPI is screening
these compounds in order to identify potential additional lead compounds.
PRODUCTS IN DEVELOPMENT
CPI is developing a family of products targeted at the treatment and
management of precancerous lesions and cancer. CPI's lead compound, FGN-1(TM)
(exisulind), is a sulfone derivative of the nonsteroidal anti-inflammatory drug
("NSAID") sulindac. CPI has shown that FGN-1(TM) (exisulind) exhibits strong
anti-neoplastic effects but lacks the anti-cyclooxygenase activity that is
associated with the serious gastrointestinal and renal side effects observed in
NSAIDs. Although FGN-1(TM) (exisulind) is currently in Phase III clinical trials
and has been designated for Fast Track review for the treatment of APC, there
can be no assurance that CPI will obtain marketing approval for FGN-1(TM)
(exisulind). Clinical testing of FGN-1(TM) (exisulind) has involved only a
limited number of patients to date and results obtained in these trials in the
treatment of APC are not necessarily predictive of the results of future
clinical trials for APC or of clinical results for any other therapeutic
indication. See "Risk Factors -- Risks Related to the Business and Operations of
CPI". The following table lists the potential indications for, and current
clinical development status of, FGN-1(TM) (exisulind):
FGN-1(TM) (EXISULIND) DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
INDICATION CLINICAL DEVELOPMENT STATUS(1)
- ---------- ------------------------------
<S> <C>
Precancer
Adenomatous Polyposis Coli................. Fast Track Designation obtained 3Q 1998
Pivotal Phase III trial fully recruited in 1Q
1998
Phase I/II trial completed in 1Q 1997
Orphan Drug status obtained 1Q 1994
Sporadic Adenomatous Colonic Polyps........ Pivotal Phase II/III trial initiated in 4Q
1997 Phase IB trial completed in 3Q 1997
Barrett's Esophagus........................ Phase II trial expected to commence in 4Q
1998
Bronchial Dysplasia........................ Phase II trial expected to commence in 4Q
1998
Cervical Dysplasia......................... Phase IB trial completed in 3Q 1997
Cancer
Prostate Cancer Recurrence................. Phase II/III trial initiated in 4Q 1997
Lung Cancer................................ Pilot study initiated in 4Q 1997
Breast Cancer Recurrence................... Pivotal Phase II/III trial initiated in 1Q
1998
</TABLE>
- ---------------
(1) A "pivotal" study is a clinical trial used as primary evidence of safety and
efficacy. More than one pivotal study may be necessary to gain marketing
approval from the FDA.
Clinical trials proceed through three phases, which may overlap in design
and objective:
"Phase I" trials involve the initial introduction of an investigational new
drug into humans and are designed to test for tolerance and side effects and
to determine the metabolic and pharmocologic actions of the drug in humans.
Phase IB denotes a later stage Phase I study.
"Phase II" involves clinical studies conducted in a limited number of
patients to evaluate preliminarily the effectiveness of the drug for a
particular indication and to determine the optimal dosage and the common
short-term side effects and risks.
"Phase III" involves expanded studies to evaluate the safety and
effectiveness of the drug.
CPI's clinical trial strategy seeks to identify subsets of patient
populations for the various targeted indications where the endpoints of clinical
trials occur in high frequency or in a relatively short time frame. Because CPI
is studying FGN-1(TM) (exisulind) for multiple indications, CPI plans to utilize
safety and pharmacokinetic data obtained in clinical trials completed to date to
provide a basis for commencing more
70
<PAGE> 84
advanced clinical trials in other indications. CPI believes that this strategy
of designing clinical trials around selected populations and utilizing existing
safety data may allow CPI to reduce the duration of clinical trials and the
number of test subjects enrolled in its clinical trials, thereby generating
statistically significant clinical results more quickly and cost-effectively.
Clinical Development of FGN-1(TM) (exisulind) for Precancerous
Lesions. Based on FGN-1(TM) (exisulind)'s safety profile, CPI believes that the
compound may be useful in treating patients with precancerous lesions for whom a
drug's long-term safety profile is important. The initial indication for
FGN-1(TM) (exisulind) is APC, and CPI is also pursuing clinical development of
FGN-1(TM) (exisulind) for four other types of precancerous epithelial lesions:
sporadic adenomatous colonic polyps, Barrett's Esophagus, bronchial dysplasia
and cervical dysplasia. These indications have been selected based upon several
factors, including encouraging preclinical results and clinical need.
Adenomatous Polyposis Coli. FGN-1(TM) (exisulind) is currently in Phase
III clinical trials for APC, which is an inherited disease characterized by the
development of hundreds to thousands of adenomatous polyps in the colon and the
progression to colon cancer if left untreated. This disease can be confirmed
within a family by genetic testing. Most APC patients must be endoscopically
screened beginning in their teenage years and must have a substantial portion of
their large intestine removed by age 20. Even with this treatment, these
patients continue to develop polyps in the remaining rectal tissue and are
typically monitored by endoscopy two to four times each year. At each
examination, polyps are removed. CPI's clinical program is testing FGN-1(TM)
(exisulind) in patients who previously have had most of their large intestine
removed, leaving the rectum intact (sub-total colectomy).
It is estimated that there are between 25,000 and 40,000 APC patients in
the U.S. Because of the large number of lesions that occur in these patients and
the continuous development of new lesions with no spontaneous remission, CPI
believes that clinical trials in APC can be conducted in, and statistically
significant results obtained from, a relatively small number of patients.
In a Phase I/II study conducted with the support of the NCI at the
Cleveland Clinic Foundation, 18 APC patients were treated with FGN-1(TM)
(exisulind) for six months. The study was completed in January 1997 and was
designed to observe the safety and pharmacokinetics of increasing doses of
FGN-1(TM) (exisulind). No serious adverse events attributable to FGN-1(TM)
(exisulind) were reported at the clinically effective doses of 400-600
milligrams total daily dose. At the 800 milligram total daily dose level, four
out of six patients displayed asymptomatic reversible elevations of liver
enzymes; all of such patients continued in the trial at lower dose levels. At
the end of the study, all patients elected to continue taking the drug in an
extension study, and the majority of the patients have been on the drug for more
than 24 months. No patient has withdrawn from the study or its extension due to
serious adverse events.
In the Phase I/II study and its extension, nearly all patients were
observed to experience a marked reduction in the number and size of exophytic
(i.e., raised over the surface), precancerous rectal polyps that were six
millimeters or less in diameter at the beginning of the study. The effect was
observed to be correlated to dosage, with 600 milligrams per day having a
significantly more pronounced effect than 400 milligrams per day. In the
extended study, no progressive increase in polyp size or volume was observed in
13 of the 14 patients who have remained in the study and have been maintained on
the optimal dose.
Following treatment with FGN-1(TM) (exisulind), examination of certain
regressing polyps showed substantial increases in the rate of apoptosis compared
with untreated polyps, while the rate of apoptosis in nearby normal tissue was
unchanged, demonstrating that FGN-1(TM) (exisulind) selectively induces
apoptosis in neoplastic cells without affecting normal cells.
Although the Phase I/II study of 18 patients generated preliminary evidence
of effectiveness, additional clinical evidence of the safety and efficacy of
FGN-1(TM) (exisulind) for APC is required before the filing of the NDA.
Accordingly, CPI initiated a pivotal Phase III study in the second quarter of
1997. This study is a double blind placebo-controlled trial of FGN-1(TM)
(exisulind) being conducted at 12 centers in the U.S., Sweden, the United
Kingdom and Israel. The primary endpoint of the study is the reduction in the
formation of new polyps. The design and endpoints of the study have been
reviewed with the FDA. CPI completed recruitment of 74 patients for this study
on January 15, 1998. CPI initiated another study on January 16, 1998
71
<PAGE> 85
utilizing the identical protocol to the pivotal Phase III study to gather
additional patient data. In addition, CPI is currently enrolling patients with
high rates of recurrence of polyps, who otherwise would have been excluded from
the pivotal Phase III study, in a concurrent study and has commenced a safety
study in pediatric APC patients. CPI anticipates filing an NDA in the first
quarter of 1999 which will seek approval to market FGN-1(TM) (exisulind) for the
prevention of precancerous adenomatous polyps in APC patients. There can be no
assurance that this filing will not be delayed and that the results of the Phase
I/II study will be indicative of results in the Phase III and related studies or
that the results of the Phase III and related studies will show that FGN-1(TM)
(exisulind) is sufficiently safe and effective for the FDA or other regulatory
authorities to grant marketing approval.
CPI has been granted Fast Track designation for FGN-1(TM) (exisulind) for
the reduction in development of new polyps in patients with APC. The Fast Track
Program is a new mechanism, introduced in the FDA Modernization Act of 1997, for
facilitating the development and expediting the approval of drugs that
demonstrate the potential to address unmet medical needs for serious and
life-threatening conditions. This mechanism builds upon existing FDA programs
for accelerated approval.
Patients with APC are usually managed by gastroenterologists and colorectal
surgeons. There are approximately 9,500 gastroenterologists and 1,000 colorectal
surgeons in the U.S. CPI believes that a subset of these physicians treats a
significant number of APC patients and CPI intends to focus its marketing
efforts on these physicians.
Sporadic Adenomatous Colonic Polyps. Sporadic adenomatous colonic polyps
are relatively common precancerous lesions occurring in the large intestine.
These polyps are histologically, microscopically and genetically
indistinguishable from the polyps of APC.
More than 30% of people in the U.S. over the age of 50 have sporadic
adenomatous colonic polyps. Most of these people will develop only one or two
polyps and once the polyps are removed will not require significant ongoing
medical attention. There are, however, subgroups of people at higher than usual
risk of developing colorectal cancer who should be monitored frequently. These
patients include people with close relatives that have had colorectal cancer,
people over age 60 and people with multiple polyps or polyps which are large or
severely dysplastic or which recur frequently. CPI is targeting these patients
for clinical studies and chemopreventive therapy.
The American Cancer Society, American College of Gastroenterology, American
Gastroenterological Association and other expert organizations recommend that
all people over the age of 50 be screened for precancerous colonic polyps and
colon cancer. This recommendation is not followed universally and, as a result,
a large number of people whose polyps have not been detected are at risk of
developing colon cancer. The procedure for screening for sporadic adenomatous
colonic polyps is an endoscopic examination of the lower part of the large
intestine. This procedure, a sigmoidoscopy, is performed by gastroenterologists,
internists and other physicians. For more extensive and invasive examination of
patients who have had polyps detected by sigmoidoscopy and for the treatment of
sporadic adenomatous colonic polyps, a colonoscopy is performed, usually by a
gastroenterologist.
In September 1997, CPI completed a two-month Phase IB safety and
pharmacokinetic study in 18 patients who had a history of either sporadic
adenomatous colonic polyps and/or cervical dysplasia. CPI has initiated a
multi-center, pivotal Phase II/III study in sporadic colonic polyps. The first
study, initiated in December 1997, is a double-blind, placebo-controlled study
to evaluate the safety and efficacy of different doses of FGN-1(TM) (exisulind)
in the treatment of existing sporadic adenomatous colonic polyps. CPI may need
to conduct further concurrent studies of safety and pharmacokinetics.
Gastroenterologists and colorectal surgeons are primarily responsible for
performing colonoscopies and managing treatment of individuals who have sporadic
adenomatous colonic polyps. There are approximately 10,500 of these physicians
in the U.S. This target audience of physicians builds on and overlaps with the
group of physicians who treat APC and is a logical extension of CPI's planned
marketing and sales efforts.
Barrett's Esophagus. Barrett's Esophagus is a precancerous condition of
the lower esophagus characterized by progressive and readily identifiable
changes in the appearance of the lining of the esophagus or
72
<PAGE> 86
esophageal epithelium. Some patients experience reflux of stomach acid into the
esophagus, exacerbating the condition. Patients with Barrett's Esophagus have 30
to 40 times greater risk of developing esophageal cancer than the average
person. Treatment with anti-acid therapy or other anti-reflux measures is
usually not effective. Approximately one percent of the U.S. population, or an
estimated 2,000,000 people, have Barrett's Esophagus, but only one-half of this
group experiences symptoms that could lead to diagnosis.
In the fourth quarter of 1998, CPI plans to initiate a 12-month Phase II
study in patients with Barrett's Esophagus to evaluate the safety and efficacy
of FGN-1(TM) (exisulind). CPI's proposed clinical endpoints are reduction in the
area affected or in the degree of dysplasia found in the affected tissues.
Barrett's Esophagus is diagnosed by upper gastrointestinal endoscopy, a
procedure usually performed by gastroenterologists. Treatment is usually managed
by gastroenterologists or by thoracic surgeons, of whom there are approximately
2,000 in the U.S. Because of the significant overlap between the physician
groups who treat Barrett's Esophagus with those who treat APC and sporadic
adenomatous colonic polyps, CPI does not anticipate that any significant
increase in the sales and marketing organization will be required to promote
products for Barrett's Esophagus.
Bronchial Dysplasia. Bronchial dysplasia is a precancerous condition of
the lower respiratory tract characterized by progressive and readily
identifiable changes in the appearance of the lining of the bronchi of the lung
or bronchial epithelium. In the bronchial epithelium, smoking may initiate a
multi-step process that first appears histologically as dysplasia or metaplasia,
a biological precursor to lung cancer. Two-thirds of heavy smokers may develop
these precancerous lesions.
In the fourth quarter of 1998, CPI plans to initiate a Phase II/III study
in patients with bronchial dysplasia to evaluate the safety and efficacy of
FGN-1(TM) (exisulind). CPI's proposed clinical endpoints are reduction in the
area affected or in the degree of dysplasia found in the affected tissues.
Pulmonary specialists and thoracic surgeons are primarily responsible for
performing bronchoscopies and managing treatment of individuals who have
bronchial dysplasia. There are approximately 8,400 of these physicians in the
U.S. If CPI develops products to treat bronchial dysplasia, CPI anticipates
marketing these products directly to these focused physicians groups.
Cervical Dysplasia. Cervical dysplasia is a relatively common precancerous
lesion of the cervix that is easily diagnosed by Pap smears. Fifty million Pap
smears are performed each year in the U.S., of which approximately five percent
reveal some form of cervical dysplasia. Although very few cases of cervical
dysplasia progress to cancer, it is estimated that in 1997 there were
approximately 15,000 new cases of cervical cancer in the U.S.
In September 1997, CPI completed a two-month Phase IB safety and
pharmacokinetic study in 18 patients who had a history of sporadic adenomatous
colonic polyps and/or cervical dysplasia. CPI is designing a six-month Phase II
study to evaluate the safety and efficacy of different doses of FGN-1(TM)
(exisulind) in reducing the size of the area affected by and degree of
dysplasia.
Treatment of cervical dysplasia, especially those cases with more severe
dysplasia or recurrence, is usually performed by gynecologists, of whom there
are approximately 36,000 in the U.S. If CPI determines to pursue this market,
CPI anticipates seeking a marketing partner for sales to this large physician
market.
Clinical Development of FGN-1(TM) (exisulind) for Cancerous
Lesions. Laboratory studies have demonstrated that FGN-1(TM) (exisulind)
arrests or slows the progression of certain cancerous lesions. Based on the
safety profile of FGN-1(TM) (exisulind) and its novel mechanism of activity, CPI
believes that FGN-1(TM) (exisulind) may be clinically useful in augmenting
radiation and conventional chemotherapy in the treatment of cancers and the
prevention of recurrence. CPI believes that cancer cells that are resistant to
radiation or conventional chemotherapy may be killed by FGN-1(TM) (exisulind)
due to its effect on an apoptotic mechanism that is different from that targeted
by conventional therapies.
CPI has initiated certain studies and is planning additional clinical
studies in specific cancer indications, using the safety and pharmacokinetic
data from its APC and sporadic colonic adenomatous polyp/cervical dysplasia
studies to support the initiation of Phase II or Phase II/III studies. CPI has
expanded the trials
73
<PAGE> 87
covered under its existing IND for FGN-1(TM) (exisulind) to cover these
additional indications. Results of earlier clinical trials of FGN-1(TM)
(exisulind) in the treatment of APC may not be predictive of the results that
may be obtained from trials of FGN-1(TM) (exisulind) in the treatment of cancer.
Prostate Cancer. It is estimated that in 1997 there were approximately
209,000 new cases of prostate cancer in the U.S. In in vitro and in vivo
studies, CPI has observed that FGN-1(TM) (exisulind) inhibits growth of prostate
cancer, including one such cancer that is resistant to conventional
chemotherapeutic drugs. CPI initiated a Phase II/III clinical study for prostate
cancer recurrence in December 1997. This study involves men who have had a
prostatectomy and have rising PSA levels, which is often a sign of recurrent
prostate cancer that is not detectable by current imaging or diagnostic methods.
The endpoint of this study is the arrest or delay in the elevation of PSA.
Depending on the results of this study, CPI anticipates additional clinical
studies to confirm the efficacy of the compound.
Prostate cancer is commonly diagnosed and treated by urologists, of whom
there are approximately 10,000 in the U.S. Oncologists, of whom there are 5,500
in the U.S., manage the chemotherapeutic treatment of prostate cancer. If CPI
develops products to treat prostate cancer, CPI anticipates marketing these
products directly to urologists and oncologists.
Breast cancer. It is estimated that in 1997 there were approximately
185,000 new cases of breast cancer in the U.S. CPI has observed that FGN-1(TM)
(exisulind) and other CPI compounds show dose-related inhibitory effects in
several in vitro breast cancer cell systems, in in vivo chemically-induced
cancer models and in in vitro studies with primary breast cancer tissues removed
from patients. In February 1998, CPI initiated a Phase II/III study to evaluate
the safety and efficacy of FGN-1(TM) (exisulind) in the prevention of recurrence
of breast cancer in women who have not responded to traditional recurrence
prevention, such as tamoxifen, and who are in remission after having been
treated with conventional chemotherapeutic agents.
Gynecologists usually diagnose breast cancer, while oncologists manage the
chemotherapeutic treatment. If CPI develops any products to treat breast cancer,
CPI anticipates marketing these products to oncologists.
Lung Cancer. It is estimated that in 1997 there were approximately 177,000
new cases of lung cancer in the U.S. FGN-1(TM) (exisulind) has shown positive
results in the prevention of chemically-induced lung cancer in rodents. CPI
commenced a pilot study of the safety and efficacy of FGN-1(TM) (exisulind) in
patients with advanced lung cancer in December 1997. The results of this
exploratory study will determine CPI's plans for further studies.
Lung cancer may be diagnosed by general practitioners or internists.
Oncologists manage the chemotherapeutic treatment of lung cancer. If CPI
develops products to treat lung cancer, CPI anticipates marketing these products
directly to oncologists.
NATIONAL CANCER INSTITUTE AND OTHER THIRD-PARTY ARRANGEMENTS
Pursuant to a Clinical Trials Agreement entered into in 1994, the NCI
agreed to sponsor human clinical trials (including but not limited to safety and
efficacy testing) of FGN-1(TM) (exisulind) for at least two precancer
indications. The first indication is colonic adenomas, including APC. The NCI
sponsored a portion of the Phase I/II clinical study for APC that CPI concluded
in January 1997. The NCI has the right to conduct as many additional clinical
trials as it would like and CPI is obligated to provide FGN-1(TM) (exisulind)
for such studies. The Clinical Trials Agreement expires on July 1, 1999 unless
extended by both parties, and is subject to unilateral termination on sixty
days' notice by either party, subject in both cases to completion of clinical
trials that have been agreed to or are ongoing. CPI has retained all commercial
rights to FGN-1(TM) (exisulind), and the agreement with the NCI contains no
provisions for royalties or restrictions on CPI's ability to commercialize
FGN-1(TM) (exisulind).
CPI has also entered into an amendment of the Clinical Trials Agreement
with the NCI to permit the NCI to conduct preclinical testing and, if agreed
with CPI, clinical testing of three additional CPI compounds. CPI believes that
continued collaboration with the NCI will advance the progress of both CPI and
the NCI in developing therapies to treat precancerous lesions in a variety of
tissues.
74
<PAGE> 88
In June 1991, CPI entered into a Research and License Agreement with the
University of Arizona (the "University"). Under the agreement, CPI has agreed to
attempt to commercialize at least one product while the University has agreed to
conduct a research program in support of CPI's efforts. The agreement, as
amended, provides for CPI to establish a budget for the research program with
the University on an annual basis and for CPI to be licensed under all patents
based on inventions developed by the University's employees in conjunction with
CPI. CPI has agreed to pay to the University a royalty based on sales of
products, if any, based on each such patent. The agreement expires on June 26,
2000 unless extended by both parties, and is subject to termination by CPI upon
thirty days' notice.
CPI contracts with a number of university-based researchers and commercial
vendors throughout the U.S., Europe and Israel who furnish additional cell
biology studies, in vivo pharmacological studies, in vivo drug candidate
screening and animal toxicological studies and scale-up and synthesis of
promising new compounds. CPI retains all exclusive rights to commercialize the
inventions and discoveries that result from these collaborations.
SCIENTIFIC ADVISORY BOARD
CPI is assisted in its research and development activities by its
Scientific Advisory Board ("SAB") composed of physicians and scientists who
review CPI's research and development, participate in the design of clinical
trials, discuss technological advances relevant to CPI and its business and
otherwise assist CPI. The members of the SAB are appointed by CPI's management.
The SAB meets periodically and certain members meet in smaller groups or with
CPI individually as needed. Dr. Rifat Pamukcu, CPI's Chief Scientific Officer
and Senior Vice President, Research and Development, served as co-chair of CPI's
SAB prior to joining CPI in 1993, and continues to participate in all SAB
meetings. SAB members are compensated in cash and stock options for their
services to CPI. CPI also reimburses each member for expenses incurred when
traveling to and attending meetings. All SAB members have commitments or
consulting contracts with other organizations and companies, some of which are
competitors or potential competitors of CPI, that may limit their availability
to CPI. None of these individuals is expected to devote more than a small
portion of his time to CPI. The members of the SAB are listed below by area of
specialization.
75
<PAGE> 89
SCIENTIFIC ADVISORY BOARD
<TABLE>
<CAPTION>
NAME PROFESSIONAL AFFILIATION
- ---- -----------------------------------------------------------------
<S> <C>
CELLULAR & ANIMAL RESEARCH
Dennis Ahnen, M.D.................... Professor of Medicine, University of Colorado School of Medicine;
Director of Cancer Prevention and Control, University of Colorado
Cancer Center
David M. Livingston, M.D............. Emil Frei Professor of Medicine, Harvard Medical School; Chief of
the Division of Neoplastic Disease Mechanisms and Chairman of the
Executive Committee for Research, Dana-Farber Cancer Institute
Alan C. Sartorelli, Ph.D............. Alfred Gilman Professor of Pharmacology and Epidemiology, Yale
University School of Medicine; formerly Director of Yale
Comprehensive Cancer Center
CLINICAL & DRUG DEVELOPMENT
David S. Alberts, M.D................ Associate Dean of Research, Director of Cancer Prevention and
Control Program, and Professor of Medicine and Pharmacology,
Arizona Cancer Center, University of Arizona
Randall W. Burt, M.D. (Chairman)..... Professor of Internal Medicine and Chief of Gastroenterology,
University of Utah School of Medicine; formerly Chief of Medical
Services, Veterans Administration Medical Center, Salt Lake City,
Utah
Daniel D. Von Hoff, M.D.............. Director of the Institute for Drug Development, Cancer Therapy
and Research Center at the University of Texas Health Science
Center
INDUSTRY RESEARCH & DEVELOPMENT
Ira Ringler, Ph.D.................... Pharmaceutical industry consultant; formerly President
Takeda-Abbott Pharmaceuticals, and Vice President, Pharmaceutical
Research and Development, Abbott Laboratories
</TABLE>
PATENTS AND PROPRIETARY TECHNOLOGY
CPI's success will depend, in part, on its ability to obtain patents,
operate without infringing the proprietary rights of others and maintain trade
secrets, both in the U.S. and other countries. Patent matters in the
pharmaceutical industry can be highly uncertain and involve complex legal and
factual questions. Accordingly, the validity, breadth, and enforceability of
CPI's patents and the existence of potentially blocking patent rights of others
cannot be predicted, either in the U.S. or in other countries.
As of July 1998, CPI held title or exclusive licenses to two issued U.S.
patents and six other pending U.S. patent applications relating to the
therapeutic use of FGN-1(TM) (exisulind) in the treatment of neoplasia,
precancerous lesions and/or other indications. The sulfone derivative of
sulindac, now named exisulind, was described in the scientific and patent
literature over 20 years ago and, as a result, CPI is unable to obtain a
composition of matter patent on FGN-1(TM) (exisulind). Thus, CPI's current
patent rights relating to FGN-1(TM) (exisulind) are limited to a series of
patents and patent applications pertaining to various specific uses of FGN-1(TM)
(exisulind). CPI has also been issued or holds exclusive licenses to 13 foreign
patents (including patents in various European countries, Australia, Canada and
Japan) as well as one other pending patent application in South Korea relating
to the use of FGN-1(TM) (exisulind) in pharmaceutical compositions for the
treatment of neoplasia and/or precancerous lesions. In Europe, CPI's patent
rights relating to FGN-1(TM) (exisulind) are directed to the use of FGN-1(TM)
(exisulind) in the manufacture of pharmaceutical compositions for the treatment
of precancerous lesions. CPI also holds title or exclusive licenses to three
U.S. patents, two U.S. patent applications which have been allowed, 30 other
pending U.S. patent applications, five issued foreign patents and 18 pending
foreign applications on other compounds, or therapeutic methods involving such
compounds, for the treatment of colonic polyps, precancerous lesions, and/or
neoplasia. CPI also has filed a U.S. patent application on methods for screening
compounds for their usefulness in selectively inducing
76
<PAGE> 90
apoptosis involving the ARE. CPI intends to file additional applications, as
appropriate, for patents on new compounds, products, or processes discovered or
developed through application of CPI's technology.
Beyond the patents granted to date, there can be no assurance that CPI will
discover or develop patentable products or processes, that patents will issue
from any of the currently pending patent applications, or that claims granted on
issued patents will be sufficient to protect CPI's technology. Potential
competitors or other researchers in the field may have filed patent
applications, been issued patents, published articles or otherwise created prior
art that could restrict or block CPI's efforts to obtain additional patents.
There also can be no assurance that CPI's issued patents or pending patent
applications, if issued, will not be challenged, invalidated or circumvented or
that the rights granted thereunder will provide proprietary protection or
competitive advantages to CPI. CPI's patent rights also depend on its compliance
with technology and patent licenses upon which its patent rights are based and
upon the validity of assignments of patent rights from consultants and other
inventors that were, or are, not employed by CPI.
In addition, competitors may manufacture and sell CPI's potential products
in those foreign countries where CPI has not filed for patent protection or
where patent protection may be unavailable, not obtainable or ultimately not
enforceable. The ability of such competitors to sell such products in the U.S.
or in foreign countries where CPI has obtained patents is usually governed by
the patent laws of the countries in which the product is sold. In addition, to
the extent that clinical uses of FGN-1(TM) (exisulind) are discovered beyond
those set forth in CPI's patent claims, CPI may not be able to enforce its
patent rights against companies marketing FGN-1(TM) (exisulind) for such other
clinical uses.
The success of CPI also will depend, in part, on CPI not infringing patents
issued to others. Pharmaceutical companies, biotechnology companies,
universities, research institutions, and others may have filed patent
applications or have received, or may obtain, issued patents in the U.S. or
elsewhere relating to aspects of CPI's technology. It is uncertain whether the
issuance of any third-party patents will require CPI to alter its products or
processes, obtain licenses, or cease certain activities. Some third-party
applications or patents may conflict with CPI's issued patents or pending
applications. Such conflict could result in a significant reduction of the
coverage of CPI's issued or licensed patents. In addition, if patents are issued
to other companies which contain blocking, dominating or conflicting claims and
such claims are ultimately determined to be valid, CPI may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If any
licenses are required, there can be no assurance that CPI will be able to obtain
any such licenses on commercially favorable terms, if at all, and if these
licenses are not obtained, CPI might be prevented from pursuing the development
of certain of its potential products. CPI's failure to obtain a license to any
technology that it may require to commercialize its products may have a material
adverse impact on CPI's business, financial condition and results of operations.
Litigation, which could result in substantial costs to CPI, may also be
necessary to enforce any patents issued or licensed to CPI or to determine the
scope and validity of the proprietary rights of others. In this connection,
under the Abbreviated New Drug Application provisions of U.S. law, after four
years from the date marketing approval is granted to CPI by the FDA for a
patented drug, a generic drug company may submit an Abbreviated New Drug
Application to the FDA to obtain approval to market in the U.S. a generic
version of the drug patented by CPI. If approval is given to the generic drug
company, CPI would be required to promptly initiate patent litigation to prevent
the marketing of such a generic version prior to the normal expiration of the
patent. There can be no assurance that CPI's issued or licensed patents would be
held valid by a court of competent jurisdiction. In addition, if competitors of
CPI file patent applications in the U.S. that claim technology also claimed by
CPI, CPI may have to participate in interference proceedings to determine
priority of invention. These proceedings, if initiated by the U.S. Patent and
Trademark Office, could result in substantial cost to CPI, even if the eventual
outcome is favorable to CPI. An adverse outcome with respect to a third party
claim or in an interference proceeding could subject CPI to significant
liabilities, require disputed rights to be licensed from third parties, or
require CPI to cease using such technology, any of which could have a material
adverse effect on CPI's business, financial condition and results of operations.
CPI also relies on trade secrets to protect technology, especially where
patent protection is not believed to be appropriate or obtainable or where
patents have not been issued. CPI attempts to protect its proprietary
77
<PAGE> 91
technology and processes, in part, by confidentiality agreements and assignment
of invention agreements with its employees and confidentiality agreements with
its consultants and certain contractors. There can be no assurance that these
agreements will not be breached, that CPI would have adequate remedies for any
breach, or that CPI's trade secrets will not otherwise become known or be
independently discovered by competitors. Such trade secrets or other
intellectual property of CPI, should they become known to its competitors, could
result in a material adverse effect on CPI's business, financial condition and
results of operations. To the extent that CPI or its consultants or research
collaborators use intellectual property owned by others in their work for CPI,
disputes may also arise as to the rights to related or resulting know-how and
inventions.
COMPETITION
The industry in which CPI competes is characterized by extensive research
and development efforts and rapid technological progress. New developments occur
and are expected to continue to occur at a rapid pace, and there can be no
assurance that discoveries or commercial developments by CPI's competitors will
not render some or all of CPI's potential products obsolete or non-competitive,
which would have a material adverse effect on CPI's business, financial
condition and results of operations. CPI's competitive position also depends on
its ability to attract and retain qualified scientific and other personnel,
develop effective proprietary products, implement development and marketing
plans, obtain patent protection and secure adequate capital resources.
In the fields of cancer therapy and the prevention of precancerous and
cancerous lesions, other products are being developed that may compete directly
with the products that CPI is seeking to develop and market. CPI is aware of
clinical trials in which a number of pharmaceutical and nutritional agents are
being examined for their potential usefulness in the treatment of precancerous
lesions and cancer. These include studies of NSAID-like compounds,
cyclooxygenase inhibitors, difluoromethylornithine ("DFMO") and natural
nutrients in the treatment of APC and sporadic colonic polyps, studies of
retinoids and DFMO in the treatment of cervical dysplasia and studies of
tamoxifen for the prevention of breast cancer. Additional compounds being tested
in various epithelial lesions include compounds related to aspirin, various
vitamins and nutritional supplements, oltipraz, N-acetyl cysteine and compounds
that interfere with hormone activities. The studies are being conducted by
pharmaceutical and biotechnology companies, major academic institutions and
government agencies. There are other agents, including certain prescription
drugs, that have been observed to have an effect on ARE. Although CPI is not
aware that any third party has demonstrated the preclinical utility of these
compounds in the treatment of precancerous or cancerous lesions, there can be no
assurance that such existing or new agents will not ultimately be found to be
useful, and therefore competitive with any future products of CPI.
Near-term competition from fully integrated and more established
pharmaceutical and biotechnology companies is expected. Most of these companies
have substantially greater financial, research and development, manufacturing
and marketing experience and resources than CPI and represent substantial
long-term competition for CPI. Such companies may succeed in discovering and
developing pharmaceutical products more rapidly than CPI or pharmaceutical
products that are safer, more effective or less costly than any that may be
developed by CPI. Such companies also may be more successful than CPI in
production and marketing. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Academic institutions,
governmental agencies and other public and private research organizations also
conduct clinical trials, seek patent protection and establish collaborative
arrangements for the development of oncology products.
CPI will face competition based on product efficacy and safety, the timing
and scope of regulatory approvals, availability of supply, marketing and sales
capability, reimbursement coverage, price and patent position. There can be no
assurance that CPI's competitors will not develop safer and more effective
products or obtain patent protection or intellectual property rights that limit
CPI's ability to commercialize products that may be developed or commercialize
products earlier than CPI. There can be no assurance that CPI's issued patents
or pending patent applications, if issued, will not be challenged, invalidated
or circumvented or that the rights granted thereunder will provide proprietary
protection or competitive advantage to CPI.
78
<PAGE> 92
GOVERNMENT REGULATION
The research, design, testing, manufacturing, labeling, marketing,
distribution and advertising of products such as CPI's proposed products are
subject to extensive regulation by governmental regulatory authorities in the
U.S. and other countries. The drug development and approval process is generally
lengthy, expensive and subject to unanticipated delays. The FDA and comparable
agencies in foreign countries impose substantial requirements on the
introduction of new pharmaceutical products through lengthy and detailed
preclinical and clinical testing procedures, sampling activities and other
costly and time-consuming compliance procedures. A new drug may not be marketed
in the U.S. until it has undergone rigorous testing and has been approved by the
FDA. The drug may then be marketed only for the specific indications, uses,
formulation, dosage forms and strengths approved by the FDA. Similar
requirements are imposed by foreign regulators upon the marketing of a new drug
in their respective countries. Satisfaction of such regulatory requirements,
which includes demonstrating to the satisfaction of the FDA that the relevant
product is both safe and effective, typically takes several years or more
depending upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources. Preclinical studies must be conducted in
conformance with the FDA's GLP regulations. CPI's compounds require extensive
clinical trials and FDA review as new drugs. Clinical trials are vigorously
regulated and must meet requirements for FDA review and oversight and
requirements under GCP guidelines. There can be no assurance that CPI will not
encounter problems in clinical trials which would cause CPI or the FDA to delay
or suspend clinical trials. Any such delay or suspension could have a material
adverse effect on CPI's business, financial condition and results of operations.
The steps required before a drug may be marketed in the U.S. include: (i)
preclinical laboratory and animal tests; (ii) submission to the FDA of an
application for an IND exemption, which must become effective before human
clinical trials may commence; (iii) human clinical trials to establish the
safety and efficacy of the drug; (iv) submission of a detailed NDA to the FDA;
and (v) FDA approval of the NDA. In addition to obtaining FDA approval for each
product, each domestic establishment where the drug is to be manufactured must
be registered with the FDA. Domestic manufacturing establishments must comply
with cGMP regulations and are subject to periodic inspections by the FDA.
Foreign manufacturing establishments manufacturing drugs intended for sale in
the U.S. also must comply with cGMP regulations and are subject to periodic
inspection by the FDA or by local authorities under agreement with the FDA.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the metabolic and pharmacologic activity and potential
safety and efficacy of the product. Preclinical tests must be conducted by
laboratories that comply with FDA regulations regarding GLP. The results of
preclinical tests are submitted to the FDA as part of an IND, which must become
effective before the sponsor may conduct clinical trials in human subjects.
Unless the FDA objects to an IND, the IND becomes effective 30 days following
its receipt by the FDA. There is no certainty that submission of an IND will
result in FDA authorization of the commencement of clinical trials.
Clinical trials involve the administration of the investigational drug to
patients. Every clinical trial must be conducted under the review and oversight
of an institutional review board ("IRB") at each institution participating in
the trial. The IRB evaluates, among other things, ethical factors, the safety of
human subjects and the possible liability of the institution. Clinical trials
typically are conducted in three phases, which generally are conducted
sequentially, but which may overlap. Clinical trials test for efficacy and
safety, side effects, dosage, tolerance, metabolism and clinical pharmacology.
Phase I tests involve the initial introduction of the drug to a small group of
subjects to test for safety, dosage tolerance, pharmacology and metabolism.
Phase II trials involve a larger but still limited patient population to
determine the efficacy of the drug for specific indications, to determine
optimal dosage and to identify possible side effects and safety risks. If a drug
appears to be efficacious in Phase II evaluations, larger-scale Phase III trials
are undertaken to evaluate the safety and effectiveness of the drug, usually,
though not necessarily, in comparison with a placebo or an existing treatment.
There can be no assurance, however, that Phase I, Phase II or Phase III testing
will be completed successfully within any specified time period, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it decides that
patients are being exposed to a significant health risk.
79
<PAGE> 93
The results of the preclinical studies and clinical trials are submitted to
the FDA as part of an NDA for approval of the marketing of the drug. The NDA
also includes information pertaining to the chemistry, formulation and
manufacture of the drug and each component of the final product, as well as
details relating to the sponsoring company. The NDA review process takes from
one to two years on average to complete, although reviews of treatments for
cancer and other life-threatening diseases may be accelerated. However, the
process may take substantially longer if the FDA has questions or concerns about
a product. In general, the FDA requires at least two adequate and
well-controlled clinical studies demonstrating efficacy in order to approve an
NDA. The FDA may, however, request additional information, such as long-term
toxicity studies or other studies relating to product safety. Notwithstanding
the submission of such data, the FDA ultimately may decide that the application
does not satisfy its regulatory criteria for approval. Finally, the FDA may
require additional clinical tests following NDA approval.
There can be no assurance that the drugs CPI is seeking to develop will
prove to be safe and effective in treating or preventing cancer. The development
of such drugs will require the commitment of substantial resources to conduct
the preclinical development and clinical trials necessary to bring such
compounds to market. Drug research and development by its nature is uncertain.
There is a risk of delay or failure at any stage, and the time required and cost
involved in successfully accomplishing CPI's objectives cannot be predicted.
Actual drug research and development costs could exceed budgeted amounts, which
could have a material adverse effect on CPI's business, financial condition and
results of operations.
CPI cannot predict when, if ever, it might submit for regulatory review
additional compounds currently under development. Once CPI submits its potential
products for review, there can be no assurance that the FDA or other regulatory
approvals for any pharmaceutical products developed by CPI will be granted on a
timely basis, if at all. The FDA and comparable agencies in foreign countries
impose substantial requirements on the introduction of new pharmaceutical
products through lengthy and detailed preclinical and clinical testing
procedures, sampling activities and other costly and time-consuming compliance
procedures. Clinical trials are vigorously regulated and must meet requirements
for FDA review and oversight and requirements under GCP guidelines. A new drug
may not be marketed in the U.S. until it has been approved by the FDA. There
also can be no assurance that CPI will not encounter delays or rejections or
that the FDA will not make policy changes during the period of product
development and FDA regulatory review of each submitted NDA. A delay in
obtaining or failure to obtain such approvals would have a material adverse
effect on CPI's business, financial condition and results of operations. Even if
regulatory approval is obtained, it would be limited as to the indicated uses
for which the product may be promoted or marketed. A marketed product, its
manufacturer and the facilities in which it is manufactured are subject to
continual review and periodic inspections. If marketing approval is granted, CPI
would be required to comply with FDA requirements for manufacturing, labeling,
advertising, record keeping and reporting of adverse experiences and other
information. In addition, CPI would be required to comply with federal and state
anti-kickback and other health care fraud and abuse laws that pertain to the
marketing of pharmaceuticals. Failure to comply with regulatory requirements and
other factors could subject CPI to regulatory or judicial enforcement actions,
including, but not limited to, product recalls or seizures, injunctions,
withdrawal of the product from the market, civil penalties, criminal
prosecution, refusals to approve new products and withdrawal of existing
approvals, as well as enhanced product liability exposure, any of which could
have a material adverse effect on CPI's business, financial condition and
results of operations. Sales of CPI's products outside the U.S. will be subject
to foreign regulatory requirements governing clinical trials, marketing
approval, manufacturing and pricing. Non-compliance with these requirements
could result in enforcement actions and penalties or could delay introduction of
CPI's products in certain countries.
CPI's current clinical trial strategy for the development of drugs for the
prevention of precancerous lesions assumes that the FDA will accept reduction in
the formation of precancerous lesions as an endpoint for precancer trials. To
date, the FDA has not approved any chemoprevention compounds and there can be no
assurance that the FDA will approve such compounds in the future. Should the FDA
require CPI to demonstrate the efficacy of FGN-1(TM) (exisulind) in the
reduction of certain cancers or in overall mortality rates resulting from
certain cancers, CPI's clinical trial strategy would be materially and adversely
affected, as significant additional time and funding would be required to
demonstrate such efficacy. There can be no
80
<PAGE> 94
assurance that CPI will be able to successfully develop a safe and efficacious
chemoprevention product or that such product will be commercially viable or will
achieve market acceptance.
In 1988 and again in 1992, the FDA issued regulations intended to expedite
the development, evaluation and marketing of new therapeutic products to treat
life-threatening and severely debilitating illnesses for which no satisfactory
alternative therapies exist. One program under these regulations provides for
early consultation between the sponsor and the FDA in the design of both
preclinical studies and clinical trials. Another program provides for
accelerated approval based on a surrogate endpoint. There can be no assurance,
however, that any future products CPI may develop will be eligible for
evaluation by the FDA under these regulations. In addition, there can be no
assurance that FGN-1(TM) (exisulind) or any future products CPI may develop, if
eligible for these programs, will be approved for marketing sooner than would be
traditionally expected. Regulatory approval granted under these regulations may
be restricted by the FDA as necessary to ensure the safe use of the drug. In
addition, post-marketing clinical studies may be required. If FGN-1(TM)
(exisulind) or any future products of CPI do not perform satisfactorily in such
post-marketing clinical studies, they would likely be required to be withdrawn
from the market.
CPI has obtained Orphan Drug status for FGN-1(TM) (exisulind) for the
treatment of APC. Although Orphan Drug status may provide an applicant exclusive
marketing rights in the U.S. for a designated indication for seven years
following marketing approval, in order to obtain such benefits, the applicant
must be the sponsor of the first NDA approved for that drug and indication.
Moreover, amendment of the Orphan Drug Act by the U.S. Congress and
reinterpretation by the FDA are frequently discussed. Therefore, there can be no
assurance as to the precise scope of protection that may be afforded by Orphan
Drug status in the future, or that the current level of exclusivity will remain
in effect.
CPI has been granted Fast Track designation by the FDA for FGN-1(TM)
(exisulind) for the reduction in development of new polyps in patients with APC.
The Fast Track Program is a new mechanism, introduced in the FDA Modernization
Act of 1997, for facilitating the development and expediting the approval of
drugs that demonstrate the potential to address unmet medical needs for serious
and life-threatening conditions. This mechanism builds upon existing FDA
programs for accelerated approval of such drugs. Among other things, the Fast
Track provisions provide for rolling review of the marketing application for the
Fast Track drug, so that portions of the application can be submitted and
reviewed by FDA before the complete application is submitted, which can help to
accelerate FDA review. However, there can be no assurance that FGN-1(TM)
(exisulind) will be approved for marketing sooner than would be traditionally
expected. In addition, the FDA may require post-marketing studies for a Fast
Track drug. If such studies were required as a condition of approval of
FGN-1(TM) (exisulind) and the studies showed that FGN-1(TM) (exisulind) is not
safe or effective or failed to demonstrate any clinical benefit, it is likely
that FGN-1(TM) (exisulind) would be required to be withdrawn from the market for
such indication.
In most cases, pharmaceutical companies rely on patents to provide market
exclusivity for the periods covered by the patents. See "-- Patents and
Proprietary Technology." In the U.S., the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Hatch-Waxman Act") permits an extension of patents
in certain cases to compensate for patent time expended during clinical
development and FDA review of a drug. In addition, the Hatch-Waxman Act
establishes a period of market exclusivity, independent of any patents, during
which the FDA may not accept or approve abbreviated applications for generic
versions of the drug from other sponsors, although the FDA may accept and
approve subsequent long-form applications for the drug. The applicable period of
market exclusivity for a drug containing an active ingredient not previously
approved is five years. There is no assurance that all or any of CPI's products,
if approved, will receive market exclusivity under the Hatch-Waxman Act. Failure
to receive such exclusivity could have an adverse effect on CPI's business,
financial condition and results of operations.
Among the requirements for product approval is the requirement that
prospective manufacturers conform to the FDA's cGMP standards, which also must
be observed at all times following approval. Accordingly, manufacturers must
continue to expend time, money and effort in production, record keeping and
quality control to ensure compliance with cGMP standards. Failure to so comply
subjects the manufacturer to
81
<PAGE> 95
possible FDA action, such as the suspension of manufacturing or seizure of the
product. The FDA may also request a voluntary recall of a product.
Health care reform legislation, if enacted, could result in significant
change in the financing and regulation of the health care business. In addition,
legislation affecting coverage and reimbursement under Medicare, Medicaid and
other government medical assistance programs has been enacted from time to time.
CPI is unable to predict whether such legislation will be enacted in the future
or, if enacted, the effect of such legislation on the future operation of CPI's
business. Changes adversely affecting drug pricing, drug reimbursement and
prescription benefits, among other changes, could have a materially adverse
effect on CPI's business, financial condition and results of operations.
MANUFACTURING
CPI currently has no manufacturing facilities for clinical or commercial
production of any of its compounds under development. CPI is currently relying
on third-party manufacturers to produce its compounds for research and clinical
purposes. Therefore, CPI will need to develop its own facilities or contract
with third parties for the manufacture of products, if any, that it may develop
for its own account or in connection with collaborative arrangements in which it
has retained manufacturing rights.
CPI is working with a manufacturer of pharmaceutical chemicals for the
supply of FGN-1(TM) (exisulind) in bulk form. In its most recent FDA inspection,
this manufacturer was found to adhere to cGMP regulations. Several batches of
FGN-1(TM) (exisulind) drug substance have been delivered by the manufacturer to
CPI at a scale suitable for commercial use and are currently being used in CPI's
pivotal Phase III APC study. This manufacturer has the capacity to supply CPI's
current and foreseeable future requirements for FGN-1(TM) (exisulind) and is
currently in discussions with CPI to provide for the long-term supply of
FGN-1(TM) (exisulind).
CPI is also working with a contract manufacturer to manufacture FGN-1(TM)
(exisulind) in its final pharmaceutical dosage form. Manufacturing methods have
been transferred to and developed with this contractor. Capsules used in the
current pivotal Phase III APC study are made by this manufacturer at a scale
suitable for commercialization, substantially reducing the need for further
bioequivalency studies. At this time, CPI is negotiating a formal, commercial
supply agreement with this manufacturer.
MARKETING AND SALES
CPI has to date retained all rights to FGN-1(TM) (exisulind) and its other
compounds and plans to establish its own sales, marketing and distribution
organization. CPI plans to promote FGN-1(TM) (exisulind), if approved for sale,
primarily to the gastroenterologists and other physicians who manage patients
with APC, sporadic adenomatous colonic polyps and Barrett's Esophagus. These
initial markets are treated by approximately 10,500 physicians, a relatively
small target audience. If CPI receives additional FDA approvals for FGN-1(TM)
(exisulind), CPI may expand its sales and marketing team to reach other targeted
groups of physicians. Target groups would include the approximately 10,000
urologists who manage most prostate cancer patients, the approximately 8,400
pulmonary specialists and thoracic surgeons who are primarily responsible for
performing bronchoscopies and managing treatment of individuals with bronchial
dysplasia and the approximately 5,500 oncologists who manage cancer therapy
patients.
Certain indications, based on their treatment by a large number of
physicians, require an extensive sales force to sufficiently reach the
appropriate physician groups. Cervical dysplasia, for example, is treated by
approximately 36,000 gynecologists. To reach these more extensive physician
groups, CPI may, if appropriate, enter into co-marketing agreements with
pharmaceutical or biotechnology companies.
CPI anticipates marketing its products in Europe by entering into strategic
alliance agreements with established sales organizations located in such
markets, and CPI is currently in preliminary discussions with several such
parties. In Japan and other Pacific Rim countries, CPI is seeking marketing
partners to assist in local clinical trials, regulatory filings and marketing,
sales and distribution. While seeking international collaborations, CPI will
continue to pursue the clinical development and the regulatory approval of
FGN-1(TM)
82
<PAGE> 96
(exisulind) in major international markets. See "Risk Factors -- Risk Factors
Related to the Business and Operations of CPI -- Absence of Sales and Marketing
Experience; Dependence on Third Parties".
EMPLOYEES
As of June 30, 1998, CPI employed 37 persons full-time. CPI places an
emphasis on obtaining the highest available quality of staff. None of CPI's
employees is covered by collective bargaining arrangements and management
considers relations with its employees to be good.
FACILITIES
CPI leases approximately 40,000 square feet of laboratory and office space
in Horsham, Pennsylvania. This ten-year lease expires in 2008 and has two
five-year renewal options. CPI is currently in the process of consolidating its
operations in this facility and expects to complete such consolidation in July
1998. In June 1998, CPI completed a financing transaction with a public Real
Estate Investment Trust ("REIT") whereby CPI now leases the facility from the
REIT. In connection therewith, in June 1998, CPI received a one-time payment of
$3 million toward improvements previously made and to be made to such facility
for laboratories and office space. Also, CPI leases approximately 7,900 square
feet in Aurora, Colorado, split evenly between laboratory and office space. This
lease expires in June 1999. CPI will transfer all operations in the Aurora
facility at the end of July 1998 and consolidate into the Horsham facility.
LEGAL PROCEEDINGS
CPI is not a party to any legal proceedings.
83
<PAGE> 97
CPI AND CPHI SELECTED FINANCIAL INFORMATION
The following tables set forth certain selected financial data of CPI and
CPHI. This data is derived from and should be read in conjunction with, and is
qualified in its entirety by, the financial statements, including the notes
thereto, of CPI appearing elsewhere in this Joint Proxy Statement/Prospectus.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of results to be expected for the full year of any future
period. No cash dividends have ever been declared or paid on CPI Common Stock.
The selected financial data set forth below should be read in conjunction with
the financial statements, including the notes attached thereto, and "CPI
Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the "Unaudited Pro Forma Condensed Consolidated Financial
Information".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CPI STATEMENT OF OPERATIONS
DATA:
Expenses:
Research and development..... $ 1,623 $ 2,429 $ 2,575 $ 4,163 $ 8,757 $ 3,224 $ 6,898
General and administrative... 698 705 644 663 950 342 1,966
Provision for redemption of
CPI Redeemable Preferred
Stock...................... -- -- -- -- 1,017 -- --
--------- --------- --------- --------- ---------- --------- ----------
Total expenses............. 2,321 3,134 3,219 4,826 10,724 3,566 8,864
Interest income................ 52 24 28 91 427 123 244
--------- --------- --------- --------- ---------- --------- ----------
Net loss....................... $ (2,269) $ (3,110) $ (3,191) $ (4,735) $ (10,297) $ (3,443) $ (8,620)
========= ========= ========= ========= ========== ========= ==========
Net loss per common share(1)... $ (1.00) $ (1.36) $ (1.39) $ (1.83) $ (3.63) $ (1.27) $ (2.88)
========= ========= ========= ========= ========== ========= ==========
Shares used in computing net
loss per common share........ 2,279,500 2,291,306 2,296,167 2,587,552 2,838,814 2,718,845 2,990,095
========= ========= ========= ========= ========== ========= ==========
Pro forma net loss per common
share(2)..................... $ (.82) $ (.55)
========== ==========
Shares used in computing pro
forma net loss per common
share........................ 12,601,942 15,586,473
========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------------
CPHI CPHI
PRO FORMA PRO FORMA
DECEMBER 31, BEFORE AFTER
-------------------------------------------------- CPI TSENG MERGER TRANSACTIONS
1993 1994 1995 1996 1997 ACTUAL (3) (4)
------- ------- -------- -------- -------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents......... $ 1,335 $ 605 $ 2,203 $ 645 $ 8,461 $ 20,349 $ 20,020 $ 44,789
Working capital
(deficiency)........ 613 (294) 835 (507) 5,383 18,747 18,418 42,143
Total assets.......... 1,396 704 2,330 1,106 10,980 22,332 22,003 50,230
Notes payable......... -- -- 94 111 62 -- -- --
Redeemable Preferred
Stock............... 1 1 1 1 1,092 1,092 -- --
Accumulated deficit... (4,651) (7,761) (10,952) (15,688) (25,985) (34,605) (34,605) (34,605)
Total stockholders'
equity (deficit).... 660 (242) 901 (180) 6,622 19,200 19,963 46,171
Book value (deficit)
per common share
(5)................. (2.59) (3.92) (5.31) (6.28) (8.85) (11.95) 1.06 1.91
</TABLE>
- ---------------
(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of net loss per common share.
(2) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per common share.
(3) Includes the (i) conversion of all shares of outstanding CPI Series A, B, C,
D, E, F and G Preferred Stock into the rights to receive 15,614,266 shares
of CPHI Common Stock, (ii) redemption of all shares
84
<PAGE> 98
of the CPI Redeemable Preferred Stock for $546,000 of cash consideration and
82,732 shares of CPI Common Stock and (iii) the exercise of all warrants to
purchase Series E Preferred Stock into 69,044 shares of CPI Series E Preferred
Stock at $3.15 per share which will be converted into the same number of
shares of CPHI Common Stock. All of the shares of CPI Common Stock then
outstanding will be converted into the same number of shares of CPHI Common
Stock. See "The Transactions" and "Unaudited Pro Forma Condensed
Consolidated Financial Information."
(4) Includes the sale of 5,477,614 shares of CPHI Common Stock in exchange for
Tseng's cash and other net assets less estimated transactions costs of
approximately $1,700,000 consisting principally of investment banking and
other professional fees and the payment of $640,000 related to severance to
be triggered by the Transactions to be paid to Tseng employees after
consummation of the Transactions. The pro forma information is subject to
the assumptions set forth in the notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information appearing elsewhere in this Joint Proxy
Statement/Prospectus. See "The Transactions" and "Unaudited Pro forma
Condensed Consolidated Financial Information."
(5) Book value per common share is computed by dividing stockholders' equity
(deficit) less the Series A, B, C, D, E, F and G Preferred Stock at the
higher of stated, redemption or liquidation value, as well as the increase
of the Redeemable Preferred Stock to redemption value by the number of
shares of CPI Common Stock outstanding. Pro forma book value per common
share is computed by dividing stockholders' equity by the pro forma number
of estimated shares of Common Stock outstanding at December 31, 1997 and
June 30, 1998, respectively. The calculations exclude Common Stock
equivalents as they would be anti-dilutive. The equivalent book deficit per
Common share is $(24.38) and $(32.92) as of December 31, 1997 and June 30,
1998, respectively. The pro forma equivalent book value per common share is
$2.93 and $5.25 per share before the Tseng Merger and after the
Transactions, respectively. The equivalent amounts are computed by dividing
the book and pro forma book value (deficit) by the Tseng Exchange Ratio.
85
<PAGE> 99
CPI AND CPHI CAPITALIZATION
The following table sets forth the CPI Actual, CPHI Pro Forma Before Tseng
Merger and CPHI Pro Forma After Transactions capitalization of CPHI as of June
30, 1998 (see "The Reorganization Agreement"). The financial data presented
below should be read in conjunction with the Unaudited Pro Forma Condensed
Consolidated Financial Information and the Notes thereto, CPI's Financial
Statements and the Notes thereto, "CPI Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein and the other financial
data included elsewhere in this Joint Proxy/Prospectus and incorporated herein
by reference.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------------
CPHI CPHI
PRO FORMA PRO FORMA
CPI BEFORE AFTER
ACTUAL TSENG MERGER(1) TRANSACTIONS(2)
--------- ---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Redeemable Preferred Stock, $.01 par value, 61,250
shares authorized, issued and outstanding CPI
actual; none issued and outstanding CPHI pro forma
before Tseng Merger and after Transactions.......... $ 1,092 $ -- $ --
-------- -------- --------
Stockholders' Equity:
Preferred Stock, $.01 par value, 18,400,000 shares
authorized and 15,614,266 shares issued and
outstanding CPI actual; 5,000,000 shares
authorized and none outstanding CPHI pro forma
before Tseng Merger and after Transactions....... 53,571 -- --
Common Stock, $.01 par value, 22,400,000 shares
authorized and 2,990,095 shares issued and
outstanding CPI actual; 70,000,000 authorized and
18,756,137 shares issued and outstanding CPHI pro
forma before Tseng Merger and 24,233,751 issued
and outstanding CPHI pro forma after
Transactions(3).................................. 30 188 243
Additional paid-in capital.......................... 456 54,632 80,785
Stock subscription receivable from issuance of
Preferred Stock.................................. (215) -- --
Stock subscription receivable from issuance of
Common Stock..................................... (37) (252) (252)
Accumulated deficit................................. (34,605) (34,605) (34,605)
-------- -------- --------
Total stockholders' equity....................... 19,200 19,963 46,171
-------- -------- --------
Total capitalization........................... $ 20,292 $ 19,963 $ 46,171
======== ======== ========
</TABLE>
- ---------------
(1) Includes the (i) conversion of all shares of outstanding CPI Series A, B, C,
D, E, F and G Preferred Stock into the rights to receive 15,614,266 shares
of CPHI Common Stock, (ii) redemption of all shares of the CPI Redeemable
Preferred Stock for $546,000 of cash consideration and 82,732 shares of CPI
Common Stock and (iii) the exercise of all warrants to purchase Series E
Preferred Stock into 69,044 shares of CPI Series E Preferred Stock at $3.15
per share which will be converted into the same number of shares of CPHI
Common Stock. Also assumes all of the shares of CPI Common Stock then
outstanding will be converted into the same number of shares of CPHI Common
Stock.
(2) Includes the sale of 5,477,614 shares of CPHI Common Stock in exchange for
Tseng's cash and other net assets less estimated Transactions costs of
approximately $1,700,000 consisting principally of investment banking and
other professional fees and the payment of $640,000 related to severance to
be triggered by the Transactions to be paid to Tseng employees after
consummation of the Transactions. The pro forma information is subject to
the assumptions set forth in the notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information appearing elsewhere in this Joint Proxy
Statement/Prospectus.
(3) Excludes 1,221,255 shares of CPI Common Stock issuable upon the exercise of
outstanding CPI Options, 358,144 shares of CPI Capital Stock issuable upon
the exercise of outstanding CPI Warrants, 745,429 shares of CPI Common Stock
reserved for the future issuance under the CPI 1997 Equity Incentive Plan,
363,141 shares of CPI Common Stock reserved for future issuance under the
CPI 1997 Non-Employee Director Stock Option Plan, 544,710 shares of CPI
Common Stock reserved for future issuance under the CPI Employee Purchase
Plan and 1,463,437 options to acquire Tseng Common Stock which will become
options to acquire 531,422 shares of CPHI Common Stock.
86
<PAGE> 100
CPI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
CPI's financial statements and notes thereto included elsewhere in this Joint
Proxy Statement/Prospectus. When used in this discussion, the word "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
include, but are not limited to, the risks discussed below, the risks discussed
in the section of this Joint Proxy Statement/Prospectus entitled "Risk Factors"
and the risks discussed elsewhere in this Joint Proxy Statement/Prospectus.
OVERVIEW
CPI is a pharmaceutical company focused on the development and
commercialization of products to prevent and treat cancer. From the inception of
CPI's business in partnership form in 1990, CPI's operating activities have
related primarily to conducting research and development activities, raising
capital and recruiting personnel. The business converted from partnership to
corporate form in September 1993. Historically, CPI conducted its business with
few direct employees and many consultants. In the four years leading to the
filing of the IND with the FDA in December 1993, to permit the commencement of
human clinical trials of CPI's first product candidate, FGN-1(TM) (exisulind),
CPI spent a total of $4.6 million. Annual expenses were $3.2 million, $4.8
million and $10.7 million in 1995, 1996 and 1997, respectively. Expenses for the
first six months of 1998 were $8.9 million. In APC, Phase I clinical trials for
FGN-1(TM) (exisulind) began in February 1994; Phase I/II clinical trials began
in August 1995; and Phase III clinical trials were initiated in the second
quarter of 1997. In December 1997, CPI initiated Phase II/III trials of
FGN-1(TM) (exisulind) for sporadic adenomatous colonic polyps and for the
prevention of prostate cancer recurrence as well as a pilot study in lung
cancer. In February 1998, CPI initiated a Phase II/III trial of FGN-1(TM)
(exisulind) for prevention of breast cancer recurrence. CPI also plans to
initiate Phase II trials for the treatment of Barrett's Esophagus and bronchial
dysplasia in 1998.
CPI has not received any revenue from the sale of products, and no product
candidate of CPI has been approved for marketing. Accordingly, CPI's income has
been limited to interest income from investments, and CPI's primary source of
capital has been the sale of equity securities. As of June 30, 1998, CPI's
accumulated deficit was $34.6 million and its cash and investments were $20.3
million. CPI anticipates that it will continue to incur additional operating
losses for the next several years. There can be no assurance that CPI's products
will be approved for marketing, that CPI will attain profitability or, if
profitability is achieved, that CPI will remain profitable on a quarterly or
annual basis in the future.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30,
1997. Total expenses for the six months ended June 30, 1998 were $8.9 million,
an increase of $5.3 million from the same period in 1997. Research and
development expenses for the first half of 1998 were $6.9 million, an increase
of $3.7 million from the same period in 1997. Such increase was primarily due to
increased activities in 1998 associated with the clinical development of
FGN-1(TM) (exisulind), research contracts and consulting expenses associated
with the development of new product candidates, personnel related expenses
associated with expanded in-house activity, and facility expenses for CPI's new
research facility in Horsham, Pennsylvania. General and administrative expenses
were $2.0 million in the first half of 1998, an increase of $1.6 million from
the same period in 1997. Such increase was primarily due to a charge of
approximately $715,000 for expenses related to CPI's initial public offering
which was not undertaken, as well as increases in personnel related activities,
principally salary, travel and recruitment expenses, consulting expenses for
management information systems and public and investor relations, and facility
expenses associated with CPI's new facility.
Interest income was $244,000 in the first half of 1998, an increase of
$121,000 from the same period in 1997 due to higher cash balances in 1998 from
the CPI Series G Preferred Stock financing in April and May 1998 and which
resulted in net proceeds of approximately $21.4 million.
87
<PAGE> 101
Year Ended December 31, 1997 Compared with Year Ended December 31,
1996. Total expenses for the year ended December 31, 1997, were $10.7 million,
an increase of $5.9 million from the same period in 1996. Research and
development expenses in 1997 were $8.8 million, an increase of $4.6 million from
1996. Such increase was primarily due to increased activities with respect to
the clinical development of FGN-1(TM) (exisulind) and cell biology research
related to CPI's technology. General and administrative expenses were $950,000
in 1997, an increase of $287,000 from 1996, primarily due to higher
personnel-related expenses for salaries, travel and recruiting. In the third
quarter of 1997, CPI recorded a provision of $1.0 million for the redemption of
CPI Redeemable Preferred Stock as CPI's preparations for a registration of its
stock made it probable that such redemption would occur.
Interest income was $427,000, an increase of $336,000 from 1996, due to the
higher cash balances resulting from the CPI Series F Preferred Stock financing
that commenced in 1996 and resulted in net proceeds of $17.6 million in 1996 and
1997.
Year Ended December 31, 1996 Compared with Year Ended December 31,
1995. Total expenses for the year ended December 31, 1996 were $4.8 million, an
increase of $1.6 million from the same period in 1995. Research and development
expenses in 1996 were $4.2 million, an increase of $1.6 million from 1995. Such
increase was primarily due to increased activity and related expenses associated
with the pharmaceutical and clinical development of FGN-1(TM) (exisulind),
including the Phase I/II trial of FGN-1(TM) (exisulind) in APC that commenced in
August 1995, increases in staffing and supply of CPI's research laboratory and
third-party research contracts. General and administrative expenses were
$663,000 in 1996, an increase of $19,000 from 1995.
Interest income was $91,000 in 1996, an increase of $63,000 from 1995, due
to the higher cash balances resulting from the continued sale of the CPI Series
E Preferred Stock which commenced in May 1994 and resulted in net proceeds of
$6.5 million during 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
CPI has financed its operations since inception primarily with the net
proceeds received from private placements of equity securities. These placements
generated net proceeds of approximately $53.6 million from inception through
June 30, 1998. Net cash generated by financing activities was $4.3 million, $3.5
million, $17.1 million and $20.5 million in 1995, 1996, 1997 and for the six
months ended June 30, 1998, respectively, primarily reflecting the sale of
equity securities. The CPI Series F Preferred Stock private placement, which
commenced in December 1996 and concluded in June 1997, raised net proceeds $17.6
million. The CPI Series G Preferred Stock private placement in April and May of
1998 raised net proceeds of approximately $21.4 million.
CPI had cash and cash equivalents of $20.3 million (excluding restricted
cash of $401,000) at June 30, 1998. Overall, CPI's cash position increased by
$11.9 million for the six month period ended June 30, 1998 primarily as a result
of the proceeds from the CPI Series G Preferred Stock offering. CPI invests its
excess cash primarily in low risk, highly liquid money market funds and U.S.
government treasuries. As of June 30, 1998, CPI had $401,000 in a restricted
account pledged as security to a letter of credit for the deposit on the
facility lease in Horsham. See "CPI Business -- Facilities".
CPI anticipates that annual expenditures for preclinical studies, clinical
trials, product development, research and general and administrative expenses
will continue to increase in future years. In anticipation of the possible FDA
approval for the marketing of FGN-1(TM) (exisulind), CPI expects to begin
preparing for the commercialization of CPI's first product during the second
half of 1998 and to accelerate such preparation in 1999, adding substantial
additional expense. There can be no assurance, however, that CPI will be able to
successfully complete the clinical development of FGN-1(TM) (exisulind) for APC
or any other indication, that the FDA will grant approvals within the time
frames expected, if at all, that the other developments or expansions in CPI's
programs of research, development and commercialization will not require
additional funding or encounter delays or that, in light of these or other
circumstances, CPI will be able to achieve the planned levels of revenue,
expense and cash flow.
88
<PAGE> 102
CPI leases approximately 40,000 square feet of laboratory and office space
in Horsham, Pennsylvania. The lease has a ten-year term with the initial annual
rent of $819,000, rising three percent in each subsequent year. CPI is currently
in the process of consolidating all of its operations in this facility and
expects to complete such consolidation in July 1998. In June 1998, CPI completed
a financing transaction with a REIT whereby CPI now leases the facility from the
REIT. In connection therewith, in June 1998, CPI received a one-time payment of
$3 million toward improvements CPI previously made and to be made to the
facility for laboratories and office space.
CPI plans to finance its anticipated growth and development largely through
equity financings. CPI expects that the net proceeds of approximately $26.4
million from consummation of the Transactions, together with existing cash
balances and interest on combined cash balances, will provide CPI with
sufficient working capital to sustain operations through approximately the end
of 2000, although there can be no assurance that CPI will not require additional
funding prior to that time. CPI anticipates that, if there are delays in its
current programs or if its current programs of research and development yield
expansion opportunities, CPI would seek additional financing, whether through
public or private equity or debt financings, corporate alliances or through
combinations thereof. There can be no assurance that additional equity or debt
financing will be available on terms acceptable to CPI, if at all. Any
additional equity financing would be dilutive to stockholders. Debt financing,
if available, may include restrictive covenants. If additional funds should be
needed but are not available, CPI may be required to curtail its operations
significantly or to obtain funds through other arrangements on unfavorable
terms. The failure by CPI to raise capital on acceptable terms if and when
needed would have a material adverse effect on CPI's business, financial
condition and results of operations.
INFLATION
CPI does not believe that inflation has had any significant impact on CPI's
business to date.
INCOME TAXES
As of December 31, 1997, CPI had approximately $20.9 million of net
operating loss carryforwards ("NOLs") for income tax purposes available to
offset future federal income tax, subject to limitations for alternative minimum
tax. The NOLs are subject to examination by the federal and state tax
authorities and expire between 2008 and 2012.
Prior to its conversion into corporate form, the business had accumulated
losses totaling approximately $3.9 million. For tax purposes, these losses were
distributed to the partners in accordance with the provisions of the partnership
agreement of CPI's predecessor partnership. Thus, these losses, while included
in the financial statements of CPI, are not available to offset future taxable
income, if any, of CPI.
The Tax Reform Act of 1986 contains provisions that may limit the NOLs
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interest. A change in ownership of a
company of greater than 50% within a three-year period results in an annual
limitation on CPHI's ability to utilize its NOLs from tax periods prior to the
ownership change. CPHI expects that upon consummation of the Transactions, such
a limitation will be triggered. However, CPHI does not expect such limitation to
have a significant impact on its operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements and requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
has been adopted in CPI's fiscal 1998 financial statements and had no impact on
CPI's financial position or results of operations. SFAS
89
<PAGE> 103
No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is required to be adopted
for CPI's 1998 year-end financial statements. The adoption of this pronouncement
is expected to have no impact on CPI's financial statements as CPI currently
operates in one segment.
RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
CPI does not believe that it has material exposure to the Year 2000 issue
with respect to its own information systems since its existing systems correctly
define the Year 2000. CPI intends to conduct an analysis in 1998 to determine
the extent to which its major suppliers' systems (insofar as they relate to
CPI's business) are subject to the Year 2000 issue. CPI is currently unable to
predict the extent to which the Year 2000 issue will affect its suppliers, or
the extent to which it would be vulnerable to its suppliers' failure to
remediate any Year 2000 issues on a timely basis. The failure of a major
supplier subject to the Year 2000 issue to convert its systems on a timely basis
or a conversion that is incompatible with CPI's systems could have a material
adverse effect on CPI.
90
<PAGE> 104
MANAGEMENT OF CPHI AND EXECUTIVE COMPENSATION
The following table sets forth information as of June 30, 1998 regarding
the individuals who are expected to serve as directors or executive officers of
CPHI upon consummation of the Transactions.
<TABLE>
<CAPTION>
NAME POSITION WITH CPI
- ---- -----------------
<S> <C>
Robert J. Towarnicki................. Chief Executive Officer; President; Director
Brian J. Hayden...................... Chief Financial Officer; Vice President -- Finance;
Treasurer
Rifat Pamukcu, M.D................... Chief Scientific Officer; Senior Vice President -- Research
and Development
Richard H. Troy...................... Senior Vice President--Corporate Development; General
Counsel; Secretary; Director
William A. Boeger(1)(2).............. Chairman of the Board of Directors
Thomas M. Gibson(2).................. Director
Judith A. Hemberger, Ph.D............ Director
Roger J. Quy, Ph.D.(1)............... Director
Bruce R. Ross........................ Director
Peter G. Schiff(1)................... Director
Randall M. Toig, M.D................. Director
</TABLE>
- ---------------
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Audit Committee.
In addition, John J. Gibbons has agreed to serve as one of Tseng's two
nominees to the CPHI Board of Directors, effective upon the consummation of the
Transactions.
EXECUTIVE OFFICERS AND DIRECTORS
ROBERT J. TOWARNICKI, 46, has served as Chief Executive Officer and a
Director of CPI since October 1996 and President of CPI since January 1998.
Prior to joining CPI, from 1992 to 1996, he served as President, Chief Operating
Officer, a Director and most recently as Executive Vice President of Integra
LifeSciences Corporation, which is the publicly held parent firm for a group of
biotechnology and medical device companies including Collatech, Inc., ABS
LifeSciences Inc., Telios Pharmaceuticals, Inc. and Vitaphore Corporation. In
addition, from 1991 to 1992, he served as Founder, President and Chief Executive
Officer of MediRel, Inc. From 1989 to 1991, he was General Manager of Focus/MRL,
Inc.; from 1985 to 1989, he was Vice President of Development and Operations for
Collagen Corporation and from 1974 to 1985, he held a variety of operations
management positions at Pfizer, Inc. and Merck & Co., Inc. Mr. Towarnicki was a
Ph.D. candidate in Pharmaceutical Chemistry at Temple University School of
Pharmacy and received his M.S. and B.S. degrees from Villanova University.
BRIAN J. HAYDEN, 46, has served as Vice President and Chief Financial
Officer of CPI since November 1997 and as Treasurer since June 1998. Prior to
joining CPI, during 1996 and 1997, he served as Vice President of Finance and
Administration for NeoStrata, Inc., a dermatology company and Vice President and
Chief Financial Officer of Micrus Corporation, a medical device company. From
1992 to 1996, he served as Vice President, Finance, Chief Financial Officer and
Treasurer of Biomatrix, Inc., a public medical device company. From 1988 to
1992, he served as Vice President, Chief Financial Officer, Treasurer and
Secretary of Alteon Inc., a public biopharmaceutical company. Mr. Hayden served
as Vice President, Finance and Administration for Healthways Systems, Inc., a
managed care organization, from 1985 to 1988. From 1976 to 1985, he served in
various auditing, financial analysis and senior financial management positions
with Hoffmann-La Roche, Inc. He served as a Senior Auditor from 1973 to 1976
with Coopers and Lybrand LLP. Mr. Hayden received a B.B.A. in Accounting from
Loyola University of Chicago and has completed graduate courses at Seton Hall
University.
RIFAT PAMUKCU, M.D., 40, is CPI's Chief Scientific Officer and Senior Vice
President -- Research and Development. Dr. Pamukcu is a co-founder of CPI. Prior
to joining CPI full time in 1993, from 1989 to
91
<PAGE> 105
March 1993, he was Assistant Professor of Medicine at the University of
Cincinnati and co-chair of CPI's SAB. He continued as an Adjunct Assistant
Professor of Medicine at the University of Cincinnati from 1993 to 1995. He was
a postdoctoral fellow from 1986 to 1989 in the Division of Gastroenterology at
the University of Chicago. Dr. Pamukcu received a B.A. in Biology from Johns
Hopkins University in 1979 and an M.D. degree from the University of Wisconsin
School of Medicine in 1983.
RICHARD H. TROY, 60, has served as Senior Vice President -- Corporate
Development of CPI since November 1997, Vice President -- Finance, Law and
Administration from January 1993 until November 1997, and General Counsel,
Secretary and a Director of CPI since December 1992. He has been an advisor to
CPI since its inception, and he is a Director and President of FGN, Inc., the
predecessor partnership's first general partner and a principal stockholder of
CPI. Prior to joining CPI, from 1990 to 1992, he served as Vice President and
Associate General Counsel of UST, Inc. Prior to that, from 1973 to 1990, he
worked at Combustion Engineering, Inc., most recently as Vice President and
Deputy General Counsel, and from 1964 to 1973, he practiced law with the firm of
Shearman & Sterling in New York City. Mr. Troy received a B.A. in Philosophy
from Georgetown University in 1959, studied at the Ludwig-Maximilians-
Universitat in Munich in 1959-60, and received a LL.B. degree from Harvard Law
School in 1963.
WILLIAM A. BOEGER, 48, has served as Chairman of the Board of Directors of
CPI since September 1996 and as a Director since December 1992. Since 1986 he
has been Managing General Partner of Quest Ventures II, a venture capital
company that he founded. Since 1993 he also has been Chairman of the Board of
Calypte Biomedical Corporation. Since December 1997 he has been President and
Chief Executive Officer of Calypte Biomedical Corporation, having also served as
President and Chief Executive Officer at that company from 1993 to 1995. In
addition, Mr. Boeger is Chief Executive Officer of Pepgen Corporation. From 1981
to 1986, Mr. Boeger was employed by Continental Capital Ventures, a
publicly-traded venture capital fund, where he attained the position of General
Partner. Mr. Boeger received a B.S., with an emphasis in Psychobiology, from
Williams College in 1972 and an M.B.A. from the Harvard Business School.
THOMAS M. GIBSON, 70, has served as a Director of CPI since August 1996. He
also has served as President of Integrated Technologies Development Corporation
since 1995. Prior to coming out of retirement in 1994 to serve as President of
Jupiter Electric Company, Inc. until 1996, he was associated with Gibson
Electric Company, Inc. from 1947 to 1992, where he attained the position of
Chief Executive Officer. In addition, in the early 1980s he co-founded Gibson
Information Systems, a data service bureau. Mr. Gibson attended Culver Military
Academy, the University of Arizona and the University of Illinois.
JUDITH A. HEMBERGER, PH.D., 50 has served as a director of CPI since June
1998. Since 1997, she has served as Vice-Chair, Strategic Planning and
Regulatory Affairs, Mayo Foundation for Medical Research and Education. From
1979 to 1997, she served Marion Merrell Dow Inc., most recently as Senior Vice
President, Global Regulatory Affairs (1995-1997), and Vice President, Global
Medical Affairs and Commercial Development (1994-1995). She is a member of the
Board of Directors of NexStar Pharmaceutical Company, the International Board of
Directors of Pharmaceutical Research Associates, and of the Dean's Advisory
Board, School of Pharmacy, University of Missouri at Kansas City. Since 1985,
she has been Adjunct Associate Professor, Division of Pharmacology, University
of Missouri at Kansas City School of Pharmacy. Dr. Hemberger received her
undergraduate degree in Biology from Mt. St. Scholastica College, a Ph.D. in
Pharmacology from the University of Missouri, Kansas City, and an M.B.A. from
Rockhurst College.
ROGER J. QUY, PH.D., 46, has served as a Director of CPI since December
1992. He has been a General Partner of Technology Partners, a venture capital
firm, since 1990 and has been responsible for health care investments at
Technology Partners since 1989. From 1982 to 1989, Dr. Quy held various
management positions with the Hewlett-Packard Company. Dr. Quy received his
undergraduate degree with a major in Psychology and Law and a Doctorate in
Neuroscience from the University of Keele, England, and an M.B.A. from the Haas
School of Business, University of California, Berkeley.
BRUCE R. ROSS, 56, has served as a Director of CPI since January 1998. He
also works as a consultant at Cancer Rx, Inc. From 1994 to 1997, he served as
Chief Executive Officer of The National Comprehensive Cancer Network, an
association of fifteen U.S. cancer centers. From 1976 to 1994, he held various
positions with Bristol-Myers Squibb Company, including as Senior Vice President,
Policy, Planning and Development
92
<PAGE> 106
of the U.S. Pharmaceutical Group from 1993 to 1994 and as President of the U.S.
Pharmaceutical Group from 1990 to 1992. Mr. Ross received his B.S. degree from
Syracuse University in 1962.
PETER G. SCHIFF, 46, has served as a Director of CPI since December 1992.
He is the President and founder of Northwood Ventures LLC, a firm specializing
in venture capital and leveraged buyouts, President of Northwood Capital
Partners LLC, and Managing General Partner of Rabbit Hollow Partners. Prior to
founding Northwood Ventures LLC in 1983, Mr. Schiff worked for E.M. Warburg,
Pincus & Co., Inc. from 1980 to 1983, and at Chemical Bank from 1976 to 1980.
Mr. Schiff received a B.A. from Lake Forest College in 1974 and an M.B.A. from
the University of Chicago's Graduate School of Business in 1976.
RANDALL M. TOIG, M.D., 47, has served as a Director of CPI since November
1994. He has been in private medical practice at Prentise Women's Hospital in
Chicago, Illinois since 1982. He has been Associate of Clinical Obstetrics and
Gynecology in the Department of Obstetrics and Gynecology at both Northwestern
University Hospital and the Northwestern University Medical School since 1982,
and has been a Fellow at the American College of Obstetrics and Gynecology since
1985. Dr. Toig received a B.S. in Zoology and Anthropology from the University
of Michigan in 1972 and an M.D. from the University of Pittsburgh School of
Medicine in 1977.
The Certificate of Incorporation of CPHI provides that the members of the
Board of Directors shall be divided into three classes prior to the consummation
of the Transactions.
DIRECTOR NOMINEE
JOHN J. GIBBONS, 59, has been the President and Chief Executive Officer of
Tseng since November 1997. From December 1996 until November 1997, Mr. Gibbons
was Executive Vice President and Chief Operating Officer of Tseng. From January
1996 to November 1996, Mr. Gibbons served as a consultant to Tseng. Mr. Gibbons
served as Tseng's Chief Financial Officer from January 1989 to May 1991, and as
a Vice Chairman from May 1991 to December 1995. Mr. Gibbons has been a director
of Tseng since 1983 and Chairman since November 1997.
KEY EMPLOYEES
LLOYD G. GLENN, 43, has served as Vice President -- Marketing of CPI since
June 1998. Prior to joining CPI, from 1995 to 1998, he served as Vice President
of Marketing for Athena Neurosciences, Inc., the Neurological Division of Elan.
From 1983 to 1994, he served in a series of sales management positions,
ultimately serving as Senior Product Manager for the Pharmaceutical Division of
Allergan, Inc. His additional past experience includes positions at Block Drug,
from 1982 to 1983, and Airwork, a subsidiary of Purex, Inc. from 1981 to 1982.
Mr. Glenn received his B.S. degree in marketing from Brigham Young University.
KERSTIN B. MENANDER, M.D., PH.D., 60, has served as Vice
President -- Medical and Regulatory Affairs of CPI since January 1997. Prior to
joining CPI, from 1989 to 1997 she was President of US 3D Development, Inc. From
1992 to 1994 she was also a corporate officer and Vice President, Medical
Affairs of Curative Technologies, Inc. Between 1986 and 1989 she served as Vice
President, Medical and Regulatory Affairs and a corporate officer of Collagen
Corporation. From 1973 to 1986 she held a variety of clinical and regulatory
positions at companies such as Syntex Corporation and Abbott Laboratories. Dr.
Menander received her M.D. and Ph.D. from the University of Lund, Sweden, where
she also did research and taught as Associate Professor of Histology of the
Medical Faculty.
ROBERT W. STEVENSON, J.D. 43, has served as CPI's Vice President for
Intellectual Property since November 1997. Prior to joining CPI, he was an
attorney at Brinks Hofer Gilson & Lione, where he served as a partner from 1992
to 1997 and as counsel from 1988 until 1992. He served as CPI's outside patent
counsel since its inception. In addition, he was an Adjunct Professor of Patent
Law at DePaul University from 1992-1996. Before joining Brinks Hofer Gilson &
Lione, he was a senior attorney at Abbott Laboratories, where he handled a
variety of patent matters involving pharmaceuticals and biotechnology. Mr.
Stevenson received his B.S.E. from Penn State University in 1977, his M.S.E.
from the University of Michigan in 1979, and his J.D. from Wayne State
University in 1982.
93
<PAGE> 107
COMPENSATION OF DIRECTORS
CPHI. CPHI's directors do not currently receive any compensation for
service on the CPHI Board or any committee thereof. Directors are reimbursed for
certain expenses in connection with attendance at CPHI Board and committee
meetings.
CPI. CPI's directors do not currently receive any compensation for service
on the CPI Board or any committee thereof other than pursuant to the 1997
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). Directors are
reimbursed for certain expenses in connection with attendance at CPI Board and
committee meetings.
The Directors' Plan, which was approved by the CPI stockholders, was
adopted by the CPI Board on October 14, 1997 and provides for the automatic
grant of options to purchase shares of CPI Common Stock to non-employee
directors of CPI. The Directors' Plan is administered by the CPI Board, unless
the CPI Board delegates administration to a committee.
The aggregate number of shares of CPI Common Stock that may be issued
pursuant to options granted under the Directors' Plan is 453,925. Each person
who first becomes a Non-Employee Director automatically shall be granted an
option to purchase 18,157 shares of CPI Common Stock (the "Inaugural Grant"). In
addition, on the date of each annual stockholders meeting, each Non-Employee
Director who has served at least one full year as director will automatically be
granted an option to purchase 5,447 shares of CPI Common Stock (the "Anniversary
Grant").
Options subject to an Inaugural Grant under the Directors' Plan will vest
in three equal, annual installments commencing on the first anniversary of the
date of the grant of the option. Options subject to an Anniversary Grant under
the Directors' Plan will vest in full on the first anniversary of the date of
the grant of the option. The vesting of all options under the Directors' Plan is
conditioned on the continued service of the recipient as a director, employee or
consultant of CPI or any affiliate of the CPI.
The exercise price of the options granted under the Directors' Plan will be
equal to the fair market value of CPI Common Stock granted on the date of grant.
No option granted under the Directors' Plan may be exercised after the
expiration of 10 years from the date it was granted. Options granted under the
Directors' Plan generally are non-transferable, except as provided in the option
agreement. The Directors' Plan will terminate on the tenth anniversary of the
date of its adoption by the CPI Board unless sooner terminated by the CPI Board.
In the event of certain changes of control, options outstanding under the
Directors' Plan will automatically become fully vested and will terminate if not
exercised prior to such change of control.
Directors who are employees of CPI do not receive separate compensation for
their services as directors.
94
<PAGE> 108
COMPENSATION OF EXECUTIVE OFFICERS OF CPI
The following table sets forth for the fiscal years ended December 31, 1997
and 1996, the compensation for services rendered to CPI awarded or paid to, or
earned by, each executive officer of CPI who will serve as an executive officer
of CPHI upon consummation of the Transactions (the "CPI Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------- ---------------------------------
SECURITIES
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS STOCK AWARDS UNDERLYING OPTIONS
- --------------------------- ----------- -------- ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Robert J. Towarnicki(1).......... 1997 $175,000 $40,000 $ -- 100,000
Chief Executive Officer;
President 1996 32,532 -- -- 175,000
Rifat Pamukcu, M.D............... 1997 145,000 25,000 -- 25,000
Chief Scientific Officer; 1996 145,000 25,000(2) 12,800(3) 60,000
Senior Vice President --
Research and Development
Richard H. Troy.................. 1997 140,000 25,000 -- 10,000
Senior Vice President -- 1996 140,000 25,000(2) 12,800(3) 50,000
Corporate Development;
General Counsel; Secretary
Brian J. Hayden(4)............... 1997 21,760 -- -- 90,785
Chief Financial Officer; 1996 -- -- -- --
Vice President -- Finance;
Treasurer
</TABLE>
- ---------------
(1) Robert J. Towarnicki began serving as Chief Executive Officer of CPI in
October 1996.
(2) In February 1996, the CPI Compensation Committee awarded bonuses of $25,000
in cash to each of Rifat Pamukcu and Richard H. Troy with respect to
services rendered during the 1993-1995 period.
(3) In March 1996, pursuant to the 1995 Stock Award Plan, the CPI Compensation
Committee awarded 40,000 shares of CPI Common Stock to each of Rifat Pamukcu
and Richard H. Troy with respect to services rendered during the 1993-1995
period. The fair market value of such stock awards was $0.32 per share, as
determined by the CPI Board.
(4) Brian J. Hayden began serving as Chief Financial Officer and Vice
President -- Finance in November 1997.
EMPLOYMENT AGREEMENTS OF CPI EXECUTIVE OFFICERS
In November 1997, CPI entered into an employment agreement with Brian J.
Hayden providing an annual compensation of $155,000 and up to 20% of base
compensation as an annual bonus, an option to purchase 90,785 shares of CPI
Common Stock at $4.75 per share subject to a four year vesting schedule, an
initial payment of $15,000, and a severance payment equal to six months of
salary and twelve months of health care premiums in the event of termination
without cause.
In October 1996, CPI entered into an employment agreement with Robert J.
Towarnicki providing for annual compensation of $175,000 and up to $35,000 as an
annual bonus, an option to purchase up to 175,000 shares of CPI Common Stock at
$0.50 per share subject to a four-year vesting schedule, certain relocation
expenses and a severance payment equal to six months of salary and vesting of at
least 87,500 options in the event of termination without cause. On July 23,
1997, the CPI Board increased Mr. Towarnicki's annual salary to $195,000,
effective as of January 1, 1998.
In February 1993, CPI entered into an employment agreement with Rifat
Pamukcu providing for annual compensation of $110,000 and up to $30,000 as an
annual bonus, certain relocation expenses and a severance payment equal to nine
months of salary in the event of involuntary termination or termination by Dr.
Pamukcu
95
<PAGE> 109
for good reason. CPI increased Dr. Pamukcu's annual compensation to $145,000 in
1996, and on July 23, 1997, the CPI Board increased Dr. Pamukcu's annual salary
to $175,000, effective as of January 1, 1998.
In January 1993, CPI entered into a memorandum of employment with Richard
H. Troy providing for annual compensation of $110,000, up to $30,000 as an
annual bonus, and a severance payment equal to six months of salary and benefits
in the event of termination without cause or termination by Mr. Troy for good
reason. CPI increased Mr. Troy's annual compensation to $140,000 in 1996, and on
January 23, 1997, the CPI Board increased Mr. Troy's annual salary to $160,000,
effective as of January 1, 1998.
STOCK OPTION GRANTS AND EXERCISES OF CPI EXECUTIVE OFFICERS
CPI grants options to its executive officers under its 1997 Equity
Incentive Plan (the "1997 Equity Incentive Plan"). As of June 30, 1998, options
to purchase a total of 1,130,471 shares of CPI Common Stock were outstanding
under the 1997 Equity Incentive Plan and options to purchase 745,429 shares of
CPI Common Stock remained available for grant thereunder.
The following tables show for the fiscal years ended December 31, 1996 and
December 31, 1997 certain information regarding options granted to, exercised by
and held at such dates by the CPI Executive Officers:
OPTION GRANTS IN FISCAL YEARS 1997 AND 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL OPTIONS EXERCISE ANNUAL RATES OF
NUMBER OF GRANTED TO OR BASE STOCK PRICE
FISCAL OPTIONS EMPLOYEES IN PRICE EXPIRATION APPRECIATION FOR
NAME YEAR GRANTED FISCAL YEAR ($/SHARE) DATE(1) OPTION TERMS(2)
---- ------ --------- ------------- ---------- ---------------- ---------------------
5% 10%
--------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Towarnicki..... 1997 100,000(3) 22.0% $3.70 July 22, 2007 $232,750 $589,850
1996 175,000(4) 33.5 0.50 October 24, 2006 55,025 139,450
Rifat Pamukcu, M.D.... 1997 25,000(3) 5.5 3.70 July 22, 2007 58,175 147,450
1996 60,000(3) 11.5 0.32 May 2, 2006 12,075 30,600
Richard H. Troy....... 1997 10,000(3) 2.2 3.70 July 22, 2007 23,275 58,975
1996 50,000(3) 9.6 0.32 May 2, 2006 10,075 25,500
Brian J. Hayden....... 1997 90,785(3) 20.0 4.75 December 2, 2007 271,200 687,250
1996 -- -- -- -- -- --
</TABLE>
- ---------------
(1) The standard options granted pursuant to the 1997 Equity Incentive Plan
(previously the 1993 Stock Option Plan) expire ten years after date of
grant.
(2) The potential realizable value is calculated assuming that the fair market
value of CPI Common Stock on the date of the grant as determined by the CPI
Board appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and the CPI
Common Stock received therefor is sold on the last day of the term of the
option for the appreciated price. The 5% and 10% rates of appreciation are
mandated by the rules of the Commission and do not represent CPI's estimate
or projection of future increases in the price of CPI Common Stock.
(3) Generally, options for 25% of the total shares of CPI Common Stock
underlying the options granted vest upon each anniversary of grant over four
years.
(4) 43,750 shares vest upon first anniversary of grant; 3,646 vest monthly
between November 30, 1997 and September 30, 2000; and 3,640 vest on October
31, 2000.
96
<PAGE> 110
OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DEC. 31, DEC. 31,
FISCAL ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME(1) YEAR EXERCISE REALIZED UNEXERCISABLE(2) UNEXERCISABLE(3)
------- ------ ----------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert J. Towarnicki......... 1997 175,000(4) $560,180 100,000/-- $235,721/--
1996 -- -- 175,000/-- --/--
Rifat Pamukcu, M.D. ......... 1997 -- -- 85,000/-- 403,256/--
1996 -- -- 60,000/-- 10,800/--
Richard H. Troy ............. 1997 -- -- 10,000/-- 23,570/--
1996 50,000(5) --(6) --/-- --/--
Brian J. Hayden.............. 1997 -- -- --/90,785 --/--
1996 -- -- --/-- --/--
</TABLE>
- ---------------
(1) Since December 31, 1997, the following options to purchase CPI Common Stock
have been granted to the CPI Executive Officers: Robert J. Towarnicki,
120,000; Rifat Pamukcu, M.D., 80,000; Richard H. Troy, 50,000; and Brian J.
Hayden, 30,000. All of these options were granted at an exercise price of
$6.60 to vest ratably over four years.
(2) All options are subject to vesting; however, with respect to options granted
prior to July 1997 early exercise is possible with portions thereof
remaining subject to a repurchase option of CPI.
(3) To date, all options have been granted at exercise prices equal to the fair
market value per share of CPI Common Stock, as determined by the CPI Board;
the fair market value at December 31, 1996 was $0.50 per share and the fair
market value at December 31, 1997 was $4.75 per share.
(4) 123,958 shares were subject to a repurchase option of CPI as of December 31,
1997.
(5) All 50,000 shares were subject to a repurchase option of CPI as of December
31, 1996; 37,500 shares were subject to a repurchase option of CPI as of
December 31, 1997.
(6) Granted and exercised on May 3, 1996, with an exercise price and fair market
value, as determined by the CPI Board, $0.32 per share.
97
<PAGE> 111
SECURITY OWNERSHIP OF CPI AND CPHI
The following table sets forth certain information regarding the beneficial
ownership of CPI Capital Stock as of June 30, 1998, and the anticipated
beneficial ownership of CPHI Common Stock after giving effect to the
Transactions as to each person who owns more than five percent of the
outstanding CPI Capital Stock and each person expected to own more than five
percent of the outstanding CPHI Common Stock after consummation of the
Transactions, each CPI Executive Officer and CPI director, all of whom are
executive officers and directors of CPHI, and each CPHI director, the Chief
Executive Officer of CPHI, each of the most highly compensated executive
officers of CPHI other than the Chief Executive Officer, calculated based upon
compensation of executive officers of CPI for fiscal year 1997 and all persons
expected to be CPHI directors and executive officers, as a group.
<TABLE>
<CAPTION>
% OF CPI % OF CPHI
NUMBER OF SHARES COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OUTSTANDING OUTSTANDING
PRIOR TO AND AFTER BEFORE THE AFTER THE
BENEFICIAL OWNER THE TRANSACTIONS TRANSACTIONS(1) TRANSACTIONS
- ---------------- ------------------ --------------- ------------
<S> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
FGN, Inc.(2)................................... 1,835,597 9.87% 7.62%
c/o Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, IL 60603
Attn: Michael P. Cannon, Esq.
Gem Capital Management, Inc.(3)................ 1,780,939 9.55% 7.38%
70 East 55th Street, 12th Floor
New York, NY 10022
Northwood Ventures LLC(4)...................... 1,212,674 6.51% 5.03%
485 Underhill Blvd., Suite 205
Syossett, NY 11791
The Goldman Sachs Group, L.P.(5)............... 1,046,043 5.61% 4.33%
85 Broad Street
New York, NY 10004
Technology Partners(6)......................... 966,709 5.19% 4.01%
West Fund IV, L.P.
150 Tiburon Blvd., Suite A
Belvedere, CA 94920
New York Life Insurance Company................ 896,729 4.82% 3.72%
51 Madison Avenue
New York, NY 10010
Jackson Boulevard Fund, Ltd.(7)................ 894,297 4.80% 3.71%
53 W. Jackson Blvd., Suite 400
Chicago, IL 60604
James Harpel(8)................................ 863,354 4.64% 3.58%
237 Park Avenue
New York, NY 10017
Vulcan Ventures, Inc.(9)....................... 837,231 4.49% 3.47%
110-110 Avenue N.E., Suite 550
Bellevue, WA 98004
DIRECTORS AND EXECUTIVE OFFICERS:**
William A. Boeger(10).......................... 344,817 1.85% 1.43%
Thomas M. Gibson(11)........................... 103,725 * *
Brian J. Hayden................................ 0 * *
Judith A. Hemberger............................ 0 * *
Rifat Pamukcu, M.D.(12)........................ 381,964 2.05% 1.59%
Roger J. Quy, Ph.D.(13)........................ 966,709 5.19% 4.01%
Bruce R. Ross.................................. 0 * *
</TABLE>
98
<PAGE> 112
<TABLE>
<CAPTION>
% OF CPI % OF CPHI
NUMBER OF SHARES COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OUTSTANDING OUTSTANDING
PRIOR TO AND AFTER BEFORE THE AFTER THE
BENEFICIAL OWNER THE TRANSACTIONS TRANSACTIONS(1) TRANSACTIONS
- ---------------- ------------------ --------------- ------------
<S> <C> <C> <C>
Peter G. Schiff(14)............................ 1,212,674 6.51% 5.03%
Randall M. Toig, M.D.(15)...................... 142,468 * *
Robert J. Towarnicki(16)....................... 289,196 1.55% 1.20
Richard H. Troy(17)............................ 2,138,960 11.50% 8.88%
DIRECTOR NOMINEE:
John J. Gibbons(18)............................ 108,036 * *
All executive officers, directors and director
nominees as a group (12 persons)(19)......... 5,601,549 29.81% 23.08%
</TABLE>
- ---------------
* Indicates beneficial ownership of less than one percent.
** The address of the directors and executive officers is 702 Electronic
Drive, Horsham, PA 19044.
(1) This table is based upon information supplied by officers, directors and
principal stockholders. Unless otherwise indicated in the footnotes to this
table and subject to community property laws where applicable, CPI and CPHI
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 18,604,360 shares of CPI Common
Stock outstanding as of June 30, 1998 and 24,081,360 shares of CPI Common
Stock outstanding after completion of this offering, adjusted as required
by rules promulgated by the Commission.
(2) Includes 5,681 shares to be received upon redemption of the Redeemable
Preferred Stock. Until the closing of this offering, FGN, Inc. has the
authority to vote 782,421 additional shares of CPI Common Stock of which it
is not the beneficial owner but that it holds in trust for 12 persons,
including: David S. Alberts; Klaus Brendel; Randall W. Burt; Michael P.
Cannon; Stella Ocampo as Trustee of the Jaime Ocampo Marital Trust; Rifat
Pamukcu; Nancy Shipp Paranka; Phyllis Sanford Stevenson and Robert W.
Stevenson; and Mr. Richard H. Troy, Richard H. Troy's wife and Richard H.
Troy's daughter. FGN, Inc.'s ultimate beneficial owners include a marital
trust of Floyd Nichols for the benefit of his widow (20%), a trust for one
child of Floyd Nichols (24.5%), a trust for the other child of Floyd
Nichols (24.5%), and 31 stockholders (including 15 brothers, sisters,
nieces, nephews, sisters-in-law and brother-in law, and 16 friends, each
with 1%).
(3) Includes 1,674,254 shares and warrants to purchase 52,631 shares
beneficially owned by Oak Tree Partners, L.P., an entity that may be deemed
an affiliate of Gem Capital Management, Inc. Gem Capital Management, Inc.
disclaims beneficial ownership of such shares except to the extent of its
pecuniary interest therein.
(4) Includes options to purchase 5,447 shares, warrants to purchase 9,263
shares, 130,600 shares and warrants to purchase 1,802 shares beneficially
owned by Northwood Capital Partners LLC, 118,000 shares and warrants to
purchase 1,754 shares beneficially owned by Rabbit Hollow Partners and
27,000 shares beneficially owned by the Edward T. Schiff et. al. Trust,
entities that may be deemed affiliates of Northwood Ventures LLC. The
ultimate beneficial owner of Northwood Ventures LLC include a partnership
of investors, Mr. Schiff and members of Mr. Schiff's family.
(5) Includes 33,784 shares issuable upon exercise of outstanding warrants.
(6) Includes options to purchase 5,447 shares of CPI Common Stock beneficially
owned by Roger J. Quy. Technology Partners West Fund IV, L.P.'s ultimate
beneficial owners include 33 employee retirement trusts, venture funds,
family trusts and individuals, none of which possess an ownership interest
of more than 12% in the Fund.
(7) Includes 95,890 shares and warrants to purchase 26,062 shares beneficially
owned by Jackson Boulevard Partners, 81,650 shares and warrants to purchase
1,500 shares beneficially owned by Jackson Boulevard Equities, 225,138
shares beneficially owned by Jackson Boulevard Ventures, 205,530 shares and
warrants to purchase 9,527 shares beneficially owned by Jackson Boulevard
Ventures II, 187,000 shares
99
<PAGE> 113
beneficially owned by Jackson Boulevard Ventures III L.P., 10,000 shares and
warrants to purchase 500 shares beneficially owned by Jackson Boulevard
Investments, L.P. and 50,000 shares and warrants to purchase 1,500 shares
beneficially owned by Deborah Gemini. Jackson Boulevard Fund, Ltd. is the
General Partner of Jackson Boulevard Equities, Jackson Boulevard Ventures
and Jackson Boulevard Ventures II. The President and sole stockholder of
Jackson Boulevard Fund, Ltd. is Paul J. Duggan, who is the General Partner
of Jackson Boulevard Partners and the spouse of Deborah Gemini. Mr. Duggan
may be deemed to share voting and investment power with these entities and
individuals; however, Mr. Duggan disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(8) Includes 328,777 shares and warrants to purchase 2,550 shares beneficially
owned by CP Partners, 115,088 shares beneficially owned by the Harpel
Family Partnership, 81,081 shares beneficially owned by Harpel Wheelock,
and 63,158 shares and warrants to purchase 3,157 shares beneficially owned
by Harpel Venture Partners, entities that may be deemed affiliates of James
Harpel and in which James Harpel may be deemed to share voting and
investment power. Mr. Harpel disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.
(9) Includes 24,639 shares issuable upon exercise of outstanding warrants.
(10) Includes 13,379 shares and warrants to purchase 5,447 shares owned of
record by Mr. Boeger, 187,982 shares and warrants to purchase 9,523 shares
owned of record by Quest Ventures II and 128,486 shares owned of record by
Quest Ventures International. Mr. Boeger is a managing general partner of
Quest Ventures II and Quest Ventures International, and may be deemed to
share voting and investment power with respect to such shares. Mr. Boeger
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
(11) Includes warrants to purchase 5,447 shares beneficially owned by Thomas M.
Gibson and 71,213 shares in the Thomas M. Gibson Trust established by
Thomas M. Gibson.
(12) Includes 245,600 shares beneficially owned by Dr. Pamukcu but held in trust
by FGN, Inc., options to purchase 85,000 shares, 48,750 of which are
unvested and would currently be subject to a repurchase option by CPI and
11,364 shares expected to be received upon redemption of the Redeemable
Preferred Stock.
(13) Includes options to purchase 5,447 shares of CPI Common Stock beneficially
owned by Roger Quy and 961,262 shares owned of record by Technology
Partners. Dr. Quy is a general partner of Technology Partners, and may be
deemed to share voting and investment power with respect to such shares.
Dr. Quy disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(14) Includes options to purchase 5,447 shares of CPI Common Stock beneficially
owned by Peter Schiff, 918,808 shares and warrants to purchase 9,263 shares
owned of record by Northwood Ventures LLC, 130,600 shares and warrants to
purchase 1,802 shares owned of record by Northwood Capital Partners LLC,
118,000 shares and warrants to purchase 1,754 shares owned of record by
Rabbit Hollow Partners and 27,000 shares owned of record by the Edward T.
Schiff et. al. Trust. Mr. Schiff is the President of Northwood Ventures
LLC, the President of Northwood Capital Partners LLC, the Managing General
Partner of Rabbit Hollow Partners and the Trustee of the Edward T. Schiff
et. al. Trust; he may be deemed to share voting and investment power with
respect to such shares. Mr. Schiff disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(15) Includes options to purchase 5,447 shares of CPI Common Stock and 676
shares issuable upon exercise of outstanding warrants.
(16) Includes options to purchase 100,000 shares, 75,000 of which are unvested
and would currently be subject to a repurchase option by CPI.
(17) Includes 130,000 shares beneficially owned by Mr. Troy but held in trust by
FGN, Inc., 25,000 shares subject to repurchase by CPI, options to purchase
10,000 shares, 7,500 of which are unvested and would be subject to a
repurchase option by CPI, 7,575 shares to be received upon redemption of
the Redeemable Preferred Stock and warrants to purchase 250 shares. Also
includes 27,250 shares beneficially owned by Mr. Troy's spouse, Elizabeth
N. Troy, and 16,100 shares beneficially owned by Mr. Troy's daughter,
Elizabeth D. Troy, as well as 1,835,597 shares owned of record by FGN,
Inc., of which Mr. Troy is a director
100
<PAGE> 114
and the President. Mr. Troy may be deemed to share voting and investment power
with respect to such 43,350 shares beneficially owned by his spouse and daughter
and to such 1,835,597 shares beneficially owned by FGN, Inc.; however, Mr. Troy
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
(18) Represents shares of Tseng Common Stock and Tseng Options currently held by
Mr. Gibbons. Assuming consummation of the Transactions, Mr. Gibbons will
own four shares of CPHI Common Stock and options to purchase 108,032 shares
of CPHI Common Stock.
(19) Includes shares and options or warrants to purchase 185,503 shares held by
directors and executive officers of CPI, entities affiliated with such
persons and director nominees. See Notes 9 through 18 above.
101
<PAGE> 115
CERTAIN TRANSACTIONS
FIRST ROUND OF CPI SERIES E PREFERRED STOCK
Between April 1994 and July 1994, CPI sold to institutional and other
accredited investors a total of 542,761 shares of CPI Series E Preferred Stock
at a price of $4.10 per share and warrants to purchase an additional 18,766
shares of CPI Series E Preferred Stock at $4.10 per share in a first round of
financing of CPI Series E Preferred Stock. In August 1995, in connection with
repricing the CPI Series E Preferred Stock to $3.15 per share, the CPI Board
authorized the issuance of additional CPI Series E Preferred Stock. In
conjunction with this new price, CPI issued 163,701 shares of CPI Series E
Preferred Stock and 5,654 warrants to purchase CPI Series E Preferred Stock to
the previous holders of CPI Series E Preferred Stock. Certain directors,
executive officers and five percent stockholders purchased Series E Preferred
Stock and warrants to purchase CPI Series E Preferred Stock in the first round
of financing of CPI Series E Preferred Stock, as follows: FGN, Inc., which is a
holder of more than five percent of CPI's voting stock and a director and the
president of which is Richard H. Troy, a Director, Senior Vice
President -- Corporate Development, General Counsel and Secretary of CPI,
purchased 13,015 shares of CPI Series E Preferred Stock; the Thomas M. Gibson
Trust established by Thomas M. Gibson, a director of CPI, purchased a total of
951 shares of CPI Series E Preferred Stock; Quest Ventures II and Quest Ventures
International, entities in which William A. Boeger, a director of CPI, is a
general manager, purchased a total of 49,966 shares of CPI Series E Preferred
Stock and warrants to purchase CPI Series E Preferred Stock; Randall M. Toig, a
director of CPI, purchased 6,507 shares of CPI Series E Preferred Stock; Richard
H. Troy, a director, Senior Vice President -- Corporate Development, General
Counsel and Secretary of CPI, purchased 4,686 shares of CPI Series E Preferred
Stock and warrants to purchase CPI Series E Preferred Stock; Technology
Partners, which is a holder of more than five percent of CPI Common Stock and a
general manager of which is Roger J. Quy, a director of CPI, purchased 168,128
shares of CPI Series E Preferred Stock and warrants to purchase Series E
Preferred Stock; Rabbit Hollow Partners, the Managing General Partner of which
is Peter G. Schiff, a director of CPI, purchased 32,902 shares of CPI Series E
Preferred Stock; and Northwood Ventures LLC, which is a holder of more than five
percent of CPI's voting stock and the President of which is Peter G. Schiff, a
director of CPI, purchased 134,349 shares of CPI Series E Preferred Stock and
warrants to purchase CPI Series E Preferred Stock.
BRIDGE LOAN AND SECOND ROUND OF CPI SERIES E PREFERRED STOCK
CPI commenced the second round of CPI Series E Preferred Stock financing
between June and August 1995, when CPI received a bridge loan of $791,000 from
certain of its stockholders and issued convertible promissory notes with an
annual interest rate of 9% to such stockholders. Certain directors, executive
officers and five percent stockholders participated in the bridge loan, as
follows: Floyd G. Nichols, who was a director and CPI's Chief Executive Officer,
purchased a $50,000 convertible promissory note; Northwood Ventures LLC, the
President of which is Peter G. Schiff, a director of CPI, purchased a $200,000
convertible promissory note; Quest Ventures II, a general manager of which is
William A. Boeger, a director of CPI, purchased a $50,000 convertible promissory
note; and Technology Partners West Fund IV, a general manager of which is Roger
J. Quy, a director of CPI, purchased a $90,000 convertible promissory note. CPI
converted the bridge loan's principal and interest into 253,633 shares of Series
E Preferred Stock and warrants to purchase an additional 125,550 shares of CPI
Series E Preferred Stock in August 1995.
Between August 1995 and May 1996, CPI issued 2,263,094 shares of CPI Series
E Preferred Stock and warrants to purchase an additional 210,889 shares of CPI
Series E Preferred Stock at $3.15 per share, which includes those issued in
converting the bridge loan. Certain directors, executive officers and five
percent stockholders purchased CPI Series E Preferred Stock in the conversion of
the bridge loan and the second round of financing of CPI Series E Preferred
Stock, as follows: Floyd G. Nichols, who was a director and CPI's Chief
Executive Officer, purchased 17,596 shares of CPI Series E Preferred Stock and
warrants to purchase CPI Series E Preferred Stock; Northwood Ventures LLC, the
President of which is Peter G. Schiff, a director of CPI, purchased 147,190
shares of CPI Series E Preferred Stock and warrants to purchase CPI Series E
Preferred Stock; Northwood Capital Partners LLC, the President of which is Peter
G. Schiff, a
102
<PAGE> 116
director of CPI, purchased 82,544 shares of CPI Series E Preferred Stock;
Technology Partners West Fund IV, a general manager of which is Roger J. Quy, a
director of CPI, purchased 151,079 shares of CPI Series E Preferred Stock and
warrants to purchase CPI Series E Preferred Stock; and Thomas M. Gibson, a
director of CPI, and the Thomas M. Gibson Trust purchased a total of 31,748
shares of CPI Series E Preferred Stock.
CPI SERIES F PREFERRED STOCK.
Between December 1996 and June 1997, CPI issued a total of 4,808,945 shares
of Series F Convertible Preferred Stock ("CPI Series F Preferred Stock") and
warrants to purchase 125,843 shares of CPI Series F Preferred Stock to
institutional investors and accredited investors. Certain directors, executive
officers and five percent stockholders of CPI participated in the private
offering, as follows: Technology Partners, which is a holder of more than five
percent of CPI's voting stock and a general partner of which is Roger J. Quy, a
director of CPI, purchased 101,051 shares of CPI Series F Preferred; Northwood
Ventures LLC, which is a holder of more than five percent of CPI's voting stock
and a President of which is Peter G. Schiff, a director of CPI, purchased
111,000 shares of CPI Series F Preferred Stock and warrants to purchase CPI
Series F Preferred Stock; Northwood Capital Partners LLC, the President of which
is Peter G. Schiff, a director of CPI, purchased 27,750 shares of CPI Series F
Preferred Stock and warrants to purchase CPI Series F Preferred Stock; The
Goldman Sachs Group, L.P., which is a holder of more than five percent of CPI's
voting stock, purchased 709,461 shares of CPI Series F Preferred Stock and
warrants to purchase CPI Series F Preferred Stock; Robert J. Towarnicki, the
Chief Executive Officer, President and a director of CPI, purchased 13,520
shares of CPI Series F Preferred Stock; Randall M. Toig, a director of CPI,
purchased 13,512 shares of CPI Series F Preferred Stock; Richard H. Troy, a
director, Senior Vice President -- Corporate Development, General Counsel and
Secretary of CPI, purchased 3,000 shares of CPI Series F Preferred Stock;
William A. Boeger, a director of CPI, purchased 3,377 shares of CPI Series F
Preferred Stock; Thomas M. Gibson, a director of CPI, purchased 13,512 shares of
CPI Series F Preferred Stock; and Grosvenor G. Nichols, the brother-in-law of
Richard H. Troy, a director, Senior Vice President -- Corporate Development,
General Counsel and Secretary of CPI, purchased 25,748 shares of CPI Series F
Preferred Stock and warrants to purchase CPI Series F Preferred Stock.
CPI SERIES G PREFERRED STOCK.
In April and May of 1998, CPI issued a total of 4,645,879 shares of CPI
Series G Preferred Stock and warrants to purchase 227,793 shares of CPI Series G
Preferred Stock to institutional investors and stockholders with preemptive
rights. Certain directors, executive officers and five percent stockholders of
CPI participated in the private offering as follows: Northwood Ventures LLC,
which together with affiliated funds is a holder of more than five percent of
CPI's voting stock and the President of which is Peter G. Schiff, a director of
CPI, purchased 105,263 shares of CPI Series G Preferred Stock and warrants to
purchase CPI Series G Preferred Stock; Northwood Capital Partners LLC, which
together with affiliated funds is a holder of more than five percent of CPI's
voting stock and the President of which is Peter G. Schiff, a director of CPI,
purchased 21,053 shares of CPI Series G Preferred Stock and warrants to purchase
CPI Series G Preferred Stock; Rabbit Hollow Partners, a general partner of which
is Peter G. Schiff, a director of CPI, purchased 20,096 shares of CPI Series G
Preferred Stock and warrants to purchase CPI Series G Preferred Stock; The
Goldman Sachs Group, L.P., which is a holder of more than five percent of CPI's
voting stock, purchased 315,790 shares of CPI Series G Preferred Stock and
warrants to purchase CPI Series G Preferred Stock and, in recognition of its
efforts in connection with the offering, received a warrant to purchase 5,000
shares of CPI Common Stock; Gem Capital Management, which is a holder of more
than five percent of CPI's voting stock, purchased 1,052,632 shares of CPI
Series G Preferred Stock and warrants to purchase CPI Series G Preferred Stock;
Richard H. Troy, a director, Senior Vice President -- Corporate Development,
General Counsel and Secretary of CPI, purchased 2,000 shares of CPI Series G
Preferred Stock and warrants to purchase CPI Series G Preferred Stock; Thomas M.
Gibson, a director of CPI, purchased 25,777 shares of CPI Series G Preferred
Stock and warrants to purchase CPI Series G Preferred Stock; Bart L. Troy, M.D.,
a brother of Richard H. Troy, a director, Senior Vice President -- Corporate
Development, General Counsel and Secretary of CPI, purchased 8,360 shares of CPI
Series G Preferred Stock and warrants to purchase CPI Series G Preferred Stock;
and Grosvenor G. Nichols, a brother-in-law of Richard H. Troy, a director,
Senior
103
<PAGE> 117
Vice President - Corporate Development, General Counsel and Secretary of CPI,
purchased 26,335 shares of CPI Series G Preferred Stock and warrants to purchase
CPI Series G Preferred Stock.
CPI REDEEMABLE PREFERRED STOCK
Prior to the Effective Time, CPI must redeem in cash and/or CPI Common
Stock, pursuant to the Reorganization Agreement, the outstanding shares of CPI
Redeemable Preferred Stock, all of which are held by FGN, Inc., a holder of more
than five percent of CPI Capital Stock and a director, the president and a
stockholder of which is Richard H. Troy, a Director, Senior Vice
President -- Corporate Development, General Counsel and Secretary of CPI.
Pursuant to the arrangements entered into in 1990 with certain persons who
participated in the founding of CPI, FGN, Inc. will immediately pay out all but
$75,000 of the proceeds of such redemption of the CPI Redeemable Preferred Stock
to or on behalf of such persons, including the payment of cash and/or registered
CPHI Common Stock in an aggregate value of $150,000 to Rifat Pamukcu, CPI's
Chief Scientific Officer and Senior Vice President -- Research and Development,
and the payment of cash and or stock in an aggregate value of $100,000 to
Richard H. Troy, a Director, Vice President -- Corporate Development, General
Counsel and Secretary of CPI.
Additional information with respect to the transactions relating to Tseng
is included in the Tseng Reports incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Available Information" and "Incorporation of Certain
Documents by Reference".
104
<PAGE> 118
DESCRIPTION OF CPHI CAPITAL STOCK
The following description of the capital stock of CPHI and certain
provisions of CPHI's Certificate of Incorporation and Bylaws is a summary and is
qualified in its entirety by the provisions of the CPHI Certificate of
Incorporation and Bylaws.
CPHI AUTHORIZED CAPITAL STOCK
Under CPHI's Certificate of Incorporation, the total number of shares of
all classes of stock that CPHI has authority to issue is 75,000,000, of which
70,000,000 are shares of CPHI Common Stock (par value $0.01 per share) and
5,000,000 are shares of CPHI Preferred Stock (par value $.01 per share).
The additional shares of authorized stock available for issuance by CPHI
might be issued at such times and under such circumstances as to have a dilutive
effect on earnings per share and on the equity ownership of the holders of CPHI
Common Stock. The ability of the CPHI Board to issue additional shares of stock
could enhance the CPHI Board's ability to negotiate on behalf of the
stockholders in a takeover situation and also could be used by the CPHI Board to
make a change in control more difficult, thereby denying stockholders the
potential to sell their shares at a premium and entrenching current management.
CPHI COMMON STOCK
Holders of CPHI Common Stock will be entitled to one vote per share on all
matters voted on generally by the stockholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any series of CPHI Preferred Stock, the holders of CPHI Common Stock
will possess all voting power. The CPHI Certificate of Incorporation does not
provide for cumulative voting rights. Without cumulative voting, under the DGCL,
the holders of more than one-half of the outstanding shares of CPHI Common Stock
generally will be able to elect all the directors of CPHI then standing for
election and holders of the remaining shares will not be able to elect any
directors.
Subject to any preferential rights of any series of CPHI Preferred Stock,
holders of shares of CPHI Common Stock will be entitled to receive dividends on
such stock out of assets legally available for distribution when, as and if
authorized and declared by the CPHI Board and to share ratably in the assets of
CPHI legally available for distribution to its stockholders in the event of its
liquidation, dissolution or winding up.
Holders of CPHI Common Stock will have no preferences, preemptive,
conversion or exchange rights.
CPHI PREFERRED STOCK
The CPHI Board is authorized to issue shares of CPHI Preferred Stock, in
one or more series, and to (i) fix or alter, from time to time, the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
CPHI Preferred Stock, (ii) establish, from time to time, the number of shares
constituting any such series or any of them, and (iii) to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding.
The CPHI Board could authorize the issuance of shares of CPHI Preferred
Stock with terms and conditions which could discourage a takeover or other
transaction that holders of some or a majority of shares of CPHI Common Stock
might believe to be in their best interests or in which such holders might
receive a premium for their shares of stock over the then-market price of such
shares. As of the date hereof, no shares of CPHI Preferred Stock are outstanding
and the CPHI Board has no present intention to issue any shares of CPHI
Preferred Stock after the Effective Time.
105
<PAGE> 119
CERTAIN ANTI-TAKEOVER PROVISIONS
General. Certain provisions of the CPHI Certificate of Incorporation, the
CPHI Bylaws and the DGCL may have the effect of impeding the acquisition of
control of CPHI by means of a tender offer, a proxy fight, open market purchases
or otherwise in a transaction not approved by the CPHI Board.
The provisions of the CPHI Certificate of Incorporation, the CPHI Bylaws
and the DGCL described below are designed to reduce, or have the effect of
reducing, the vulnerability of CPHI to an unsolicited proposal for the
restructuring or sale of all or substantially all of the assets of CPHI or an
unsolicited takeover attempt which is unfair to CPHI stockholders. The summary
of such provisions set forth below does not purport to be complete and is
subject to and qualified in its entirety by reference to the CPHI Certificate of
Incorporation, the CPHI Bylaws and DGCL.
Classified Board; Removal of Directors. The CPHI Certificate of
Incorporation provides that the CPHI Board shall consist of three classes of
directors, after an initial term, each serving a three-year term ending in
successive years. This provision may make it more difficult to effect a takeover
of CPHI because it would generally take two annual meetings of stockholders for
an acquiring party to elect a majority of the CPHI Board. As a result, a
classified CPHI Board may discourage proxy contests for the election of
directors or purchases of a substantial block of stock because it could operate
to prevent obtaining control of the CPHI Board in a relatively short period of
time.
In addition, subject to the rights of holders of any series of CPHI
Preferred Stock, CPHI directors may only be removed for cause and only by the
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of CPHI entitled to vote at an election
of directors.
Business Combinations. Section 203 of the DGCL restricts a wide range of
transactions ("business combination") between a corporation and an interested
stockholder. An "interested stockholder" is, generally, any person who
beneficially owns, directly or indirectly, 15% or more of the corporation's
outstanding voting stock. Business combinations are broadly defined to include
(i) mergers or consolidations with, (ii) sales or other dispositions of more
that 10% of the corporation's assets to, (iii) certain transactions resulting in
the issuance or transfer of any stock of the corporation or any subsidiary to,
(iv) certain transactions which would result in increasing the proportionate
share of stock of the corporation or any subsidiary owned by, or (v) receipt of
the benefit (other than proportionately as a stockholder) of any loans, advances
or other financial benefits by an interested stockholder. Section 203 provides
that an interested stockholder may not engage in a business combination with the
corporation for a period of three years from the time of becoming an interested
stockholder unless (i) the board of directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder prior to the time such person became an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
person becoming an interested stockholder, that person owned at least 85% of the
corporation's voting stock (excluding shares owned by persons who are officers
and also directors and shares owned by certain employee stock plans); or (iii)
the business combination is approved by the board of directors and authorized by
the affirmative vote of at least 66 2/3% of the outstanding voting stock not
owned by the interested stockholder. The restrictions on business combinations
with interested stockholders contained in Section 203 do not apply to a
corporation whose certificate of incorporation contains a provision expressly
electing not to be governed by the statute. The CPHI Certificate does not
contain a provision electing to "opt-out" of Section 203.
LISTING
CPHI has applied for listing of CPHI Common Stock on the Nasdaq National
Market under the trading symbol "CLPA".
TRANSFER AGENT AND REGISTRAR
Boston Equiserve is the transfer agent and registrar for CPHI Common Stock.
106
<PAGE> 120
COMPARISON OF STOCKHOLDER RIGHTS
At the Effective Time, the stockholders of CPI and the stockholders of
Tseng will become stockholders of CPHI. As stockholders of CPHI, their rights
will be governed by the DGCL and the CPHI Certificate of Incorporation and
Bylaws. Following are summaries of certain differences between (i) the rights of
CPI stockholders and CPHI stockholders and (ii) the rights of Tseng stockholders
and CPHI stockholders.
COMPARISON OF STOCKHOLDER RIGHTS WITH RESPECT TO CPHI AND CPI
CPHI and CPI are both organized under the laws of the State of Delaware and
are subject to the DGCL. Any differences, therefore, in the rights of holders of
CPHI Common Stock and CPI Capital Stock arise solely from the differences in
their respective certificates of incorporation and bylaws.
Authorized Capital. The total number of authorized shares of capital stock
of CPI is 40,861,250, consisting of 18,400,000 shares of preferred stock, $.01
par value, 61,250 shares of redeemable preferred stock, $.01 par value, and
22,400,000 shared of common stock, $.01 par value. The authorized capital of
CPHI is set forth under "Description of CPHI Capital Stock".
Class Votes. The DGCL does not require separate class votes of all voting
classes in order to approve charter amendments generally. However, Section 242
of the DGCL does provide that each class of stock, even a nonvoting class of
stock, shall vote on charter amendments that increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value of
such class or adversely affect the rights of the holders of such class.
Although CPHI has a portion of its authorized capital stock allocated to
preferred stock, at the Effective Time, no preferred stock will be outstanding,
all stockholders will have equal voting rights, and there will be no class
voting.
Certain additional actions do, however, require further class votes. The
CPI Certificate of Incorporation provides that CPI shall not, without first
obtaining the approval by vote or written consent of each of (i) the holders of
a majority of the shares of CPI Common Stock then outstanding, (ii) the holders
of a majority of the shares of CPI Series C Preferred Stock, CPI Series D
Preferred Stock, CPI Series E Preferred Stock, CPI Series F Preferred Stock and
CPI Series G Preferred Stock, then outstanding, voting as one class, and (iii)
the holders of a majority of the shares of CPI Series A Preferred Stock and CPI
Series B Preferred Stock, then outstanding, voting as one class (collectively,
the "CPI Additional Approval"): (i) sell, exchange, mortgage or pledge all or
substantially all of the assets of CPI, whether in one transaction or in a
series of related transactions; (ii) merge or consolidate with any other person;
or (iii) make any assignment for the benefit of CPI's creditors.
In addition, unless the CPI Board shall have given its unanimous approval
thereto, CPI shall not, without first obtaining the CPI Additional Approval: (i)
with certain exceptions, incur any indebtedness for borrowed money; (ii) with
certain exceptions, guarantee the indebtedness or other liabilities or
obligations of any other person; (iii) form or participate in any limited or
general partnership or joint venture; (iv) make any acquisition of, or equity
investment in, another person in excess of $100,000; (v) permit any subsidiary
to issue or sell, or obligate itself to issue or sell, any stock of such
subsidiary to any person other than CPI; (vi) enter into or adopt any salary,
bonus or other compensation plan or programs for executive officers of CPI;
(vii) enter into any agreement or transaction with any officer or director of
CPI out of the ordinary course of CPI's business; (viii) enter into any business
that does not involve the research and development of pharmaceutical drugs; (ix)
amend or repeal any provision of, or add any provision to, the CPI Certificate
of Incorporation or Bylaws; (x) with certain exceptions, redeem, purchase or
otherwise acquire for value any shares of CPI Capital Stock; or (xi) issue any
shares of CPI Preferred Stock other than shares of CPI Series A, B, C, D, E, F
or G Preferred Stock.
In addition, without the approval of the holders of a majority of shares of
a given series of CPI Preferred Stock, CPI shall not amend or repeal any
provision of, or add any provision to, the CPI Certificate of Incorporation if
such action would change any of the express powers, preferences or special
rights provided for such series in the CPI Certificate of Incorporation so as to
affect such series adversely under the DGCL.
107
<PAGE> 121
Classified Board of Directors. A classified board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. The DGCL permits, but does not require, a classified board of
directors, pursuant to which the directors can be divided into as many as three
classes with staggered terms of office, with only one class of directors
standing for election each year. The CPHI charter documents provide for a
classified board of directors, with only one class out of three being elected
each year to a three year term. The CPI charter documents do not include a
classified board. Rather, CPI's directors are elected at each annual
stockholders' meeting, and hold office until his or her successor is elected and
qualified, or until his or her earlier resignation or removal.
Removal of Directors. Under the DGCL, if a corporation has a classified
board, the stockholders may remove a director only for cause, unless the
certificate of incorporation provides otherwise. The CPHI Certificate of
Incorporation does not provide otherwise; therefore, a director may only be
removed for cause by a majority vote of the stockholders entitled to vote. The
CPI Bylaws, however, provide that a majority vote of the stockholders entitled
to vote may remove a director with or without cause.
Limitation on Directors' Liability; Indemnification of Directors and
Officers. Section 102 of the DGCL allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Section 102 of the DGCL does
not, however, permit a corporation to limit or eliminate the personal liability
of a director for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
intentional or negligent payment of unlawful dividends or an unlawful stock
purchase or redemption, or (iv) any transaction from which the director derived
an improper personal benefit.
Both the CPHI Certificate of Incorporation and the CPI Certificate of
Incorporation provide for limitations on the personal liability of any director
to the extent permitted by the DGCL.
In addition, the charter documents of CPHI and CPI provide for
indemnification of directors and executive officers. Both corporations' bylaws
provide that each such corporation shall, to the maximum extent and in the
manner permitted by the law, indemnify each of its directors and officers
against expenses (including attorneys' fees), judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that such person is or was an agent of the
corporation.
Under Section 145 of the DGCL, other than an action brought by or in the
right of the corporation, indemnification is available if it is determined that
the proposed indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceedings, had no reasonable cause to
believe his or her conduct was unlawful. In actions brought by or in the right
of the corporation, such indemnification is limited to expenses (including
attorneys' fees) actually and reasonably incurred and permitted only if the
indemnitee acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person is adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action was brought determines that, despite
the adjudication of liability but in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expenses
which the court deems proper. To the extent that the proposed indemnitee has
been successful in defense of any action, suit or proceeding, he or she must be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the action.
Amendments to the Certificate of Incorporation. Under the DGCL, a
corporation's certificate of incorporation can be amended by the affirmative
vote of the board of directors and approved by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon, unless
the certificate of incorporation requires the vote of a larger portion of the
shares. The CPHI Certificate of Incorporation requires approval of at least
two-thirds of the voting power of the outstanding shares of voting stock to
amend the provisions contained in Articles V, VI and VII thereof. Article V
makes provisions for the CPHI Board, including the number of directors, status
as a classified board, resignations, vacancies and committees, as well
108
<PAGE> 122
as other corporate actions, including amendment to the CPHI Bylaws, written
consent of the CPHI stockholders and special meetings. Article VI provides for
director indemnification while Article VII provides for amendment to the CPHI
Certificate of Incorporation.
By contrast, the CPI Certificate provides that holders of CPI Preferred
Stock have the right to a separate class vote in addition to the vote with
respect to certain amendments to the CPI Certificate of Incorporation. See
"-- Class Votes".
Power to Call Special Stockholders' Meeting; Action By Consent. Under the
DGCL, a special meeting of stockholders may be called by the board of directors
or by any other person authorized to do so in the corporation's certificate of
incorporation or bylaws. The CPHI Bylaws provide that special meetings of
stockholders may be called only by the Chairman of the CPHI Board, the Chief
Executive Officer or the CPHI Board pursuant to a resolution adopted by a
majority of the total number of authorized directors. Pursuant to the CPI
Bylaws, a special meeting of the CPI stockholders may be called at any time by
the Chairman of the CPI Board or by the President, and shall be called by the
Chairman of the CPI Board, the President or the Secretary at the written request
of a majority of the CPI Board or at the written request to the Secretary of CPI
stockholders owning not less than 20% of the votes of the entire capital stock
of CPI issued and outstanding that are entitled to vote for the election of
directors. CPI allows stockholders to take action by written consent without a
meeting whereas action by written consent is not available under the CPHI
charter documents, unless the consent is unanimous.
Dividends and Repurchases of Shares. The DGCL permits a corporation,
unless otherwise restricted by its certificate of incorporation, to declare and
pay dividends out of its surplus or, if there is no surplus, out of net profits
for the fiscal year in which the dividend is declared or for the preceding
fiscal year as long as the amount of capital of the corporation is not less than
the aggregate amount of the capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets.
Neither the CPHI Certificate of Incorporation nor the CPI Certificate of
Incorporation contains any such restrictions on such corporation's ability to
declare and pay dividends except that the CPI Certificate of Incorporation
provides that no dividends (other than those payable solely in CPI Common Stock
and/or rights to acquire CPI Common Stock) shall be declared, paid or set apart
for payment on the CPI Common Stock unless a dividend is concurrently declared,
paid or set apart for payment, as the case may be, on all outstanding shares of
CPI Preferred Stock in an amount as set forth in CPI Certificate of
Incorporation.
In addition, the CPHI Bylaws permit the CPHI Board, before payment of any
dividend, to set aside out of any funds available for dividends such sum or sums
as the CPHI Board from time to time, in its absolute discretion, thinks proper
as a reserve or reserves to meeting contingencies, or for equalizing dividends
or for repairing or maintaining any property of CPHI or for such other purposes
as the CPHI Board shall think conducive to the interest of CPHI.
The DGCL generally provides that a corporation may redeem or repurchase its
shares only if such redemption or repurchase would not impair the capital of the
corporation. The ability of a Delaware corporation to pay dividends on, or to
make repurchases or redemptions of, its shares is dependent on the financial
status of the corporation standing alone and not on a consolidated basis. In
determining the amount of surplus of a Delaware corporation, the assets of the
corporation, including stock of subsidiaries owned by the corporation, must be
valued at their fair market value as determined by the board of directors,
regardless of their historical book value.
Amendment of Bylaws. Section 109 of the DGCL provides that the
stockholders entitled to vote have the power to adopt, amend or repeal bylaws
and that a corporation may confer, in its certificate of incorporation, such
powers on the board of directors. Both CPHI and CPI have conferred such power of
amendment upon their boards of directors. The CPHI Bylaws further provide that
its Bylaws may be altered or amended, or new Bylaws adopted, by the affirmative
vote of two-thirds of the voting power then outstanding.
Approval of Certain Corporate Transactions. Under the DGCL, any merger,
consolidation or sale, lease or exchange of all or substantially all of the
assets (an "Extraordinary Event") must be approved by the board
109
<PAGE> 123
of directors and by the affirmative vote of a majority of the outstanding shares
entitled to vote. The CPHI Certificate of Incorporation does not provide for any
additional vote that would be required to approve such a transaction. The CPI
Certificate of Incorporation provides that the CPI Additional Approval is
required with respect to most Extraordinary Events and certain other
transactions. The CPI Certificate of Incorporation also requires that, unless
the Board gives its unanimous approval, CPI shall not take certain action
without further stockholder vote. See "-- Class Votes."
Certain Business Combinations; Anti-Takeover Provisions. Section 203 of
the DGCL prohibits a corporation from engaging in any business combination with
an interested stockholder (defined as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation and any entity or
person associated with, affiliated with or controlling or controlled by such
entity or person) for a period of three years after the time that the
stockholder became an interested stockholder unless (i) prior to that time, the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction pursuant to which the
person became an interested stockholder, such stockholder owned 85% or more of
the outstanding voting stock at the time the transaction commenced (excluding
shares owned by directors and officers and shares owned by employee stock option
plans in which the participants cannot determine confidentially whether or not
the shares would be tendered in response to a tender or an exchange offer), or
(iii) at or subsequent to the time of the transaction, the business combination
is approved by the corporation's board of directors and by a vote at a meeting
(and not by written consent) of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder.
Section 203 applies to Delaware corporations that have a class of voting
stock (i) listed on a national securities exchange, (ii) authorized for
quotation by the Nasdaq Stock Market, Inc. or (iii) held of record by more than
2,000 stockholders. Even if Section 203 would otherwise apply, a Delaware
corporation may elect in its certificate of incorporation or bylaws not to be
governed by Section 203. Any amendment to such a provision must be approved by
the stockholders and may not be further amended by the board of directors.
Since CPHI is authorized for quotation by the Nasdaq Stock Market, Inc. and
as it has not opted out of Section 203 as set forth above, CPHI is subject to
the anti-takeover provisions of Section 203 of the DGCL. Section 203 does not
currently apply to CPI since CPI does not meet any of the criteria set forth
above.
Appraisal Rights. Under the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in an amount equal to the "fair value" of the
shares held by such stockholder (as determined by the Delaware Court of
Chancery) in lieu of the consideration such stockholder may otherwise receive in
the transaction.
Under the DGCL, appraisal rights are not available to: (i) stockholders
with respect to a merger or consolidation by a corporation, the shares of which
are either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or are held of record by more than 2,000
holders if such stockholders receive only (A) shares of the surviving
corporation or shares of any other corporation which are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or are held of record by more than 2,000 holders and (B) cash in
lieu of fractional shares; or (ii) stockholders of a corporation surviving a
merger if no vote of the stockholders of the surviving corporation is required
to approve the merger because, among other things, the number of shares to be
issued in the merger does not exceed twenty percent (20%) of the shares of the
surviving corporation outstanding immediately prior to the merger, and if
certain other conditions are met.
Appraisal rights are available to stockholders of CPI with respect to the
CPI Merger. See "Approval of the Transactions -- Rights of Dissenting
Stockholders".
Registration Rights. Pursuant to the CPI Stockholders' Agreement, certain
holders of CPI Capital Stock currently have registration rights with respect to
such shares. The CPI Stockholders' Agreement
110
<PAGE> 124
provides that such holders may (i) request registration of Registrable
Securities (as defined in the CPI Stockholders' Agreement) (subject to certain
limitations and restrictions, including a limitation as to the offering price),
(ii) include their shares with any registration effected by CPI (subject to
certain restrictions and limitations), and (iii) request that CPI effect
registrations pursuant to a Registration Statement on Form S-3 (subject to
certain restrictions and limitations).
Upon the consummation of the Transactions, CPHI will assume CPI's
obligations under the CPI Stockholders' Agreement. Pursuant to the terms of the
Reorganization Agreement, CPI shall, however, use all reasonable efforts to
provide that any Holder (as defined in the CPI Stockholders' Agreement) shall
not request any registration until the earlier of (i) 90 days after the
effective date of a registration statement for the first public offering of
securities of CPHI following the Effective Time and (ii) the first anniversary
of the Effective Time.
Liquidation Rights. Section 281 of the DGCL provides that, upon the
dissolution of a corporation, and after the satisfaction of payment of all
claims and obligations, any remaining assets shall be distributed to the
stockholders ratably. No stockholders of CPHI Common Stock will have a
liquidation preference. Under the CPI Certificate of Incorporation, if CPI is
voluntarily or involuntarily liquidated, dissolved or wound up, then the holders
of CPI Preferred Stock are entitled to receive a liquidation preference, prior
and in preference to, any distribution of the remaining assets to the holders of
CPI Common Stock.
Redemption Provisions. Pursuant to the CPI Certificate of Incorporation,
subject to certain limitations and restrictions, CPI may, at its option, offer
to redeem, and thereafter redeem out of the funds of CPI legally available
therefor, some or all of the outstanding shares of any class or series of CPI
Capital Stock on such terms as CPI shall determine. In addition, upon the
closing of any sale of CPI Common Stock in a firm commitment, underwritten
public offering registered under the Securities Act, CPI is required to redeem
all of the CPI Redeemable Preferred Stock at a redemption price of $20.00 per
share. There are no redemption provisions in the CPHI charter documents.
Conversion Rights. Pursuant to the CPI Certificate of Incorporation, the
holders of CPI Preferred Stock have certain conversion rights including the
right (i) upon the option of the holder of CPI Preferred Stock, to convert each
share of CPI Preferred Stock of any series into such number of fully paid and
nonassessable shares of CPI Common Stock determined by dividing the Initial
Value (as defined in the CPI Certificate of Incorporation) for such series by
the Conversion Price (as defined in the CPI Certificate of Incorporation) then
in effect for such series (as set forth in the CPI Certificate of
Incorporation), and (ii) that each share of CPI Preferred Stock of a particular
series shall be automatically converted into fully paid and nonassessable shares
of CPI Common Stock at the Conversion Price then in effect for such series,
without any action on the part of either CPI or the holder thereof, upon the
earlier to occur of the following: (A) the date specified by vote or written
consent or agreement of the holders of a least 67% of the shares of such series
then outstanding; (B) the date specified by resolution of the CPI Board at such
time as there are outstanding less than 25% of the number of originally
authorized shares of such series; and (C) immediately upon the closing of the
sale of CPI Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act and resulting in aggregate proceeds to CPI
and/or the selling stockholders of not less than $10,000,000 (subject to certain
exceptions). The CPHI Certificate of Incorporation gives no conversion rights to
any holders of CPHI Common Stock.
COMPARISON OF STOCKHOLDER RIGHTS WITH RESPECT TO CPHI AND TSENG
CPHI is organized under the laws of the State of Delaware and is subject to
the DGCL and Tseng is organized under the laws of the State of Utah and is
subject to the UBCA. Any differences, therefore, in the rights of holders of
CPHI Common Stock and Tseng Common Stock arise from the differences in
applicable law as well as the differences in the companies' charter documents.
Authorized Capital. The authorized capital stock of Tseng consists of
50,000,000 shares of common stock, $.005 par value. The authorized capital of
CPHI is set forth under "Description of CPHI Capital Stock".
111
<PAGE> 125
Classified Board of Directors. A classified board is one on which a
certain number, but not all, of the directors are elected on a rotating basis
each year. The DGCL permits, but does not require, a classified board of
directors, pursuant to which the directors can be divided into as many as three
classes with staggered terms of office, with only one class of directors
standing for election each year. The CPHI charter documents, however, do provide
for a classified board of directors, with only one class out of three being
elected each year to a three year term. The Tseng charter documents provide that
directors shall be elected at each annual stockholders' meeting and shall hold
office until the next annual meeting of stockholders and until his or her
successor is elected and qualified, or until his or her earlier death,
resignation or removal.
Removal of Directors. Under the DGCL, if a corporation has a classified
board, the stockholders may remove a director only for cause, unless the
certificate of incorporation provides otherwise. The CPHI Certificate of
Incorporation does not provide otherwise; therefore, a director may only be
removed with cause by a majority vote of the stockholders entitled to vote.
Regardless of whether a board of directors is classified, UBCA provides that the
stockholders of a Utah corporation may remove one or more directors with or
without cause, unless the articles of incorporation provide that directors may
be removed only for cause. Further, the UBCA provides that a director may be
removed only at a meeting called for that purpose, and requires that the notice
of the meeting state that the purpose or one of the purposes of the meeting is
the removal of the director. The Tseng charter documents provide that a director
may be removed by a vote of the stockholders if the number of votes cast to
remove such director exceeds the number of votes cast against removal.
Limitation on Directors' Liability; Indemnification of Directors and
Officers. Section 102 of the DGCL permits a corporation to adopt provisions in
its certificate of incorporation eliminating or limiting the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. Section 102 of the DGCL does not,
however, permit a corporation to limit or eliminate the personal liability of a
director for: (i) any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
intentional or negligent payment of unlawful dividends or unlawful stock
purchase or redemption; or (iv) any transaction in which the director derived an
improper personal benefit. The CPHI Certificate of Incorporation provides for
limitations on the personal liability of any director to the extent permitted by
the DGCL.
Similarly, the UBCA permits a corporation, if so provided in its articles
of incorporation, its bylaws or in a stockholder resolution, to eliminate or
limit the personal liability of a director to the corporation or its
stockholders for monetary damages due to any action taken or any failure to take
action as a director, except liability for: (i) improper financial benefits
received by a director; (ii) intentional infliction of harm on the corporation
or its stockholders; (iii) payment of dividends to stockholders making the
corporation insolvent; and (iv) intentional violations of criminal law. The
Tseng charter documents eliminate the liability of officers and directors of the
corporation for monetary damages to the fullest extent permissible under UBCA.
Under Section 145 of the DGCL, other than an action brought by or in the
right of the corporation, indemnification is available if it is determined that
the proposed indemnitee acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceedings, had no reasonable cause to
believe his or her conduct was unlawful. In actions brought by or in the right
of the corporation, such indemnification is limited to expenses (including
attorneys' fees) actually and reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person is adjudged to be
liable to the corporation, unless and only to the extent that the court in which
the action was brought determines that, despite the adjudication of liability
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses which the court deems proper.
To the extent that the proposed indemnitee has been successful in defense of any
action, suit or proceeding, he or she must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the action. The CPHI Bylaws provide that CPHI shall, to the
maximum extent and in the manner permitted by the law, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and
112
<PAGE> 126
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an agent of CPHI.
Under the UBCA, a corporation may indemnify its current and former
directors, officers, employees and other agents made party to any proceeding
because of their relationship to the corporation against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if that person acted in good faith and
reasonably believed his or her conduct to be in the corporation's best
interests, and, in the case of a criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The UBCA also permits a corporation to
indemnify its directors, officers, employees and other agents in connection with
a proceeding by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that the person is such an agent of the corporation
against expenses actually and reasonably incurred by such person in connection
with the proceeding. The UBCA prohibits the indemnification of an agent in
connection with a proceeding by or in the right of the corporation in which the
director, officer, employee or agent was adjudged liable to the corporation, or
in connection with any other proceeding in which the agent is adjudged liable on
the basis that the agent derived an improper personal benefit. The Tseng charter
documents permit indemnification of all such persons whom it has the power to
indemnify to the fullest extent legally permissible under the UBCA.
Further, the UBCA permits a corporation to advance expenses incurred by a
director, officer, employee or agent who is a party to a proceeding in advance
of final disposition of the proceeding if that person provides: (a) a written
affirmation of his good faith belief that he acted in good faith, in the
corporation's best interests and, in the case of a criminal proceeding, had no
reasonable cause to believe his conduct was unlawful; (b) a written undertaking
by or on behalf of that person to repay the advance if it is ultimately
determined that such person's conduct did not meet the statutory standard
required for indemnification; and (c) the corporation determines under the facts
then known that indemnification would not be precluded. The Tseng charter
documents permit such advances.
Amendments to the Certificate of Incorporation or the Articles of
Incorporation. Under the DGCL, a corporation's certificate of incorporation can
be amended by the affirmative vote of the board of directors and approved by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon, unless the certificate of incorporation requires the vote of a
larger portion of the shares. The CPHI Certificate of Incorporation requires
approval of at least two-thirds of the voting power of the outstanding shares of
voting stock to amend the provisions contained in Articles V, VI, and VII
thereof. Article V makes provisions for the CPHI Board, including the number of
directors, status as a classified board, resignations, vacancies and committees,
as well as other corporate actions, including amendment to the CPHI Bylaws,
written consent of the CPHI stockholders and special meetings. Article VI
provides for director indemnification while Article VII provides for amendment
to the Certificate of Incorporation.
UBCA provides that, for an amendment to the articles of incorporation of a
Utah corporation to be affected, (i) the board of directors must recommend the
amendment to the stockholders (unless the board determines that because of a
conflict of interest or other special circumstances it should not make a
recommendation and communicates the basis for its determination to the
stockholders), and (ii) unless the articles of incorporation, the bylaws (if
authorized by the articles of incorporation) or a resolution of the board of
directors requires a greater number, the amendment must be approved by (A) a
majority of the votes entitled to be cast on the amendment by any voting group
as to which the amendment would provide appraisal rights, (B) a majority of the
votes entitled to be cast on the amendment by any voting group as to which the
amendment would materially and adversely affect the voting group's rights in
shares (including preferential rights, rights in redemption, preemptive rights,
voting rights or rights in certain reverse splits), and (C) a majority of the
votes cast for all other voting groups (voting separately, as applicable, with
shares constituting a quorum present for each voting group). Notwithstanding the
foregoing, unless provided otherwise in the articles of incorporation, a
corporation's board of directors may, without stockholder approval, amend the
corporation's articles of incorporation with respect to certain corporate
issues, including: (i) deleting the names and addresses of incorporators or
initial directors from the articles of incorporation; (ii) deleting the name and
address of the initial registered agent or registered office; (iii) changing
each issued and unissued authorized share of a class into a greater number of
whole shares if the corporation has only shares of that
113
<PAGE> 127
class outstanding; (iv) changing the corporate name by adding the words
"corporation," "incorporated," or "company" or an abbreviation of those words,
by substituting any such word or abbreviation for a similar word or abbreviation
in the name; and (v) making any other change expressly permitted by the UBCA to
be made without stockholder action. The Tseng Articles of Incorporation provide
that the Tseng Articles of Incorporation may be amended by the affirmative vote
of a majority of the shares entitled to vote on each such amendment.
Power to Call Special Stockholders' Meeting; Action by Consent. Under the
DGCL, a special meeting of stockholders may be called by the board of directors
or by any other person authorized to do so in the corporation's certificate of
incorporation or bylaws. The CPHI Bylaws provide that special meetings of
stockholders may be called only by the Chairman of the CPHI Board, the Chief
Executive Officer or the CPHI Board pursuant to a resolution adopted by a
majority of the total number of authorized directors. Under the UBCA, special
meetings of the stockholders may be called by the board of directors, the person
or persons authorized by the corporation's bylaws to call a special meeting, or
the holders of shares representing at least 10% of all votes entitled to be cast
on any issue proposed to be considered at the special meeting. The Tseng Bylaws
provide that special meetings of stockholders may be called by the Tseng Board
or by the holders representing at least 10% of the votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting.
Both the DGCL and UBCA allow stockholders to take action without a meeting
upon the written consent of stockholders having not less than the minimum number
of votes that would be necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and acting although the UBCA
further provides that, unless the stockholders of any Utah corporation in
existence prior to July 1, 1992 adopted a resolution permitting action by less
than unanimous written consent, the stockholders are only permitted to act by
unanimous written consent. The CPHI charter documents that are effective upon
the consummation of the Transactions do not provide for stockholder action by
written consent, while the Tseng charter documents provide for action by the
stockholders by written consent of stockholders having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which all shares entitled to vote thereon were present and acting. The UBCA
further requires that any written consent for the election of directors must be
unanimous.
Dividends. The DGCL permits a corporation, unless otherwise restricted by
its certificate of incorporation, to declare and pay dividends out of its
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared or for the preceding fiscal year as long as the
amount of capital of the corporation is not less than the aggregate amount of
the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. The CPHI Bylaws do not
further limit the availability of dividends but do, however, allow the CPHI
Board to set aside out of any funds of the corporation available for dividends
such sum or sums as the CPHI Board from time to time, in its absolute
discretion, thinks, proper as a reserve or reserves to meet contingencies, for
equalizing dividends, or for repairing or maintaining any property of CPHI or
for such other purposes as the CPHI Board shall think conducive to the interest
of CPHI. UBCA provides that a corporation is prohibited from making a
distribution to its stockholders if, after giving effect to the distribution,
the corporation would not be able to pay its debts as they become due in the
usual course of business or the corporation's total assets would be less than
its total liabilities (plus any amounts necessary to satisfy any preferential
rights). The Tseng charter documents do not include additional dividend
provisions.
Amendment of Bylaws. Section 109 of the DGCL provides that the
stockholders entitled to vote have the power to adopt, amend or repeal bylaws
and that a corporation may confer, in its certificate of incorporation, such
powers on the board of directors. CPHI has conferred such power of amendment
upon the CPHI Board. The CPHI Bylaws further provide that the CPHI Bylaws may be
altered or amended, or new bylaws adopted, by the affirmative vote of two-thirds
of the voting power then outstanding. The UBCA provides that a corporation's
board of directors may amend the corporation's bylaws at any time, except to the
extent that the articles of incorporation, the bylaws or the UBCA reserve that
power exclusively to the stockholders. In addition, a corporation's stockholders
may amend the corporation's bylaws at anytime, even though the bylaws may also
be amended by the board of directors. A bylaw that fixes a greater quorum or
114
<PAGE> 128
voting requirement for the board of directors of a corporation than is required
by the UBCA may be amended, however, (i) if originally adopted by the
stockholders, only by the stockholders, or (ii) if originally adopted by the
board of directors, by the stockholders or unless otherwise provided in the
corporation's articles of incorporation or bylaws, by the board of directors.
The Tseng Bylaws provide that the Tseng Bylaws may be amended by a vote of a
majority of the Tseng Board in office or by a vote of a majority of the
stockholders.
Approval of Certain Corporate Transactions. Under the DGCL, an
Extraordinary Event (as defined above) must be approved by the board of
directors and by the affirmative vote of a majority of the outstanding shares
entitled to vote. The CPHI Certificate does not provide for any additional vote
that would be required to approve such a transaction.
Under the UBCA, a merger, share exchange or sale of all or substantially
all of the assets of a corporation (other than a sale in the ordinary course of
the corporation's business) requires the approval of a majority of the
outstanding shares of the corporation (unless the articles of incorporation, the
bylaws or a resolution of the board of directors requires a greater number). The
Tseng charter documents do not provide for any additional vote that would be
required to approve such a transaction.
Certain Business Combinations; Anti-Takeover Provisions. Section 203 of
the DGCL prohibits a corporation from engaging in any business combination with
an interested stockholder (defined as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation and any entity or
person associated with, affiliated with or controlling or controlled by such
entity or person) for a period of three years after the time that the
stockholder became an interested stockholder unless (i) prior to that time, the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction pursuant to which the
person became an interested stockholder, such stockholder owned 85% or more of
the outstanding voting stock at the time the transaction commenced (excluding
shares owned by directors and officers and shares owned by employee stock option
plans in which the participants cannot determine confidentially whether or not
the shares would be tendered in response to a tender or an exchange offer), or
(iii) at or subsequent to the time of the transaction, the business combination
is approved by the corporation's board of directors and by a vote at a meeting
(and not by written consent) of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder.
Section 203 applies to Delaware corporations that have a class of voting
stock (i) listed on a national securities exchange, (ii) authorized for
quotation by The Nasdaq Stock Market, Inc. or (iii) held of record by more than
2,000 stockholders. Even if Section 203 would otherwise apply, a Delaware
corporation may elect in its certificate of incorporation or bylaws, not to be
governed by Section 203. Any amendment to such a provision must be approved by
the stockholders and may not be further amended by the board of directors. Since
CPHI is or will be authorized for quotation by The Nasdaq Stock Market, Inc. and
as it has not opted out of Section 203 as set forth above, CPHI is subject to
the anti-takeover provisions of Section 203 of the DGCL.
The UBCA provides that Control Shares of an Issuing Public Corporation
acquired in a Control Share Acquisition shall have the same rights as they had
before such acquisition only to the extent granted by resolution of the
stockholders of the corporation. Control Shares is defined as shares that, when
combined with all other voting shares held by the stockholder, would entitle the
holder to vote in the election of directors within any of the following ranges
of voting power: (i) one-fifth or more but less than one-third of all voting
power; (ii) one-third or more but less than a majority of all voting power; or
(iii) a majority or more of all voting power. An Issuing Public Corporation is
defined as a Utah corporation with: (i) 100 or more stockholders; (ii) its
principal place of business, its principal office, or substantial assets within
the state; and (iii) (A) more than 10% of its stockholders resident in Utah; (B)
more than 10% of its shares owned by Utah residents; or (C) 10,000 stockholders
resident in the state. A Utah corporation's articles of incorporation or bylaws
may exempt the corporation's shares from these provisions, as long as such
exemption is adopted before the control share acquisition in question.
Appraisal Rights. Under the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which
115
<PAGE> 129
such stockholder may receive cash in an amount equal to the "fair value" of the
shares held by such stockholder (as determined by the Delaware Court of
Chancery) in lieu of the consideration such stockholder may otherwise receive in
the transaction.
Under the DGCL, appraisal rights are not available to: (i) stockholders
with respect to a merger or consolidation by a corporation, the shares of which
are either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or are held of record by more than 2,000
holders if such stockholders receive only (A) shares of the surviving
corporation or shares of any other corporation which are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or are held of record by more than 2,000 holders and (B) cash in
lieu of fractional shares; or (ii) stockholders of a corporation surviving a
merger if no vote of the stockholders of the surviving corporation is required
to approve the merger because, among other things, the number of shares to be
issued in the merger does not exceed twenty percent (20%) of the shares of the
surviving corporation outstanding immediately prior to the merger, and if
certain other conditions are met.
UBCA provides that, in connection with a merger, share exchange or sale,
lease, exchange or other disposition of all or substantially all of the assets
of a corporation (other than in the ordinary course of the corporation's
business), a dissenting stockholder, after complying with certain procedures, is
entitled to payment from the corporation of the fair value of the stockholder's
shares, as estimated by the corporation. If the stockholder is unwilling to
accept the corporation's estimate, the stockholder may provide the corporation
with an estimate of the fair value and demand payment of that amount. If the
corporation is unwilling to pay that amount, the corporation shall apply for
judicial determination of the fair value. Unless the articles of incorporation,
bylaws or a resolution of the board of directors provides otherwise,
stockholders are not entitled to appraisal rights when the shares are listed on
a national securities exchange or the National Market System of NASDAQ, or are
held of record by more than 2,000 holders. This exception does not apply if,
pursuant to the corporate action, the stockholder will receive anything except
(i) shares of the surviving corporation, (ii) shares of a corporation that is or
will be listed on a national securities exchange, the National Market System of
NASDAQ, or held of record by more than 2,000 holders, (iii) cash in lieu of
fractional shares or (iv) any combination of the foregoing. The Tseng charter
documents do not make any exceptions to this application of the UBCA.
Tseng stockholders are not entitled to appraisal rights in connection with
the Tseng Merger.
Quorum of Directors. DGCL provides that, unless a greater or lesser number
is required for a quorum by the certificate of incorporation or bylaws (but in
no event less than one-third of the votes of the entire board or committee), a
majority of the directors then in office shall constitute a quorum. The CPHI
Bylaws provide that, except with respect to indemnification questions for which
a quorum shall be one-third of the exact number of directors fixed from time to
time in accordance with the CPHI Certificate of Incorporation, a quorum of the
CPHI Board shall consist of a majority of the exact number of directors fixed
from time to time in accordance with the CPHI Certificate of Incorporation. UBCA
provides that a quorum of the board of directors consists of a majority of the
fixed number of directors if the corporation has a fixed board size, or if the
corporation's bylaws provide for a variable board size, a majority of the number
of directors prescribed, or if no number is prescribed, the number in office.
The articles of incorporation or the bylaws of a corporation may establish a
higher or lower number of directors to constitute a quorum, but in no event may
the number be less than one-third of the number of directors. The Tseng Bylaws
provide that a majority of the directors in office immediately before the
meeting begins shall be necessary to constitute a quorum for the transaction of
business.
Number of Directors; Vacancy. The CPHI charter documents provide that the
number of members of the Board shall be fixed exclusively by one or more
resolutions adopted by the CPHI Board. The CPHI charter documents provide that a
vacancy among the directors shall be filled only by the affirmative vote of a
majority of the directors then in office, even less than a quorum of the CPHI
Board, unless the CPHI Board
116
<PAGE> 130
determines by resolution that any such vacancies or newly created directorships
shall be filled by the stockholders.
The Tseng Bylaws provide that the Tseng Board consists of not less than
three, nor more than nine directors with the actual number being determined by
resolutions adopted by the Board of Directors. The Tseng Bylaws provide that a
vacancy among the directors may be filled for the unexpired term by the
affirmative vote of a majority of the remaining directors in office, though less
than a quorum, or by a sole remaining director.
Inspection of Corporate Books and Records. DGCL provides that any
stockholder of record, upon written demand under oath stating the purpose
thereof, has the right during the usual hours for business to inspect for any
proper purpose, a corporation's stock ledger, a list of its stockholders and its
other books and records and to make copies or extract therefrom. UBCA also
provides that, upon providing the corporation with a written demand at least
five business days before the date the stockholder wishes to make an inspection,
a stockholder and his agents and attorneys are entitled to inspect and copy,
during regular business hours (i) the certificate of incorporation, bylaws,
minutes of stockholders meetings for the previous three years, written
communications to stockholders for the previous three years, names and business
addresses of the officers and directors, the most recent annual report delivered
to the State of Utah, and financial statements for the previous three years and
(ii) if the stockholder is acting in good faith and for a proper purpose,
excerpts from the records of the board of directors and stockholders (including
minutes of meetings, written consents and waivers of notices), accounting
records and stockholder lists.
Transactions with Officers and Directors. Under the DGCL, contracts or
transactions in which a director or officer is financially interested are not
automatically void or voidable, if approved by the stockholders or the
directors. Approval by the stockholders requires only a simple majority. Board
approval must be by a majority of the disinterested directors, but interested
directors may be counted for purposes of establishing a quorum. The UBCA
provides that every director who is in any way, directly or indirectly,
interested in a proposed contract or transaction with the corporation is liable
to account to the corporation for any profit made as a consequence of the
corporation entering into such transaction unless such person (i) disclosed his
or her interest at the meeting of directors where the proposed transaction was
first considered, and, after his or her disclosure, the transaction was approved
by the a majority of the disinterested directors, (ii) disclosed his or her
interest prior to a meeting or written consent of stockholders and, after his or
her disclosure, the transaction was approved by the a majority of the
disinterested shares, or (iii) can show that the contract or transaction was
fair and reasonable to the corporation.
Quorum of Stockholders. The DGCL provides that, unless the certificate of
incorporation or bylaws of a corporation specifies the number of shares and/or
the amount of the securities having voting power of which shall be present (of
represented by a proxy) at a meeting of stockholders to constitute a quorum, a
majority of the shares entitled to vote, present in person or represented by
proxy, shall constitute a quorum at a meeting of stockholders. In no event,
however, may a quorum consist of less than one-third of the shares entitled to
vote at the meeting. The CPHI Bylaws provide that holders of a majority of the
outstanding shares of stock entitled to vote shall constitute a quorum.
Similarly, the UBCA provides that, unless the corporation's articles of
incorporation provide otherwise, a majority of the votes entitled to be cast in
a matter constitutes a quorum for action on a particular matter. The Tseng
Bylaws state that the presence of stockholders entitled to cast a majority of
the votes that all stockholders are entitled to cast in a particular matter to
be acted upon at the meeting shall constitute a quorum.
Inspection of Stockholder List. The DGCL requires that a Delaware
corporation make its stockholder list available for inspection by stockholders
prior to any meeting of stockholders for ten days prior to the meeting as well
as at the meeting. Further, the willful neglect or refusal by the directors to
produce such list at a meeting for the election of directors will result in
their ineligibility for election to any office at such meeting. The CPHI Bylaws
provide similarly.
117
<PAGE> 131
The UBCA requires that a Utah corporation make its stockholder list
available for inspection by any stockholder for a period beginning on the
earlier of ten days before the meeting for which the list was prepared or two
business days after notice of the meeting is given, and continuing through the
meeting and any adjournments thereof. If the corporation refuses a stockholder
inspection of the stockholder list as provided above, the stockholder may apply
to the district court of the county where the corporation's principal office
(or, if none, its registered office) is located, and the district court may
summarily order inspection or copying of the list at the corporation's expense
and may postpone the meeting until the inspection or copying is complete. The
Tseng Bylaws provide similarly.
Derivative Suits. Under the DGCL, in any derivative suits instituted by a
stockholder of a corporation, the plaintiff must specifically aver that he or
she was a stockholder of the corporation at the time of the transaction of which
he complains or that his stock thereafter devolved upon him by operation of law.
Under the UBCA, a person may not commence a derivative action unless the
person was a stockholder of the corporation at the time when the transactions
complained of occurred (unless the person became a stockholder through transfer
by operation of law from a person who was a stockholder at the time). The
complaint must be verified and allege with particularity (i) the demand made on
the board of directors and that either the demand was refused or ignored by the
board of directors, or (ii) if no demand was made on the board of directors, why
the person did not make the demand. If a court finds that the proceeding was
commenced without reasonable cause, the court may require the plaintiff to pay
the defendant's reasonable expenses, including counsel fees.
STOCKHOLDER PROPOSAL
Proposals of stockholders of CPHI which are intended to be presented by
such stockholders at CPHI's next annual meeting of stockholders must be received
by the Secretary of CPHI no later than , 199 in order to be
included in the proxy statement and form of proxy relating to that meeting.
EXPERTS
The audited financial statements of CPI as of December 31, 1996 and 1997,
and for each of the three years in the period ended December 31, 1997 and for
the period from inception (August 10, 1990) to December 31, 1997, included in
this Joint Proxy Statement/Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The audited financial statements of Tseng, as of December 31, 1996 and
1997, and for each of the three years in the period ended December 31, 1997,
incorporated by reference in this Joint Proxy Statement/Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
LEGAL MATTERS
The validity of the shares of CPHI Common Stock offered hereby will be
passed upon for CPHI by Cooley Godward LLP, Boulder, Colorado.
Certain legal matters in connection with the Transactions will be passed
upon for Tseng by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
REPRESENTATIVES OF INDEPENDENT ACCOUNTANTS
Representatives of Arthur Andersen LLP expect to be present at the CPI
Special Meeting and the Tseng Special Meeting, respectively. While such
representatives have stated that they do not plan to make a statement at such
meetings, they will be available to respond to appropriate questions from
stockholders in attendance.
118
<PAGE> 132
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CPI FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit) and Partners'
Investment................................................ F-5
Statements of Cash Flows.................................... F-8
Notes to Financial Statements............................... F-9
</TABLE>
F-1
<PAGE> 133
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cell Pathways, Inc.:
We have audited the accompanying balance sheets of Cell Pathways, Inc. (a
Delaware corporation in the development stage), as of December 31, 1996 and
1997, and the related statements of operations, stockholders' equity (deficit)
and partners' investment, and cash flows for each of the three years in the
period ended December 31, 1997 and for the period from inception (August 10,
1990) to December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cell Pathways, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 and for the
period from inception (August 10, 1990) to December 31, 1997, in conformity with
generally accepted accounting principles.
Denver, Colorado
February 6, 1998
F-2
<PAGE> 134
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------- JUNE 30, EQUITY
1996 1997 1998 (NOTE 1)
-------- ------- ----------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 645 $ 8,461 $20,349
Prepaid expenses and other................................ 71 179 438
-------- ------- -------
Total current assets................................ 716 8,640 20,787
-------- ------- -------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture and equipment................................... 256 518 1,224
Leasehold improvements.................................... -- 1,258 2
-------- ------- -------
256 1,776 1,226
Less-Accumulated depreciation and amortization............ (71) (133) (199)
-------- ------- -------
185 1,643 1,027
DEFERRED OFFERING COSTS..................................... -- 470 97
RESTRICTED CASH............................................. 194 199 401
DEPOSITS.................................................... 11 28 20
-------- ------- -------
$ 1,106 $10,980 $22,332
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 159 $ 209 $ 947
Accrued leasehold improvement costs....................... -- 1,053 542
Accrued compensation...................................... 109 180 103
Accrued offering costs.................................... -- 441 97
Other accrued liabilities................................. 906 1,321 351
Notes payable............................................. 49 53 --
-------- ------- -------
Total current liabilities........................... 1,223 3,257 2,040
LONG-TERM LIABILITIES:
Note payable, net of current portion...................... 62 9 --
COMMITMENTS AND CONTINGENCIES (NOTES 4 AND 8)
REDEEMABLE PREFERRED STOCK, $.01 par value, 61,250 shares
authorized, issued and outstanding, redeemable for a total
of $1,092; none issued and outstanding pro forma.......... 1 1,092 1,092 --
-------- ------- ------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible Preferred Stock, $.01 par value, 18,400,000
shares authorized, 6,277,282, 10,968,387 and 15,614,266
shares outstanding, with an aggregate liquidation
preference of $15,819, $33,092 and $55,160,
respectively; none issued and outstanding pro forma..... 15,137 32,158 53,571 --
Common Stock $.01 par value, 22,400,000 shares authorized,
2,718,845, 2,990,095 and 2,990,095 shares issued and
outstanding; 18,756,137 shares issued and outstanding
pro forma............................................... 27 30 30 188
Additional paid-in capital................................ 347 456 456 54,632
Stock subscription receivable from issuance of Convertible
Preferred Stock......................................... (3) -- (215) --
Stock subscription receivable from issuance of Common
Stock................................................... -- (37) (37) (252)
Deficit accumulated during the development stage.......... (15,688) (25,985) (34,605) (34,605)
-------- ------- ------- --------
Total stockholders' equity (deficit)................ (180) 6,622 19,200 19,963
-------- ------- ------- --------
$ 1,106 $10,980 $22,332
======== ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE> 135
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD SIX MONTHS INCEPTION
YEAR ENDED DECEMBER 31, FROM INCEPTION ENDED JUNE 30, (AUGUST 10,
------------------------------------ (AUGUST 10, 1990) ----------------------- 1990) TO
1995 1996 1997 TO DECEMBER 31, 1997 1997 1998 JUNE 30, 1998
---------- ---------- ---------- -------------------- ---------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EXPENSES:
Research and
development........... $ 2,575 $ 4,163 $ 8,757 $ 21,078 $ 3,224 $ 6,898 $ 27,976
General and
administrative........ 644 663 950 4,555 342 1,966 6,521
Provision for redemption
of the Redeemable
Preferred Stock....... -- -- 1,017 1,017 -- -- 1,017
---------- ---------- ---------- -------- ---------- ---------- -------------
Total expenses... 3,219 4,826 10,724 26,650 3,566 8,864 35,514
INTEREST INCOME........... 28 91 427 665 123 244 909
---------- ---------- ---------- -------- ---------- ---------- -------------
NET LOSS.................. $ (3,191) $ (4,735) $ (10,297) $(25,985) $ (3,443) $ (8,620) $ (34,605)
========== ========== ========== ======== ========== ========== =============
Net loss per common
share................... $ (1.39) $ (1.83) $ (3.63) $ (1.27) $ (2.88)
========== ========== ========== ========== ==========
Shares used in computing
net loss per common
share................... 2,296,167 2,587,552 2,838,814 2,718,845 2,990,095
========== ========== ========== ========== ==========
Pro forma net loss per
common share............ $ (.82) $ (.55)
========== ==========
Share used in computing
pro forma net loss per
common share............ 12,601,942 15,586,473
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 136
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND PARTNERS' INVESTMENT
FOR THE PERIOD FROM INCEPTION (AUGUST 10, 1990) TO JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
PARTNERS' ---------------- ---------------- ------------------ PAID-IN
INVESTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------ ------- ------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, Inception (August 10,
1990)............................. $ -- -- $ -- -- $ -- -- $-- $ --
Partner cash contributions in
September 1990 for Class A
Partnership units............... 406 -- -- -- -- -- -- --
Partner contribution of interest
in research grant in September
1990 for Class A
Partnership units, at historical
cost............................ 49 -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
------- ------ ------- ------- ----- --------- --- ----
BALANCE, December 31, 1990......... 455 -- -- -- -- -- -- --
Partner cash contributions in
March 1991 for Class A
Partnership units............... 406 -- -- -- -- -- -- --
Partner cash contributions in
December 1991 for Class B
Partnership units............... 897 -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
------- ------ ------- ------- ----- --------- --- ----
BALANCE, December 31, 1991......... 1,758 -- -- -- -- -- -- --
Partner cash contributions in
January and April 1992 for Class
B Partnership units............. 21 -- -- -- -- -- -- --
Partner cash contributions in
December 1992 for Class B
Partnership units............... 134 -- -- -- -- -- -- --
Partner cash contributions in
December 1992 for Class C
Partnership units............... 1,540 -- -- -- -- -- -- --
Partner cash contributions in
December 1992 for Class D
Partnership units............... 1,475 -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
------- ------ ------- ------- ----- --------- --- ----
BALANCE, December 31, 1992......... 4,928 -- -- -- -- -- -- --
Partner cash contributions in
January 1993 to March 1993 for
Class D Partnership units....... 385 -- -- -- -- -- -- --
Exchange of interests in the
Partnership in September 1993
for 872,000 shares of Series A
convertible preferred stock..... (812) -- -- 872,400 812 -- -- --
Exchange of interests in the
Partnership in September 1993
for 848,100 shares of Series B
convertible preferred stock..... (868) -- -- 848,100 868 -- -- --
Exchange of interests in the
Partnership in September 1993
for 700,000 shares of Series C
convertible preferred stock..... (1,540) -- -- 700,000 1,540 -- -- --
Exchange of interests in the
Partnership in September 1993
for 616,808 shares of Series D
convertible preferred stock..... (1,860) -- -- 616,808 1,860 -- -- --
Exchange of interests in the
Partnership in September 1993
for 61,250 shares of redeemable
preferred stock................. (1) 61,250 1 -- -- -- -- --
Exchange of interests in the
Partnership in September 1993
for 2,279,500 shares of common
stock........................... (232) -- -- -- -- 2,279,500 23 209
Net loss.......................... $ -- -- $ -- -- $ -- -- $-- $ --
------- ------ ------- ------- ----- --------- --- ----
<CAPTION>
STOCK STOCK
SUBSCRIPTION SUBSCRIPTION
RECEIVABLE RECEIVABLE DEFICIT
FROM FROM ACCUMULATED
ISSUANCE OF ISSUANCE OF DURING THE
CONVERTIBLE COMMON DEVELOPMENT
PREFERRED STOCK STOCK STAGE
--------------- ------------ -----------
<S> <C> <C> <C>
BALANCE, Inception (August 10,
1990)............................. $ -- $ -- $ --
Partner cash contributions in
September 1990 for Class A
Partnership units............... -- -- --
Partner contribution of interest
in research grant in September
1990 for Class A
Partnership units, at historical
cost............................ -- -- --
Net loss.......................... -- -- (253)
------- ------- -------
BALANCE, December 31, 1990......... -- -- (253)
Partner cash contributions in
March 1991 for Class A
Partnership units............... -- -- --
Partner cash contributions in
December 1991 for Class B
Partnership units............... -- -- --
Net loss.......................... -- -- (739)
------- ------- -------
BALANCE, December 31, 1991......... -- -- (992)
Partner cash contributions in
January and April 1992 for Class
B Partnership units............. -- -- --
Partner cash contributions in
December 1992 for Class B
Partnership units............... -- -- --
Partner cash contributions in
December 1992 for Class C
Partnership units............... -- -- --
Partner cash contributions in
December 1992 for Class D
Partnership units............... -- -- --
Net loss.......................... -- -- (1,391)
------- ------- -------
BALANCE, December 31, 1992......... -- -- (2,383)
Partner cash contributions in
January 1993 to March 1993 for
Class D Partnership units....... -- -- --
Exchange of interests in the
Partnership in September 1993
for 872,000 shares of Series A
convertible preferred stock..... -- -- --
Exchange of interests in the
Partnership in September 1993
for 848,100 shares of Series B
convertible preferred stock..... -- -- --
Exchange of interests in the
Partnership in September 1993
for 700,000 shares of Series C
convertible preferred stock..... -- -- --
Exchange of interests in the
Partnership in September 1993
for 616,808 shares of Series D
convertible preferred stock..... -- -- --
Exchange of interests in the
Partnership in September 1993
for 61,250 shares of redeemable
preferred stock................. --
Exchange of interests in the
Partnership in September 1993
for 2,279,500 shares of common
stock........................... -- -- --
Net loss.......................... $ -- $ -- $(2,269)
------- ------- -------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 137
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND PARTNERS'
INVESTMENT -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 10, 1990) TO JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
PARTNERS' ---------------- -------------------- ------------------ PAID-IN
INVESTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------ ------- ---------- ------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........ $ -- 61,250 $ 1 3,037,308 $ 5,080 2,279,500 $23 $ 209
=======
Issuance of Common Stock for
services valued at $.41 per
share.......................... -- -- -- -- 16,667 -- 7
Issuance of 542,761 shares of
Series E Convertible Preferred
Stock for cash at $4.10 per
share.......................... -- -- 542,761 2,225 -- -- --
Net loss......................... -- -- -- -- -- -- --
------ ------- ---------- ------- --------- --- ------
BALANCE, December 31, 1994........ 61,250 1 3,580,069 7,305 2,296,167 23 216
Issuance of 1,121,800 shares of
Series E Convertible Preferred
Stock for cash at $3.15 per
share.......................... -- -- 1,121,800 3,534 -- -- --
Issuance of 163,701 shares of
Series E Convertible Preferred
Stock to effect the price
change from $4.10 to $3.15
(Note 3)....................... -- -- 163,701 -- -- -- --
Conversion of bridge notes
payable plus interest to
253,633 shares of Series E
Convertible Preferred stock at
a price of $3.15 per share
(Note 3)....................... -- -- 253,633 800 -- -- --
Net loss......................... -- -- -- -- -- -- --
------ ------- ---------- ------- --------- --- ------
BALANCE, December 31, 1995........ 61,250 1 5,119,203 11,639 2,296,167 23 216
Issuance of 887,661 shares of
Series E Convertible Preferred
Stock for cash at $3.15 per
share, net of offering costs of
$300........................... -- -- 887,661 2,498 -- -- --
Collection of Series E
Convertible Preferred Stock
subscription receivable........ -- -- -- -- -- -- --
Issuance of 270,270 shares of
Series F Convertible Preferred
Stock for cash at $3.70 per
share.......................... -- -- 270,270 1,000 -- -- --
Issuance of 185,000 shares of
Common Stock in February 1996
as bonuses to officers and
employees valued at $0.32 per
share.......................... -- -- -- -- 185,000 2 57
Issuance of 14,828 shares of
Common Stock in May 1996 for
consulting services, valued at
$0.32 per share................ -- -- -- -- 14,828 -- 5
Exercise of warrants to purchase
148 shares of Series E
Convertible Preferred Stock at
$3.15 per share................ -- -- 148 -- -- -- --
Exercise of options to purchase
Common Stock at $0.32 per
share.......................... -- -- -- -- 222,850 2 69
Net loss......................... -- $ -- -- $ -- -- $-- $ --
------ ------- ---------- ------- --------- --- ------
<CAPTION>
STOCK STOCK
SUBSCRIPTION SUBSCRIPTION
RECEIVABLE RECEIVABLE DEFICIT
FROM FROM ACCUMULATED
ISSUANCE OF ISSUANCE OF DURING THE
CONVERTIBLE COMMON DEVELOPMENT
PREFERRED STOCK STOCK STAGE
--------------- ------------ -----------
<S> <C> <C> <C>
BALANCE, December 31, 1993........ $ -- $ -- $ (4,652)
Issuance of Common Stock for
services valued at $.41 per
share.......................... -- -- --
Issuance of 542,761 shares of
Series E Convertible Preferred
Stock for cash at $4.10 per
share.......................... (24) -- --
Net loss......................... -- -- (3,110)
----- ---- --------
BALANCE, December 31, 1994........ (24) -- (7,762)
Issuance of 1,121,800 shares of
Series E Convertible Preferred
Stock for cash at $3.15 per
share.......................... -- -- --
Issuance of 163,701 shares of
Series E Convertible Preferred
Stock to effect the price
change from $4.10 to $3.15
(Note 3)....................... -- -- --
Conversion of bridge notes
payable plus interest to
253,633 shares of Series E
Convertible Preferred stock at
a price of $3.15 per share
(Note 3)....................... -- -- --
Net loss......................... -- -- (3,191)
----- ---- --------
BALANCE, December 31, 1995........ (24) -- (10,953)
Issuance of 887,661 shares of
Series E Convertible Preferred
Stock for cash at $3.15 per
share, net of offering costs of
$300........................... -- -- --
Collection of Series E
Convertible Preferred Stock
subscription receivable........ 21 -- --
Issuance of 270,270 shares of
Series F Convertible Preferred
Stock for cash at $3.70 per
share.......................... -- -- --
Issuance of 185,000 shares of
Common Stock in February 1996
as bonuses to officers and
employees valued at $0.32 per
share.......................... -- -- --
Issuance of 14,828 shares of
Common Stock in May 1996 for
consulting services, valued at
$0.32 per share................ -- -- --
Exercise of warrants to purchase
148 shares of Series E
Convertible Preferred Stock at
$3.15 per share................ -- -- --
Exercise of options to purchase
Common Stock at $0.32 per
share.......................... -- -- --
Net loss......................... $ -- $ -- $ (4,735)
----- ---- --------
</TABLE>
F-6
<PAGE> 138
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND PARTNERS'
INVESTMENT -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 10, 1990) TO JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
PARTNERS' ---------------- ------------------------ ------------------- PAID-IN
INVESTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------ ------- ---------- ----------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996....... 61,250 $ 1 6,277,282 $ 15,137 2,718,845 $ 27 $ 347
Issuance of 4,538,675 shares of
Series F Convertible Preferred
Stock for cash at $3.70 per
share, net of offering costs
of $245....................... -- -- 4,538,675 16,548 -- -- --
Exercise of warrants to purchase
149,462 shares of Series E
Convertible Preferred Stock at
$3.15 per share............... -- -- 149,462 471 -- -- --
Exercise of warrants to purchase
492 shares of Series F
Convertible Preferred Stock at
$3.70 per share............... -- -- 492 2 -- -- --
Cashless exercise of warrants to
purchase 2,476 shares of
Series E Convertible Preferred
Stock......................... -- -- 2,476 -- -- -- --
Exercise of options by employees
and directors at $0.32 - $0.50
per share..................... -- -- -- -- 251,250 3 109
Issuance of Common Stock to
director at $3.70 per share... -- -- -- -- 10,000 -- 37
Issuance of Common Stock to
consultant, valued at $3.70
per share..................... -- -- -- -- 10,000 -- 37
Collection of stock subscription
receivable.................... -- -- -- -- -- -- --
Provision for redemption of
Redeemable Preferred Stock.... -- 1,091 -- -- -- -- (74)
Net loss........................ -- -- -- -- -- -- --
------ ------- ---------- ----------- ---------- ---- -------
BALANCE, December 31, 1997....... 61,250 1,092 10,968,387 32,158 2,990,095 30 456
Issuance of 4,645,879 shares of
Series G Convertible Preferred
Stock at $4.75 per share, net
of offering costs of $656
(unaudited)................... -- -- 4,645,879 21,413 -- -- --
Stock subscription receivable in
connection with the issuance
of Series G Convertible
Preferred Stock (unaudited)... -- -- -- -- -- -- --
Net loss (unaudited)............ -- -- -- -- -- -- --
------ ------- ---------- ----------- ---------- ---- -------
BALANCE, June 30, 1998
(unaudited)..................... 61,250 $ 1,092 15,614,266 $ 53,571 2,990,095 $ 30 $ 456
====== ======= ========== =========== ========== ==== =======
PRO FORMA BALANCE (Note 1)
(unaudited)..................... -- $ -- -- $ -- 18,756,137 $188 $54,632
====== ======= ========== =========== ========== ==== =======
<CAPTION>
STOCK STOCK
SUBSCRIPTION SUBSCRIPTION
RECEIVABLE RECEIVABLE DEFICIT
FROM FROM ACCUMULATED
ISSUANCE OF ISSUANCE OF DURING THE
CONVERTIBLE COMMON DEVELOPMENT
PREFERRED STOCK STOCK STAGE
--------------- ------------ -----------
<S> <C> <C> <C>
BALANCE, December 31, 1996....... $ (3) $ -- $(15,688)
Issuance of 4,538,675 shares of
Series F Convertible Preferred
Stock for cash at $3.70 per
share, net of offering costs
of $245....................... -- -- --
Exercise of warrants to purchase
149,462 shares of Series E
Convertible Preferred Stock at
$3.15 per share............... -- -- --
Exercise of warrants to purchase
492 shares of Series F
Convertible Preferred Stock at
$3.70 per share............... -- -- --
Cashless exercise of warrants to
purchase 2,476 shares of
Series E Convertible Preferred
Stock......................... -- -- --
Exercise of options by employees
and directors at $0.32 - $0.50
per share..................... -- -- --
Issuance of Common Stock to
director at $3.70 per share... -- (37) --
Issuance of Common Stock to
consultant, valued at $3.70
per share..................... -- -- --
Collection of stock subscription
receivable.................... 3 -- --
Provision for redemption of
Redeemable Preferred Stock.... -- -- --
Net loss........................ -- -- (10,297)
----- ---- --------
BALANCE, December 31, 1997....... -- (37) (25,985)
Issuance of 4,645,879 shares of
Series G Convertible Preferred
Stock at $4.75 per share, net
of offering costs of $656
(unaudited)................... -- -- --
Stock subscription receivable in
connection with the issuance
of Series G Convertible
Preferred Stock (unaudited)... (215) -- --
Net loss (unaudited)............ -- -- (8,620)
----- ---- --------
BALANCE, June 30, 1998
(unaudited)..................... $(215) $(37) $(34,605)
===== ==== ========
PRO FORMA BALANCE (Note 1)
(unaudited)..................... $(252) $ -- $(34,605)
===== ==== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE> 139
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
YEAR ENDED INCEPTION SIX MONTHS INCEPTION
DECEMBER 31, (AUGUST 10, ENDED JUNE 30, (AUGUST 10,
---------------------------- 1990) TO ------------------- 1990) TO
1995 1996 1997 DECEMBER 31, 1997 1997 1998 JUNE 30, 1998
------- ------- -------- ----------------- -------- -------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................ $(3,191) $(4,735) $(10,297) $(25,985) $ (3,443) $ (8,620) $(34,605)
Adjustments to reconcile net loss to net
cash used in operating activities --
Depreciation expense and other........ 12 33 62 133 25 65 198
Issuance of Common Stock for
services............................ -- 5 -- 12 -- -- 12
Provision for redemption of Redeemable
Preferred Stock..................... -- -- 1,017 1,017 -- -- 1,017
Write-off of deferred offering
costs............................... -- -- -- -- -- 470 470
Other................................. 9 -- (12) (12) 3 -- (12)
Increase in prepaid expenses.......... (14) (12) (108) (179) (159) (259) (438)
Increase (decrease) in accounts
payable and accrued liabilities..... 483 (304) 499 1,564 (253) (743) 821
Increase (decrease) in accrued
compensation........................ -- 109 71 180 -- (77) 103
------- ------- -------- -------- -------- -------- --------
Net cash flows used in operating
activities........................ (2,701) (4,904) (8,768) (23,270) (3,827) (9,164) (32,434)
------- ------- -------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements.......................... (23) (161) (467) (723) (62) (1,907) (2,630)
Sale of leasehold improvements.......... -- -- -- -- -- 2,458 2,458
Cash (paid for) received from
deposits.............................. (3) -- -- -- -- 8 8
------- ------- -------- -------- -------- -------- --------
Net cash flows provided by (used in)
investing activities.............. (26) (161) (467) (723) (62) 559 (164)
------- ------- -------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of Convertible
Preferred stock, net of related
offering costs........................ 3,534 3,498 16,548 25,839 16,511 21,198 47,037
Proceeds from exercise of warrants to
purchase Series E and Series F
Convertible Preferred Stock........... -- -- 473 473 51 -- 473
Decrease in shareholder receivable...... -- 21 3 24 -- -- 24
Cash received for Common Stock options
exercised............................. -- 71 110 181 -- -- 181
Cash paid for deferred offering costs... -- -- (29) (29) -- (441) (470)
Proceeds from bridge loan (Note 3)...... 791 -- -- 791 -- -- 791
Partner cash contributions.............. -- -- -- 5,312 -- -- 5,312
Increase in restricted cash............. -- (194) (5) (199) -- (202) (401)
Proceeds from borrowings................ -- 150 -- 150 (4) -- 150
Repayment of borrowings................. -- (39) (49) (88) (24) (62) (150)
------- ------- -------- -------- -------- -------- --------
Net cash flows provided by financing
activities........................ 4,325 3,507 17,051 32,454 16,534 20,493 52,947
------- ------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. 1,598 (1,558) 7,816 8,461 12,645 11,888 20,349
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 605 2,203 645 -- 645 8,461 --
------- ------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of
period.................................. $ 2,203 $ 645 $ 8,461 $ 8,461 $ 13,290 $ 20,349 $ 20,349
======= ======= ======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES:
Accrual of leasehold improvements
payable................................. $ -- $ -- $ 848 $ 848 $ -- $ -- $ 848
======= ======= ======== ======== ======== ======== ========
Accrual of deferred offering costs....... $ -- $ -- $ 441 $ 441 $ -- $ 97 $ 538
======= ======= ======== ======== ======== ======== ========
Conversion of partners' investment to
Preferred Stock......................... $ -- $ -- $ -- $ 4,927 $ -- $ -- $ 4,927
======= ======= ======== ======== ======== ======== ========
Conversion of bridge loan to Convertible
Preferred Stock......................... $ 800 $ -- $ -- $ 800 $ -- $ -- $ 800
======= ======= ======== ======== ======== ======== ========
Issuance of Convertible Preferred Stock
to investment advisors.................. $ -- $ 146 $ -- $ 261 $ 115 $ 426 $ 687
======= ======= ======== ======== ======== ======== ========
Issuance of Common Stock as payment of
management bonus........................ $ -- $ 59 $ -- $ 59 $ -- $ -- $ 59
======= ======= ======== ======== ======== ======== ========
Sale of Common Stock in exchange for
stock subscription receivable........... $ -- $ -- $ 37 $ 37 $ -- $ -- $ 37
======= ======= ======== ======== ======== ======== ========
Sale of Convertible Preferred Stock in
exchange for stock subscription
receivable.............................. $ -- $ -- $ -- $ 24 $ -- $ 215 $ 239
======= ======= ======== ======== ======== ======== ========
Issuance of Common Stock as payment for
accounts payable........................ $ -- $ -- $ 37 $ 37 $ -- $ -- $ 37
======= ======= ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-8
<PAGE> 140
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Cell Pathways, Inc. ("CPI" or the "Company") is a pharmaceutical company
focused on the development and commercialization of products to prevent and
treat cancer. The Company is in the development stage and has not generated any
product revenues to date, nor is there any assurance of any future product
revenues. The Company's intended products are subject to long development cycles
and there is no assurance the Company will be able to successfully develop,
manufacture, obtain regulatory approval for or market its products. During the
period required to develop its products, the Company plans to continue to
finance operations through debt and equity financings (see Notes 3, 4 and 5 as
well as the Transactions, as defined below.) There is no assurance, however,
that such additional funding will be available to the Company when required. The
Company will continue to be considered in the development stage until such time
as it generates significant revenues from its principal operations. As of June
30, 1998, the Company had a deficit accumulated during the development stage of
$34,605,000.
The Company is a Delaware corporation and is the successor to Cell Pathways
Limited Partnership (the "Partnership"). The Partnership was formed on August
10, 1990 pursuant to the laws of the State of Illinois under the name of FGN
Pharmaceutical Research Limited Partnership. The Partnership Agreement was
amended on December 9, 1992 to provide for additional financing, admission of a
new general partner (the "Company") and new limited partners, change in the name
of the Partnership and eventual conversion of the Partnership to corporate form.
On September 29, 1993, the assets and liabilities of the Partnership were
acquired by the Company in exchange for the Preferred and Common Stock of the
Company, thereby converting the business from partnership to corporate form. The
accompanying financial statements include the accounts of the Partnership from
inception (August 10, 1990) through September 29, 1993, and the accounts of the
successor Delaware corporation thereafter.
On June 23, 1998, the Company and Tseng Labs, Inc., a Utah corporation
("Tseng"), entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement") to provide further financing of the Company's
programs. Through the reorganization, the stockholders of Tseng will exchange
their Tseng common stock for an approximately 23% equity interest in a newly
formed holding company of CPI and CPI will obtain the benefit of the substantial
cash assets of Tseng.
The Reorganization Agreement provides for (i) the formation of Cell
Pathways Holding, Inc., a Delaware corporation ("CPHI"), (ii) the merger of
Tseng Sub, Inc., a wholly-owned subsidiary of CPHI, with and into Tseng (the
"Tseng Merger"), (iii) the merger of CPI Sub, Inc., a wholly-owned subsidiary of
CPHI, with and into the Company (the "CPI Merger" and, together with the Tseng
Merger, the "Transactions") and (iv) the issuance of approximately 23% of the
outstanding shares of the Common Stock of CPHI ("CPHI Common Stock") to the
Tseng stockholders and approximately 77% of the outstanding shares of CPHI
Common Stock to the CPI stockholders. As a result of the Transactions, Tseng and
CPI will become wholly-owned subsidiaries of CPHI. Consummation of the
Transactions is contingent, among other conditions, upon certain approvals by
stockholders of the Company and Tseng. Effective upon the consummation of the
Transactions, CPHI will change its name to Cell Pathways, Inc. If the
Reorganization Agreement is not approved, the Company or Tseng could be subject
to certain termination costs. If the reorganization is approved the dissenting
Company stockholders have certain appraisal rights.
As it is anticipated Tseng will have no operations after the consummation
of the Transactions, the Transactions will be accounted for as a reorganization
of CPI into CPHI with the sale of approximately 23% of CPHI's Common Stock in
exchange for Tseng's cash and other net assets. CPI's historical financial
statements will be the financial statements of the combined company.
F-9
<PAGE> 141
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Pro Forma Stockholders' Equity
In conjunction with the Transactions, all of the outstanding shares of the
Series A, B, C, D, E, F and G Convertible Preferred Stock will be converted into
the rights to receive CPHI Common Stock. In addition, the Redeemable Preferred
Stock is expected to be redeemed for approximately 50% in cash consideration and
50% in Common Stock which would result in $546,000 of cash consideration and the
issuance of 82,732 shares of CPI Common Stock. It is also anticipated that the
warrants to purchase Series E Convertible Preferred Stock will be exercised into
69,044 shares of CPI Series E Convertible Preferred Stock at $3.15 per share and
then converted into the same number of shares of CPHI Common Stock. All of the
shares of CPI Common Stock then outstanding will then be converted into the same
number of shares of CPHI Common Stock. The unaudited pro forma stockholders'
equity as of June 30, 1998 reflects the assumed conversion of the Series A, B,
C, D, E, F and G Convertible Preferred Stock into 872,400, 848,100, 700,000,
616,808, 3,121,642, 4,809,437 and 4,645,879 shares, respectively, of CPHI Common
Stock, and the redemption of the Redeemable Preferred Stock for $546,000 of cash
consideration and 82,732 shares of Common Stock, the exercise of all warrants to
purchase Series E Convertible Preferred Stock into 69,044 shares of CPI Series E
Convertible Preferred Stock including conversion into CPHI Common Stock, and the
conversion of all shares of CPI Common Stock then outstanding into the same
number of shares of CPHI Common Stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of June 30, 1998 and for the six months ended
June 30, 1997 and 1998 are unaudited and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of results for these interim periods. The results of
operations for the six months ended June 30, 1998 are not necessarily indicative
of the results to be expected for the entire year.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents. As of December 31, 1996, December 31, 1997 and June 30,
1998, approximately $194,000, $199,000 and $401,000 of cash and cash equivalents
was restricted to secure letters of credit and other indebtedness of the Company
(See Note 6).
Equipment and Leasehold Improvements
Depreciation of equipment is provided on the straight-line method over
estimated useful lives of five to seven years. Leasehold improvements are
amortized over the shorter of the useful life or the life of the related lease.
In June 1998, the Company's option to purchase the Horsham, Pennsylvania
facility was exercised in favor of a third-party from which it entered into a
new lease (see Note 8). In conjunction with the
F-10
<PAGE> 142
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's new facility lease the Company received a one-time payment of $3
million toward improvements the Company previously made and to be made to the
facility.
Research and Development
Costs incurred in connection with research and development activities are
expensed as incurred.
Stock Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the Company's stock option plan, options may be granted at not
less than the fair market value on the date of the grant and therefore no
compensation expense is recognized for stock options granted to employees. In
1996, the Company adopted the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
Deferred Offering Costs
As of December 31, 1997, the Company had deferred costs related to a
planned initial public offering. As the planned initial public offering was not
undertaken, the total of such costs, representing approximately $715,000,
including costs incurred in 1998, were expensed during the six months ended June
30, 1998. The deferred offering costs as of June 30, 1998 relate to the
Transactions. (See Note 1)
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Net Loss and Unaudited Pro Forma Net Loss Per Common Share
The Company has provided net loss per share pursuant to SFAS No. 128
"Earnings per Share" and the Securities and Exchange Commission Staff Accounting
Bulletin No. 98.
Basic loss per common share was computed by dividing net loss applicable to
Common stockholders by the weighted average number of shares of Common Stock
outstanding during the period. Diluted loss per share has not been presented
since the result is anti-dilutive to the Company's losses.
Options and warrants to purchase 186,850, 476,000, 616,271, 259,250 and
1,226,255 shares of Common Stock at weighted average exercise prices of $0.32,
$0.39, $2.59, $0.54 and $4.44 per share, 5,119,203, 6,227,282, 10,968,387,
10,832,047 and 15,614,266 shares of Preferred Stock convertible into Common
Stock, and warrants to purchase 235,309, 248,823, 194,395, 315,886 and 422,188
shares of Preferred Stock Convertible into Common Stock at weighted average
exercise prices of $3.15, $3.18, $3.50, $3.29 and $4.18 were outstanding as of
December 31, 1995, 1996 and 1997 and June 30, 1997 and 1998, but are not
included in the diluted loss per common share calculations as they would be
anti-dilutive.
Pro forma net loss per common share for the year ending December 31, 1997
and the six months ending June 30, 1998 assumes that the Common Stock issuable
upon conversion of the outstanding Convertible Preferred Stock, the redemption
of the Redeemable Preferred Stock for $546,000 of cash consideration and 82,732
shares of Common Stock and the 69,044 shares of Common Stock related to the
exercise of the warrants to purchase Series E Convertible Preferred Stock at the
time of the Transactions have been outstanding using the if-converted method.
F-11
<PAGE> 143
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the numerator and denominator of net
loss per Common share (In thousands, except share and per share data):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Loss (numerator)................. $ (3,191) $ (4,735) $ (10,297) $ (3,443) $ (8,620)
Weighted average Common Stock
outstanding (denominator)...... 2,296,167 2,587,552 2,838,814 2,718,845 2,990,095
---------- ---------- ----------- ---------- -----------
Net loss per Common
share................... $ (1.39) $ (1.83) $ (3.63) $ (1.27) $ (2.88)
========== ========== =========== ========== ===========
Pro forma denominator:
Weighted average Common Stock
outstanding.................. 2,838,814 2,990,095
Conversion of Convertible
Preferred Stock, redemption
of Redeemable Preferred
Stock, and exercise of
warrants to purchase Series E
Convertible Preferred
Stock........................ 9,763,128 12,596,378
----------- -----------
12,601,942 15,586,473
=========== ===========
Pro forma net loss per
Common share............ $ (.82) $ (.55)
=========== ===========
</TABLE>
Recent Accounting Pronouncements
Effective with the first quarter of 1998, the Company was subject to the
provisions of SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130 had no
impact on the Company's financial statements as the Company does not have any
"comprehensive income" type earnings (losses).
F-12
<PAGE> 144
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. STOCKHOLDERS' EQUITY AND PARTNERS' INVESTMENT:
The Company was authorized, as of June 30, 1998, to issue a total of
40,861,250 shares of stock, consisting of 22,400,000 shares of $0.01 par value
Convertible Preferred Stock, 61,250 shares of $0.01 par value Redeemable
Preferred Stock and 18,400,000 shares of $0.01 par value Common Stock. The
Company's Convertible Preferred Stock, consists of the following (In thousands,
except share and per share data):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Series A, 872,400 shares authorized, issued and
outstanding, entitled to a preference in liquidation
of $1,012........................................... $ 812 $ 812 $ 812
Series B, 848,100 shares authorized, issued and
outstanding, entitled to a preference in liquidation
of $1,052........................................... 868 868 868
Series C, 700,000 shares authorized, issued and
outstanding, entitled to a preference in liquidation
of $1,540........................................... 1,540 1,540 1,540
Series D, 675,350 shares authorized, 616,808 shares
issued and outstanding, entitled to a preference in
liquidation of $1,860............................... 1,860 1,860 1,860
Series E, 3,204,865 shares authorized, 2,969,704,
3,121,642 and 3,121,642 shares issued and
outstanding, respectively, entitled to a preference
in liquidation of $9,354, $9,834 and $9,834,
respectively........................................ 9,057 9,528 9,528
Series F, 4,934,788 authorized, 270,270, 4,809,437 and
4,809,437 issued and outstanding, entitled to a
preference in liquidation, of $1,000, $17,795 and
$17,795, respectively............................... 1,000 17,550 17,550
Series G, 5,400,000 authorized, none, none, and
4,645,879, issued and outstanding, entitled to a
preference in liquidation of $0, $0 and $22,068,
respectively........................................ -- -- 21,413
------- ------- -------
$15,137 $32,158 $53,571
======= ======= =======
</TABLE>
Each share of Series A, B, C, D, E, F and G Convertible Preferred Stock is
convertible into one share of Common Stock at any time at the option of the
holder and is entitled to vote as if converted into Common Stock. Each share of
each such series of the Convertible Preferred Stock is mandatorily convertible
into one share of Common Stock upon the earlier of: (i) the affirmative vote or
consent of at least 67% of the holders of such shares; (ii) the resolution of
the board of directors to such effect at a time when fewer than 25% of the
originally issued Convertible Preferred shares are outstanding; or (iii) the
closing of a firm commitment underwritten public offering at a public offering
price equal to or exceeding $6.60 per share of Common Stock (as adjusted)
resulting in aggregate proceeds to the Company and/or the selling stockholders
(before underwriter discounts and other offering expenses) of $10 million or
more.
Series A, B, C, D, E, F and G Convertible Preferred shares have per share
liquidation preferences of $1.16, $1.24, $2.20, $3.0156, $3.15, $3.70 and $4.75,
respectively. Series A, B, C and D correspond to similarly designated classes of
limited partnership units issued by the Partnership pursuant to financings
arranged in 1990 (Class A), 1991 (Class B) and 1992 (Classes C and D). The
ranking of liquidation preferences is Series G, Series F, Series E, Series C,
Series D, Series B, Series A and then the Redeemable Preferred Stock. In March
of 1994, the Company issued 16,667 shares of Common Stock to Lehman Brothers,
Inc. as partial payment for financial advisory services.
In April 1994, the Company commenced an offering of Series E Convertible
Preferred Stock at a price of $4.10 per share. The Company issued 542,761 Series
E Convertible Preferred shares, and warrants to purchase an additional 18,766
shares of Series E Convertible Preferred Stock at $4.10 per share resulting in
proceeds to
F-13
<PAGE> 145
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company of $2,225,000. In conjunction with the Company's 1995 financing (see
below), the Series E Convertible Preferred Stock was repriced to $3.15 per
share, the same price as the 1995 financing. Accordingly, the Company issued an
additional 163,701 shares, and warrants to purchase an additional 5,654 shares
of Series E Convertible Preferred Stock at $3.15 per share.
In June through August 1995, as the first step in offering additional
Series E Convertible Preferred Stock, the Company borrowed $791,000 from certain
of its stockholders. In August 1995, this bridge loan, together with interest at
9%, was converted into 253,633 shares of Series E Convertible Preferred Stock at
$3.15 per share. In connection with the bridge loan, warrants to purchase an
additional 125,550 shares of Series E Convertible Preferred Stock at $3.15 per
share were issued, which are exercisable until the earlier of June 5, 1999, or
the closing of an initial public offering of securities by the Company or the
sale of all or substantially all of the assets of the Company. In August 1995,
the Board of Directors authorized the issuance and sale of up to $7 million of
Series E Convertible Preferred Stock at $3.15 per share, including conversion of
the bridge loan. During the year ended December 31, 1995, the Company issued
1,121,800 additional shares of Series E Convertible Preferred Stock and warrants
to purchase an additional 85,339 shares of Series E Convertible Preferred Stock
at $3.15 per share, resulting in proceeds to the Company of $3,534,000; and in
January through May of 1996, the Company issued an additional 841,306 shares of
Series E Convertible Preferred Stock at $3.15 per share, resulting in proceeds
to the Company of $2,650,000. This offering, including conversion of the bridge
loan, resulted in the issuance of 2,216,739 shares of Series E Convertible
Preferred Stock and warrants to purchase 210,889 shares of Series E Convertible
Preferred Stock, resulting in net proceeds of $6,832,000. In May of 1996, the
Company issued 46,355 shares of Series E Convertible Preferred Stock and
$154,000 cash as payment for financial advisory services.
During 1996 the Company issued 185,000 shares of Common Stock as bonuses to
officers and employees, and 14,828 shares of Common Stock were issued for
consulting services.
In December 1996, the Company commenced a private offering of Series F
Convertible Preferred Stock and related warrants at $3.70 per share. As of
December 31, 1996, the Company had issued 270,270 shares of Series F Convertible
Preferred Stock and warrants to purchase 13,514 additional shares of Series F
Convertible Preferred Stock, resulting in proceeds to the Company of $1,000,000.
During 1997, the Company issued 4,507,594 additional shares of Series F
Convertible Preferred Stock and warrants to purchase an additional 112,329
shares of Series F Convertible Preferred Stock, resulting in net proceeds to the
Company of $16,548,000. The warrants are exercisable until the earlier of July
20, 1999, or the sale of all or substantially all of the assets of the Company.
In addition, the Company issued 31,081 shares of Series F Convertible Preferred
Stock as compensation for services rendered in connection with the offering of
the Series F Convertible Preferred Stock.
In April 1998, the Company commenced a private offering of Series G
Convertible Preferred Stock and related warrants at $4.75 per share. As of June
30, 1998, the Company had issued 4,556,249 shares of Series G Convertible
Preferred Stock and warrants to purchase 227,793 additional shares of
Convertible Preferred Stock, resulting in net proceeds to the Company of
$21,413,000. The warrants are exercisable until the earlier of May 1, 2000, or
the sale of substantially all of the assets of the Company. In addition, the
Company issued 89,630 shares of Series G Convertible Preferred Stock as
compensation for services rendered in connection with the offering of the Series
G Convertible Preferred Stock.
The certificate of incorporation and a stockholders' agreement entered into
among the Company, the founder and certain venture capital investors in
conjunction with the December 1992 financing provide for class voting or
combined class voting under certain circumstances. The stockholders' agreement
provides for an agreed upon process for the election of directors which has the
effect that the signatories thereof, through the size of their holdings, can
determine which individuals become directors of the Company. The provision for
election of the directors ceases to be operative upon closing of a firm
commitment underwritten public
F-14
<PAGE> 146
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
offering at a public offering price equal to or exceeding $6.60 per share of
Common Stock (as adjusted) resulting in aggregate proceeds to the Company and/or
the selling stockholders (before underwriter discounts and other offering
expenses) of $10 million or more. The stockholders' agreement also provides for
registration rights and the priority thereof, and for certain rights of first
refusal and of co-sale with respect to securities of the Company.
4. REDEEMABLE PREFERRED STOCK:
The Redeemable Preferred Stock carries no vote and no dividend and is not
convertible into Common Stock. The Redeemable Preferred Stock is mandatorily
redeemable in an aggregate amount of $1,092,000 upon the closing of any firm
commitment underwritten public offering of Common Stock and will be redeemed
prior to the closing of the Transactions (See Note 1.)
The Redeemable Preferred Stock is held by FGN, Inc., the former general
partner of the Partnership. It is anticipated that all but $75,000 of the
proceeds received by FGN, Inc. from the redemption of the Redeemable Preferred
Stock will be paid by FGN, Inc. to certain of the founding and continuing
participants in the business. Accordingly, the Company had always expected that
upon determination that redemption was probable, the Company would record the
amount paid for redemption as compensation expense due to the nature of the
services provided. Company preparations during the third quarter of 1997 for an
initial public offering of Common Stock made it probable that the Company would
redeem such stock. Accordingly, the Company recorded a provision for the
redemption of the Redeemable Preferred Stock during the third quarter of 1997.
5. STOCK OPTIONS AND WARRANTS:
In 1993, the Company adopted a stock option plan which, in October 1997,
was amended and renamed the 1997 Equity Incentive Plan. Pursuant to the 1997
Equity Incentive Plan, the Company is authorized to grant Common Stock, stock
appreciation rights, or options to purchase Common Stock with respect to
2,350,000 shares of Common Stock for issuance to eligible employees, directors
and consultants. As of June 30, 1998, options with respect to 1,678,571 shares
have been granted, 474,100 have been exercised, 74,000 have been forfeited,
1,130,471 shares were outstanding and 745,429 shares of Common Stock remain
eligible for future option grants. The stock options granted may be either
incentive stock options ("ISO") or nonstatutory stock options ("NSO"). Such
options may be granted only at an exercise price not less than the fair market
value of the shares at the date of grant unless such option is granted pursuant
to an assumption of or a substitution for another option. The board of directors
may set the rate at which the options become exercisable and determine when the
options expire, subject to the limitations described below. The options granted
may be exercised up to ten years following the date of grant. All options will
generally become exercisable in the event the Company is sold or has other
significant changes in ownership. Generally, the options vest ratably over a
four-year period.
Options granted under the 1997 Equity Incentive Plan through July 1997 may
be immediately exercisable, but any unvested shares exercised are held by the
Company and are subject to reacquisition by the Company should employment
terminate prior to completion of applicable vesting periods.
In 1995, the Company adopted the 1995 Cell Pathways, Inc. Stock Award Plan
pursuant to which the Company may award shares of common stock to employees,
directors and consultants as part or all of their compensation, whether salary,
bonus or fee and whether for past services or as incentive for current and
future services. The only awards which have been made under this plan were made
during 1996 by way of bonus compensation to officers and employees of the
Company for the years 1993, 1994 and 1995. In accordance with APB Opinion No.
25, a compensation charge of $59,000 associated with the issuance of 185,000
shares of
F-15
<PAGE> 147
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
common stock having a fair market value of $0.32 per share at the date of grant,
was recognized in the year ended 1995.
In October, 1997, the Board of Directors adopted and the stockholders
approved the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") covering an aggregate of 453,925 shares of Common Stock. Pursuant to the
terms of the Directors' Plan, each person who first becomes a non-employee
Director, automatically shall be granted an option to purchase 18,157 shares of
Common Stock (the "Inaugural Grant"). In addition, on the date of each annual
stockholders meeting commencing with the meeting in 1998, each non-employee
Director who has served at least one full year as a director is automatically
granted an option to purchase 5,447 shares of Common Stock (the "Anniversary
Grant"). In addition, the Company granted options to purchase 27,235 shares of
Common Stock at the inception of the plan. As of June 30, 1998, options with
respect to 90,784 have been granted, none have been exercised nor forfeited.
Options subject to an Inaugural Grant under the Directors' Plan will vest
in three equal, annual installments commencing on the first anniversary of the
date of the grant of the option. Options subject to an Anniversary Grant under
the Directors' Plan will vest in full on the first anniversary of the date of
the grant of the option. In addition, certain grants made at the inception of
the Director's Plan vested on March 31, 1998. The vesting of all options under
the Directors' Plan is conditioned on the continued service of the recipient as
a director, employee or consultant of the Company or any affiliate of the
Company.
The exercise price of the options granted under the Directors' Plan will be
equal to the fair market value of the Common Stock granted on the date of grant.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Options granted under the
Directors' Plan generally are non-transferable, except as provided in the option
agreement. The Directors' Plan will terminate on the tenth anniversary of the
date of its adoption by the Board unless sooner terminated by the Board. In the
event of certain changes of control, options outstanding under the Directors'
Plan will automatically become fully vested and will terminate if not exercised
prior to such change of control.
The Company accounts for stock options granted to employees under the 1997
Equity Incentive Plan in accordance with the intrinsic value method provided for
under APB Opinion No. 25. Under the 1997 Equity Incentive Plan, options may be
granted at not less than the fair market value on the date of the grant and
therefore no compensation expense is, or has been, recognized in respect of
stock options awarded to employees. The option pricing models recommended by
SFAS No. 123 for recognition of, or disclosure of pro forma, compensation cost
in respect of employee stock options are option pricing models which have been
developed for fully transferable, traded options having no vesting requirements
and which require the input of subjective assumptions including expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options. Had compensation cost for
the 1997 Equity Incentive Plan been recognized in the income statements under
SFAS No. 123, the Company's net loss would have increased to the following pro
forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss:
As reported........................................ $(3,191) $(4,735) $(10,297)
======= ======= ========
Pro forma (unaudited).............................. $(3,191) $(4,767) $(10,438)
======= ======= ========
</TABLE>
The pro forma disclosures made above do not reflect options granted prior
to January 1, 1995. This pro forma compensation cost may also not be
representative of the effects which SFAS No. 123 may have on the
F-16
<PAGE> 148
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
disclosure of pro forma compensation cost in future years. The weighted average
fair value of the stock options granted during 1995, 1996 and 1997 was $0.10,
$0.10 and $0.92, respectively. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................. 6.15% 6.15% 6.15%
Expected dividend yield................................. 0% 0% 0%
Expected life........................................... 6 years 6 years 6 years
Expected volatility..................................... 0% 0% 0%
</TABLE>
Information relative to the Company's stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE AGGREGATE
EXERCISE PRICE EXERCISE PRICE PROCEEDS
OPTIONS (PER SHARE) (PER SHARE) (IN THOUSANDS)
-------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance as of December 31,
1994.......................... 163,350 $ .32 $ .32 $ 54
Granted....................... 23,500 .32 .32 8
Exercised..................... -- -- -- --
Forfeited..................... -- -- -- --
-------- ---------- ----- ----------
Balance as of December 31,
1995.......................... 186,850 .32 .32 62
Granted....................... 522,500 .32- .50 .38 199
Exercised..................... (222,850) .32 .32 (71)
Forfeited..................... (10,500) .32 .32 (3)
-------- ---------- ----- ----------
Balance as of December 31,
1996.......................... 476,000 .32- .50 .39 187
Granted....................... 455,021 1.00-4.75 3.47 1,578
Exercised..................... (251,250) .32- .50 .45 (112)
Forfeited..................... (63,500) .32-3.70 .85 (54)
-------- ---------- ----- ----------
Balance as of December 31,
1997.......................... 616,271 .32-3.70 2.59 1,599
Granted....................... 604,984 4.75-6.60 6.31 3,816
Exercised..................... -- -- -- --
Forfeited..................... -- -- -- --
-------- ---------- ----- ----------
Balance as of June 30, 1998..... 1,221,255 $ .32-6.60 $4.43 $ 5,415
======== ========== ===== ==========
Options exercisable as of June
30, 1998...................... 156,817 $1.18
======== =====
</TABLE>
The weighted average remaining contractual life of all options outstanding
at June 30, 1998 is 9.2 years.
F-17
<PAGE> 149
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about the Company's stock
options outstanding and exercisable at June 30, 1998 based upon each exercise
price:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
NUMBER OF WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE AT JUNE 30, CONTRACTUAL PRICE AT JUNE 30, PRICE
PRICES 1998 LIFE IN YEARS (PER SHARE) 1998 (PER SHARE)
- -------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$.32-.50 171,250 6.6 $ .38 108,332 $ .32
$ 1.00 85,000 8.8 1.00 21,250 1.00
$ 3.70 242,000 9.2 3.70 -- --
$ 4.75 213,413 9.6 4.75 27,235 4.75
$ 6.60 509,592 10.0 6.60 -- --
--------- -------
1,221,255 156,817
========= =======
</TABLE>
In October 1997, the Board of Directors adopted and the stockholders
approved the Employee Stock Purchase Plan (the "Purchase Plan") covering an
aggregate of 544,710 shares of Common Stock. Under the Purchase Plan, the Board
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 longer than 27 months.
Upon the effectiveness of an initial public offering, employees would be
eligible to participate in the Purchase Plan if they are employed by the Company
or an affiliate of the Company designated by the Board. Employees who
participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by the
Board, to the purchase of shares of Common Stock. The price of Common Stock
purchased under the Purchase Plan will be not less than 85% of the lower of the
fair market value of the 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 direction.
In connection with the offerings of Series E Convertible Preferred Stock in
1994 and 1995, the Company issued warrants to purchase an aggregate of 235,309
additional shares of Series E Convertible Preferred Stock, exercisable at $3.15
per share until the earlier of: (i) the closing of an initial public offering of
securities by the Company; (ii) the sale of all or substantially all of the
assets of the Company; and (iii) August 31, 1997 (in the case of 109,759 shares
all of which have been exercised) or June 5, 1999 (in the case of 125,550
shares). During 1996, warrants were exercised to purchase 148 shares of Series E
Convertible Preferred Stock. During the year ended December 31, 1997, warrants
to purchase 149,462 shares of Series E Convertible Preferred Stock were
exercised for cash at $3.15 per share. Further, holders of warrants to purchase
16,655 shares of Series E Convertible Preferred Stock tendered their warrants in
a cashless exercise in exchange for 2,476 shares of Series E Convertible
Preferred Stock at $3.70 per share. As of June 30, 1998, warrants to purchase
69,044 shares of Series E Convertible Preferred Stock were outstanding.
In connection with the offerings of Series F Convertible Preferred Stock,
commencing in December of 1996, the Company issued in December of 1996 warrants
to purchase 13,514 shares of Series F Convertible Preferred Stock, and during
1997, warrants to purchase 112,329 shares of Series F Convertible Preferred
Stock, at an exercise price of $3.70 per share, all exercisable until the
earlier of: (i) July 20, 1999; and (ii) the sale of all or substantially all of
the assets of the Company. During the year ended December 31, 1997, warrants to
purchase 492 shares of Series F Convertible Preferred Stock were exercised for
cash at $3.70 per
F-18
<PAGE> 150
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
share. As of June 30, 1998, warrants to purchase 125,351 shares of Series F
Convertible Preferred Stock were outstanding.
In connection with the offerings of Series G Convertible Preferred Stock,
commencing in April 1998, the Company issued warrants to purchase 227,793 shares
of Series G Convertible Preferred Stock, at an exercise price of $4.75 per
share, exercisable until the earlier of: (i) May 1, 2000; and (ii) the sale of
all or substantially all of the assets of the Company. As of June 30, 1998,
warrants to purchase 227,793 shares of Series G Convertible Preferred Stock were
outstanding.
Also in connection with the offerings of Series G Convertible Preferred
Stock, the Company issued warrants to purchase 5,000 shares of Common Stock at
an exercise price of $6.60 per share to an investment advisor in consideration
for services rendered. These warrants are exercisable through June 30, 2000.
6. DEBT:
In March 1996, the Company borrowed $150,000 from a bank. The note bore
interest at a rate of 7.79% and was payable in equal monthly installments
through March 1999. During the six months ended June 30, 1998, the note was
repaid.
7. INCOME TAXES:
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." As of December 31, 1997, the Company had
approximately $20,915,000 of net operating loss carryforwards ("NOLs") for
income tax purposes available to offset future federal income tax, subject to
limitations for alternative minimum tax. The NOLs are subject to examination by
the tax authorities and expire between 2008 and 2012.
Prior to its conversion into corporate form, the business had accumulated
losses totaling approximately $3,900,000. For tax purposes these losses were
distributed to the partners in accordance with the provisions of the Partnership
Agreement of the Company's predecessor partnership. Thus, these losses, while
included in the financial statements of the Company, are not available to offset
future taxable income, if any, of the Company.
The Tax Reform Act of 1986 contains provisions that may limit the NOLs
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interest. A change in ownership of a
company of greater than 50% within a three-year period results in an annual
limitation on the Company's ability to utilize its NOLs from tax periods prior
to the ownership change. The Company expects that upon consummation of the
Transactions (see Note 1), such limitation will be triggered. However, the
Company does not expect such limitation to have a significant impact on its
operations.
The components of the net deferred income tax asset at December 31, 1996
and 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforwards............................ $ 4,310 $ 7,738
Less- valuation allowance................................... (4,310) (7,738)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax assets as of December 31, 1997 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire net tax asset.
F-19
<PAGE> 151
CELL PATHWAYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
In August 1993, the Company entered into a lease for laboratory facilities
located in Aurora, Colorado. The lease is for a term of five and one-half years
beginning in January 1994 and provides for a renewal option of an additional
five years at the end of the initial term. In June 1998, the Company entered
into a ten-year lease for office and laboratory space in Horsham, Pennsylvania.
This lease contains two five-year renewal terms.
Aggregate minimum rental payments under the Horsham lease are as follows as
of June 30, 1998 (In thousands):
<TABLE>
<S> <C>
1998........................................................ $ 410
1999........................................................ 831
2000........................................................ 856
2001........................................................ 882
2002........................................................ 908
2003........................................................ 935
Thereafter.................................................. 4,566
------
Total....................................................... $9,388
======
</TABLE>
Rental expense under these leases and other month-to-month leases entered
into by the Company totaled $57,000, $95,000, $121,000, $60,000 and $303,000,
for the years ended December 31, 1995, 1996 and 1997 and the six months ended
June 30, 1997 and 1998, respectively.
The Company is obligated to make certain minimum future payments under a
research agreement with an institution. As of June 30, 1998, the estimated
future payments under this agreement totaled $600,000 and will be paid as
follows: $420,000 in 1998, and $180,000 in 1999. In addition to the above, the
Company has entered into other third-party service arrangements. Such
arrangements are generally cancellable at any time.
F-20
<PAGE> 152
APPENDIX A -- AGREEMENT AND PLAN OF REORGANIZATION
A-1
<PAGE> 153
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN:
TSENG LABS, INC.
A UTAH CORPORATION,
AND
CELL PATHWAYS, INC.,
A DELAWARE CORPORATION
DATED AS OF JUNE 23, 1998
- --------------------------------------------------------------------------------
<PAGE> 154
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DESCRIPTION OF TRANSACTION ........................................................... 1
1.1 Formation of Merger Subsidiaries ............................................ 1
1.2 The Mergers ................................................................. 2
1.3 Closing; Effective Time ..................................................... 2
1.4 Effect of the Mergers ....................................................... 2
1.5 Subsequent Actions .......................................................... 3
1.6 Certificate of Incorporation and Bylaws; Directors and Officers ............. 3
1.7 Conversion of Stock; Options and Warrants ................................... 4
1.8 CPI Charter Amendment ....................................................... 8
2. REPRESENTATIONS AND WARRANTIES OF TARGET ............................................. 8
2.1 Due Organization; Subsidiaries .............................................. 8
2.2 Articles of Incorporation and Bylaws ........................................ 9
2.3 Capitalization .............................................................. 9
2.4 SEC Filings; Financial Statements ........................................... 10
2.5 Absence of Changes .......................................................... 11
2.6 Title to Assets ............................................................. 11
2.7 Real Property; Equipment; Leasehold ......................................... 11
2.8 Proprietary Assets .......................................................... 12
2.9 Material Contracts .......................................................... 12
2.10 Liabilities.................................................................. 14
2.11 Compliance with Legal Requirements........................................... 14
2.12 Certain Business Practices................................................... 14
2.13 Governmental Authorizations.................................................. 14
2.14 Tax Matters.................................................................. 14
2.15 Employee and Labor Matters; Benefit Plans.................................... 16
2.16 Environmental Matters........................................................ 17
2.17 Insurance.................................................................... 18
2.18 Transactions with Affiliates................................................. 18
2.19 Legal Proceedings; Orders.................................................... 18
</TABLE>
i.
<PAGE> 155
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.20 Authority; Binding Nature of Agreement....................................... 19
2.21 No Existing Discussions...................................................... 19
2.22 Vote Required................................................................ 19
2.23 Non-Contravention; Consents.................................................. 19
2.24 Fairness Opinion............................................................. 20
2.25 Valid Issuance; Reservation of Shares........................................ 20
2.26 Financial Advisor............................................................ 20
2.27 Full Disclosure.............................................................. 21
3 REPRESENTATIONS AND WARRANTIES OF CPI AND HOLDCO ..................................... 21
3.1 Organization; Good Standing; Qualification .................................. 21
3.2 Certificate of Incorporation and Bylaws ..................................... 22
3.3 Holdco ...................................................................... 22
3.4 Capitalization .............................................................. 22
3.5 Financial Statements ........................................................ 23
3.6 Absence of Changes .......................................................... 24
3.7 Valid Issuance .............................................................. 24
3.8 Title to Assets ............................................................. 24
3.9 Real Property; Equipment; Leasehold ......................................... 24
3.10 Proprietary Assets........................................................... 25
3.11 Material Contracts........................................................... 25
3.12 Liabilities.................................................................. 27
3.13 Compliance with Legal Requirements........................................... 27
3.14 Certain Business Practices................................................... 28
3.15 Governmental Authorizations.................................................. 28
3.16 Tax Matters.................................................................. 28
3.17 Employee and Labor Matters; Benefit Plans.................................... 29
3.18 Environmental Matters........................................................ 31
3.19 Insurance.................................................................... 31
3.20 Transactions with Affiliates................................................. 31
</TABLE>
ii.
<PAGE> 156
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.21 Legal Proceedings; Orders.................................................... 32
3.22 Authority; Binding Nature of Agreement....................................... 32
3.23 No Existing Discussions...................................................... 33
3.24 Vote Required................................................................ 33
3.25 Non-Contravention; Consents.................................................. 33
3.26 Financial Advisor............................................................ 34
3.27 Full Disclosure.............................................................. 34
4 CERTAIN COVENANTS OF THE PARTIES ..................................................... 35
4.1 Access and Investigation; Confidentiality ................................... 35
4.2 Operation of Target's Business .............................................. 35
4.3 Operation of CPI's Business ................................................. 37
4.4 No Solicitation by Target ................................................... 39
4.5 No Solicitation by CPI ...................................................... 40
5 ADDITIONAL COVENANTS OF THE PARTIES .................................................. 42
5.1 Registration Statements; Joint Proxy Statement .............................. 42
5.2 CPI Stockholders' Meeting ................................................... 42
5.3 Target Stockholders' Meeting ................................................ 44
5.4 Regulatory Approvals ........................................................ 45
5.5 Continuation of Target D&O Insurance ........................................ 45
5.6 Additional Agreements ....................................................... 45
5.7 Disclosure .................................................................. 45
5.8 Tax Matters ................................................................. 46
5.9 Resignation of Officers and Directors ....................................... 46
5.10 FIRPTA Matters............................................................... 46
5.11 Affiliate Agreements......................................................... 46
5.12 Post Merger Holdco Board of Directors........................................ 46
5.13 Registration Rights.......................................................... 47
5.14 CPI Redeemable Preferred Stock............................................... 47
5.15 Market Stand-off Agreement................................................... 47
</TABLE>
iii.
<PAGE> 157
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.16 Nasdaq Listing............................................................... 47
6 CONDITIONS PRECEDENT TO OBLIGATIONS OF CPI ........................................... 47
6.1 Accuracy of Representations ................................................. 47
6.2 Performance of Covenants .................................................... 48
6.3 Effectiveness of Registration Statement ..................................... 48
6.4 Stockholder Approval ........................................................ 48
6.5 Documents ................................................................... 48
6.6 No Material Adverse Change .................................................. 48
6.7 No Restraints ............................................................... 48
6.8 Delivery of Affiliates' Agreements .......................................... 49
6.9 Consents. ................................................................... 49
6.10 Registration................................................................. 49
6.11 Nasdaq Listing............................................................... 49
6.12 No Governmental Litigation................................................... 49
6.13 No Other Litigation.......................................................... 49
7 CONDITIONS PRECEDENT TO OBLIGATIONS OF TARGET .........................................50
7.1 Accuracy of Representations ................................................. 50
7.2 Performance of Covenants .....................................................50
7.3 Effectiveness of Registration Statement ......................................50
7.4 Stockholder Approval ........................................................ 50
7.5 Consents .................................................................... 50
7.6 Documents ................................................................... 50
7.7 No Material Adverse Change .................................................. 51
7.8 Directors ................................................................... 51
7.9 Registration ................................................................ 51
7.10 Nasdaq Listing............................................................... 51
7.11 Delivery of Affiliates' Agreements........................................... 52
7.12 No Restraints................................................................ 52
7.13 No Governmental Litigation................................................... 52
</TABLE>
iv.
<PAGE> 158
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.14 No Other Litigation.......................................................... 52
7.15 Market Stand-Off Agreements.................................................. 52
8 TERMINATION .......................................................................... 52
8.1 Termination ................................................................. 52
8.2 Effect of Termination ....................................................... 53
8.3 Expenses; Termination Fees .................................................. 54
9 MISCELLANEOUS PROVISIONS ............................................................. 55
9.1 Amendment ................................................................... 55
9.2 Waiver ...................................................................... 55
9.3 No Survival of Representations and Warranties ............................... 55
9.4 Entire Agreement; Counterparts; Applicable Law .............................. 55
9.5 Jury Waiver ................................................................. 55
9.6 Attorneys' Fees ............................................................. 56
9.7 Assignability ............................................................... 56
9.8 Notices ..................................................................... 56
9.9 Cooperation ................................................................. 57
9.10 Construction................................................................. 57
</TABLE>
v.
<PAGE> 159
EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A - Certain Definitions
Exhibit B - Form of Certificate of Incorporation of Holdco Merger Company
Exhibit C - Form of CPI Charter Amendment to Restated Certificate of Incorporation
of Cell Pathways, Inc.
</TABLE>
vi.
<PAGE> 160
Appendix A
AGREEMENT AND
PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of June 23, 1998, by and between CELL PATHWAYS, INC., a Delaware
corporation ("CPI") and TSENG LABS, INC., a Utah corporation ("TARGET"). Certain
capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
WHEREAS, Holdco Company ("HOLDCO") is a Delaware corporation to be
formed for the purpose of effectuating the transactions contemplated hereby;
WHEREAS, the Boards of Directors of CPI and Target have each determined
that it is in the best interests of their respective stockholders that each
corporation become a subsidiary of Holdco pursuant to the Mergers (as defined in
Section 1.2 below) and desire to make certain representations, warranties and
agreements in connection with the Mergers;
WHEREAS, the Boards of Directors of CPI and Target have each determined
that the Mergers and the other transactions contemplated hereby are consistent
with, and in furtherance of, their respective business strategies and goals and
have each approved the Mergers upon the terms and conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the
formation of Holdco and the Mergers shall constitute one or more tax-free
transactions under the Internal Revenue Code of 1986, as amended (the "CODE");
and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. DESCRIPTION OF TRANSACTION
1.1 FORMATION OF MERGER SUBSIDIARIES. CPI will cause the following to
occur: (i) Holdco to be formed under the Delaware General Corporation Law
("DGCL"), (ii) a wholly owned subsidiary of Holdco to be formed to be merged
into CPI ("C-SUB"); and (iii) a wholly owned subsidiary of Holdco to be formed
to be merged into Target ("T-SUB," and together with C-Sub, the "MERGER
SUBSIDIARIES"), in each case as set forth in Section 1.2 hereof. Each of the
Merger Subsidiaries will be formed solely to facilitate the Mergers and will
conduct no business or activity other than in connection with the Mergers. CPI
and Target will cause (i) Holdco and the Merger Subsidiaries to execute and
deliver a joinder to this Agreement pursuant to Section 251 of the DGCL, and
(ii) Holdco to execute formal written consents under Section 228 of the
1.
<PAGE> 161
DGCL as the sole stockholder of each of the Merger Subsidiaries, approving the
execution, delivery and performance of this Agreement by each of the Merger
Subsidiaries.
1.2 THE MERGERS. At the Effective Time (as defined in Section 1.3 hereof)
and subject to and upon the terms and conditions of this Agreement and the DGCL:
(i) C-Sub shall be merged with and into CPI, the separate corporate existence of
C-Sub shall cease, and CPI shall continue as the surviving corporation that
shall be a wholly owned subsidiary of Holdco; and (ii) T-Sub shall be merged
with and into Target, the separate corporate existence of T-Sub shall cease, and
Target shall continue as the surviving corporation that shall be a wholly owned
subsidiary of Holdco. The mergers described in clauses (i) and (ii) of the
immediately preceding sentence are herein collectively referred to as the
"MERGERS" and each individually as a "MERGER." CPI and Target, as the surviving
corporations after the Mergers, are herein collectively referred to as the
"SURVIVING CORPORATIONS" and each individually as a "SURVIVING CORPORATION" and
C-Sub and T-Sub as the non-surviving corporations after the Mergers are herein
sometimes collectively referred to as the "MERGED CORPORATIONS" and each as a
"MERGED CORPORATION." Holdco, CPI, Target, and, individually after entering into
a joinder to this Agreement, Holdco, C-Sub and T-Sub, are herein referred to
collectively as the "PARTIES" and each individually as a "PARTY."
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Cell Pathways, Inc at 702 Electronic Drive, Horsham, PA 19044 at 10:00 a.m.
on a date to be agreed by CPI and Target (the "CLOSING DATE"), which shall be no
later than the tenth business day after the satisfaction or waiver of the
conditions set forth in Sections 6 and 7. Contemporaneously with or as promptly
as practicable after the Closing, the parties shall cause the Mergers to be
consummated concurrently by filing a properly executed Certificate of Merger
with the Secretary of State of the State of Delaware and properly executed
Articles of Merger with the Secretary of State of Utah, respectively, with
respect to each of the Mergers. The Mergers shall take effect at the time such
Certificate of Merger and Articles of Merger are filed with the Secretaries of
State of the State of Delaware and the State of Utah, respectively (the
"EFFECTIVE TIME").
1.4 EFFECT OF THE MERGERS. At the Effective Time, the effect of the Mergers
shall be as provided in the applicable provisions of DGCL and the Utah Business
Corporation Act, respectively. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time (a) all the property, rights,
privileges, powers and franchises of CPI and C-Sub shall continue with, or vest
in, as the case may be, CPI as the Surviving Corporation, and all debts,
liabilities and duties of CPI and C-Sub shall continue to be, or become, as the
case may be, the debts, liabilities and duties of CPI as the Surviving
Corporation and (b) all the property, rights, privileges, powers and franchises
of Target and T-Sub shall continue with, or vest in, as the case may be, Target
as the Surviving Corporation, and all debts, liabilities and duties of Target
and T-Sub shall continue to be, or become, as the case may be, the debts,
liabilities and duties of Target as the Surviving Corporation. As of the
Effective Time, each of the Surviving Corporations shall be a direct
wholly-owned subsidiary of Holdco. At the Effective Time, Holdco shall assume
the 1997 Equity Incentive Plan of CPI, the 1997 Non-Employee Directors Stock
Option Plan of CPI, the approved Employee Stock Purchase Plan of CPI and the
Cell
2.
<PAGE> 162
Pathways, Inc. 1995 Stock Award Plan and all stock options outstanding under
such plans. At the Effective Time, Holdco shall also assume the Target 1991
Stock Option Plan, the Target 1995 Stock Option Plan and the Target 1991 Special
Directors Stock Option Plan (each a "TARGET OPTION PLAN," and collectively the
"TARGET OPTION PLANS") and all stock options outstanding under such plans.
1.5 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, either of
the Surviving Corporations shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in
such Surviving Corporation its right, title or interest in, to or under any of
the rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by such Surviving
Corporation as a result of, or in connection with, one of the Mergers or
otherwise to carry out this Agreement, the officers and directors of such
Surviving Corporation shall be directed and authorized to execute and deliver,
in the name and on behalf of either of such constituent corporations, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of such corporations or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties,
privileges, franchises or assets in such Surviving Corporation or otherwise to
carry out this Agreement.
1.6 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
(a) The respective Certificate of Incorporation of each of C-Sub and
T-Sub shall become the Certificates of Incorporation of CPI and Target,
respectively, as the Surviving Corporations.
(b) The respective Bylaws of each of C-Sub and T-Sub shall become the
Bylaws of CPI and Target, respectively, as the Surviving Corporation.
(c) The officers and directors of CPI immediately prior to the
Effective Time shall continue to serve in their respective positions of CPI as
the Surviving Corporation from and after the Effective Time. The officers and
directors of T-Sub immediately prior to the Effective Time shall serve in their
respective positions of Target as the Surviving Corporation from and after the
Effective Time. In addition, the officers of CPI immediately prior to the
Effective Time shall become the officers of Holdco at the Effective Time and the
directors of CPI immediately prior to the Effective Time together with the
persons to be designated pursuant to Section 5.12 below shall be the directors
of Holdco after the Effective Time.
(d) On the Effective Date, Holdco's Certificate of Incorporation will
be amended to change Holdco's name to "Cell Pathways, Inc." and CPI's
Certificate of Incorporation will be amended to change CPI's name to "CPI, Inc."
3.
<PAGE> 163
1.7 CONVERSION OF STOCK; OPTIONS AND WARRANTS.
The manner and basis of converting the shares of common stock and
preferred stock, where applicable, of the Surviving Corporations and of the
Merged Corporations at the Effective Time, by virtue of the Mergers and without
any action on the part of any of the Parties or the holder of any of such
securities, shall be as hereinafter set forth.
(a) CONVERSION OF SHARES.
(i) Each share of CPI Common Stock, par value $0.01
per share ("CPI COMMON STOCK"), and CPI Preferred Stock, par value $0.01 per
share ("CPI PREFERRED STOCK"), issued and outstanding immediately before the
Effective Time (excluding those held in the treasury of CPI and those owned by
Target) and all rights in respect thereof, shall at the Effective Time, without
any action on the part of any holder thereof, forthwith cease to exist and be
converted into the right to receive one share of common stock, par value $.01
per share, of Holdco ("HOLDCO COMMON STOCK") (such ratio of Holdco Common Stock
to CPI Stock being herein referred to as the "CPI EXCHANGE RATIO").
(ii) Each share of Target Common Stock, par value
$.005 per share ("TARGET COMMON STOCK") issued and outstanding immediately
before the Effective Time (excluding those held in the treasury of Target and
those owned by CPI) and all rights in respect thereof, shall at the Effective
Time, without any action on the part of any holder thereof, forthwith cease to
exist and be converted into the right to receive .3631326 of a share of Holdco
Common Stock (such ratio of Holdco Common Stock to Target Common Stock being
herein referred to as the "TARGET EXCHANGE RATIO"; and the CPI Exchange Ratio
and the Target Exchange Ratio being referred to herein collectively as the
"EXCHANGE RATIOS").
(iii) Commencing immediately after the Effective
Time, each certificate that, immediately prior to the Effective Time,
represented issued and outstanding shares of CPI Common Stock and CPI Preferred
Stock ("CPI SHARES") or Target Common Stock ("TARGET SHARES" and, together with
the CPI Shares, the "SHARES"), shall evidence ownership of Holdco Common Stock
on the basis hereinbefore set forth, but subject to the limitations set forth in
this Section 1.7.
(b) CANCELLATION OF TREASURY SHARES AND OF OUTSTANDING HOLDCO COMMON
STOCK.
(i) At the Effective Time, each share of CPI Common
Stock and CPI Preferred Stock held in the treasury of CPI or owned by Target
immediately prior to the Effective Time, and each share of Target Common Stock
held in the treasury of Target or owned by CPI immediately prior to the
Effective Time, shall be canceled and retired and no shares of stock or other
securities of Holdco or either of the Surviving Corporations shall be issuable,
and no payment or other consideration shall be made, with respect thereto.
(ii) At the Effective Time, any shares of Holdco
Common Stock issued prior to the Effective Time shall be canceled and retired
and no shares of stock or other securities
4.
<PAGE> 164
of Holdco or any other corporation shall be issuable, and no payment or other
consideration shall be made, with respect thereto.
(c) CONVERSION OF COMMON STOCK OF THE MERGED CORPORATIONS INTO COMMON
STOCK OF THE SURVIVING CORPORATIONS.
(i) At the Effective Time, each share of Common
Stock, par value $0.01 per share, of C-Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of Holdco, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of Common Stock of CPI,
par value $0.01 per share, as one of the Surviving Corporations (the "NEW CPI
COMMON STOCK"). Immediately after the Effective Time and upon surrender by
Holdco of the certificate representing the shares of the common stock of C-Sub,
CPI as one of the Surviving Corporations shall deliver to Holdco an appropriate
certificate or certificates representing the New CPI Common Stock created by
conversion of the common stock of C-Sub owned by Holdco.
(ii) At the Effective Time, each share of Common
Stock, par value $0.01 per share, of T-Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of Holdco, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock of
Target, par value $0.01 per share, as one of the Surviving Corporations (the
"NEW TARGET COMMON STOCK"). Immediately after the Effective Time and upon
surrender by Holdco of the certificate representing the shares of the common
stock of T-Sub, Target as one of the Surviving Corporations shall deliver to
Holdco an appropriate certificate or certificates representing the New Target
Common Stock created by conversion of the common stock of T-Sub owned by Holdco.
(d) EXCHANGE OF SHARES OTHER THAN TREASURY SHARES. Subject to the
terms and conditions hereof, at or prior to the Effective Time, Holdco shall
appoint an exchange agent to effect the exchange of Shares for Holdco Common
Stock in accordance with the provisions of this Section 1.7 (the "EXCHANGE
AGENT"). From time to time after the Effective Time, Holdco shall deposit, or
cause to be deposited, certificates representing Holdco Common Stock for
conversion of Shares in accordance with the provisions of Section 1.7(a) hereof
(such certificates, together with any dividends or distributions with respect
thereto, being herein referred to as the "EXCHANGE FUND"). Commencing
immediately after the Effective Time and until the appointment of the Exchange
Agent shall be terminated, each holder of a certificate or certificates
theretofore representing Shares may surrender the same to the Exchange Agent,
and, after the appointment of the Exchange Agent shall be terminated, any such
holder may surrender any such certificate to Holdco. Such holder shall be
entitled upon such surrender to receive in exchange therefor a certificate or
certificates representing the number of full shares of Holdco Common Stock into
which the Shares theretofore represented by the certificate or certificates so
surrendered shall have been converted in accordance with the provisions of
Section 1.7(a) hereof, together with a cash payment in lieu of fractional
shares, if any, in accordance with Section 1.7(f) hereof, and all such shares of
Holdco Common Stock shall be deemed to have been issued at the
5.
<PAGE> 165
Effective Time. Until so surrendered and exchanged, each outstanding certificate
that, prior to the Effective Time, represented issued and outstanding Shares
shall be deemed for all corporate purposes of Holdco, other than the payment of
dividends and other distributions, if any, to evidence ownership of the number
of full shares of Holdco Common Stock into which the Shares theretofore
represented thereby shall have been converted at the Effective Time. Unless and
until any such certificate theretofore representing Shares is so surrendered, no
dividend or other distribution, if any, payable to the holders of record of
Holdco Common Stock as of any date subsequent to the Effective Time shall be
paid to the holder of such certificate in respect thereof. Upon the surrender of
any such certificate theretofore representing Shares, however, the record holder
of the certificate or certificates representing shares of Holdco Common Stock
issued in exchange therefor shall receive from the Exchange Agent or from
Holdco, as the case may be, payment of the amount of dividends and other
distributions, if any, which as of any date subsequent to the Effective Time and
until such surrender shall have become payable with respect to such number of
shares of Holdco Common Stock ("PRE-SURRENDER DIVIDENDS"). No interest shall be
payable with respect to the payment of Pre-Surrender Dividends upon the
surrender of certificates theretofore representing Shares. After the appointment
of the Exchange Agent shall have been terminated, such holders of Holdco Common
Stock that have not received payment of Pre-Surrender Dividends shall look only
to Holdco for payment thereof. Notwithstanding the foregoing provisions of this
Section 1.7(d), neither the Exchange Agent nor any Party shall be liable to a
holder of Shares for any Holdco Common Stock or dividends or distributions
thereon delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law or to a transferee pursuant to Section 1.7(e)
hereof.
(c) TRANSFER BOOKS. The stock transfer books of CPI with respect to
the CPI Shares and the stock transfer books of Target with respect to the Target
Shares shall each be closed at the Effective Time and no transfer of any Shares
will thereafter be recorded on any of such stock transfer books. In the event of
a transfer of ownership of Shares that is not registered in the stock transfer
records of CPI or Target, as the case may be, at the Effective Time, a
certificate or certificates representing the number of full shares of Holdco
Common Stock into which such Shares shall have been converted shall be issued to
the transferee together with a cash payment in lieu of fractional shares, if
any, in accordance with Section 1.7(f) hereof, and a cash payment in the amount
of Pre-Surrender Dividends, if any, in accordance with Section 1.7(d) hereof, if
the certificate or certificates representing such Shares is or are surrendered
as provided in Section 1.7(d) hereof, accompanied by all documents required to
evidence and effect such transfer and by evidence of payment of any applicable
stock transfer tax.
(f) NO FRACTIONAL SHARE CERTIFICATES.
(i) No scrip or fractional share certificate for Holdco Common
Stock will be issued upon the surrender for exchange of certificates evidencing
Shares. CPI and Target shall cause Holdco to pay to the Exchange Agent an amount
sufficient for the Exchange Agent to pay each holder of Target Common Stock an
amount in cash equal to the product obtained by multiplying (i) the fractional
share interest to which such holder would otherwise be entitled (after taking
into account all shares of Target Common Stock held at the Effective Time by
such holder) by (ii) the closing price of a share of Target Common Stock on the
Nasdaq National
6.
<PAGE> 166
Market on the trading day immediately preceding the Effective Time divided by
the Target Exchange Ratio.
(ii) As soon as practicable after the determination
of the amount of cash, if any, to be paid to holders of Target Common Stock with
respect to any fractional share interests, the Exchange Agent shall make
available such amounts, net of any required withholding, to such holders of
Target Common Stock, subject to and in accordance with the terms of Section
1.7(d) hereof.
(iii) Any portion of the Exchange Fund that remains
undistributed for six months after the Effective Time shall be delivered to
Holdco, upon demand, and any holders of CPI Common Stock, CPI Preferred Stock or
Target Common Stock who have not theretofore complied with the provisions of
this Section 1.7 shall thereafter look only to Holdco for satisfaction of their
claims for Holdco Common Stock or any cash in lieu of fractional shares of
Holdco Common Stock and any Pre-Surrender Dividends.
(g) OPTIONS AND WARRANTS.
(i) At the Effective Time, each option or warrant
granted by CPI to purchase shares of CPI Common Stock or CPI Preferred Stock,
and each Target Option, which is outstanding and unexercised immediately prior
to the Effective Time, shall be assumed by Holdco and be converted into an
option or warrant to purchase shares of Holdco Common Stock in such amount and
at such exercise price as provided below and otherwise having the same terms and
conditions as are in effect immediately prior to the Effective Time (except to
the extent that such terms, conditions and restrictions may be altered in
accordance with their terms as a result of the transactions contemplated
hereby):
(1) the number of shares of Holdco Common Stock to be
subject to the new option or warrant shall be equal to the product of (x) the
number of shares of CPI Common Stock, CPI Preferred Stock or Target Common Stock
subject to the original option or warrant and (y) the CPI Exchange Ratio (if the
original option or warrant related to CPI Common Stock or CPI Preferred Stock)
or the Target Exchange Ratio (if the original option or warrant related to
Target Common Stock), respectively;
(2) the exercise price per share of Holdco Common Stock
under the new option or warrant shall be equal to (x) the exercise price per
share of the CPI Common Stock, CPI Preferred Stock or Target Common Stock under
the original option or warrant divided by (y) the CPI Exchange Ratio (if the
original option or warrant related to CPI Common Stock or CPI Preferred Stock)
or the Target Exchange Ratio (if the original option or warrant related to
Target Common Stock); and
(3) upon each exercise of options or warrants by a holder
thereof, the aggregate number of shares of Holdco Common Stock deliverable upon
such exercise shall be rounded down, if necessary, to the nearest whole share
and the aggregate exercise price shall be rounded up, if necessary, to the
nearest cent. The adjustments provided
7.
<PAGE> 167
herein with respect to any options that are "incentive stock options" (as
defined in Section 422 of the Code) shall be effected in a manner consistent
with Section 424(a) of the Code.
(h) CERTAIN ADJUSTMENTS. If between the date of this Agreement and the
Effective Time, the outstanding shares of CPI Common Stock, CPI Preferred Stock
or of Target Common Stock shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination or
exchange of shares, or any dividend payable in stock or other securities shall
be declared thereon with a record date within such period, the exchange ratio
established pursuant to the provisions of Section 1.7(a) hereof shall be
adjusted accordingly to provide to the holders of CPI Common Stock, CPI
Preferred Stock and Target Common Stock the same economic effect as contemplated
by this Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange or dividend.
1.8 CPI CHARTER AMENDMENT. The Board of Directors of CPI has approved an
amendment to CPI's Certificate of Incorporation attached hereto as Exhibit C
(the "CPI CHARTER AMENDMENT"), in order to effectuate the consummation of the
Mergers. CPI shall file the CPI Charter Amendment immediately prior to the
Effective Time.
2. REPRESENTATIONS AND WARRANTIES OF TARGET
For purposes of this Section 2, "TARGET" shall mean each of Target and
its Subsidiaries, collectively. Except as set forth in the Target Disclosure
Schedule or the Target SEC Documents (as defined in Section 2.4 below), Target
represents and warrants to Holdco and CPI, as follows:
2.1 DUE ORGANIZATION; SUBSIDIARIES
(a) Target is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own, lease and use its
assets in the manner in which its assets are currently owned, leased and used;
and (iii) to perform its obligations under all contracts by which it is bound.
Target is qualified to do business as a foreign corporation, and is in good
standing, under the laws of all jurisdictions where the nature of its business
requires such qualification except in jurisdictions where the failure to so
qualify, individually and in the aggregate, would not have a Material Adverse
Effect on Target.
(b) Except for those Entities identified in the Target Disclosure
Schedule, Target has no Subsidiaries; and neither Target nor any Entity
identified in the Target Disclosure Schedule owns any capital stock of, or any
equity interest of any nature in, any other Entity other than the Entities
identified in the Target Disclosure Schedule. Target has not agreed or is not
obligated to make or is not bound by any Contract to make any future investment
in or capital contribution to any other Entity. Except as set forth on the
Target Disclosure Schedule, Target has not, at any time, been a general partner
of any general partnership, limited partnership, or other Entity.
8.
<PAGE> 168
2.2 ARTICLES OF INCORPORATION AND BYLAWS. Target has delivered to CPI
complete and accurate copies of the Articles of Incorporation, Bylaws, and other
charter and organizational documents of the Target, including all amendments
thereto.
2.3 CAPITALIZATION
(a) The authorized capital stock of Target consists of: 50,000,000
shares of Target Common Stock, par value $0.005, of which, as of the date hereof
15,628,587 shares were issued and outstanding and 544,250 shares were held in
its treasury. All of the outstanding shares of Target Common Stock have been
duly authorized and validly issued, and are fully paid and nonassessable. Except
as set forth in the Target Disclosure Schedule: (i) none of the outstanding
shares of Target Common Stock is entitled or subject to any preemptive right,
right of participation in future financings, right to maintain a percentage
ownership position, or any similar right; (ii) none of the outstanding shares of
Target Common Stock is subject to any right of first refusal in favor of Target;
and (iii) there is no Target Contract relating to the voting or registration of,
or restricting any Person from purchasing, selling, pledging or otherwise
disposing of (or granting any option or similar right with respect to), any
shares of Target Common Stock. Target is not under any obligation, or is not
bound by any Contract pursuant to which it may become obligated, to repurchase,
redeem or otherwise acquire any outstanding shares of Target Common Stock or any
other securities of Target, other than the stockholder rights plan disclosed
pursuant to Section 2.3(c) hereof.
(b) As of the date hereof: (i) 957,427 shares of Target Common Stock
are reserved for future issuance pursuant to stock options granted and
outstanding under Target's 1995 Stock Option Plan, (ii) 80,000 shares of Target
Common Stock are reserved for future issuance pursuant to stock options granted
and outstanding under Target's 1991 Special Directors' Stock Option Plan, and
(iii) 434,777 shares of Target Common Stock are reserved for future issuance
pursuant to stock options granted and outstanding under Target's 1991 Stock
Option Plan. The Target Disclosure Schedule sets forth the following information
with respect to each Target Option outstanding as of the date of this Agreement:
(i) the particular plan pursuant to which such Target Option was granted; (ii)
the name of the optionee; (iii) the number of shares of Target Common Stock
subject to such Target Option; (iv) the exercise price of such Target Option;
(v) the date on which such Target Option was granted; (vi) the extent to which
such Target Option is vested and exercisable as of June 23, 1998; and (vii) the
date on which such Target Option expires. Target has delivered to CPI accurate
and complete copies of all stock option plans and forms of option grant pursuant
to which Target has granted any outstanding stock options. Target has no
outstanding stock appreciation rights.
(c) Except as set forth in the Target Disclosure Schedule, there is
no: (i) outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of Target or any subsidiary of Target; (ii) outstanding security,
instrument or obligation that is or may become convertible into or exchangeable
for any shares of the capital stock or other securities of Target or any
subsidiary of Target; (iii) stockholder rights plan (or similar plan commonly
referred to as a "poison pill") or Contract under which Target or any subsidiary
of Target is or may become obligated to sell or
9.
<PAGE> 169
otherwise issue any shares of its capital stock or any other securities; or (iv)
condition or circumstance that may reasonably give rise to or provide a basis
for the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of Target or any subsidiary of Target. There are no bonds, debentures, notes or
other indebtedness of Target outstanding having the right to vote (or
convertible into securities having the right to vote) on any matters on which
the stockholders of Target have the right to vote.
(d) All outstanding securities of Target, including shares of Target
Common Stock, and Target Options, have been issued and granted in all material
respects in compliance with (i) all applicable securities laws and other
applicable Legal Requirements, and (ii) all requirements set forth in applicable
Contracts.
2.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Target has made available to CPI accurate and complete copies
(excluding copies of exhibits) of all registration statements, proxy statements
and other statements, reports, schedules, forms and other documents filed by
Target with the SEC since January 1, 1997 (the "TARGET SEC DOCUMENTS"). All
statements, reports, schedules, forms and other documents required to have been
filed by Target with the SEC have been so filed by Target on a timely basis. As
of the time it was filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing): (i) each
of the Target SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act (as the case
may be); and (ii) none of the Target 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 the
light of the circumstances under which they were made, not misleading.
(b) Except as set forth in the Target Disclosure Schedule, the
consolidated financial statements (including any related notes) contained in the
Target SEC Documents (the "TARGET FINANCIAL STATEMENTS"): (i) complied as to
form in all material respects with the published rules and regulations of the
SEC applicable thereto; (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except as may be indicated in the notes to such financial statements
and, in the case of unaudited statements, as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and are
subject to normal and recurring year-end audit adjustments that will not,
individually or in the aggregate, be material in amount); (iii) fairly present
the financial position of Target as of the respective dates thereof and the
results of operations and cash flows of Target for the periods covered thereby;
and (iv) reflect any contingent liabilities to the extent required to be
reflected therein.
(c) Since December 31, 1997, Target and its subsidiaries have not
incurred any liabilities of the type required under GAAP to be recorded on a
balance sheet or in the footnotes thereto except liabilities incurred in the
ordinary course of business.
10.
<PAGE> 170
2.5 ABSENCE OF CHANGES. Except as set forth in the Target Disclosure
Schedule or the Target SEC documents, since December 31, 1997:
(a) there has not been any change that has had a Material Adverse
Effect on the business, condition, capitalization, assets, liabilities,
operations or financial performance of Target, and no event has occurred that
could reasonably be expected to have a Material Adverse Effect on Target;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the assets of Target that are
necessary for the conduct of Target's business as currently conducted (whether
or not covered by insurance);
(c) there has not been any transaction, commitment, or other event or
condition (financial or otherwise) that would be prohibited by Section
4.2(b)(i), (iv), (ix), (x) or (xi) if it were to be effected, accepted or were
to take place between the date hereof and the Effective Time.
2.6 TITLE TO ASSETS. Except as set forth in the Target Disclosure Schedule
or the Target SEC Documents, Target owns, and has good, valid and marketable
title to, all assets purported to be owned by it, including: all assets
reflected in their books and records as being owned by Target. All of said
assets are owned by Target free and clear of any Encumbrances, except for (a)
any lien for current taxes not yet due and payable, (b) minor liens that have
arisen in the ordinary course of business and that do not (in any case or in the
aggregate) materially detract from the value of the assets subject thereto or
materially impair the operations of Target, and (c) liens described in the
Target Disclosure Schedule.
2.7 REAL PROPERTY; EQUIPMENT; LEASEHOLD. Except as described in the Target
Disclosure Schedule or the Target SEC Documents:
(a) Target does not own any real property or any material interest in
real property, except for the leasehold created under real property leases set
forth in the Target Disclosure Schedule. Complete and correct copies of such
leases have previously been delivered to CPI by Target.
(b) All material items of equipment and other tangible assets owned by
or leased to Target are reasonably adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
reasonably adequate for the conduct of the business of Target in the manner in
which such business is currently being conducted and in the manner in which such
business is required to be conducted pursuant to Target Contracts and that are
in effect on the date hereof.
2.8 PROPRIETARY ASSETS.
(a) Target has title, or the right to use, such Proprietary Assets as
are reasonably necessary to enable Target to conduct its business, as presently
conducted.
11.
<PAGE> 171
(b) Except as set forth on the Target Disclosure Schedule, to the best
of Target's knowledge: (i) none of the Target commercial products and processes
infringes, misappropriates or conflicts with any Proprietary Assets owned or
used by any Person (ii) Target has not received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful or unauthorized use of any
Proprietary Asset owned or used by any other Person; and (iii) no other Person
is infringing, misappropriating or making any unlawful or unauthorized use of
any material Target Proprietary Asset.
2.9 MATERIAL CONTRACTS.
(a) The Target Disclosure Schedule identifies each Target Contract
that constitutes a "TARGET MATERIAL CONTRACT." For purposes of this Agreement,
each of the following shall be deemed to constitute a Target Material Contract:
(i) any Contract relating to the employment of, or the
performance of services by, any director, officer, employee or consultant, and
any Contract pursuant to which Target is or may become obligated to make any
severance, termination, bonus or relocation payment or any similar payment
(other than payments in respect of salary and the grant of standard benefits);
(ii) any Contract that provides for indemnification of any
officer, director, employee or agent;
(iii) any Contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities, (B) providing any
Person with any preemptive right, right of participation, right of maintenance
or any similar right with respect to any securities, or (C) providing Target
with any right of first refusal with respect to, or right to repurchase or
redeem, any securities;
(iv) any Contract requiring that Target give any notice, obtain
any consent or provide any information to any Person prior to accepting any
Acquisition Proposal;
(v) any Contract (not otherwise identified in this Section) that
(A) has a term of more than sixty (60) days or that may not be terminated by
Target (without penalty) within sixty (60) days after the delivery of a
termination notice by Target and (B) that contemplates or involves (I) the
payment or delivery of cash or other consideration on or after the date hereof
in an amount or having a value in excess of $100,000 in aggregate payments under
such Contract, or (II) the performance of services on or after the date hereof
having a value in excess of $100,000 in aggregate payments under such Contract;
(vi) any Contract (A) to which any Governmental Body is a party
or under which any Governmental Body has any rights or obligations, or involving
or directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between CPI and any contractor or subcontractor to
any Governmental Body) and (B) that contemplates and involves (I) the payment or
delivery of cash or other consideration on or after
12.
<PAGE> 172
the date hereof in an amount or having a value in excess of $100,000 in
aggregate payments under such Contract, or (B) the performance of services on or
after the date hereof having a value in excess of $100,000 in aggregate payments
under such Contract;
(vii) any open purchase order placed by Target requiring future
aggregate payments in excess of $100,000;
(viii) any Contract (not otherwise identified in this Section),
which would be required as an Exhibit in a registration statement filed under
the Securities Act of 1933.
(b) Each Target Material Contract is valid and in full force and
effect, and is enforceable in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies and (iii) in the case of any Contract with a
Governmental Body, any law applicable thereto.
(c) Except as set forth in the Target Disclosure Schedule: (i) Target
has not materially violated or breached, or committed any material default
under, any Target Material Contract, and, to the best of the knowledge of
Target, no other Person has materially violated or breached, or committed any
material default under, any Target Material Contract; (ii) to the best of the
knowledge of Target, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) could reasonably be
expected to (A) result in a material violation or breach of any of the
provisions of any Target Material Contract, (B) give any Person the right to
declare a default or exercise any remedy under any Target Material Contract, (C)
give any Person the right to accelerate the maturity or performance of any
Target Material Contract, or (D) give any Person the right to cancel, terminate
or materially modify any Target Material Contract; (iii) since December 31,
1997, none of Target has received any written notice or other written
communication regarding any actual or possible violation or breach of, default
under, or any intention to terminate, any Target Contract, except for
communication (A) that has subsequently been revoked; or (B) has been received
from a complaining party that has not contacted Target or otherwise, to Target's
knowledge, taken any action with respect to such party's complaint for a period
of more than six months following receipt of the communication; and (iv) Target
has not waived any of its material rights under any Target Material Contract, in
each case where such breach, default, violation or waiver would have a Material
Adverse Effect on Target.
(d) To the best of the knowledge of Target, no Person is
renegotiating, or has the right to renegotiate, any material amount paid or
payable to Target under any Target Material Contract, or any other material term
or provision of any Target Material Contract, including termination provisions.
(e) The Target Disclosure Schedule sets forth a list of all claims
made under any Target Material Contract that are disputed in any material
respect or, to Target's knowledge, where a dispute as to any material matter has
been threatened.
13.
<PAGE> 173
2.10 LIABILITIES. Target does not have any accrued or contingent
liabilities of a nature required to be reflected in financial statements in
accordance with GAAP, except for: (a) liabilities identified as such in the
Target Financial Statements; (b) normal and recurring liabilities that have been
incurred by Target since December 31, 1997 in the ordinary course of business
and consistent with past practices; and (c) other liabilities that have not had
and could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on Target.
2.11 COMPLIANCE WITH LEGAL REQUIREMENTS. Target is, and, to the best
knowledge of Target, has at all times since inception been, in compliance with
all applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and could not reasonably be expected to have, a
Material Adverse Effect on Target. There is not presently pending any notice or
other communication received by Target from any Governmental Body regarding any
actual or possible violation of, or failure to comply with, any material Legal
Requirement.
2.12 CERTAIN BUSINESS PRACTICES. None of Target nor any director, officer,
agent or employee of Target has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
2.13 GOVERNMENTAL AUTHORIZATIONS. Target holds all material Governmental
Authorizations necessary to enable them to conduct their respective businesses
in the manner in which such businesses are currently being conducted. All such
Governmental Authorizations are valid and in full force and effect. Target is,
and to the best knowledge of Target, at all times since inception has been, in
substantial compliance with the terms and requirements of such Governmental
Authorizations. To the best knowledge of Target, since inception, none of Target
has received any notice or other communication from any Governmental Body
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any material Governmental Authorization, or (b) any
actual or possible revocation, withdrawal, suspension, cancellation, termination
or modification of any material Governmental Authorization or (c) any
requirement to apply for or hold a Governmental Authorization not held by
Target, in each case where such violation, revocation, suspension, cancellation,
termination or modification would have a Material Adverse Effect on Target.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of Target
with any Governmental Body with respect to any taxable period ending on or
before the Closing Date (the "TARGET RETURNS") have been or will be filed on or
before the applicable due date (including any extensions of such due date). All
amounts shown on the Target Returns to be due on or before the Closing Date have
been or will be paid on or before the Closing Date.
14.
<PAGE> 174
(b) Except as set forth on the Target Disclosure Schedule, the Target
Financial Statements fully accrue all actual and contingent liabilities for
Taxes with respect to all periods through the dates thereof in accordance with
GAAP. Target will establish, in the ordinary course of business and consistent
with its past practices, quarterly reserves adequate for the payment of all
Taxes for the applicable periods from December 31, 1997 through the Closing
Date. Since January 1, 1998 no material Tax liability has been incurred other
than in the ordinary course of business.
(c) Except as set forth in the Target Disclosure Schedule, no Target
Return has ever been examined or audited by any Governmental Body. No extension
or waiver of the limitation period applicable to any of the Target Returns has
been granted (by Target or any other Person), and no such extension or waiver
has been requested by Target.
(d) Except as set forth in the Target Disclosure Schedule, no claim or
Legal Proceeding is pending or, to the best of the knowledge of Target, has been
threatened in writing against or with respect to Target in respect of any Tax.
There are no unsatisfied liabilities for Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by Target
(other than liabilities for Taxes asserted under any such notice of deficiency
or similar document that are being contested in good faith by Target and with
respect to which adequate reserves for payment have been established). There are
no liens for Taxes upon any of the assets of any of Target except liens for
current Taxes not yet due and payable. None of Target has entered into or become
bound by any agreement or consent pursuant to Section 341(f) of the Code. None
of Target has been, and none of Target will be required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing. None of Target is nor has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code. Target has no liabilities for the Taxes of any other Person except
for payroll taxes collected in the ordinary course of business.
(e) Except as set forth in the Target Disclosure Schedule or the
Target SEC Documents, there is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of any of Target that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. Target is not, nor has ever been, a party to or bound by any tax indemnity
agreement, tax sharing agreement, tax allocation agreement or similar Contract
(other than a Contract entered into in the ordinary course of business in
connection with the purchase or sale of inventory or supplies).
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) The Target Disclosure Schedule or the Target SEC Documents
identifies salary, bonus, deferred compensation, incentive compensation, stock
purchase, stock option,
15.
<PAGE> 175
severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefit, profit-sharing, pension or
retirement plan, program or agreement covering one or more people (collectively,
the "TARGET PLANS") sponsored, maintained, contributed to or required to be
contributed to by any of Target for the benefit of any current of former
employee of Target.
(b) No Target plan is subject to Title IV of ERISA, Part 3 of Title I
of ERISA or Section 412 of the Code, and no Target Plan constitutes a
"multi-employer plan" (as defined in Section 3(37) of ERISA).
(c) With respect to each Target Plan, Target has made available to
CPI: (i) an accurate and complete copy of each such Target Plan (including all
amendments thereto); (ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Target Plans for the last two plan
years; (iii) an accurate and complete copy of the most recent summary plan
description, together with each summary of material modifications thereto, if
required under ERISA, with respect to such Target Plans; (iv) if such Target
Plans are funded through a trust or a third party funding vehicle, an accurate
and complete copy of the trust or other funding agreement (including all
amendments thereto); (v) accurate and complete copies of all Contracts relating
to such Target Plans, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
record-keeping agreements; and (vi) an accurate and complete copy of the most
recent determination, opinion, notification or advisory letter received from the
Internal Revenue Service with respect to such Target Plans (if such Target Plans
are intended to be qualified under Section 401(a) of the Code).
(d) Target has no plan or commitment to create any additional Plan, or
to modify or change any existing Plan (other than to comply with applicable law)
in a manner that would create any material liability for any of Target.
(e) No Target Plan provides death, medical or health benefits coverage
(whether or not insured) with respect to any of its current or former employees
after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code ("COBRA"), (ii) deferred compensation benefits accrued
as liabilities on the most recent financial statements included in the Target
SEC filings, and (iii) benefits the full cost of which are borne by such current
or former employees (or the employees' beneficiaries)).
(f) With respect to any Target Plan constituting a group health plan
within the meaning of Section 4980B(g)(2) of the Code, COBRA has been complied
with in all material respects. The Target Disclosure Schedule lists all
qualified beneficiaries under COBRA with respect to all such Target Plans.
(g) Each of the Target Plans has been operated and administered in all
material respects in accordance with its terms and applicable Legal
Requirements, including but not limited to ERISA and the Code.
16.
<PAGE> 176
(h) All material contributions, premiums or other payments due from
any of Target to (or under) any Target Plan have been fully paid or adequately
provided for on the books and financial statements of Target.
(i) Each of the Target Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination, opinion, notification
or advisory letter from the Internal Revenue Service, and Target is not aware of
any reason why any such letter should be revoked.
(j) Except as set forth in the Target Disclosure Schedule, neither the
execution, delivery or performance of this Agreement, nor the consummation of
the Mergers or any of the other transactions contemplated by this Agreement,
will result in any payment (including any bonus, golden parachute or severance
payment) to any of Target's current or former employees or directors (whether or
not under any Target Plan), or materially increase the benefits payable under
any Target Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(k) Target is not a party to any collective bargaining contract or
other Contract with a labor union involving any of its employees.
(l) Target is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters and the classification of independent contractors
and workers.
2.16 ENVIRONMENTAL MATTERS. Target is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by each of Target of all material permits and other Governmental
Authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. Target has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that Target is not in
compliance with any Environmental Law, and, to the best of the knowledge of
Target, there are no circumstances that may prevent or interfere with the
compliance by Target with any Environmental Law in the future. To the knowledge
of Target without further inquiry, no current or prior owner of any property
leased or controlled by Target has received any notice or other communications
(in writing or otherwise), whether from a Government Body, citizens group,
employee or otherwise, that alleges that such current or prior owner or Target
is not in compliance with any Environmental Law. To the best of the knowledge of
Target, all property that is leased to, controlled by or used by Target, and all
surface water, groundwater and soil associated with or adjacent to such property
is in clean and healthful condition and is free of any material environmental
contamination of any nature. To the best knowledge of Target, Target has not
disposed of, emitted, discharged, handled, stored, transported, used or released
any Materials of Environmental Concern, arranged for the disposal, discharge,
storage or release of any Materials of Environmental Concern, or exposed any
employee or other individual to any
17.
<PAGE> 177
Materials of Environmental Concern or condition so as to give rise to any
material liability or material corrective or remedial obligation under any
Environmental Laws.
2.17 INSURANCE. Target has delivered to CPI a summary of all material
insurance policies and all material self-insurance programs relating to the
business, assets and operations of Target and has made available to CPI copies
of the polices. Each of such insurance policies is in full force and effect.
Except as set forth on the Target Disclosure Schedule, since December 31, 1997,
Target has not received any notice or other communication regarding any actual
or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any material claim under any insurance
policy, or (c) material adjustment in the amount of the premiums payable with
respect to any insurance policy. Except as set forth in the Target Disclosure
Schedule, there is no pending claim (including any workers' compensation claim)
other than routine claims for benefits under any Target Plan, under or based
upon any insurance policy of Target.
2.18 TRANSACTIONS WITH AFFILIATES.
(a) Except as set forth in the Target Disclosure Schedule or the
Target SEC Reports, since the date of Target's last proxy statement filed with
the SEC, no event has occurred that would be required to be reported by Target
pursuant to Item 404 of Regulation S-K promulgated by the SEC. The Target
Disclosure Schedule identifies each Person who is an "affiliate" (as that term
is used in Rule 145 under the Securities Act) of Target.
(b) The Target Disclosure Schedule contains an accurate and complete
list as of the date of this Agreement of all outstanding loans and advances made
by Target to any employee, director, consultant or independent contractor other
than routine travel advances and advances made for relocation purposes made to
employees in the ordinary course of business.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth on the Target Disclosure Schedule or in the
Target SEC Reports, there is no pending Legal Proceeding, and (to the best of
the knowledge of Target) no Person has threatened to commence any Legal
Proceeding: (i) that involves Target or any of the assets owned or used by
Target; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, the Mergers or any of
the other transactions contemplated by this Agreement. To the best of the
knowledge of Target, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding
that would reasonably be expected to have a Material Adverse Effect on Target.
(b) There is no material order, writ, injunction, judgment or decree
to which Target, or any of the assets owned or used by Target, is subject. To
the best of the knowledge of Target, no officer or key employee of Target is
subject to any order, writ, injunction, judgment or
18.
<PAGE> 178
decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to the business of Target.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. Target has the absolute and
unrestricted right, power and authority to enter into and to perform their
obligations under this Agreement. The board of directors of Target (at a meeting
duly called and held) has unanimously (a) determined that the Mergers are
advisable and fair and in the best interests of Target and its stockholders, (b)
authorized and approved the execution, delivery and performance of this
Agreement by Target, (c) recommended the approval of the Mergers by the holders
of Target Common Stock, and (d) directed that the Mergers be submitted for
consideration by Target's stockholders at the Target Stockholders' Meeting (as
defined in Section 5.3). This Agreement constitutes the legal, valid and binding
obligation of Target and, enforceable against Target in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
2.21 NO EXISTING DISCUSSIONS. Target has terminated (or will terminate as
soon as practical after execution of this Agreement) any existing discussions
with any Person that relate to any Acquisition Proposal.
2.22 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding shares of Target Common Stock entitled to vote at the Target
Stockholders Meeting (the "REQUIRED TARGET STOCKHOLDER MERGER VOTE"), is the
only vote of the holders of any class or series of Target's capital stock
necessary to approve the issuance of Target Common Stock in the Merger.
2.23 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Mergers or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Target's Articles of Incorporation, Bylaws or other charter or
organizational documents of any of Target, or (ii) any resolution adopted by the
stockholders, the board of directors or any committee of the board of directors
of any of Target;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Mergers or any of
the other transactions contemplated by this Agreement or to exercise any remedy
or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which Target, or any of the assets owned or
used by Target, is subject, if the result would have a Material Adverse Effect
on Target;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel,
19.
<PAGE> 179
terminate or modify, any Governmental Authorization that is held by Target or
that otherwise relates to Target's business or to any of the assets owned or
used by Target, if the result would have a Material Adverse Effect on Target;
(d) contravene, conflict with or result in a violation or material
breach of, or result in a default (or an event that with notice or lapse of time
or both would become a default) under, any provision of any Target Contract that
is or would constitute a Target Material Contract, or give any Person the right
to (i) declare a default or exercise any remedy under any such Target Material
Contract, (ii) a rebate, charge-back, penalty or change in delivery schedule
under any such Target Material Contract, (iii) accelerate the maturity or
performance of any such Target Material Contract, or (iv) cancel, terminate or
materially modify any term of such Target Material Contract, if the result would
have a Material Adverse Effect on Target; or
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by Target (except for minor liens that
will not, in any case or in the aggregate, materially detract from the value of
the assets subject thereto or materially impair the operations of any of
Target).
Except as may be required by the Exchange Act, the DGCL, the Utah
Business Corporation Act, and the NASD Bylaws (as they relate to the Form S-4
Registration Statement and the Joint Proxy Statement) Target is not, and will
not be, required to make any filing with or give any notice to, or to obtain any
Consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, or (y) the consummation of the Mergers or any of the other
transactions contemplated by this Agreement.
2.24 FAIRNESS OPINION. Target's Board of Directors has received the written
opinion of Janney Montgomery Scott, financial advisor to Target, dated as of the
date of this Agreement, to the effect that the terms of the Mergers are fair to
Target from a financial point of view.
2.25 VALID ISSUANCE; RESERVATION OF SHARES. The Target Common Stock to be
issued to Holdco in the Merger in exchange for surrender of the T-Sub Common
Stock will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
2.26 FINANCIAL ADVISOR. Except for Janney Montgomery Scott, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or any of the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Target. Target has furnished to CPI accurate and complete copies of all
agreements under which any such fees, commissions, or other amounts have been
paid or may become payable and all indemnification and other arrangements
relating to the engagement of Janney Montgomery Scott.
2.27 FULL DISCLOSURE. This Agreement (including the Target Disclosure
Schedule) does not, and the certificate referred to in Section 6.5(c) will not,
(i) contain any representation,
20.
<PAGE> 180
warranty or information that is false or misleading with respect to any material
fact, or (ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein (in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
3. REPRESENTATIONS AND WARRANTIES OF CPI AND HOLDCO
Except as set forth in the CPI Disclosure Schedule, CPI represents and
warrants to Target as follows:
3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION
(a) CPI is, and Holdco will be when organized, a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has, or in the case of Holdco will have,
all necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own, lease and use its
assets in the manner in which its assets are currently owned, leased and used;
and (iii) to perform its obligations under all CPI Contracts by which it is
bound. CPI is, or in the case of Holdco will be, qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification
except in jurisdictions where the failure to so qualify, individually and in the
aggregate, would not have a Material Adverse Effect on CPI.
(b) CPI has no Subsidiaries and does not own any capital stock of, or
any equity interest of any nature in, any other Entity, other than the Entities
identified in the CPI Disclosure Schedule. Except as set forth in the CPI
Disclosure Schedule, CPI has not agreed nor is it obligated to make, nor is it
bound by any Contract under which it may become obligated to make, any future
investment in or capital contribution to any other Entity. Except as set forth
in the CPI Disclosure Schedule, CPI has not, at any time, been a general partner
of any general partnership, limited partnership or other Entity.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. CPI has delivered to Target
accurate and complete copies of the Certificate of Incorporation, Bylaws and
other charter and organizational documents of CPI, including all amendments
thereto.
3.3 HOLDCO. When organized, Holdco's Certificate of Incorporation shall be
in the form attached as Exhibit B hereto, and its bylaws shall be in the form
delivered to Target by CPI. Holdco will not have conducted any business, other
than consummation of the transactions contemplated herein, prior to the
Effective Time. Immediately prior to the Effective Time, Holdco's entire
outstanding capitalization shall consist solely of 100 shares of common stock,
which shares shall be owned, beneficially and of record, by CPI.
21.
<PAGE> 181
3.4 CAPITALIZATION
(a) The authorized capital stock of CPI consists of: (i) 22,400,000
shares of CPI Common Stock, $0.01 par value, of which, as of the date hereof,
2,990,095 shares were issued and outstanding, (ii) 61,250 shares of CPI
Redeemable Preferred Stock, $0.01 par value, of which, as of the date hereof,
all were issued and outstanding and (iii) 18,400,000 shares of CPI Preferred
Stock, of which, as of the date hereof, (A) 872,400 shares are designated Series
A Preferred Stock of which 872,400 shares are issued and outstanding; (B)
848,100 shares are designated Series B Preferred Stock of which 848,100 shares
are issued and outstanding; (C) 700,000 shares are designated Series C Preferred
Stock of which 700,000 shares are issued and outstanding; (D) 675,350 shares are
designated Series D Preferred Stock, of which 616,807.5 shares are issued and
outstanding; (E) 3,204,865 shares are designated Series E Preferred Stock, of
which 3,121,642 shares are issued and outstanding; (F) 4,934,788 shares are
designated Series F Preferred Stock, of which 4,809,437 shares are issued and
outstanding; and (G) 5,400,000 shares are designated as Series G Preferred
Stock, of which 4,645,879 shares are issued and outstanding. Except as set forth
in the CPI Disclosure Schedule, all of the outstanding shares of CPI Common
Stock, CPI Redeemable Preferred Stock and CPI Preferred Stock have been duly
authorized and validly issued, and are fully paid and nonassessable. Except as
set forth in the CPI Disclosure Schedule: (i) none of the outstanding shares of
CPI Common Stock, CPI Redeemable Preferred Stock or CPI Preferred Stock is
entitled or subject to any preemptive right, right of participation in future
financings, right to maintain a percentage ownership position, or any similar
right; (ii) none of the outstanding shares of CPI Common Stock or CPI Preferred
Stock is subject to any right of first refusal in favor of CPI; and (iii) there
is no Contract relating to the voting or registration of, or restricting any
Person from purchasing, selling, pledging or otherwise disposing of (or granting
any option or similar right with respect to), any shares of CPI Common Stock or
CPI Preferred Stock. Except as set forth in the CPI Disclosure Schedule, CPI is
not under any obligation, and is not bound by any Contract pursuant to which it
may become obligated, to repurchase, redeem or otherwise acquire any outstanding
shares of CPI Common Stock, CPI Redeemable Preferred Stock or CPI Preferred
Stock.
(b) As of the date hereof, 740,429 shares of CPI Common Stock remain
available for grant under the CPI Option Plan (defined below) and 363,141 shares
of CPI Common Stock remain to be granted under the Directors' Plan (defined
below). The CPI Disclosure Schedule sets forth the following information with
respect to each CPI Option outstanding as of the date of this Agreement: (i) the
name of the optionee; (ii) the number of shares of CPI Common Stock subject to
such CPI Option; (iii) whether the CPI Option was granted pursuant to the 1997
Equity Incentive Plan (the "CPI OPTION PLAN") or was granted under the 1997
Non-Employee Directors' Stock Option Plan (the "Directors' Plan" and, together
with the Option Plan, the "Option Plans").(iv) the exercise price of such CPI
Option; (v) the date on which such CPI Option was granted; and (vi) the extent
to which such CPI Option is vested and exercisable as of the date hereof. CPI
has delivered to Target accurate and complete copies of all stock option plans
and forms of option grant pursuant to which CPI has granted any outstanding
stock options. As of the date hereof, warrants to purchase 69,044 shares of
Series E Preferred, warrants to purchase 125,351 shares of Series F Preferred,
warrants to purchase 227,793 shares of Series G Preferred Stock and a warrant to
purchase 5,000 shares of Common
22.
<PAGE> 182
Stock remained outstanding. The CPI Disclosure Schedule sets forth the following
information with respect to each outstanding warrant to purchase CPI Common
Stock and CPI Preferred Stock: (i) the name of the holder of such warrant; (ii)
the number of shares of CPI Common Stock or CPI Preferred Stock subject to such
warrant; (iii) the exercise price of such warrant; (iv) the date on which such
warrant was issued; and (v) the date on which such warrant expires. CPI has
delivered to Target an accurate and complete copy of each such warrant.
(c) Except as set forth in the CPI Disclosure Schedule, there is no:
(i) outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of CPI; (ii) outstanding security, instrument or obligation that is
or may become convertible into or exchangeable for any shares of the capital
stock or other securities of CPI; (iii) stockholder rights plan (or similar plan
commonly referred to as a "poison pill") or Contract under
which CPI is or may become obligated to sell or otherwise issue any shares of
its capital stock or any other securities; or (iv) condition or circumstance
that may reasonably give rise to or provide a basis for the assertion of a claim
by any Person to the effect that such Person is entitled to acquire or receive
any shares of capital stock or other securities of CPI. Except as set forth on
the CPI Disclosure Schedule, or elsewhere in this Section 3.3, there are no
bonds, debentures, notes or other indebtedness of CPI outstanding having the
right to vote (or convertible into securities having the right to vote) on any
matters on which the stockholders of CPI have the right to vote.
(d) All outstanding securities of CPI, including shares of CPI Common
Stock, CPI Redeemable Preferred Stock and CPI Preferred Stock, all outstanding
CPI Options and all outstanding warrants to purchase CPI Common Stock or CPI
Preferred Stock, have been issued and granted in all material respects in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
3.5 FINANCIAL STATEMENTS.
(a) The CPI Disclosure Schedule sets forth CPI's audited balance
sheets as of December 31, 1996 and December 31, 1997 and related audited
statements of operations, stockholders' equity and cash flows for the three
years then ended (collectively, the "AUDITED FINANCIAL STATEMENTS"), and the
unaudited financial statements as of March 31, 1998 (together with the Audited
Financial Statements, the "CPI FINANCIALS"). The CPI Financials were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered. The CPI Financials present
fairly in all material respects the financial condition and operating results of
CPI as of the dates and during the periods indicated therein and reflect any
contingent liabilities to the extent required to be reflected therein.
(b) Since December 31, 1997, CPI has not incurred any liabilities of
the type required under GAAP to be recorded on a balance sheet or reported in
the footnotes thereto except liabilities incurred in the ordinary course of
business.
23.
<PAGE> 183
3.6 ABSENCE OF CHANGES. Since December 31, 1997:
(a) there has not been any change that has had a Material Adverse
Effect on the business, condition, capitalization, assets, liabilities,
operations or financial performance of CPI taken as a whole, and no event has
occurred that could reasonably be expected to have a Material Adverse Effect on
CPI;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the assets of CPI (whether or
not covered by insurance);
(c) there has not been any transaction, commitment, or other event or
condition (financial or otherwise) that would be prohibited by Section 4.3(b)(i)
or (iii) if it were to be effected, accepted or were to take place, between the
date hereof and the Effective Time.
3.7 VALID ISSUANCE. The Holdco Common Stock to be issued in the Mergers
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
3.8 TITLE TO ASSETS. Except as set forth in the CPI Disclosure Schedule,
CPI owns, and has good, valid and marketable title to, all assets purported to
be owned by it, including all assets reflected in CPI's books and records as
being owned by CPI. All of said assets are owned by CPI free and clear of any
Encumbrances, except for (a) any lien for current taxes not yet due and payable,
(b) minor liens that have arisen in the ordinary course of business and that do
not (in any case or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of CPI, and (c) liens
described in the CPI Disclosure Schedule.
3.9 REAL PROPERTY; EQUIPMENT; LEASEHOLD.
(a) CPI does not own any real property or any interest in real
property, except for the leasehold created under the real property lease(s) set
forth in the CPI Disclosure Schedule. Complete and correct copies of such
lease(s) have previously been delivered to Target by CPI.
(b) All material items of equipment and other tangible assets owned by
or leased to CPI are reasonably adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
reasonably adequate for the conduct of CPI's business in the manner in which
such business is currently being conducted and in the manner in which such
business is required to be conducted pursuant to CPI Contracts and that are in
effect on the date hereof.
3.10 PROPRIETARY ASSETS.
(a) The CPI Proprietary Assets constitute such Proprietary Assets as
are reasonably necessary to enable CPI to conduct its business as it is
currently being conducted.
24.
<PAGE> 184
(i) CPI owns or has the right to use such Proprietary Assets as
are currently used in the business and such ownership and use will not be
adversely affected by the transactions contemplated hereby. So far as is known
to CPI, no present or former employee of, or consultant to, CPI or any other
person (including, without limitation, any former employer of a present or
former employee or consultant of CPI) has any proprietary, commercial or other
interest in such Proprietary Assets other than rights, if any, in respect of
which there has been adequate assignment or license to CPI to permit CPI to
conduct its business as presently conducted.
(ii) CPI has taken commercially reasonable measures in the normal
course of its business to protect through non-disclosure agreements such
Proprietary Assets as CPI has decided to, and is legally and practically able
to, keep secret. CPI has not received notice from a third party of any (nor is
it aware of any) claim of infringement or other violation relating to any such
Proprietary Assets, nor does CPI know of any facts upon which any such claim
could reasonably be based.
(iii) In conducting its business as presently conducted, CPI has
no knowledge that it is infringing upon or unlawfully or wrongfully using any
patent, trademark, tradename, service mark, copyright or any other form of
intellectual property or trade secret, owned or claimed by another and has no
knowledge that any of the compositions of matter or therapeutic methods that CPI
is currently planning to develop clinically infringes upon or results in the
unlawful or wrongful use of any patent, trademark, trade name, service mark,
copyright or any other form of intellectual property or trade secret, owned or
claimed by another. CPI has not received any notice or any claim of infringement
or any other claim or proceeding relating to any such patent, trademark, trade
name, service mark, copyright, trade secret or any other form of intellectual
property or any agreement relating thereto.
3.11 MATERIAL CONTRACTS.
(a) The CPI Disclosure Schedule identifies each CPI Contract that
constitutes a "CPI MATERIAL CONTRACT." For purposes of this Agreement, each of
the following shall be deemed to constitute a CPI Material Contract:
(i) any Contract relating to the employment of, or the
performance of services by, any officer, director or employee and any Contract
pursuant to which CPI is or may become obligated to make any severance,
termination, bonus or relocation payment or any other payment (other than
payments in respect of salary and the grant of standard benefits);
(ii) any Contract that provides for indemnification of any
officer, director, employee or agent;
(iii) any Contract (A) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities, (B) providing any
Person with any preemptive right, right of participation, right of maintenance
or any similar right with respect to any
25.
<PAGE> 185
securities, or (C) providing CPI with any right of first refusal with respect
to, or right to repurchase or redeem, any securities;
(iv) any Contract requiring that CPI give any notice, obtain any
consent or provide any information to any Person prior to accepting any
Acquisition Proposal;
(v) any Contract (not otherwise identified in this Section) that
(A) has a term of more than sixty (60) days or that may not be terminated by CPI
(without penalty) within sixty (60) days after the delivery of a termination
notice by CPI and (B) that contemplates or involves (I) the payment or delivery
of cash or other consideration on or after the date hereof in an amount or
having a value in excess of $300,000 in aggregate payments under such Contract,
or (II) the performance of services on or after the date hereof having a value
in excess of $300,000 in aggregate payments under such Contract;
(vi) any Contract (A) to which any Governmental Body is a party
or under which any Governmental Body has any rights or obligations, or involving
or directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between CPI and any contractor or subcontractor to
any Governmental Body) and that (B) contemplates or involves (I) the payment or
delivery of cash or other consideration on or after the date hereof in an amount
or having a value in excess of $300,000 in aggregate payments under such
Contract, or (II) the performance of services on or after the date hereof having
a value in excess of $300,000 in aggregate payments under such Contract;
(vii) any open purchase order placed by CPI requiring future
aggregate payments in excess of $300,000; and
(viii) any Contract (not otherwise identified in this Section)
that would be required as an exhibit in a registration statement under the
Securities Act of 1933.
(b) Each CPI Material Contract is valid and in full force and effect,
and is enforceable in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, (ii)
rules of law governing specific performance, injunctive relief and other
equitable remedies and (iii) in the case of any Contract with a Governmental
Body, laws applicable thereto.
(c) Except as set forth in the CPI Disclosure Schedule: (i) CPI has
not materially violated or breached, or committed any material default under,
any CPI Material Contract, and, to the best of the knowledge of CPI, no other
Person has materially violated or breached, or committed any material default
under, any CPI Material Contract; (ii) to the best of the knowledge of CPI, no
event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) could reasonably be expected to (A) result in a
material violation or breach of any of the provisions of any CPI Material
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any CPI Material Contract, (C) give any Person the right to
accelerate the maturity or performance of any CPI Material Contract, or (D) give
any Person the right to cancel, terminate or materially modify any CPI Material
26.
<PAGE> 186
Contract; (iii) since December 31, 1997, CPI has not received any written notice
or other written communication regarding any actual or possible violation or
breach of, default under, or intention to terminate, any CPI Contract except for
communication (A) that has subsequently been revoked; or (B) has been received
from a complaining party that has not contacted CPI or otherwise, to the
knowledge of CPI, taken any action with respect to such party's complaint for a
period of more than six months following receipt of the communication; and (iv)
CPI has not waived any of its material rights under any CPI Material Contract,
in each case where such breach, default, violation or waiver would have a
Material Adverse Effect on CPI.
(d) To the best of the knowledge of CPI, no Person is renegotiating,
or has the right to renegotiate, any material amount paid or payable to CPI
under any CPI Material Contract, or any other material term or provision of any
CPI Material Contract, including termination provisions.
(e) The CPI Disclosure Schedule sets forth a list of all claims made
under any CPI Material Contract that are disputed in any material respect or, to
CPI's knowledge, where a dispute as to any material matter has been threatened.
3.12 LIABILITIES. CPI has no accrued or contingent liabilities of a nature
required to be reflected in financial statements in accordance with GAAP, except
for: (a) liabilities identified as such in the CPI Financials; (b) normal and
recurring liabilities that have been incurred by CPI since December 31, 1997 in
the ordinary course of business and consistent with past practices; and (c)
other liabilities that have not had and could not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect on CPI.
3.13 COMPLIANCE WITH LEGAL REQUIREMENTS. CPI is, and to the best knowledge
of CPI has at all times since inception been, in compliance with all applicable
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and could not reasonably be expected to have a Material
Adverse Effect on CPI. There is not presently pending any notice or other
communication received by CPI from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any material Legal
Requirement.
3.14 CERTAIN BUSINESS PRACTICES. Neither CPI nor any director, officer,
agent or employee of CPI has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
3.15 GOVERNMENTAL AUTHORIZATIONS. CPI holds all material Governmental
Authorizations necessary to enable CPI to conduct its business in the manner in
which its business is currently being conducted. All such Governmental
Authorizations are valid and in full force and effect. CPI is, and to the best
knowledge of CPI, at all times since inception has been, in substantial
compliance with the terms and requirements of such Governmental Authorizations.
Since inception, CPI has not received any notice or other communication from
27.
<PAGE> 187
any Governmental Body regarding (a) any actual or possible violation of or
failure to comply with any term or requirement of any material Governmental
Authorization, or (b) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any material Governmental
Authorization or (c) any requirement to apply for or hold Governmental
Authorization not held by CPI, in each case where such violation, revocation,
suspension, cancellation, termination or modification would have a Material
Adverse Effect on CPI.
3.16 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of CPI with
any Governmental Body with respect to any taxable period ending on or before the
Closing Date (the "CPI RETURNS") have been or will be filed on or before the
applicable due date (including any extensions of such due date). All amounts
shown on the CPI Returns to be due on or before the Closing Date have been or
will be paid on or before the Closing Date.
(b) The CPI Financials fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the dates thereof in
accordance with generally accepted accounting principles. CPI will establish, in
the ordinary course of business and consistent with its past practices,
quarterly reserves adequate for the payment of all Taxes for the applicable
periods from December 31, 1997 through the Closing Date. Since December 31,
1997, no material Tax liability has been incurred other than in the ordinary
course of business.
(c) Except as set forth in the CPI Disclosure Schedule, no CPI Return
has ever been examined or audited by any Governmental Body. No extension or
waiver of the limitation period applicable to any of the CPI Returns has been
granted (by CPI or any other Person), and no such extension or waiver has been
requested from CPI.
(d) No claim or Legal Proceeding is pending or, to the best of the
knowledge of CPI, has been threatened in writing against or with respect to CPI
in respect of any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to any notice of deficiency or similar document received
by CPI (other than liabilities for Taxes asserted under any such notice of
deficiency or similar document that are being contested in good faith by CPI and
with respect to which adequate reserves for payment have been established).
There are no liens for Taxes upon any of the assets of CPI except liens for
current Taxes not yet due and payable. CPI has not entered into nor has it
become bound by any agreement or consent pursuant to Section 341(f) of the Code.
CPI has not been, and will not be, required to include any adjustment in taxable
income for any tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions or events occurring, or accounting methods employed,
prior to the Closing. CPI is not nor has it been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code. CPI has
no liability for the taxes of any other Person except for payroll taxes
collected in the ordinary course of business.
28.
<PAGE> 188
(e) Except as set forth in the CPI Disclosure Schedule, there is no
agreement, plan, arrangement or other Contract covering any employee or
independent contractor or former employee or independent contractor of CPI that,
considered individually or considered collectively with any other such
Contracts, will, or could reasonably be expected to, give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G or Section 162 of the Code. CPI is not, nor has it ever been, a
party to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract (other than a Contract entered into in
the ordinary course of business in connection with the purchase or sale of
inventory or supplies).
3.17 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) The CPI Disclosure Schedule identifies each salary, bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan or program (collectively, the "CPI PLANS") sponsored,
maintained, contributed to or required to be contributed to by CPI for the
benefit of any current or former employee of CPI.
(b) No CPI Plan is subject to Title IV of ERISA, Part 3 of Title I of
ERISA or Section 412 of the Code, and no CPI Plan constitutes a "multi-employer
plan" (as defined in Section 3(37) of ERISA).
(c) With respect to each CPI Plan, CPI has made available to Target:
(i) an accurate and complete copy of each such CPI Plan (including all
amendments thereto); (ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such CPI Plans for the last two plan
years; (iii) an accurate and complete copy of the most recent summary plan
description, together with each summary of material modifications thereto, if
required under ERISA, with respect to such CPI Plans, (iv) if such CPI Plans are
funded through a trust or any third party funding vehicle, an accurate and
complete copy of the trust or other funding agreement (including all amendments
thereto); (v) accurate and complete copies of all Contracts relating to such CPI
Plans, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and record-keeping agreements; and
(vi) an accurate and complete copy of the most recent determination, opinion,
notification or advisory letter received from the Internal Revenue Service with
respect to such CPI Plans (if such CPI Plans are intended to be qualified under
Section 401(a) of the Code).
(d) CPI has no plan or commitment to create any additional Plan, or to
modify or change any existing Plan (other than to comply with applicable law) in
a manner that would create any material liability for CPI.
(e) No CPI Plan provides death, medical or health benefits coverage
(whether or not insured) with respect to any current or former employee of CPI
after any such employee's
29.
<PAGE> 189
termination of service (other than (i) benefit coverage mandated by applicable
law, including coverage provided pursuant to Section 4980B of the Code
("COBRA"), (ii) deferred compensation benefits accrued as liabilities on the CPI
Financials, and (iii) benefits the full costs of which are borne by current or
former employees of CPI (or the employees' beneficiaries)).
(f) With respect to any CPI Plan constituting a group health plan
within the meaning of Section 4980B(g)(2) of the Code, the provisions of COBRA
have been complied with in all material respects. The CPI Disclosure Schedule
lists all qualified beneficiaries under COBRA with respect to all such CPI
Plans.
(g) Each of the CPI Plans has been operated and administered in all
material respects in accordance with its terms and applicable Legal
Requirements, including but not limited to ERISA and the Code.
(h) All material contributions, premiums or other payments due from
CPI to (or under) any CPI Plan have been fully paid or adequately provided for
on the books and financial statements of CPI.
(i) Each of the CPI Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination, opinion, notification
or advisory letter from the Internal Revenue Service, and CPI is not aware of
any reason why any such letter should be revoked.
(j) Except as set forth in the CPI Disclosure Schedule, neither the
execution, delivery or performance of this Agreement, nor the consummation of
the Merger or any of the other transactions contemplated by this Agreement, will
result in any payment (including any bonus, golden parachute or severance
payment) to any current or former employee or director of CPI (whether or not
under any CPI Plan), or materially increase the benefits payable under any CPI
Plan, or result in any acceleration of the time of payment or vesting of any
such benefits.
(k) CPI is not a party to any collective bargaining contract or other
Contract with a labor union involving any of its employees.
(l) The CPI Disclosure Schedule identifies each Employee who is not
fully available to perform work because of disability or other leave and sets
forth the basis of such leave and the anticipated date of return to full
service.
(m) CPI is in compliance in all material respects with all applicable
Legal Requirements and Contracts relating to employment, employment practices,
wages, bonuses and terms and conditions of employment, including employee
compensation matters and the classification of independent contractors and
workers.
3.18 ENVIRONMENTAL MATTERS. CPI is in compliance in all material respects
with all applicable Environmental Laws, which compliance includes the possession
by CPI of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. CPI has not received any notice or other
30.
<PAGE> 190
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that CPI is not in
compliance with any Environmental Law. To the knowledge of CPI without further
inquiry, no current or prior owner of any property leased or controlled by CPI
has received any notice or other communication (in writing or otherwise),
whether from a Government Body, citizens group, employee or otherwise, that
alleges that such current or prior owner or CPI is not in compliance with any
Environmental Law. To the best knowledge of CPI, all property that is leased to,
controlled by or used by CPI, and all surface water, groundwater and soil
associated with or adjacent to such property is in clean and healthful condition
and is free of any material environmental contamination of any nature. To the
best knowledge of CPI, CPI has not disposed of, emitted, discharged, handled,
stored, transported, used or released any Materials of Environmental Concern,
arranged for the disposal, discharge, storage or release of any Materials of
Environmental Concern, or exposed any employee or other individual to any
Materials of Environmental Concern or condition so as to give rise to any
material liability or material corrective or remedial obligation under any
Environmental Laws.
3.19 INSURANCE. CPI has delivered to Target a summary of all material
insurance policies and all material self-insurance programs relating to the
business, assets and operations of CPI and has made available to Target copies
of the policies. Each of such insurance policies is in full force and effect.
Since September 30, 1997, CPI has not received any notice or other communication
regarding any actual or possible (a) cancellation or invalidation of any
insurance policy, (b) refusal of any coverage or rejection of any material claim
under any insurance policy, or (c) material adjustment in the amount of the
premiums payable with respect to any insurance policy. Except as set forth in
the CPI Disclosure Schedule, there is no pending claim (including any workers'
compensation claim) other than routine claims for benefits under any CPI Plan
under or based upon any insurance policy of CPI.
3.20 TRANSACTIONS WITH AFFILIATES.
(a) Since December 31, 1997, except as set forth in the CPI Disclosure
Schedule, no event has occurred that would be required to be reported by CPI
pursuant to Item 404 of Regulation S-K promulgated by the SEC if CPI was a
reporting company. The CPI Disclosure Schedule identifies each Person who is an
"affiliate" (as that term is used in Rule 145 under the Securities Act) of CPI
as of the date of this Agreement.
(b) The CPI Disclosure Schedule contains an accurate and complete list
as of the date of this Agreement of all outstanding loans and advances made by
CPI to any employee, director, consultant or independent contractor other than
routine travel advances and advances made for relocation purposes made to
employees in the ordinary course of business.
3.21 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the best of the
knowledge of CPI) no Person has threatened to commence any Legal Proceeding:
(i) that involves CPI or any of the assets owned or used by CPI; or (ii) that
challenges, or that may have the effect of
31.
<PAGE> 191
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the best of
the knowledge of CPI, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that could reasonably be expected to give rise
to or serve as a basis for the commencement of any such Legal Proceeding that
would reasonably be expected to have a Material Adverse Effect on CPI.
(b) There is no material order, writ, injunction, judgment or decree
to which CPI, or any of the assets owned or used by CPI, is subject. To the best
of the knowledge of CPI, no officer or key employee of CPI is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to the business of CPI.
3.22 AUTHORITY; BINDING NATURE OF AGREEMENT.
(a) CPI has the absolute and unrestricted right, power and authority
to enter into and to perform its obligations under this Agreement. The board of
directors of CPI (at a meeting duly called and held) has unanimously (i)
determined that the Mergers are advisable and fair and in the best interests of
CPI and its stockholders, (ii) authorized and approved the execution, delivery
and performance of this Agreement by CPI and unanimously approved the Mergers,
and (iii) recommended the approval of this Agreement and the Mergers by the
holders of CPI Common Stock and CPI Preferred Stock and directed that this
Agreement and the Mergers be submitted for consideration by the CPI stockholders
at a CPI Stockholders' Meeting (as defined in Section 5.2). This Agreement
constitutes the legal, valid and binding obligation of CPI, enforceable against
CPI in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
(b) Prior to the Effective Time, Holdco will have the absolute and
unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement. Prior to the Effective Time, Holdco will have
had the board of directors of Holdco (at a meeting duly called and held)
unanimously (i) determine that the Mergers are advisable and fair and in the
best interests of Holdco and its stockholders, (ii) authorize and approve the
execution, delivery and performance of this Agreement by Holdco and unanimously
approve the Mergers, and (iii) recommend the approval of this Agreement and the
Mergers by the sole stockholder of Holdco. Such sole stockholder shall have
approved this Agreement and the Mergers. This Agreement will constitute the
legal, valid and binding obligation of Holdco enforceable against Holdco in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.23 NO EXISTING DISCUSSIONS. CPI has terminated any existing discussions
with any Person that relate to any Acquisition Proposal. Neither CPI, nor any
Representative of CPI, is currently engaged, directly or indirectly, in any
discussions or negotiations with any other Person relating to any Acquisition
Proposal.
32.
<PAGE> 192
3.24 VOTE REQUIRED. The approval by vote or written consent of each of (a)
the holders of more than 50% of the shares of CPI Common Stock then outstanding,
(b) the holders of more than 50% of the shares of the CPI Series A Preferred
Stock and CPI Series B Preferred Stock, voting together as a single class, and
(c) the holders of more than 50% of the shares of CPI Series C Preferred Stock,
CPI Series D Preferred Stock, CPI Series E Preferred Stock, CPI Series F
Preferred Stock and CPI Series G Stock then outstanding, voting together as a
single class, are the only votes of the holders of any class or series of CPI's
capital stock necessary to approve this Agreement and the Mergers. The approval
or written consent of (i) the holders of more than 50% of the shares of CPI
Common Stock and CPI Preferred Stock, voting together as a single class, and
(ii) the holders of more than 50% of the shares of each outstanding series of
CPI Preferred Stock, each such series voting as a separate class, are the only
votes of holders of any class or series of CPI's capital stock necessary to
approve the CPI Charter Amendment. The stockholder approvals referred to in the
preceding two sentences are collectively referred to herein as the "REQUIRED CPI
STOCKHOLDER VOTE."
3.25 NON-CONTRAVENTION; CONSENTS. Neither (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Certificate of Incorporation, Bylaws or other charter or
organizational documents of CPI, or (ii) any resolution adopted by the
stockholders, the board of directors or any committee of the board of directors
of CPI;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge the Merger or any of
the other transactions contemplated by this Agreement or to exercise any remedy
or obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which CPI or Holdco, or any of the assets
owned or used by CPI, is subject, if the result would have a Material Adverse
Effect on CPI;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by CPI or that otherwise relates to the business of CPI or to any
of the assets owned or used by CPI, if the result would have a Material Adverse
Effect on CPI;
(d) contravene, conflict with or result in a violation or material
breach of, or result in a default (or an event that with notice or lapse of time
or both would become a default) under, any provision of any CPI Material
Contract, or give any Person the right to (i) declare a default or exercise any
remedy under any such CPI Material Contract, (ii) a rebate, charge-back, penalty
or change in delivery schedule under any such CPI Material Contract, (iii)
accelerate the maturity or performance of any such CPI Material Contract
(including the vesting of all
33.
<PAGE> 193
outstanding CPI Stock Options), or (iv) cancel, terminate or materially modify
any term of such CPI Material Contract, if the result would have a Material
Adverse Effect on CPI; or
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by CPI (except for minor liens that will
not, in any case or in the aggregate, materially detract from the value of the
assets subject thereto or materially impair the operations of CPI).
Except as may be set forth in the CPI Disclosure Schedule or as
required by the Exchange Act, the DGCL and the NASD Bylaws (as they relate to
the Form S-4 Registration Statement and the Joint Proxy Statement) CPI is not,
nor will it be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
3.26 FINANCIAL ADVISOR. Except as set forth in the CPI Disclosure Schedule,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Mergers or any of the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of CPI. CPI has furnished to Target accurate and complete copies of
all agreements under which any such fees, commissions or other amounts have been
paid or may become payable and all indemnification and other arrangements.
3.27 FULL DISCLOSURE. This Agreement (including the CPI Disclosure
Schedule) does not, and the certificate referred to in Section 7.6(c) will not,
(i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
4. CERTAIN COVENANTS OF THE PARTIES
4.1 ACCESS AND INVESTIGATION; CONFIDENTIALITY.
(a) During the period from the date of this Agreement through the
Effective Time (the "PRE-CLOSING PERIOD"), CPI and Target each shall, and CPI
and Target shall cause the respective Representatives of CPI and Target
Corporations to, provide each other and their respective Representatives with
reasonable access to each others' respective personnel and assets and books,
records, Tax Returns, work papers and other documents, and such additional
financial, operating and other data and information regarding each other and
their Subsidiaries, as Target and CPI may reasonably request, subject to
appropriate safeguards with respect to confidentiality.
34.
<PAGE> 194
(b) Each of the parties hereto hereby agrees to and reaffirms the
terms and provisions of the confidentiality agreements between them dated as of
March 5, 1998 and March 4, 1998.
4.2 OPERATION OF TARGET'S BUSINESS.
(a) During the Pre-Closing Period: (i) Target shall ensure that each
of the Target Corporations conducts its business and operations (A) in the
ordinary course and in accordance with the operating plan previously described
by Target to CPI and (B) in compliance with all applicable Legal Requirements
and the requirements of all Target Material Contracts; (ii) Target shall use
reasonable efforts to ensure that each of the Target Corporations preserves
intact its current business organization, keeps available the services of its
current officers and employees and maintains its relations and goodwill with all
suppliers, customers, landlords, creditors, licensors, licensees, employees and
other Persons having business relationships with the respective Target
Corporations; and (iii) Target shall keep in full force all insurance policies
referred to in Section 2.17 or replace such policies with comparable or superior
policies; (iv) Target shall provide all notices, assurances and support required
by any Target Contract relating to any Proprietary Asset in order to ensure that
no condition under such Target Contract occurs that could result in, or could
increase the likelihood of, any transfer or public disclosure by any Target
Corporation of any Proprietary Asset; and (v) Target shall (to the extent
requested by CPI) cause its officers to report periodically to CPI concerning
the status of Target's business.
(b) During the Pre-Closing Period, without the prior written consent
of CPI, Target shall not and shall not permit any of the other Target
Corporations to:
(i) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other securities,
except for repurchases at less than fair market value pursuant to employment or
consulting agreements in effect prior to the date hereof;
(ii) hire any new employees whose annual salary exceeds $80,000,
excluding those persons hired to replace employees who terminate their
employment with a Target Corporation during the Pre- Closing Period;
(iii) sell, issue, grant or authorize the issuance or grant of
(A) any capital stock or other security (except Target Common Stock upon the
valid exercise of Target Options, (B) any option, call, warrant or right to
acquire any capital stock or other security, (C) any instrument convertible into
or exchangeable for any capital stock or other security;
(iv) except as contemplated by this Agreement, amend or waive any
of its rights under, or accelerate the vesting under, any provision of any of
Target Option Plans, any provision of any agreement evidencing any outstanding
stock option or any restricted stock purchase agreement, or otherwise modify any
of the terms of any outstanding option, warrant or other security or any related
Contract;
35.
<PAGE> 195
(v) take any action to permit holders of Target stock options to
receive cash payments in connection with the transactions contemplated by this
Agreement;
(vi) except as contemplated by this Agreement, amend or permit
the adoption of any amendment to its Certificate of Incorporation or Bylaws or
other charter or organizational documents, or effect or become a party to any
merger, consolidation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(vii) except as contemplated by this Agreement, form any
Subsidiary or acquire any equity interest or other interest in any other Entity;
(viii) make any capital expenditure, except capital expenditures
in an aggregate amount of no more than $50,000;
(ix) establish, adopt or amend any employee benefit plan or pay
any bonus or make any profit sharing or similar payment greater than $10,000 in
any individual case or $50,000 in the aggregate, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees greater
than $10,000 in any individual case or $50,000 in the aggregate;
(x) change any of its methods of accounting or material
accounting practices in any respect;
(xi) make any material Tax election;
(xii) commence or settle any material Legal Proceeding;
(xiii) materially amend or otherwise modify any of the terms of
its engagement of the financial advisor referenced in Section 2.26 above;
(xiv) enter into any material transaction or take any other
material action in each case either inconsistent with the operating plan
previously provided by Target to CPI, or outside the ordinary course of
business;
(xv) agree or commit to take any of the actions described in
clause "(i)" through "(xiv)" of this Section 4.2(b).
(c) During the Pre-Closing Period, Target shall promptly notify CPI in
writing of: (i) the discovery by Target of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by Target in this Agreement; (ii) any event, condition, fact or
circumstance that occurs, arises or exists after the date of this Agreement and
that would cause or constitute a material inaccuracy in any representation or
warranty made by Target in this Agreement if (A) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such
36.
<PAGE> 196
event, condition, fact or circumstance had occurred, arisen or existed on or
prior to the date of this Agreement; (iii) any material breach of any covenant
or obligation of Target; and (iv) any event, condition, fact or circumstance
that would make the timely satisfaction of any of the conditions set forth in
Section 6 or Section 7 impossible or unlikely or that has had or could
reasonably be expected to have a Material Adverse Effect on the Target
Corporations. No notification given to CPI pursuant to this Section 4.2(c) shall
limit or otherwise affect any of the representations, warranties, covenants or
obligations of Target contained in this Agreement.
4.3 OPERATION OF CPI'S BUSINESS.
(a) During the Pre-Closing Period: (i) CPI shall conduct its business
and operations (A) in the ordinary course and in accordance with past practices
or the operating plan previously described by CPI to Target and (B) in
compliance with all applicable Legal Requirements and the requirements of all
CPI Material Contracts; (ii) CPI shall use reasonable efforts to ensure that CPI
preserves intact its current business organization, keeps available the services
of its current officers and employees and maintains its relations and goodwill
with all suppliers, customers, landlords, creditors, licensors, licensees,
employees and other Persons having business relationships with CPI; (iii) CPI
shall keep in full force all insurance policies referred to in Section 3.19 or
replace any such policies that terminate with comparable or superior policies;
(iv) CPI shall provide all notices, assurances and support required by any CPI
Contract relating to any CPI Proprietary Asset in order to ensure that no
condition under such CPI Contract occurs that could result in, or could increase
the likelihood of, any transfer or public disclosure by CPI of any CPI
Proprietary Asset; and (v) CPI shall (to the extent requested by Target) cause
its officers to report periodically to Target concerning the status of CPI's
business.
(b) During the Pre-Closing Period, CPI shall not (without the prior
written consent of Target):
(i) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, or repurchase,
redeem or otherwise reacquire any shares of capital stock or other securities,
except for repurchases at less than fair market value pursuant to employment or
consulting agreements in effect prior to the date hereof and except for the
redemption, prior to the Effective Time, of the CPI Redeemable Preferred Stock
pursuant to the terms set forth in the CPI Disclosure Schedule;
(ii) sell, issue, grant or authorize the issuance or grant of any
capital stock or other security except: CPI Common Stock or Preferred Stock upon
the valid exercise of CPI Options or CPI warrants outstanding on the date of
this Agreement; CPI Common Stock or warrants issued pursuant to equipment lease
financings and similar transactions or otherwise in the ordinary course of
business; CPI Series G Preferred Stock and warrants in completion of the Series
G financing; stock options (and stock issuable upon exercise thereof) to
employees and directors under its existing stock option plans and in the
ordinary course of business with an exercise price of not less than $6.60 per
share of CPI Common Stock; and shares of CPI
37.
<PAGE> 197
Common Stock, if any, issued in connection with the redemption of the CPI
Redeemable Preferred Stock.
(iii) except as contemplated by this Agreement, amend or waive
any of its rights under, or accelerate the vesting under, any provision of any
CPI Option Plans, any provision of any agreement evidencing any outstanding
stock option or any restricted stock purchase agreement, or otherwise modify any
of the terms of any outstanding option, warrant or other security or any related
Contract, provided that CPI shall be entitled to make any changes that do not
materially increase CPI's obligations under any agreement evidencing any
outstanding stock option, restricted stock purchase agreement, warrant or other
security or any related Contract;
(iv) except as contemplated by this Agreement, amend or permit
the adoption of any amendment to its Certificate of Incorporation or Bylaws or
other charter or organizational documents, or effect or become a party to any
merger, consolidation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction which would materially adversely affect the transactions provided in
this Agreement.
(v) except as discussed or projected in discussions with or
presentations to Target, enter into or become bound by, or permit any of the
assets owned or used by it to become bound by, any CPI Material Contract, or
amend or terminate, or waive or exercise any material right or remedy under, any
CPI Material Contract, provided that CPI shall be entitled to make any changes
that do not materially increase CPI's obligations under any CPI Material
Contract;
(vi) change any of its methods of accounting or accounting
practices in any respect;
(vii) make any material Tax election;
(viii) amend or otherwise modify any of the terms of any CPI
Warrants, except to the extent necessary to terminate such Warrants or reduce
the number of shares issuable upon exercise thereunder; or
(ix) agree or commit to take any of the actions described in
clauses "(i)" through "(viii)" of this Section 4.3(b).
(c) During the Pre-Closing Period, CPI shall promptly notify Target in
writing of: (i) the discovery by CPI of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by CPI in this Agreement; (ii) any event, condition, fact or
circumstance that occurs, arises or exists after the date of this Agreement and
that would cause or constitute a material inaccuracy in any representation or
warranty made by CPI in this Agreement if (A) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such
38.
<PAGE> 198
event, condition, fact or circumstance had occurred, arisen or existed on or
prior to the date of this Agreement; (iii) any material breach of any covenant
or obligation of CPI; and (iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions set forth in Section
6 or Section 7 impossible or unlikely or that has had or could reasonably be
expected to have a Material Adverse Effect on CPI. No notification given to
Target pursuant to this Section 4.3(c) shall limit or otherwise affect any of
the representations, warranties, covenants or obligations of CPI contained in
this Agreement.
4.4 NO SOLICITATION BY TARGET.
(a) Target shall not directly or indirectly, and shall not authorize
or permit any of the other Target Corporations or any Representative of any of
the Target Corporations directly or indirectly to, (i) solicit, initiate,
knowingly encourage or induce the making, submission or announcement of any
Acquisition Proposal or take any similar action, (ii) furnish any non-public
information regarding any of the Target Corporations to any Person in connection
with or in response to an Acquisition Proposal, (iii) engage in discussions or
negotiations with any Person with respect to any Acquisition Proposal, (iv)
approve, endorse or recommend any Acquisition Proposal or (v) enter into any
letter of intent or similar document or any Contract contemplating or otherwise
relating to any Acquisition Transaction. Without limiting the generality of the
foregoing, Target acknowledges and agrees that any violation of any of the
restrictions set forth in the preceding sentence by any Representative of any of
the Target Corporations, whether or not such Representative is purporting to act
on behalf of Target, shall be deemed to constitute a breach of this Section 4.4
by Target.
(b) Nothing contained in this Agreement shall prevent Target or its
Board of Directors from (i) furnishing information regarding any of the Target
Corporations (including copy of this Section 4.4) to any Person in connection
with or in response to a bona fide, unsolicited Acquisition Proposal or engaging
in discussions or negotiations with respect thereto if and only to the extent
that (A) the Board of Directors of Target determines in good faith, after
consultation with its financial advisor that such Acquisition Proposal is
reasonably likely to result in a Superior Offer, (B) the Board of Directors of
Target determines in good faith, after consultation with its outside counsel,
including discussions of applicable legal standards under Utah law, that such
action is required in order for the Board of Directors to comply with its
fiduciary duties under applicable law, (C) the Person who has requested such
information has executed and delivered to Target a non-disclosure agreement that
is not less restrictive than the non-disclosure agreement in effect between
Target and CPI, and (D) Target has not breached Section 4.4(a)(i), or (ii)
complying with Rule 14e-2 and Rule 14d-9 promulgated under the Exchange Act. In
addition, nothing in Section 4.4(a) above shall prevent the Board of Directors
of Target from recommending a Superior Offer to its stockholders, if the Board
of Directors determines, after consultation with its outside counsel, including
discussions of applicable legal standards under Utah law, that, in light of such
Superior Offer, such recommendation is required in order for the Board of
Directors to comply with its fiduciary obligations to Target's stockholders
under applicable law (which determination shall be made in light of a revised
proposal, if any, made by CPI prior to the date of such determination); provided
however that Target (i) shall provide CPI with at least 48 hours prior written
notice of its intentions to hold
39.
<PAGE> 199
any meeting at which Target's Board of Directors is reasonably expected to
consider an Acquisition Proposal, or such lesser amount of time as has been
given to the Board of Directors in relation to such meeting, and (ii) Target
shall not recommend to its stockholders a Superior Offer for at least two (2)
business days after Target has provided CPI with the material terms of such
Superior Offer.
(c) Target shall promptly advise CPI orally and in writing of any
Acquisition Proposal (including the identity of the Person making or submitting
such Acquisition Proposal and the terms thereof) that is made or submitted by
any Person during the Pre-Closing Period. Target shall keep CPI informed with
respect to material changes to the terms of any such Acquisition Proposal and
any material modification or proposed modifications thereto.
(d) Target shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition Proposal and
shall request the return or destruction of any confidential information
previously disclosed to such Person and shall use commercially reasonable
efforts to ensure that such information is destroyed or returned.
4.5 NO SOLICITATION BY CPI.
(a) CPI shall not, directly or indirectly, and shall not authorize or
permit any Representative of CPI, directly or indirectly, to (i) solicit,
initiate, knowingly encourage or induce the making, submission or announcement
of any Acquisition Proposal or take any similar action, (ii) furnish any
non-public information regarding CPI to any Person in connection with or in
response to an Acquisition Proposal, (iii) engage in discussions or negotiations
with any Person with respect to any Acquisition Proposal, (iv) approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any Contract contemplating or otherwise relating to any
Acquisition Transaction. Without limiting the generality of the foregoing, CPI
acknowledges and agrees that any violation of any of the restrictions set forth
in the preceding sentence by any Representative of CPI, whether or not such
Representative is purporting to act on behalf of CPI, shall be deemed to
constitute a breach of this Section 4.5 by CPI.
(b) Nothing contained in this Agreement shall prevent CPI or its Board
of Directors from (i) furnishing information regarding CPI (including a copy of
this Section 4.5) to any Person in connection with or in response to a bona
fide, unsolicited Acquisition Proposal or engaging in discussions or
negotiations with respect thereto if and only to the extent that (A) the Board
of Directors of CPI determines in good faith, after consultation with its
financial advisor that such Acquisition Proposal is reasonably likely to result
in a Superior Offer, (B) the Board of Directors of CPI determines in good faith,
after consultation with its outside counsel, including discussions of applicable
legal standards under Delaware law, that such action is required in order for
the Board of Directors to comply with its fiduciary duties under applicable law,
(C) the Person who has requested such information has executed and delivered to
CPI a non-disclosure agreement that is not less restrictive than the
non-disclosure agreement in effect between CPI and Target, and (D) CPI has not
breached Section 4.5(a)(i), or (ii) complying with Rule 14e-2 and Rule 14d-9
promulgated under the Exchange Act. In addition, nothing in Section 4.5(a) above
40.
<PAGE> 200
shall prevent the Board of Directors of CPI from recommending a Superior Offer
to its stockholders, if the Board of Directors determines, after consultation
with its outside counsel, including discussions of applicable legal standards
under Delaware law that, in light of such Superior Offer, such recommendation is
required in order for the Board of Directors to comply with its fiduciary
obligations to CPI's stockholders under applicable law (which determination
shall be made in light of a revised proposal, if any, made by the Target prior
to the date of such determination); provided however that CPI (i) shall provide
Target with at least 48 hours prior written notice of its intention to hold any
meeting at which CPI's Board of Directors is reasonably expected to consider an
Acquisition Proposal, or such lesser amount of time as has been given to the
Board of Directors in relation to such meeting, and (ii) shall not recommend to
its stockholders a Superior Offer for at least two (2) business days after CPI
has provided Target with the material terms of such Superior Offer.
(c) CPI shall promptly advise Target orally and in writing of any
Acquisition Proposal (including the identity of the Person making or submitting
such Acquisition Proposal and the terms thereof) that is made or submitted by
any Person during the Pre-Closing Period. CPI shall keep Target informed with
respect to material changes to the terms of any such Acquisition Proposal and
any material modification or proposed modifications thereto.
(d) CPI shall immediately cease and cause to be terminated any
existing discussions with any Person that relate to any Acquisition Proposal and
shall request the return or destruction of any confidential information
previously disclosed to such Person and shall use commercially reasonable
efforts to ensure that such information is destroyed or returned.
5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 REGISTRATION STATEMENTS; JOINT PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement, CPI
and Target shall prepare and cause to be filed with the SEC the Joint Proxy
Statement and simultaneously or thereafter CPI shall prepare and cause to be
filed with the SEC the Form S-4 Registration Statement, in which the Joint Proxy
Statement will be included as a prospectus. Each of CPI and Target shall use all
reasonable efforts to cause the Form S-4 Registration Statement and the Joint
Proxy Statement to comply with the rules and regulations promulgated by the SEC,
to respond promptly to any comments of the SEC or its staff and to have the Form
S-4
41.
<PAGE> 201
Registration Statement or Joint Proxy Statement or for any other information
and shall supply the other with copies of all correspondence between such party
and the SEC or its staff or other governmental officials with respect to the S-4
Registration Statement or Joint Proxy Statement. The information supplied by
each of, Target and CPI for inclusion in the Form S-4 Registration Statement and
the Joint Proxy Statement shall not (i) at the time the Form S-4 Registration
Statement is declared effective, (ii) at the time the Joint Proxy Statement is
first mailed to the stockholders of Target and CPI, respectively, (iii) at the
time of the CPI Stockholders' Meeting and at the time of the Target
Stockholders' Meeting, and (iv) at the Effective Time, 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. If Target or CPI
becomes aware of any information, that should be disclosed in an amendment or
supplement to the Form S-4 Registration Statement or the Joint Proxy Statement,
then Target or CPI, as the case may be, shall promptly inform the other Party
thereof and shall cooperate with the other in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of CPI or the stockholders of Target.
(b) Prior to the Effective Time, CPI and Target shall use best efforts
to obtain all regulatory approvals needed to ensure that the Holdco Common Stock
to be issued in the Merger (i) will be registered or qualified under the
securities law of every jurisdiction of the United States in which any
registered holder of CPI Common Stock, CPI Preferred Stock or Target Common
Stock has an address of record on the record date for determining the
stockholders entitled to notice of and to vote at Stockholders' Meeting; and
(ii) will be approved for quotation at the Effective Time on the Nasdaq National
Market.
(c) On or prior to the Closing Date, Holdco shall file a Registration
Statement on Form S-8 covering the offer and sale by Holdco of Holdco Common
Stock pursuant to the CPI Options and Target Options.
5.2 CPI STOCKHOLDERS' MEETING.
(a) CPI shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the holders
of CPI Common Stock and CPI Preferred Stock to consider, act upon and vote upon
the approval of the CPI Charter Amendment, this Agreement and of the Mergers
(the "CPI STOCKHOLDERS' MEETING"). The CPI Stockholders' Meeting will be held as
promptly as practicable and in any event within forty-five (45) days after the
Form S-4 Registration Statement is declared effective under the Securities Act.
CPI shall ensure that the CPI Stockholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited in connection with
the CPI Stockholders' Meeting are solicited, in compliance with all applicable
Legal Requirements. CPI's obligation to call, give notice of, convene and hold
the CPI Stockholders' Meeting in accordance with this Section 5.2(a) shall not
be limited or otherwise affected by the withdrawal, amendment or modification of
the recommendation of the board of directors of CPI with respect to the Merger,
except as is required by applicable law.
42.
<PAGE> 202
(b) Subject to Section 5.2(c): (i) the Board of Directors of CPI shall
unanimously recommend that the CPI stockholders vote in favor of and approve the
CPI Charter Amendment, this Agreement and the Mergers at the CPI Stockholders'
Meeting; (ii) the Joint Proxy Statement shall include a statement to the effect
that the board of directors of CPI has unanimously recommended that the CPI's
stockholders vote in favor of and approve the CPI Charter Amendment, this
Agreement and the Mergers at the CPI Stockholders' Meeting; and (iii) neither
the Board of Directors of CPI nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify, in a manner adverse
to Target, the unanimous recommendation of the Board of Directors of CPI that
CPI's stockholders vote in favor of and approve the CPI Charter Amendment, this
Agreement and the Mergers. For purposes of this Agreement, said recommendation
of the board of directors of CPI shall be deemed to have been modified in a
manner adverse to Target if said recommendation shall no longer be unanimous.
(c) Nothing in Section 5.2(b) shall prevent the Board of Directors of
CPI from withdrawing, amending or modifying its unanimous recommendation in
favor of the Mergers at any time prior to the approval of this Agreement by the
Required CPI Stockholder Vote if (i) a Superior Offer is made to CPI and is not
withdrawn, (ii) neither CPI nor any of its Representatives shall have violated
any of the restrictions set forth in Section 4.5, and (iii) the Board of
Directors of CPI concludes in good faith, after consultation with its outside
counsel, including discussion of applicable legal standards under Delaware law,
that, in light of such Superior Offer, the withdrawal, amendment or modification
of such recommendation is required in order for the Board of Directors of CPI to
comply with its fiduciary obligations to the CPI's stockholders under applicable
law. Except as may be limited by applicable law, nothing contained in this
Section 5.2 shall limit CPI's obligation to call, give notice of, convene and
hold the CPI Stockholders' Meeting (regardless of whether the unanimous
recommendation of the board of directors of CPI shall have been withdrawn,
amended or modified).
5.3 TARGET STOCKHOLDERS' MEETING.
(a) Target shall take all action necessary under all applicable Legal
Requirements to call, give notice of, convene and hold a meeting of the holders
of Target Common Stock to consider, act upon and vote upon the approval of this
Agreement and of the Mergers (the "TARGET STOCKHOLDERS' MEETING"). The Target
Stockholders' Meeting will be held as promptly as practicable and in any event
within forty-five (45) days after the Form S-4 Registration Statement is
declared effective under the Securities Act. Target shall ensure that the Target
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited in connection with the Target Stockholders' Meeting are
solicited in compliance with all applicable Legal Requirements. Target's
obligation to call, give notice of, convene and hold the Target Stockholders'
Meeting in accordance with this Section 5.3(a) shall not be limited or otherwise
affected by any withdrawal, amendment or modification of the recommendation of
the Board of Directors of Target with respect to the Merger, except as may be
required by applicable law.
43.
<PAGE> 203
(b) Subject to Section 5.3(c): (i) the Board of Directors of Target
shall unanimously recommend that Target's stockholders vote in favor of and
approve this Agreement and the Mergers; (ii) the Joint Proxy Statement shall
include a statement to the effect that the Board of Directors of Target has
unanimously recommended that Target's stockholders vote in favor of and approve
this Agreement and the Mergers at the Target Stockholders' Meeting; and (iii)
neither the board of directors of Target nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify,
in a manner adverse to CPI, the unanimous recommendation of the board of
directors of Target that Target's stockholders vote in favor of and approve this
Agreement and the Mergers. For purposes of this Agreement, said recommendation
of the Board of Directors of Target shall be deemed to have been modified in a
manner adverse to CPI if said recommendation shall no longer be unanimous.
(c) Nothing in Section 5.3(b) shall prevent the Board of Directors of
Target from withdrawing, amending or modifying its unanimous recommendation in
favor of the Merger at any time prior to the approval of this Agreement by the
Required Target Stockholder Merger Vote if (i) a Superior Offer is made to
Target and is not withdrawn, (ii) neither Target nor any of its Representatives
shall have violated any of the restrictions set forth in Section 4.4, and (ii)
the Board of Directors of Target concludes in good faith, based upon the advice
of its outside counsel, including a discussion of applicable legal standards
under Delaware law, that the withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of Target to
comply with its fiduciary obligations to Target's stockholders under applicable
law. Except as may be limited by applicable law, nothing contained in this
Section 5.3 shall limit Target's obligation to call, give notice of, convene and
hold the Target Stockholders' Meeting (regardless of whether the unanimous
recommendation of the board of directors shall have been withdrawn, amended or
modified).
5.4 REGULATORY APPROVALS. CPI and Target shall use all reasonable efforts
to file, as soon as practicable after the date of this Agreement, all notices,
reports and other documents required to be filed with any Governmental Body with
respect to the Mergers and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. CPI and Target shall (1) give the other Party prompt
notice of the commencement of any Legal Proceeding by or before any Governmental
Body with respect to the Merger or any of the other transactions contemplated by
this Agreement, (2) keep the other Party informed as to the status of any such
Legal Proceeding, and (3) promptly inform the other Party of any communication
to or from any Governmental Body regarding the Mergers. CPI and Target will
consult and cooperate with one another, and will consider in good faith the
views of one another, in connection with any analysis, appearance, presentation,
memorandum, brief, argument, opinion or proposal made or submitted in connection
with any Legal Proceeding under or relating to any other federal or state
antitrust or fair trade law. In addition, except as may be prohibited by any
Governmental Body or by any Legal Requirement, in connection with any Legal
Proceeding under or relating to any federal or state antitrust or fair trade law
or any other similar Legal Proceeding, CPI and Target will permit authorized
Representatives of the other Party to be present at each meeting or conference
relating to any such Legal Proceeding and to have access to and be consulted in
connection with any document, opinion or proposal made or submitted to any
Governmental Body in connection with any such Legal Proceeding.
44.
<PAGE> 204
5.5 CONTINUATION OF TARGET D&O INSURANCE. Target and T-Sub shall provide
for the continuance of current Target directors and officers insurance in
respect of acts prior to the Effective Date for the benefit of Target officers
and directors for a period of five (5) years after the Effective Date.
5.6 ADDITIONAL AGREEMENTS. Target and CPI shall use all reasonable efforts
to take, or cause to be taken, all actions necessary to consummate the Mergers
and make effective the other transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, each Party to this Agreement
(i) shall make all filings (if any) and give all notices (if any) required to be
made and given by such Party in connection with the Mergers and the other
transactions contemplated by this Agreement, (ii) shall use all reasonable
efforts to obtain each Consent (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such Party in
connection with the Merger or any of the other transactions contemplated by this
Agreement, and (iii) shall use all reasonable efforts to lift any restraint,
injunction or other legal bar to the Mergers.
5.7 DISCLOSURE. Target and CPI shall consult with each other before issuing
any press release or otherwise making any public statement with respect to the
Merger or any of the other transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, neither CPI nor Target shall, and
neither shall permit any of its Representatives to, make any disclosure
regarding the Merger or any of the other transactions contemplated by this
Agreement unless (a) the other Party shall have approved such disclosure or (b)
the disclosing Party shall have been advised in writing by its outside legal
counsel that such disclosure is required by applicable law and shall have given
the other Party the opportunity, to the extent practicable, to review and
comment upon the disclosure.
5.8 TAX MATTERS. Each of Target and CPI acknowledge and agree that (i) it
intends the transactions contemplated by this Agreement to qualify as transfers
subject to the provisions of Section 351(a) of the Code, (ii) it will report the
Mergers as such transfers in any and all federal, state and local income tax
returns filed by it. At or prior to the filing of the S-4 Registration Statement
with the SEC and, to the extent necessary, at the Closing, CPI and Target shall
execute and deliver to Cooley Godward LLP and to Morgan Lewis & Bockius LLP
management tax representation letters in a form agreed to by counsel to Target
and CPI. Following delivery of the management tax representations letters, each
of CPI and Target shall use its reasonable efforts to cause Cooley Godward LLP
and Morgan, Lewis & Bockius LLP, respectively, to deliver promptly to it a legal
opinion satisfying the requirements of Item 601 of Regulation S-K promulgated
under the Securities Act. In rendering such opinion, each of such counsel shall
be entitled to rely on the management tax representation letters. Target and CPI
shall use all reasonable efforts prior to the Effective Time to cause the
Mergers to qualify as tax free transfers under Section 351(a) of the Code.
5.9 RESIGNATION OF OFFICERS AND DIRECTORS. Except as otherwise agreed with
CPI, Target shall use all reasonable efforts to obtain and deliver to CPI prior
to the Closing the resignation of each officer and director of Target effective
as of the Effective Time, except any
45.
<PAGE> 205
directors identified in Section 5.12 below who are members of the Board of
Directors of Target immediately prior to the Effective Time.
5.10 FIRPTA MATTERS. At the Closing, (a) CPI shall deliver to Target a
statement (in such form as may be reasonably requested by counsel to Target)
conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United
States Treasury Regulations, and (b) CPI shall deliver to the Internal Revenue
Service the notification required under Section 1.897 - 2(h)(2) of the United
States Treasury Regulations.
5.11 AFFILIATE AGREEMENTS. No later than twenty (20) days in advance of the
Effective Time, each of the parties shall deliver to each other a list of
Persons who are "affiliates," as that term is used in Rule 145 under the
Securities Act (an "AFFILIATE LIST") of Target or CPI, as applicable. Prior to
the Effective Time, each of the parties shall deliver to each other an Affiliate
Agreement, in a mutually agreed form, duly executed by each Person on the
Affiliate List, and by each Person who becomes an affiliate after delivery of
the Affiliate List and prior to the date of delivery of the signed Affiliate
Agreements.
5.12 POST MERGER HOLDCO BOARD OF DIRECTORS. In addition to all of the
directors of CPI immediately prior to the Effective Time who shall serve as the
Board of Directors of Holdco effective immediately after the Effective Time, CPI
shall use all reasonable efforts to nominate and appoint two persons, designated
by Target in consultation with CPI, to join the Board of Directors of Holdco to
serve in such capacity until Holdco's 2000 annual stockholders meeting.
5.13 REGISTRATION RIGHTS. Holdco shall assume CPI's obligations under the
CPI Fourth Amended and Restated Stockholders' Agreement dated as of April 1998,
as amended (the "STOCKHOLDERS' AGREEMENT"); provided, however, that, CPI shall
use all reasonable efforts to provide that no Holder (as defined in the
Stockholders' Agreement) shall request registration or participation in a
registration of Holdco Common Stock until the earlier of (a) the date ninety
(90) days after the effective date of a registration statement for the first
public offering of Holdco's shares following the Effective Time, and (b) the
first anniversary of the Effective Time.
5.14 CPI REDEEMABLE PREFERRED STOCK. Prior to the Effective Time, CPI shall
redeem all outstanding shares of CPI Redeemable Preferred Stock in accordance
with the CPI Disclosure Schedule.
5.15 MARKET STAND-OFF AGREEMENT. CPI shall use reasonable best efforts to
obtain the agreement of each director and executive officer of CPI that such
person shall not directly or indirectly sell, offer to sell, contract to sell
(including without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any Holdco Common Stock beneficially owned by such person for one hundred
eighty (180) days from the Effective Time. Furthermore, CPI shall use reasonable
best efforts to obtain the agreement of each of the remaining holders of CPI
Common Stock and CPI Preferred Stock (each a "CPI INVESTOR") that such CPI
Investor shall not directly or indirectly sell, offer to sell, contract to sell
(including without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any
46.
<PAGE> 206
Holdco Common Stock beneficially owned by such person for ninety (90) days from
the Effective Time.
5.16 NASDAQ LISTING. Each of the parties shall use its best efforts to
obtain, prior to the Effective Time, the approval for listing on the Nasdaq
National Market, effective upon official notice of issuance, of the shares of
Holdco Common Stock issuable in connection with the Mergers and which will be
issuable upon exercise of options assumed pursuant to this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CPI
The obligations of CPI to effect the Mergers and otherwise consummate
the transactions contemplated by this Agreement are subject to the satisfaction,
at or prior to the Closing, of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
Target contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) shall also be true
and correct on and as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date; provided, however, that for purposes of this
Section 6.1 only, such representations and warranties shall be deemed to be true
and correct unless the failure or failures of such representations and
warranties to be so true and correct (without regard to materiality qualifiers
contained therein), individually or in the aggregate, results or would
reasonably be expected to result in a Material Adverse Effect on Target.
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Target is required to comply with or to perform at or prior to the Closing shall
have been complied with and performed in all material respects.
6.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the Form S-4 Registration Statement.
6.4 STOCKHOLDER APPROVAL. This Agreement and the Mergers shall have been
approved by the Required CPI Stockholder Vote and the Required Target
Stockholder Merger Vote. The CPI Charter Amendment shall have been approved by
the Required CPI Stockholder Vote.
6.5 DOCUMENTS. CPI shall have received the following documents:
(a) a legal opinion of Morgan, Lewis & Bockius LLP, dated as of the
Closing Date, in a form reasonably satisfactory to CPI and its legal counsel;
(b) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, to the effect that the Mergers will qualify as transfers subject to the
provisions of Section 351(a) of the Code, it being understood that, in rendering
such opinion, Cooley Godward LLP, may rely
47.
<PAGE> 207
upon the tax representation letters referred to in Section 5.8 and a copy of the
legal opinions described in Section 7.6(b) hereof. The opinions described in
this Section 6.5(b) and in Section 7.6(b) shall be substantially identical in
form and substance; and
(c) a certificate executed on behalf of Target by its Chief Executive
Officer confirming that conditions set forth in Sections 6.1, 6.2, 6.4, 6.6 and
6.9 have been duly satisfied.
6.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in Target's business, financial condition, assets, liabilities,
operations or financial performance since the date of this Agreement (it being
understood that a decline in Target's stock price shall not constitute, in and
of itself, a Material Adverse Change).
6.7 NO RESTRAINTS. No temporary restraining order, preliminary or permanent
injunction or other order preventing the consummation of either of the Mergers
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Mergers that makes consummation of either of the Mergers
illegal.
6.8 DELIVERY OF AFFILIATES' AGREEMENTS. The Affiliate Agreements referred
to in Section 5.11 above shall have been executed by each Party therein
described and delivered to CPI.
6.9 CONSENTS. All material Consents required to be obtained in connection
with either of the Mergers and the other transactions contemplated by this
Agreement (including the Consents identified in the Target Disclosure Schedule)
shall have been obtained and shall be in full force and effect.
6.10 REGISTRATION. All regulatory approvals needed to ensure that the
Holdco Common Stock to be issued in the Merger will be registered or qualified
under the securities law of every jurisdiction of the United States in which any
registered holder of CPI Common Stock, CPI Preferred Stock has an address of
record on the record date for determining the stockholders entitled to notice of
and to vote at the CPI Stockholders' Meeting shall have been obtained.
6.11 NASDAQ LISTING. All regulatory approvals needed to ensure that the
Holdco Common Stock to be issued in the Merger will be approved for quotation at
the Effective Time on the Nasdaq National Market shall have been obtained.
6.12 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party or is otherwise involved: (a) challenging or seeking to restrain or
prohibit the consummation of either of the Mergers or any of the other
transactions contemplated by this Agreement; (b) relating to either of the
Mergers and seeking to obtain from Target or any of its subsidiaries any damages
that may be material to Target; (c) seeking to prohibit or limit in any material
respect Holdco's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of either Surviving
Corporation; or (d) that would materially and adversely
48.
<PAGE> 208
affect the right of Holdco or either Surviving Corporation to own the assets
or operate the business of CPI.
6.13 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable probability of an outcome that would have a
Material Adverse Effect on Holdco, CPI or Target: (a) challenging or seeking to
restrain or prohibit the consummation of either of the Mergers or any of the
other transactions contemplated by this Agreement; (b) relating to the Mergers
and seeking to obtain from Target or any of its subsidiaries any damages that
may be material to Target; (c) seeking to prohibit or limit in any material
respect Holdco's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporations; or (d) resulting in Target as constituted after the Effective Time
not containing all of the assets and business of Target as constituted
immediately prior to the Effective Time.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF TARGET
The obligations of Target to effect the Mergers and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of CPI
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) shall also be true and correct on
and as of the Closing Date, with the same force and effect as if made on and as
of the Closing Date and CPI shall, if requested by Target, provide assurances
reasonably satisfactory to Target in respect of Section 3.25(d); provided,
however, that for purposes of this Section 7.1 only, such representations and
warranties shall be deemed to be true and correct unless the failure or failures
of such representations and warranties to be so true and correct (without regard
to materiality qualifiers contained therein), individually or in the aggregate,
results or would reasonably be expected to result in a Material Adverse Effect
on CPI or Holdco.
7.2 PERFORMANCE OF COVENANTS. CPI shall have complied with and performed in
all material respects each covenant contained in this Agreement that is required
to be performed by CPI on or prior to the date of the Closing.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENT. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the Form S-4 Registration Statement.
7.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
duly approved by the Required CPI Stockholder Vote and the Required Target
Stockholder Merger Vote. The CPI Charter Amendment shall have been approved by
the Required CPI Stockholder Vote.
49.
<PAGE> 209
7.5 CONSENTS. All material Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement
(including the Consents identified in the CPI Disclosure Schedule) shall have
been obtained and shall be in full force and effect.
7.6 DOCUMENTS. Target shall have received the following legal documents,
each of which shall be in full force and effect:
(a) a legal opinion of Cooley Godward LLP dated as of the Closing
Date, in a form reasonably satisfactory to Target and its legal counsel;
(b) a legal opinion of Morgan, Lewis & Bockius LLP dated as of the
Closing Date and addressed to Target, to the effect that the Mergers will
qualify as transfers subject to the provisions of Section 351(a) of the Code (it
being understood that, in rendering such opinion, Morgan Lewis & Bockius LLP may
rely upon the tax representation letters referred to in Section 5.8 and a copy
of the legal opinion described in Section 6.5(b) hereof). The opinions described
in this Section 7.6(b) and in Section 6.5(b) shall be substantially identical in
form and substance; and
(c) a certificate executed on behalf of CPI by its Chief Executive
Officer confirming that the conditions set forth in Sections 7.1, 7.2, 7.4, 7.5
and 7.7 have been duly satisfied.
7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the business, financial condition, capitalization, assets,
liabilities, operations or financial performance of CPI since the date of this
Agreement. For purposes of this Section 7.7, material adverse change shall be
deemed to include any event, circumstance or occurrence, individually or in the
aggregate, causing, resulting in or reasonably likely to have a material adverse
effect upon CPI's business, results of operations or financial condition (i)
arising from or relating to any clinical trials or studies conducted by CPI or
(ii) arising from or related to the development or commercialization of
technology, processes or products relating to adenomatous colonic polyps that
are (or may reasonably be expected to be) superior to CPI's technology,
processes or products. For purposes of this Section 7.7, a material adverse
change shall not include any event, circumstance or occurrence, individually or
in the aggregate, causing, resulting in, or reasonably likely to have a material
adverse effect upon CPI's business, results of operations or financial condition
(i) arising from or relating to general business or economic conditions, (ii)
relating to or affecting the biotechnology industry generally or (iii) relating
to or affecting the colonic cancer therapeutics industry generally.
7.8 DIRECTORS. The Parties shall have taken all actions necessary to cause
the Board of Directors of Holdco following the Effective Time to consist of the
individuals set forth in Section 5.12.
7.9 REGISTRATION. All regulatory approvals needed to ensure that the Holdco
Common Stock to be issued in the Merger will be registered or qualified under
the securities law
50.
<PAGE> 210
of every jurisdiction of the United States in which any registered holder of
Target Common Stock has an address of record on the record date for determining
the stockholders entitled to notice of and to vote at the Target Stockholders'
Meeting shall have been obtained.
7.10 NASDAQ LISTING. All regulatory approvals needed to ensure that the
Holdco Common Stock to be issued in the Merger will be approved for quotation at
the Effective Time on the Nasdaq National Market shall have been obtained.
7.11 DELIVERY OF AFFILIATES' AGREEMENTS. The Affiliate Agreements referred
to in Section 5.11 above shall have been executed by each Party therein
described and delivered to CPI.
7.12 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Mergers
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Mergers that makes consummation of the Mergers illegal.
7.13 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Legal Proceeding in which a Governmental Body is or is threatened to become
a party or is otherwise involved: (a) challenging or seeking to restrain or
prohibit the consummation of either of the Mergers or any of the other
transactions contemplated by this Agreement; (b) relating to either of the
Mergers and seeking to obtain from Target or any of its subsidiaries any damages
that may be material to Target; (c) seeking to prohibit or limit in any material
respect Holdco's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of either Surviving
Corporation; or (d) that would materially and adversely affect the right of
Holdco or either Surviving Corporation to own the assets or operate the business
of CPI.
7.14 NO OTHER LITIGATION. There shall not be pending any Legal Proceeding
in which there is a reasonable probability of an outcome that would have a
Material Adverse Effect on Holdco, CPI or Target: (a) challenging or seeking to
restrain or prohibit the consummation of either of the Mergers or any of the
other transactions contemplated by this Agreement; (b) relating to either of the
Mergers and seeking to obtain from Holdco or Target or any of its subsidiaries
any damages that may be material to Target; (c) seeking to prohibit or limit in
any material respect Holdco's ability to vote, receive dividends with respect to
or otherwise exercise ownership rights with respect to the stock of the
Surviving Corporations; or (d) that would affect adversely the right of Holdco
or the Surviving Corporations to own the assets or operate the business of CPI.
7.15 MARKET STAND-OFF AGREEMENTS. Each of CPI's directors and executive
officers shall have executed and delivered the market stand-off agreements
referred to in Section 5.12 hereof.
51.
<PAGE> 211
8. TERMINATION
8.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time (whether before or after approval of this Agreement and the Mergers by the
Required CPI Stockholder Vote and the Required Target Stockholder Vote):
(a) by mutual written consent of Target and CPI;
(b) by either Target or CPI if the Mergers shall not have been
consummated by November 30, 1998 (unless the failure to consummate either Merger
is attributable to a failure on the part of the Party seeking to terminate this
Agreement to perform any material obligation required to be performed by such
Party at or prior to the Effective Time);
(c) by either Target or CPI if a court of competent jurisdiction or
other Governmental Body shall have issued a final and nonappealable order,
decree or ruling, or shall have taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the Mergers;
(d) by either Target or CPI if (i) the CPI Stockholders' Meeting shall
have been held and completed and (ii) the CPI Charter Amendment, this Agreement
and the Mergers shall not have been approved at such meeting by the Required CPI
Stockholder Vote;
(e) by either Target or CPI if (i) the Target Stockholders' Meeting
shall have been held and completed and (ii) this Agreement and the Mergers shall
not have been approved at such meeting by the Required Target Stockholder Merger
Vote;
(f) by Target (at any time prior to the approval of this Agreement and
the Mergers) if a CPI Triggering Event shall have occurred;
(g) by CPI (at any time prior to the approval of the issuance of
Holdco Common Stock in the Mergers by the Required Target Stockholder Merger
Vote) if a Target Triggering Event shall have occurred;
(h) by Target if any of CPI's representations and warranties contained
in this Agreement shall be or shall have become materially inaccurate, or if any
of CPI's covenants contained in this Agreement shall have been breached, and
such inaccuracy or breach would cause the condition set forth in Sections 7.1 or
7.2, respectively, to not be satisfied; provided, however, that if an inaccuracy
in CPI's representations and warranties or a breach of a covenant by CPI is
curable by CPI and CPI is continuing to exercise all reasonable efforts to cure
such inaccuracy or breach, then Target may not terminate this Agreement under
this Section 8.1(h) on account of such inaccuracy or breach until twenty (20)
days after delivery of written notice of the inaccuracy or breach to CPI by
Target; or
(i) by CPI if any of Target's representations and warranties contained
in this Agreement shall be or shall have become materially inaccurate, or if any
of Target's covenants contained in this Agreement shall have been breached, and
such inaccuracy or breach would
52.
<PAGE> 212
cause the condition set forth in Sections 6.1 or 6.2, respectively, to not be
satisfied; provided, however, that if an inaccuracy in Target's representations
and warranties or a breach of a covenant by Target is curable by Target and
Target is continuing to exercise all reasonable efforts to cure such inaccuracy
or breach, then CPI may not terminate this Agreement under this Section 8.1(i)
on account of such inaccuracy or breach until twenty (20) days after delivery of
written notice of the breach or inaccuracy to Target by CPI.
8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 8.2, Section 8.3 and
Section 9 shall survive the termination of this Agreement and shall remain in
full force and effect, (ii) the Nondisclosure Agreements shall remain in full
force and effect to the extent provided therein, and (iii) the termination of
this Agreement shall not relieve any Party from any liability for any breach of
any representation, warranty or covenant contained in this Agreement occurring
prior to the date of such termination if such Party is not obligated to pay a
termination fee pursuant to Section 8.3 hereof.
8.3 EXPENSES; TERMINATION FEES.
(a) Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the Party incurring such expenses, whether or
not the Mergers are consummated; provided, however, that Target and CPI shall
share equally all fees and expenses, other than attorneys' fees, incurred in
connection with the filing, printing and mailing of the Form S-4 Registration
Statement and the Joint Proxy Statement and any amendments or supplements
thereto.
(b) If this Agreement is terminated by Target pursuant to Section
8.1(f) or by Target or CPI pursuant to Section 8.1(d) hereof, CPI shall pay
Target a termination fee equal to (i) one million five hundred thousand dollars
($1,500,000) plus (ii) reimbursement of the amount of the professional fees and
expenses that Target incurred in connection with the Merger, up to two hundred
fifty thousand dollars ($250,000).
(c) If this Agreement is terminated by CPI pursuant to Section 8.1(g)
or by CPI or Target pursuant to Section 8.1(e) hereof, Target shall pay CPI a
termination fee equal to (i) one million five hundred thousand dollars
($1,500,000) plus (ii) reimbursement of the amount of the professional fees and
expenses that CPI incurred in connection with the Merger, up to two hundred
fifty thousand dollars ($250,000).
(d) Any termination fees and expenses payable under Section 8.3(b) or
8.3(c) above shall be paid in cash, via wire transfer of immediately available
funds no later than the close of business on the second business day following
the date on which the termination giving rise to such payment occurs.
(e) Target and CPI agree that the agreements contained in Sections
8.3(b) and (c) above are an integral part of the transactions contemplated by
this Agreement and constitute
53.
<PAGE> 213
liquidated damages and not a penalty. If one Party fails to promptly pay to the
other any fee due under such Sections 8.3(b) and (c), the defaulting Party shall
pay the costs and expenses (including legal fees and expenses) in connection
with any action, including the filing of any lawsuit or other legal action,
taken to collect payment, together with interest on the amount of any unpaid fee
at the publicly announced prime rate of Citibank, N.A. from the date such fee
was required to be paid.
9. MISCELLANEOUS PROVISIONS
9.1 AMENDMENT. This Agreement may be amended with the approval of the
respective boards of directors of CPI and Target at any time (whether before or
after approval of this Agreement and the Mergers by the respective stockholders
of CPI and Target); provided, however, that after any such approval of this
Agreement and the Mergers by, respectively, CPI's stockholders and Target's
stockholders, no amendment shall be made that by law or NASD regulation requires
further approval of the respective stockholders of CPI or Target without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
9.2 WAIVER.
(a) No failure on the part of any Party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Party
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Party shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
9.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Mergers.
9.4 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and the
other agreements and schedules referred to herein and therein and the
Non-Disclosure Agreements constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among or between any
of the parties with respect to the subject matter hereof and thereof. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same instrument, and
shall be governed in all respects by the laws of the State of Delaware as
applied to contracts entered into and to be performed entirely within Delaware.
54.
<PAGE> 214
9.5 JURY WAIVER. The parties hereto hereby agree to waive their respective
rights to a trial by jury of any claim or cause of action based upon or arising
out of or related to this Agreement or the transactions contemplated thereby in
any action, proceeding or other litigation of any type brought by any Party
against any other Party with respect to contracts, claims, tort claims or
otherwise. The scope of this waiver is intended to be as broad as permitted by
law, covering all disputes that may be filed in any court that relate to the
subject matter of this Agreement, including tort claims, contract claims, claims
under common law, statutory claims and any action, counterclaim or other
proceeding that seeks in whole or in part to challenge the validity or
enforceability of this Agreement or the transactions contemplated thereby. This
waiver is irrevocable.
9.6 ATTORNEYS' FEES. In any action at law or suit in equity to enforce this
Agreement or the rights of any of the parties hereunder, the prevailing Party in
such action or suit shall be entitled to receive a reasonable sum for its
attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
9.7 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns; provided, however, that neither this
Agreement nor any of the rights hereunder may be assigned by any Party without
the prior written consent of the other Party, and any attempted assignment of
this Agreement or any of such rights by a Party without such consent shall be
void and of no effect. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any person except the parties hereto and their
respective successors any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
9.8 NOTICES. Any notice or other communication required or permitted to be
delivered to any Party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such Party
below (or to such other address or facsimile telephone number as such Party
shall have specified in a written notice given to the other parties hereto):
if to Target or Merger Sub:
Target, Inc.
18 W. Airy Street
Suite 100
Courthouse Plaza
Morristown, PA 19041
Attention: John J. Gibbons
Phone: 610/313-9388
Fax: 610/239-7894
55.
<PAGE> 215
with a copy to:
Morgan, Lewis & Bockius LLP
200 One Logan Square
Philadelphia, PA 19103
Attention: Stephen M. Goodman, Esq.
Phone: 215/963-5000
Fax: 215/963-5299
if to CPI :
Cell Pathways, Inc.
702 Electronic Drive
Horsham, PA 94044
Attention: Robert J. Towarnicki
Phone: 215/706-3800
Fax: 215/706-3801
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, Colorado 80302
Attention: James C.T. Linfield
Phone: 303/546-4000
Fax: 303/546-4099
9.9 COOPERATION. Each Party agrees to cooperate fully with the other Party
and to execute and deliver such further documents, certificates, agreements and
instruments and to take such other actions as may be reasonably requested by the
other Party to evidence or reflect the transactions contemplated by this
Agreement and to carry out the intent and purposes of this Agreement.
9.10 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include masculine
and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
56.
<PAGE> 216
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
TARGET
By:
-------------------------------------
John J. Gibbons
President/Chief Executive Officer
CELL PATHWAYS, INC.
By:
------------------------------------
Robert J. Towarnicki
President/ Chief Executive Officer
57.
<PAGE> 217
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal between Target and CPI) contemplating
or otherwise relating to any Acquisition Transaction in substitution for the
transactions provided in the Agreement.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction or series of related transactions involving:
(a) any merger, consolidation, share exchange, business combination,
tender offer, exchange offer or other similar transaction in which a Person or
"group" (as defined in the Exchange Act and the rules promulgated thereunder) of
Persons directly or indirectly acquires Target or CPI or more than 50% of
Target's business or CPI's business;
(b) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 50% of the assets of CPI or Target; or
(c) any offering of CPI capital stock that is registered under Section
5 of the Securities Act;
(d) any liquidation or dissolution of CPI or Target.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
BEST OF KNOWLEDGE; KNOWLEDGE. Information shall be deemed to be known
to the "best of knowledge" or to the "knowledge" of a Party if that information
was actually known or reasonably should have been known by an executive officer
of such Party.
CPI COMMON STOCK. "CPI Common Stock" shall mean the Common Stock, $.01
par value, of CPI.
CPI CONTRACT. "CPI Contract" shall mean any Contract: (a) to which CPI
is a party; (b) by which CPI or any asset of CPI is or may become bound or under
which CPI has, or may become subject to, any obligation; or (c) under which CPI
has or may acquire any right or interest.
CPI DISCLOSURE SCHEDULE. "CPI Disclosure Schedule" shall mean the
disclosure schedule that has been prepared by CPI in conjunction with Section 3
and that has been delivered by CPI to Target on the date of this Agreement and
signed by the President of CPI.
A-1
<PAGE> 218
CPI OPTIONS. "CPI Options" shall mean each unexpired and unexercised
option to purchase shares of CPI Common Stock granted under the 1997 Equity
Incentive Plan or under the 1997 Non-Employee Director Stock Option Plan or
outside such plans and outstanding immediately prior to the Effective Time.
CPI PROPRIETARY ASSET. "CPI Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to CPI or otherwise used by CPI.
CPI PREFERRED STOCK. "CPI Preferred Stock" shall mean the Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E
Convertible Preferred Stock, Series F Convertible Preferred Stock and Series G
Convertible Preferred Stock of CPI.
CPI RECORD DATE. "CPI Record Date" shall mean the record date for the
CPI Stockholders Meeting.
CPI TRIGGERING EVENT. A "CPI Triggering Event" shall be deemed to have
occurred if: (i) the board of directors of CPI shall have failed to recommend,
or shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Target its unanimous recommendation in favor of, the CPI
Charter Amendment, the Mergers or approval of this Agreement; (ii) CPI shall
have failed to include in the Joint Proxy Statement the unanimous recommendation
of the board of directors of CPI in favor of approval of the CPI Charter
Amendment, this Agreement and the Merger; (iii) the board of directors of CPI
fails to unanimously reaffirm its recommendation in favor of approval of the CPI
Charter Amendment, this Agreement and the Merger within five (5) business days
after the Target requests in writing that such recommendation be reaffirmed;
(iv) the board of directors of CPI shall have approved, endorsed or recommended
any Acquisition Proposal; (v) CPI shall have entered into any letter of intent
or similar document or any Contract relating to any Acquisition Proposal; (vi)
CPI shall have failed to hold CPI Stockholders' Meeting as promptly as
practicable and in any event within forty-five (45) days after the Form S-4
Registration Statement is declared effective under the Securities Act; (vii) a
tender or exchange offer relating to securities of CPI shall have been commenced
and CPI shall not have sent to its security holders, within five (5) business
days after the commencement of such tender or exchange offer, a statement
disclosing that CPI recommends rejection of such tender or exchange offer; or
(viii) an Acquisition Proposal is publicly announced, and CPI (A) fails to issue
a press release announcing its opposition to such Acquisition Proposal within
five (5) business days after such Acquisition Proposal is announced or (B)
otherwise fails to actively oppose such Acquisition Proposal.
CPI WARRANTS. CPI Warrants shall mean the outstanding warrants of CPI
to purchase Series E Preferred Stock, Series F Preferred Stock Series G
Preferred Stock or Common Stock.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
A-2
<PAGE> 219
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement"
shall mean the registration statement on Form S-4 to be filed with the SEC by
Holdco in connection with issuance of Holdco Common Stock in the Mergers, as
said registration statement may be amended prior to the time it is declared
effective by the SEC.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, variance,
clearance, registration, qualification or authorization issued, granted, given
or otherwise made available by or under the authority of any Governmental Body
or pursuant to any Legal Requirement; or (b) right under any Contract with any
Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department,
A-3
<PAGE> 220
agency, commission, instrumentality, official, organization, unit, body or
Entity and any court or other tribunal).
JOINT PROXY STATEMENT. "Joint Proxy Statement" shall mean the joint
proxy statement/prospectus to be sent to CPI's stockholders in connection with
the CPI Stockholder's Meeting and to Target's stockholders in connection with
the Target Stockholders' Meeting.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstance
or other matter will be deemed to have a "Material Adverse Effect" on CPI if
such event, violation, inaccuracy, circumstance or other matter would have a
material adverse effect on (i) the business, financial condition,
capitalization, assets, liabilities, operations or financial performance of CPI
or (ii) the ability of the company to consummate the Merger or any of the other
transactions contemplated by this Agreement or to perform obligations under this
Agreement. An event, violation, inaccuracy, circumstance or other matter will be
deemed to have a "Material Adverse Effect" on Target if such event, violation,
inaccuracy, circumstance or other matter would have a material adverse effect on
(i) the business, financial condition, assets, liabilities, operations or
financial performance of the Target Corporations taken as a whole or (ii) the
ability of Target to consummate the Merger or any of the other transactions
contemplated by this Agreement or to perform its obligations under this
Agreement.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or
hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.
PENSION PLAN. "Pension Plan" shall mean any employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), whether or not excluded from coverage under
specific Titles or Subtitles of ERISA).
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any material: (a)
patent, patent application, trademark (whether registered or unregistered),
trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark
A-4
<PAGE> 221
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, customer
list, franchise, system, computer software, computer program, source code,
algorithm, invention, design, blueprint, engineering drawing, proprietary
product, technology, proprietary right or other intellectual property right or
intangible asset; or (b) right to use or exploit any of the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record, an
amount of voting securities or other interests in such Entity that is sufficient
to enable such Person to elect at least a majority of the members of such
Entity's board of directors or other governing body.
SUPERIOR OFFER. "Superior Offer" shall mean an unsolicited, bona fide
written Acquisition Proposal on terms that the board of directors of CPI or
Target, as the case may be, determines in its reasonable judgment, after
consultation with its financial advisor, to be more favorable to CPI's
stockholders or Target's stockholders, as the case may be, than the terms of the
Mergers.
TARGET COMMON STOCK. "Target Common Stock" shall mean the Common Stock,
$0.005 par value per share, of Target.
TARGET CONTRACT. "Target Contract" shall mean any Contract: (a) to
which any of the Target Corporations is a party; (b) by which any Target
Corporation or any asset of a Target Corporation may become bound or under which
any Target Corporation has, or may become subject to, any obligation; or (c)
under which any Target Corporation has or may acquire any right or interest.
TARGET CORPORATION. "Target Corporation," or "Target Corporations" in
the plural, shall mean Target and any Target subsidiary.
TARGET DISCLOSURE SCHEDULE. "Target Disclosure Schedule" shall mean the
disclosure schedule that has been prepared by Target in conjunction with Section
2 and that has been delivered by Target to CPI on the date of this Agreement and
signed by the President of Target.
TARGET OPTIONS. "Target Options" shall mean stock options granted by
Target pursuant to the Target's 1991 Stock Option Plan, Target's 1995 Stock
Option Plan and Target's 1991 Special Directors' Stock Option Plan.
A-5
<PAGE> 222
TARGET PROPRIETARY ASSET. "Target Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to any of the Target Corporations or
otherwise used by any of the Target Corporations.
TARGET RECORD DATE. "Target Record Date" shall mean the record date for
the Target Stockholders Meeting.
TARGET TRIGGERING EVENT. A "Target Triggering Event" shall be deemed to
have occurred if: (i) the board of directors of the Target shall have failed to
recommend, or shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to CPI its unanimous recommendation in favor of,
the Merger or approval of this Agreement; (ii) Target shall have failed to
include in the Joint Proxy Statement the unanimous recommendation of the board
of directors of Target in favor of approval of this Agreement and the Merger;
(iii) the board of directors of Target fails to unanimously reaffirm its
recommendation in favor of approval of this Agreement and the Merger within five
(5) business days after CPI requests in writing that such recommendation be
reaffirmed; (iv) the board of directors of Target shall have approved, endorsed
or recommended any Acquisition Proposal; (v) Target shall have entered into any
letter of intent or similar document or any Contract relating to any Acquisition
Proposal; (vi) Target shall have failed to hold the Target Stockholders' Meeting
as promptly as practicable and in any event within forty-five (45) days after
the Form S-4 Registration Statement is declared effective under the Securities
Act; (vii) a tender or exchange offer relating to securities of Target shall
have been commenced and Target shall not have sent to its security holders,
within five (5) business days after the commencement of such tender or exchange
offer, a statement disclosing that Target recommends rejection of such tender or
exchange offer; or (viii) an Acquisition Proposal is publicly announced, and
Target (A) fails to issue a press release announcing its opposition to such
Acquisition Proposal within five (5) business days after such Acquisition
Proposal is announced or (B) otherwise fails to actively oppose such Acquisition
Proposal.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
WELFARE PLAN. "Welfare Plan" shall mean an employee welfare benefit
plan (as defined in Section 3(1) of ERISA, whether or not excluded from coverage
under specific Titles or Subtitles of ERISA).
A-6
<PAGE> 223
A-7
<PAGE> 224
EXHIBIT B
FORM OF CERTIFICATE OF INCORPORATION
OF
HOLDCO COMPANY
I.
The name of the corporation is Holdco Company (the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the Corporation in the State of Delaware at such
address is Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. The Corporation shall be authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock". The total
number of shares that the Corporation shall be authorized to issue is
seventy-five million (75,000,000) shares. Seventy million (70,000,000) shares
shall be Common Stock, each having a par value of One Cent ($.01). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of One Cent
($.01).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to provide for such issuance, and to fix or alter from time to time the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions of any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
B-1
<PAGE> 225
C. Subject to the rights of any Preferred Stock then outstanding, each
issued and outstanding share of Common Stock shall entitle the Holder thereof to
receive such dividends as may be declared from time to time by the Board of
Directors of the Corporation out of funds legally available therefor, and shall
entitle the Holder thereof to share ratably with other Holders of Common Stock
in all assets available for distribution in the event of any liquidation,
dissolution or winding up of the Corporation. Each issued and outstanding share
of Common Stock shall be identical to all other shares of that class, and shall
entitle the Holder thereof to cast one vote on each matter submitted to a vote
of the Corporation's stockholders. No Holder of Common Stock shall be entitled
to any cumulative voting rights or to any preemptive rights upon the issuance or
sale of any Securities.
V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. 1. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. The number of directors that
shall constitute the whole Board of Directors shall be fixed exclusively by one
or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the filing of this
Certificate of Incorporation, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years. At
the second annual meeting of stockholders following the filing of this
Certificate of Incorporation, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the filing of this
Certificate of Incorporation, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
Each director shall serve beyond the term specified until his
successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
3. Subject to the rights of the holders of any series of
Preferred Stock, a director may be removed only for cause and only by the
affirmative vote of the holders of a
B-2
<PAGE> 226
majority of the voting power of all the then-outstanding shares of voting stock
of the Corporation, entitled to vote at an election of directors (the "Voting
Stock").
4. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, be filled
only by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified.
5. The Board of Directors shall designate and empower
committees of the Board of Directors, shall elect and empower the officers of
the Corporation, may appoint and empower other officers and agents of the
Corporation, and shall determine the time, place and notice of Board meetings,
quorum and voting requirements, and the manner of taking Board action. Subject
to the other provisions of this Article V, the Board of Directors shall
determine the rights, powers, duties, rules and procedures that shall affect the
directors' power to manage and direct the business and affairs of the
Corporation. Notwithstanding any other provision of this Certificate of
Incorporation, the powers specified in this Article V shall be exercised only by
or under the direction of the Board of Directors and may be exercised or
expressed in the form of resolution, Bylaw or other form of determination or
exercise; and the form of the exercise of the power shall not derogate the
status of the power exercised or imply that such exercise by the Board of
Directors may be altered or superseded by any person, group or entity other than
the Board of Directors.
B. 1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by unanimous written consent of the stockholders.
4. Special meetings of the stockholders of the Corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
B-3
<PAGE> 227
5. Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in Section B of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law that might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
B-4
<PAGE> 228
EXHIBIT C
FORM OF CPI CHARTER AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
CELL PATHWAYS, INC.
Cell Pathways, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"CORPORATION"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Cell Pathways, Inc.
SECOND: The original Certificate of Incorporation of the Corporation
was (i) filed with the Secretary of State of Delaware on November 24, 1992.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware, has adopted resolutions to amend the Sixth Amended and Restated
Certificate of Incorporation of the Corporation.
FOURTH: The Sixth Amended and Restated Certificate of Incorporation
shall be amended as follows:
1. Subsection E.3(e) of Article IV is amended to add the following
sentence:
"In addition, the Excluded Merger (as defined in Subsection E.7
below), shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of any of the
provisions of this Section E.3."
2. Subsection E.5(f) of Article IV is amended to add the following
sentence:
"Notwithstanding the foregoing, in the event of the Excluded
Merger, no conversion price adjustment shall be made and no holder
of Designated Preferred Stock or Common Stock of the Corporation
shall be entitled to receive, as consideration for any of such
holder's Preferred Stock or Common Stock, any payment,
consideration or exchange of cash, securities or other property
other than the consideration set forth in the Reorganization
Agreement."
3. The following new Subsection E.6(e) is added to Article IV,
immediately following Subsection E.6(d):
C-1
<PAGE> 229
"(e) Notwithstanding any other provision of this Restated
Certificate, in the event of the Excluded Merger, no holder of
Designated Preferred Stock or Common Stock of the Corporation
shall be entitled to receive, as consideration for any of such
holder's Preferred Stock or Common Stock, any payment,
consideration or exchange of cash, securities or other property
other than the consideration set forth in the Reorganization
Agreement."
The following definition is inserted Subsection E.7 of Article IV,
immediately following the definition of "Designated Preferred
Stock":
"EXCLUDED MERGER" shall mean the transactions contemplated by that
certain Agreement and Plan of Reorganization, dated June __, 1998,
by and between Cell Pathways, Inc. and Target."
FIFTH: Thereafter, pursuant to a resolution of the Board of Directors
of the Corporation, this Certificate of Amendment was submitted to the
stockholders of the Corporation for their approval in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to
be signed by its duly authorized officer this ___ day of _________, 1998.
Cell Pathways, Inc.
By:
------------------------------------
Robert J. Towarnicki
President/Chief Executive Officer
C-2
<PAGE> 230
APPENDIX B -- PROPOSED AMENDMENTS TO CPHI CERTIFICATE OF INCORPORATION
B-1
<PAGE> 231
APPENDIX B - AMENDMENTS TO CPI CERTIFICATE
Cell Pathways, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"CORPORATION"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Cell Pathways, Inc.
SECOND: The original Certificate of Incorporation of the Corporation
was (i) filed with the Secretary of State of Delaware on November 24, 1992.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware, has adopted resolutions to amend the Sixth Amended and Restated
Certificate of Incorporation of the Corporation.
FOURTH: The Sixth Amended and Restated Certificate of Incorporation
shall be amended as follows:
1. Subsection E.3(e) of Article IV is amended to add the following
sentence:
"In addition, the Excluded Merger (as defined in Subsection E.7
below), shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of any of the
provisions of this Section E.3."
2. Subsection E.5(f) of Article IV is amended to add the following
sentence:
"Notwithstanding the foregoing, in the event of the Excluded
Merger, no conversion price adjustment shall be made and no holder
of Designated Preferred Stock or Common Stock of the Corporation
shall be entitled to receive, as consideration for any of such
holder's Preferred Stock or Common Stock, any payment,
consideration or exchange of cash, securities or other property
other than the consideration set forth in the Reorganization
Agreement."
3. The following new Subsection E.6(e) is added to Article IV,
immediately following Subsection E.6(d):
"(e) Notwithstanding any other provision of this Restated
Certificate, in the event of the Excluded Merger, no holder of
Designated Preferred Stock or Common Stock of the Corporation
shall be entitled to receive, as consideration for any of such
holder's Preferred Stock or Common Stock, any payment,
consideration or exchange of cash, securities or other property
other than the consideration set forth in the Reorganization
Agreement."
4. The following definition is inserted Subsection E.7 of Article IV,
immediately following the definition of "Designated Preferred Stock":
1.
<PAGE> 232
"EXCLUDED MERGER" shall mean the transactions contemplated by that
certain Agreement and Plan of Reorganization, dated June __, 1998,
by and between Cell Pathways, Inc. and Target."
FIFTH: Thereafter, pursuant to a resolution of the Board of Directors
of the Corporation, this Certificate of Amendment was submitted to the
stockholders of the Corporation for their approval in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to
be signed by its duly authorized officer this ___ day of _________, 1998.
Cell Pathways, Inc.
By:
--------------------------------------
Robert J. Towarnicki
President/Chief Executive Officer
2.
<PAGE> 233
APPENDIX C -- OPINION OF JANNEY MONTGOMERY SCOTT INC.
C-1
<PAGE> 234
APPENDIX C - OPINION OF JANNEY MONTGOMERY SCOTT INC.
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT]
June 23, 1998
Board of Directors
Tseng Labs, Inc.
18 West Airy Street
Suite 100
Norristown, PA 19401
Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, to the stockholders of Tseng Labs, Inc. ("Tseng") of
the consideration to be received by such stockholders under the Agreement and
Plan of Reorganization (the "Agreement") dated June 23, 1998 to be executed by
Cell Pathways, Inc. ("CPI") and Tseng. This letter is provided to the Board of
Directors for its confidential use.
Pursuant to the Agreement, CPI will cause the formation of a holding
company ("Holdco") and the formation of a wholly owned subsidiary of Holdco
("C-Sub") to be merged into CPI. CPI also will cause the formation of a wholly
owned subsidiary of Holdco ("T-Sub") to be merged into Tseng. At the closing
date (the "Closing Date"): (i) C-Sub shall be merged with and into CPI with CPI
continuing as a wholly owned subsidiary of Holdco (the "CPI Merger"); and (ii)
T-Sub shall be merged with and into Tseng with Tseng continuing as a wholly
owned subsidiary of Holdco (the "Tseng Merger"). The resultant mergers are
herein collectively referred to as the "Mergers."
In the CPI Merger, each share of CPI Common Stock, $0.01 par value
("CPI Common Stock"), and CPI Preferred Stock, $0.01 par value ("CPI Preferred
Stock"), outstanding prior to the Closing Date shall convert into one share of
Holdco Common Stock, $0.01 par value ("Holdco Common Stock"). In the Tseng
Merger, each share of Tseng Common Stock, $0.005 par value ("Tseng Common
Stock") outstanding prior to the Closing Date shall convert into 0.3631326 of a
share of Holdco Common Stock.
In rendering our opinion, we have among other things:
1. Reviewed the Agreement dated June 23, 1998, including the
exhibits thereto;
2. Reviewed audited financial statements for CPI for the fiscal
years ending December 31, 1995, 1996 and 1997;
3. Reviewed various descriptions of the business, operations,
cash flow and prospects of CPI, including the Confidential
Private Placement Memorandum dated April 1998;
<PAGE> 235
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT]
4. Reviewed the reports prepared by Louis M. Weiner, M.D. from
the Fox Chase Cancer Center regarding the potential utility of
FGN-1 for the prevention or therapy of cancer and by Kathryn
Doyle Leary, Ph.D., J.D. from the law firm of Panitch Schwarze
Jacobs & Nadel, P.C. regarding the patent portfolio of CPI;
5. Reviewed selected financial and stock market data for certain
publicly traded companies comparable to CPI and the financial
terms of certain other recent relevant business combinations;
6. Participated in certain discussions and negotiations among
representatives of CPI and Tseng; and
7. Reviewed other financial studies and analyses, as we deemed
necessary.
In addition, we held discussions with the management of CPI regarding
their business, operating results, financial condition and prospects, and
undertook other analyses, studies and investigations, as we considered
appropriate.
In connection with our review, we have relied upon, without independent
verification, the accuracy and completeness of the financial and other
information provided to us by CPI, Tseng, their representatives and the experts
specified in Paragraph 4 above. We have not assumed any responsibility for
independent verification of the financial and other information provided to us.
We have relied upon the assessment of the management of CPI regarding CPI"s
business, business prospects and the Mergers. We have also assumed that the
budgets and financial projections of CPI were reasonably prepared by the
management of CPI on bases reflecting the best currently available estimates and
good faith judgments of the future financial performance of CPI. We have not
made an independent valuation or appraisal of CPI"s assets or liabilities, nor
were we furnished with any such valuations or appraisals. Our opinion is
necessarily based upon economic, market and other conditions as they exist on,
and can be reasonably evaluated as of, the date of this letter. We are
expressing no opinion as to the prices at which CPI will actually trade at any
time. Our opinion does not address the relative merits of the Mergers and the
other business strategies being considered by Tseng's Board of Directors, nor
does it address the Board's decision to proceed with the Tseng Merger. Our
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Janney Montgomery Scott Inc. ("JMS") is acting as the financial advisor
to Tseng in connection with the Mergers and will receive customary fees upon the
completion of the Mergers. In addition, Tseng has agreed to indemnify JMS
against certain liabilities arising out of the rendering of this opinion. JMS is
a nationally recognized investment banking firm and, as part of its investment
banking services, is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, private
placements and valuations for corporate and other purposes.
We understand that this opinion may be included in the proxy statement
of Tseng relating to the Mergers, subject to the approval in form and substance
by JMS and its legal
<PAGE> 236
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT]
counsel, such approval not to be unreasonably withheld. Such approval shall
extend to any description of or reference to JMS, any summary of this opinion or
any presentation of JMS included in such proxy statement.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion, as of the date of this letter and subject to the foregoing,
that the consideration to be received by the stockholders of Tseng in the
Mergers is fair from a financial point of view.
Very truly yours,
/s/ JANNEY MONTGOMERY SCOTT INC.
JANNEY MONTGOMERY SCOTT INC.
<PAGE> 237
APPENDIX D -- SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
D-1
<PAGE> 238
APPENDIX D - SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Sections 251 (other than a merger
effected pursuant to subsection (g) of Section 251 of this title), 252, 254,
257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the votes of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation
surviving or resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation,
or depository receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or designated as a national market system security on a interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
<PAGE> 239
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of
2.
<PAGE> 240
the stock of all such stockholders. Notwithstanding the foregoing, at any time
within 60 days after the effective date of the merger or consolidation, any
stockholder shall have the right to withdraw such stockholder's demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after such stockholder's written
request for such a statement is received by the servicing or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation,the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition,the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted such stockholder's certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not entitled
to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
3.
<PAGE> 241
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded such stockholder's appraisal
rights as provided in subsection (d) of this section shall be entitled to vote
such stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an appraisal
and an acceptance of the merger or consolidation, either within 60 days after
the effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
4.
<PAGE> 242
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Code"), the Registrant has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). Generally,
the Registrant's Bylaws provide that the Registrant will indemnify each of its
directors and officers to the fullest extent not prohibited by Delaware law,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful. With respect to a suit brought by or
in the right of the Registrant, indemnification will not be provided for
expenses incurred in connection with any claim, issue or matter as to which such
person shall have been adjudged liable to the Registrant unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper. The Registrant's Bylaws also provide that CPHI may indemnify
employees and other agents of CPHI who are not directors or officers as set
forth in the Delaware Code.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
In addition, the Registrant will provide directors' and officers' insurance
to each of its directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of June 23,
1998 among Cell Pathways, Inc., and Tseng Labs, Inc.
(attached as Appendix A to Joint Proxy
Statement/Prospectus).
3.1 Certificate of Incorporation of Cell Pathways Holdings, Inc.
3.2 Bylaws of Cell Pathways Holdings, Inc.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2* Specimen certificate of Registrant.
5.1* Legal opinion of Cooley Godward LLP.
8.1* Tax opinion of Cooley Godward LLP.
8.2* Tax opinion of Morgan, Lewis & Bockius LLP.
10.1 Fourth Amended and Restated Stockholders' Agreement, dated
April 1998, among Cell Pathways, Inc. and the stockholders
listed on the signature pages thereto.
</TABLE>
II-1
<PAGE> 243
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.2 Lease, dated June 25, 1998, between Cell Pathways, Inc. and
ARE-702 Electronic Drive, L.P.
10.3 1997 Equity Incentive Plan of Cell Pathways, Inc.
10.4 Form of Incentive Stock Option Agreement.
10.5 1997 Non-Employee Director Stock Option Plan of Cell
Pathways, Inc.
10.6 Form of Stock Option Agreement.
10.7 1997 Employee Stock Purchase Plan of Cell Pathways, Inc.(1).
10.8 Employment Agreement, dated November 6, 1997, between Cell
Pathways, Inc. and Brian J. Hayden (1).
10.9 1995 Stock Award Plan of Cell Pathways, Inc.(1).
10.10 Employment Agreement, dated October 12, 1996, between Cell
Pathways, Inc. and Robert J. Towarnicki(1).
10.11 Employment Agreement, dated February 1, 1993, between Cell
Pathways, Inc. and Rifat Pamukcu(1).
10.12 Memorandum of Employment, dated January 1, 1993, between
Cell Pathways, Inc. and Richard H. Troy(1).
10.13 Agreement, dated June 30, 1994, between Cell Pathways, Inc.
and the Division of Cancer Prevention and Control, National
Cancer Institute(1).
10.14 Amendment to Agreement, dated September 4, 1996, between
Cell Pathways, Inc. and the Division of Cancer Prevention
and Control, National Cancer Institute(1).
10.15 Research and License Agreement, dated June 26, 1991, between
Cell Pathways, Inc. and the University of Arizona, as
amended(1).
10.16 Lease, dated August 9, 1993, between Cell Pathways, Inc. and
WRC Properties, Inc.(1).
10.17 Severance Agreement, dated April 17, 1998, between Tseng
Labs, Inc. and John J. Gibbons.
10.18 Severance Agreement, dated April 17, 1998, between Tseng
Labs, Inc. and Mark Karsch.
10.19 Lease Agreement dated January 8, 1987, among Jeyan Boulton,
John Boulton and Tseng Labs, Inc.(2).
10.20 Tseng Labs, Inc. Nonqualified Stock Option Plan(2).
10.21 Agreement for Acquisition of Stock and Plan of
Reorganization dated May 1, 1986, among Telan Corporation et
al. and Tseng Labs, Inc., John J. Gibbons et al.(2).
10.22 Volume Sales Agreement dated August 1, 1986, between Tseng
Labs, Inc. and NEC Home Electronics (U.S.A.) Inc.(2).
10.23 Tseng Labs, Inc. 1991 Stock Option Plan(3).
10.24 Tseng Labs, Inc. 1991 Special Directors Stock Option
Plan(3).
10.25 Tseng Labs, Inc. 1995 Stock Option Plan(4).
10.26 Severance Agreement between Tseng Labs, Inc. and Jack Tseng
dated November 11, 1997(5).
10.27 Asset Purchase Agreement between Tseng Labs, Inc. and ATI
Research, Inc. dated as of December 16, 1997(6).
23.1* Consent of Cooley Godward LLP (included in opinions filed as
Exhibits 5.1 and 8.1).
23.2* Consent of Morgan, Lewis & Bockius LLP (included in opinions
filed as Exhibit 8.2).
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Janney Montgomery Scott Inc.
24.1 Power of Attorney (included on page II-5).
</TABLE>
II-2
<PAGE> 244
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
27.1 Financial Data Schedule as of and for the period ended
December 31, 1997.
27.2 Financial Data Schedule as of and for the period ended June
30, 1998.
99.1 Form of Proxy Card for the Cell Pathways, Inc. Special
Meeting
99.2 Form of Proxy Card for the Tseng Labs, Inc. Special Meeting
99.3 Consent of Director Nominee of John J. Gibbons
</TABLE>
- ---------------
* To be filed by amendment.
(1) Filed as an exhibit to Cell Pathway, Inc.'s Registration Statement on Form
S-1, filed October 9, 1997, file number 333-37557, or amendments thereto and
incorporated by reference.
(2) Filed as an exhibit to Tseng's Form 10-K for the year ended December 31,
1986 and incorporated by reference.
(3) Filed as an exhibit to Tseng's Form 10-K for the year ended December 31,
1991 and incorporated by reference.
(4) Filed as an exhibit to Tseng's Form 10-K for the year ended December 31,
1995 and incorporated by reference.
(5) Filed as an exhibit to Tseng's Form 10-Q for the quarter ended September 30,
1997 and incorporated by reference.
(6) Filed as an exhibit to Tseng's Form 8-K dated December 16, 1997 and
incorporated by reference.
(b) FINANCIAL STATEMENT SCHEDULES.
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the consolidated financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the
II-3
<PAGE> 245
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(3) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(5) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and CPI being acquired involved therein, that was not
the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE> 246
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Horsham, County of
Montgomery, Commonwealth of Pennsylvania, on the 22nd day of July, 1998.
CELL PATHWAYS HOLDINGS, INC.
By: /s/ ROBERT J. TOWARNICKI
------------------------------------
Robert J. Towarnicki
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Towarnicki and/or Richard H.
Troy his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming his signature as it may be signed by his said attorney
to any and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. TOWARNICKI President, Chief Executive Officer July 22, 1998
- --------------------------------------------------- and Director (principal
Robert J. Towarnicki executive officer)
/s/ BRIAN J. HAYDEN Chief Financial Officer; Vice July 22, 1998
- --------------------------------------------------- President -- Finance; Treasurer
Brian J. Hayden (principal financial and
accounting officer)
/s/ RICHARD H. TROY Senior Vice President -- Corporate July 22, 1998
- --------------------------------------------------- Development; General Counsel,
Richard H. Troy Secretary and Director
/s/ WILLIAM A. BOEGER Chairman of the Board of Directors July 22, 1998
- ---------------------------------------------------
William A. Boeger
/s/ THOMAS M. GIBSON Director July 22, 1998
- ---------------------------------------------------
Thomas M. Gibson
/s/ JUDITH A. HEMBERGER, PH.D. Director July 22, 1998
- ---------------------------------------------------
Judith A. Hemberger, Ph.D.
</TABLE>
II-5
<PAGE> 247
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROGER J. QUY, PH.D. Director July 22, 1998
- ---------------------------------------------------
Roger J. Quy, Ph.D.
/s/ BRUCE R. ROSS Director July 22, 1998
- ---------------------------------------------------
Bruce R. Ross
/s/ PETER G. SCHIFF Director July 22, 1998
- ---------------------------------------------------
Peter G. Schiff
/s/ RANDALL M. TOIG, M.D. Director July 22, 1998
- ---------------------------------------------------
Randall M. Toig, M.D.
</TABLE>
II-6
<PAGE> 248
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated as of June 23,
1998 among Cell Pathways, Inc., and Tseng Labs, Inc.
(attached as Appendix A to Joint Proxy
Statement/Prospectus).......................................
3.1 Certificate of Incorporation of Cell Pathways Holdings,
Inc. .......................................................
3.2 Bylaws of Cell Pathways Holdings, Inc. .....................
4.1 Reference is made to Exhibits 3.1 and 3.2...................
4.2* Specimen certificate of Registrant..........................
5.1* Legal opinion of Cooley Godward LLP.........................
8.1* Tax opinion of Cooley Godward LLP...........................
8.2* Tax opinion of Morgan, Lewis & Bockius LLP..................
10.1 Fourth Amended and Restated Stockholders' Agreement, dated
April 1998, among Cell Pathways, Inc. and the stockholders
listed on the signature pages thereto.......................
10.2 Lease, dated June 25, 1998, between Cell Pathways, Inc. and
ARE-702 Electronic Drive, L.P. .............................
10.3 1997 Equity Incentive Plan of Cell Pathways, Inc. ..........
10.4 Form of Incentive Stock Option Agreement....................
10.5 1997 Non-Employee Director Stock Option Plan of Cell
Pathways, Inc. .............................................
10.6 Form of Stock Option Agreement..............................
10.7 1997 Employee Stock Purchase Plan of Cell Pathways,
Inc.(1).....................................................
10.8 Employment Agreement, dated November 6, 1997, between Cell
Pathways, Inc. and Brian J. Hayden (1)......................
10.9 1995 Stock Award Plan of Cell Pathways, Inc.(1).............
10.10 Employment Agreement, dated October 12, 1996, between Cell
Pathways, Inc. and Robert J. Towarnicki(1)..................
10.11 Employment Agreement, dated February 1, 1993, between Cell
Pathways, Inc. and Rifat Pamukcu(1).........................
10.12 Memorandum of Employment, dated January 1, 1993, between
Cell Pathways, Inc. and Richard H. Troy(1)..................
10.13 Agreement, dated June 30, 1994, between Cell Pathways, Inc.
and the Division of Cancer Prevention and Control, National
Cancer Institute(1).........................................
10.14 Amendment to Agreement, dated September 4, 1996, between
Cell Pathways, Inc. and the Division of Cancer Prevention
and Control, National Cancer Institute(1)...................
10.15 Research and License Agreement, dated June 26, 1991, between
Cell Pathways, Inc. and the University of Arizona, as
amended(1)..................................................
10.16 Lease, dated August 9, 1993, between Cell Pathways, Inc. and
WRC Properties, Inc.(1).....................................
10.17 Severance Agreement, dated April 17, 1998, between Tseng
Labs, Inc. and John J. Gibbons..............................
10.18 Severance Agreement, dated April 17, 1998, between Tseng
Labs, Inc. and Mark Karsch..................................
10.19 Lease Agreement dated January 8, 1987, among Jeyan Boulton,
John Boulton and Tseng Labs, Inc.(2)........................
</TABLE>
<PAGE> 249
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ------------
<S> <C> <C>
10.20 Tseng Labs, Inc. Nonqualified Stock Option Plan(2)..........
10.21 Agreement for Acquisition of Stock and Plan of
Reorganization dated May 1, 1986, among Telan Corporation et
al. and Tseng Labs, Inc., John J. Gibbons et al.(2).........
10.22 Volume Sales Agreement dated August 1, 1986, between Tseng
Labs, Inc. and NEC Home Electronics (U.S.A.) Inc.(2)........
10.23 Tseng Labs, Inc. 1991 Stock Option Plan(3)..................
10.24 Tseng Labs, Inc. 1991 Special Directors Stock Option
Plan(3).....................................................
10.25 Tseng Labs, Inc. 1995 Stock Option Plan(4)..................
10.26 Severance Agreement between Tseng Labs, Inc. and Jack Tseng
dated November 11, 1997(5)..................................
10.27 Asset Purchase Agreement between Tseng Labs, Inc. and ATI
Research, Inc. dated as of December 16, 1997(6).............
23.1* Consent of Cooley Godward LLP (included in opinions filed as
Exhibits 5.1 and 8.1).......................................
23.2* Consent of Morgan, Lewis & Bockius LLP (included in opinions
filed as Exhibit 8.2).......................................
23.3 Consent of Arthur Andersen LLP..............................
23.4 Consent of Arthur Andersen LLP..............................
23.5 Consent of Janney Montgomery Scott Inc. ....................
24.1 Power of Attorney (included on page II-5)...................
27.1 Financial Data Schedule as of and for the period ended
December 31, 1997...........................................
27.2 Financial Data Schedule as of and for the period ended June
30, 1998....................................................
99.1 Form of Proxy Card for the Cell Pathways, Inc. Special
Meeting.....................................................
99.2 Form of Proxy Card for the Tseng Labs, Inc. Special
Meeting.....................................................
99.3 Consent of Director Nominee of John J. Gibbons..............
</TABLE>
- ---------------
* To be filed by amendment.
(1) Filed as an exhibit to Cell Pathway, Inc.'s Registration Statement on Form
S-1, filed October 9, 1997, file number 333-37557, or amendments thereto and
incorporated by reference.
(2) Filed as an exhibit to Tseng's Form 10-K for the year ended December 31,
1986 and incorporated by reference.
(3) Filed as an exhibit to Tseng's Form 10-K for the year ended December 31,
1991 and incorporated by reference.
(4) Filed as an exhibit to Tseng's Form 10-K for the year ended December 31,
1995 and incorporated by reference.
(5) Filed as an exhibit to Tseng's Form 10-Q for the quarter ended September 30,
1997 and incorporated by reference.
(6) Filed as an exhibit to Tseng's Form 8-K dated December 16, 1997 and
incorporated by reference.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CELL PATHWAYS HOLDINGS, INC.
I.
The name of the corporation is Cell Pathways Holdings, Inc. (the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the Corporation in the State of Delaware at such
address is Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. The Corporation shall be authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock". The total number
of shares that the Corporation shall be authorized to issue is seventy-five
million (75,000,000) shares. Seventy million (70,000,000) shares shall be Common
Stock, each having a par value of One Cent ($.01). Five million (5,000,000)
shares shall be Preferred Stock, each having a par value of One Cent ($.01).
B. The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to provide for such issuance, and to fix or alter from time to time the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions of any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
C. Subject to the rights of any Preferred Stock then outstanding, each issued
and outstanding share of Common Stock shall entitle the Holder thereof to
receive such dividends as may be declared from time to time by the Board of
Directors of the Corporation out of funds legally available therefor, and shall
entitle the Holder thereof to share ratably with other Holders of Common Stock
in all assets available for distribution in the event of any liquidation,
dissolution or winding up of the Corporation. Each issued and outstanding share
of Common Stock shall be identical to all other shares of that class, and shall
entitle the Holder thereof to cast one vote on
1.
<PAGE> 2
each matter submitted to a vote of the Corporation's stockholders. No Holder of
Common Stock shall be entitled to any cumulative voting rights or to any
preemptive rights upon the issuance or sale of any Securities.
V.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. 1. The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. The number of directors that shall
constitute the whole Board of Directors shall be fixed exclusively by one or
more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the filing of this
Certificate of Incorporation, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years. At
the second annual meeting of stockholders following the filing of this
Certificate of Incorporation, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the filing of this
Certificate of Incorporation, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
Each director shall serve beyond the term specified until
his successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
3. Subject to the rights of the holders of any series of
Preferred Stock, a director may be removed only for cause and only by the
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the Corporation, entitled to vote at
an election of directors (the "Voting Stock").
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, be filled
only by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding
2.
<PAGE> 3
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
5. The Board of Directors shall designate and empower committees of the
Board of Directors, shall elect and empower the officers of the Corporation, may
appoint and empower other officers and agents of the Corporation, and shall
determine the time, place and notice of Board meetings, quorum and voting
requirements, and the manner of taking Board action. Subject to the other
provisions of this Article V, the Board of Directors shall determine the rights,
powers, duties, rules and procedures that shall affect the directors' power to
manage and direct the business and affairs of the Corporation. Notwithstanding
any other provision of this Certificate of Incorporation, the powers specified
in this Article V shall be exercised only by or under the direction of the Board
of Directors and may be exercised or expressed in the form of resolution, Bylaw
or other form of determination or exercise; and the form of the exercise of the
power shall not derogate the status of the power exercised or imply that such
exercise by the Board of Directors may be altered or superseded by any person,
group or entity other than the Board of Directors.
B. 1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by unanimous written consent of the stockholders.
4. Special meetings of the stockholders of the Corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
3.
<PAGE> 4
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and shall
not affect the rights under this Article VI in effect at the time of the alleged
occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in Section B of this Article
VII, and all rights conferred upon the stockholders herein are granted subject
to this reservation.
B. Notwithstanding any other provisions of this Certificate of Incorporation or
any provision of law that might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, this Certificate of Incorporation or
any Preferred Stock Designation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal Articles V, VI and VII.
4.
<PAGE> 5
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day
of __________, 1998 by the undersigned who affirms that the statements made
herein are true and correct.
----------------------
Sole Incorporator
5.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
CELL PATHWAYS HOLDINGS, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I. OFFICES....................................................................................1
Section 1. Registered Office.....................................................................1
Section 2. Other Offices.........................................................................1
ARTICLE II. CORPORATE SEAL.............................................................................1
Section 3. Corporate Seal........................................................................1
ARTICLE III. STOCKHOLDERS' MEETINGS.....................................................................1
Section 4. Place of Meetings.....................................................................1
Section 5. Annual Meeting........................................................................1
Section 6. Special Meetings......................................................................3
Section 7. Notice of Meetings....................................................................4
Section 8. Quorum................................................................................4
Section 9. Adjournment and Notice of Adjourned Meetings..........................................5
Section 10. Voting Rights.........................................................................5
Section 11. Joint Owners of Stock.................................................................5
Section 12. List of Stockholders..................................................................5
Section 13. [Reserved]............................................................................6
Section 14. Organization..........................................................................6
ARTICLE IV. DIRECTORS..................................................................................6
Section 15. Number and Term of Office.............................................................6
Section 16. Powers................................................................................6
Section 17. Classes of Directors..................................................................6
Section 18. Vacancies.............................................................................7
Section 19. Resignation...........................................................................7
Section 20. Removal...............................................................................7
Section 21. Meetings..............................................................................8
Section 22. Quorum and Voting.....................................................................9
Section 23. Action Without Meeting................................................................9
Section 24. Fees and Compensation.................................................................9
Section 25. Committees...........................................................................10
Section 26. Organization.........................................................................11
ARTICLE V. OFFICERS..................................................................................11
Section 27. Officers Designated..................................................................11
Section 28. Tenure and Duties of Officers........................................................11
Section 29. Delegation of Authority..............................................................12
Section 30. Resignations.........................................................................12
i
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 31. Removal..............................................................................13
ARTICLE VI. EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION...............................................................................13
Section 32. Execution of Corporate Instruments...................................................13
Section 33. Voting of Securities Owned by the Corporation........................................13
ARTICLE VII. SHARES OF STOCK...........................................................................14
Section 34. Form and Execution of Certificates...................................................14
Section 35. Lost Certificates....................................................................14
Section 36. Transfers............................................................................15
Section 37. Fixing Record Dates..................................................................15
Section 38. Registered Stockholders..............................................................15
ARTICLE VIII. OTHER SECURITIES OF THE CORPORATION.......................................................16
Section 39. Execution of Other Securities........................................................16
ARTICLE IX. DIVIDENDS.................................................................................16
Section 40. Declaration of Dividends.............................................................16
Section 41. Dividend Reserve.....................................................................16
ARTICLE X. FISCAL YEAR...............................................................................17
Section 42. Fiscal Year..........................................................................17
ARTICLE XI. INDEMNIFICATION...........................................................................17
Section 43. Indemnification of Directors, Executive Officers, Other Officers,
Employees and Other Agents...........................................................17
ARTICLE XII. NOTICES...................................................................................20
Section 44. Notices..............................................................................20
ARTICLE XIII. AMENDMENTS................................................................................22
Section 45. Amendments...........................................................................22
ARTICLE XIV. LOANS TO OFFICERS.........................................................................22
Section 46. Loans to Officers....................................................................22
ii.
</TABLE>
<PAGE> 4
BYLAWS
OF
CELL PATHWAYS HOLDINGS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought
1.
<PAGE> 5
before an annual meeting, business must be: (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
that are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the
2.
<PAGE> 6
corporation in accordance with the provisions of paragraph (b) of this Section
5. Such stockholder's notice shall set forth (i) as to each person, if any, whom
the stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person, (B)
the principal occupation or employment of such person, (C) the class and number
of shares of the corporation that are beneficially owned by such person, (D) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination that pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
3.
<PAGE> 7
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
4.
<PAGE> 8
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business that might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
5.
<PAGE> 9
SECTION 13. [RESERVED.]
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters that are to be voted on by ballot. Unless and to the extent
determined by the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as
6.
<PAGE> 10
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following
incorporation, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following incorporation, the term of office of
the Class II directors shall expire and Class II directors shall be elected for
a full term of three years. At the third annual meeting of stockholders
following the incorporation, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-
7.
<PAGE> 11
outstanding shares of voting stock of the corporation, entitled to vote at an
election of directors (the "Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the office
of the corporation required to be maintained pursuant to Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware that has been designated by resolution of the
Board of Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) CHAIRMAN OF THE BOARD OF DIRECTORS. The Board of Directors
may choose a Chairman of the Board of Directors. When present, the Chairman of
the Board of Directors shall preside at all meetings of the stockholders and the
Board of Directors. The Chairman of the Board of Directors shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time.
(e) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(f) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the
8.
<PAGE> 12
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
(g) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
9.
<PAGE> 13
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers that may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
General Corporation Law of Delaware to be submitted to stockholders for
approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) TERM. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw, may at any time increase or decrease the
number of members of a committee or the terms of such members or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason remove
any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place that has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the
10.
<PAGE> 14
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. A majority of the authorized number of members of any such
committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at any meeting at which a quorum is present shall
be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the Chief Executive Officer, or if the Chief Executive Officer is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chief Executive
Officer, the President, one or more Vice Presidents, the Secretary, and the
Treasurer, all of whom shall be elected at the annual meeting of the Board of
Directors, and such other officers as the Board may determine from time to time.
The Board of Directors may also appoint one or more Assistant Secretaries,
Assistant Treasurers, Assistant Controllers and such other officers and agents
with such powers and duties as it shall deem necessary. The Board of Directors
may assign such additional titles to one or more of the officers, such as Chief
Financial Officer, Controller or General Counsel, as it shall deem appropriate.
Any one person may hold any number of offices of the corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall preside at all meetings of the stockholders and at all meetings of
the Board of Directors, unless the Chairman of the Board of Directors has been
appointed and is present. Unless some other officer has been elected Chief
Executive Officer of the corporation, the President shall be the chief executive
officer of the corporation. The Chief Executive Officer shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business
11.
<PAGE> 15
and officers of the corporation. The Chief Executive Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time.
(c) DUTIES OF PRESIDENT. The President shall perform such
duties and have such powers as the Board of Directors or the Chief Executive
Officer shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and any committee
thereof and shall record all acts and proceedings thereof in the minute book of
the corporation. The Secretary shall give notice in conformity with these Bylaws
of all meetings of the stockholders and of all meetings of the Board of
Directors and any committee thereof requiring notice. The Secretary shall
perform all other duties given him in these Bylaws and other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors shall designate from time to time. The
President may direct any Assistant Secretary to assume and perform the duties of
the Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(f) DUTIES OF FINANCIAL OFFICERS. One or more financial
officers, as designated by the Board of Directors or the Chief Executive
Officer, shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the Chief Executive Officer. Subject to the order of the Board of
Directors, such financial officers shall have the custody of all funds and
securities of the corporation. The financial officers shall perform other duties
commonly incident to their offices and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later
12.
<PAGE> 16
time is specified therein, in which event the resignation shall become effective
at such later time. Unless otherwise specified in such notice, the acceptance of
any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the corporation
under any contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock of the corporation, shall be
executed, signed or endorsed by the Chief Executive Officer, or the President or
any Vice President, and by the Secretary or Treasurer or any Assistant Secretary
or Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chief Executive Officer, the President, or any Vice President.
13.
<PAGE> 17
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chief Executive Officer, or the President or any Vice
President and by the Treasurer or Assistant Treasurer or the Secretary or
Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
14.
<PAGE> 18
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit.
8, Section 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
15.
<PAGE> 19
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chief Executive Officer, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
16.
<PAGE> 20
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined
pursuant to paragraph (e) of this Bylaw, no advance shall be made by the
corporation to an executive officer
17.
<PAGE> 21
of the corporation (except by reason of the fact that such executive officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or executive officer to enforce a right to indemnification
or to an advancement of expenses hereunder, the burden of proving that the
director or executive officer is not entitled to be indemnified, or to such
advancement of expenses, under this Article XI or otherwise shall be on the
corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right that such person
may have or hereafter acquire
18.
<PAGE> 22
under any statute, provision of the Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or
agents respecting indemnification and advances, to the fullest extent not
prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(ii) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any
other costs and expenses of any nature or kind incurred in connection
with any proceeding.
(iii) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a
consolidation or merger that, if its separate existence had continued,
would have had power and authority to indemnify its directors,
officers, and
19.
<PAGE> 23
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(iv) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the
request of the corporation as, respectively, a director, executive
officer, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(v) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation that imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one that is
delivered personally shall be sent to such address as such director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with
20.
<PAGE> 24
respect to the class of stock affected, specifying the name and address or the
names and addresses of the stockholder or stockholders, or director or
directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall in the absence of fraud, be prima facie
evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting that shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting that shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the
21.
<PAGE> 25
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
22.
<PAGE> 1
EXHIBIT 10.1
FOURTH AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
CELL PATHWAYS, INC.
DATED AS OF APRIL ___, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS.................................................1
SECTION 2. VOTING AGREEMENT............................................5
2.1 Charter Documents...........................................5
2.2 Board Size; Voting Agreement................................5
2.3 Director Designation Rights.................................6
2.3.1 Technology Partners................................6
2.3.2 Quest II...........................................6
2.3.3 Northwood Ventures.................................6
2.3.4 FGN................................................6
2.4 Termination of Designation Rights...........................7
2.4.1 FGN................................................7
2.4.2 Technology Partners................................7
2.4.3 Quest II...........................................7
2.4.4 Northwood Ventures.................................7
2.5 Failure to Designate........................................7
2.6 Record of Vote..............................................8
2.7 Removal and Resignation.....................................8
2.7.1 Right of Designation...............................8
2.7.2 Removal............................................8
2.8 Best Efforts................................................9
2.9 FGN Preferred Stock Voting..................................9
2.10 Observer....................................................9
2.11 Termination and Amendment of Voting Agreement...............9
SECTION 3. REGISTRATION RIGHTS........................................10
3.1 Requested Registrations....................................10
3.1.1 Requests for Registration.........................10
3.1.2 Notice of Registration............................10
3.1.3 Refusal of Request................................10
3.1.4 Deferral of Registration..........................11
3.1.5 Underwriting......................................12
1.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.1.6 Registration Procedures...........................12
3.1.7 Marketing Restrictions............................12
3.2 Incidental Registration....................................13
3.2.1 Notice of Registration............................13
3.2.2 No Registration Rights............................13
3.2.3 Underwriting......................................13
3.2.4 Marketing Restrictions............................14
3.3 Registration Procedures....................................14
3.3.1 Registration Statement............................14
3.3.2 Amendments........................................14
3.3.3 Copies............................................14
3.3.4 State Registration................................15
3.3.5 Listing...........................................15
3.3.6 Transfer Agent/Registrar..........................15
3.3.7 Underwriting......................................15
3.4 Expenses of Registration...................................15
3.5 Registration on Form S-3...................................16
3.5.1 Requested Registrations...........................16
3.5.2 Incorporation by Reference........................16
3.6 Indemnification............................................16
3.6.1 Company Indemnification...........................16
3.6.2 Eligible Holder Indemnification...................17
3.6.3 Procedures........................................17
3.6.4 Contribution......................................18
3.6.5 Conflicting Provisions............................18
3.6.6 Survival..........................................18
3.7 Eligible Holder Information................................19
3.8 Other Agreements...........................................19
3.9 Rule 144...................................................19
3.10 Market Stand-Off Agreement.................................19
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.11 Allocation of Registration Opportunities...................19
3.11.1 Requested Registrations...........................19
3.11.2 Incidental Registrations..........................20
3.12 Delay of Registration......................................21
3.13 Sales to Underwriter.......................................21
3.14 Transfer of Registration Rights............................21
3.15 Termination of Registration Rights.........................21
SECTION 4. RIGHT OF FIRST REFUSAL.....................................21
4.1 Grant of Right.............................................21
4.2 New Securities Defined.....................................22
4.3 Exercise of Right..........................................22
4.4 Refusal of Offer...........................................22
4.5 Failure to Exercise........................................23
4.6 Expiration.................................................23
4.7 Transfer of Right..........................................23
SECTION 5. RIGHT OF CO-SALE...........................................23
5.1 Sales by FGN...............................................23
5.2 Right of Co-Sale...........................................24
5.3 Delivery of Certificates...................................24
5.4 Future Rights..............................................25
5.5 Exempt Transfers...........................................25
5.6 Prohibited Transfers.......................................25
5.7 Termination of Co-Sale Rights..............................25
SECTION 6. COMPANY COVENANTS..........................................26
6.1 Financial Statements and Information.......................26
6.1.1 Annual Reports....................................26
6.1.2 Quarterly Reports.................................26
6.1.3 Commission Reports................................26
6.1.4 Additional Information............................27
6.1.5 Inspection Rights.................................27
iii.
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.1.6 Confidentiality...................................27
6.2 Key Man Insurance..........................................27
6.3 Underwriting Public Offering...............................27
SECTION 7. TRANSFER OF SECURITIES.....................................28
7.1 Restrictions on Transfer...................................28
7.2 Restrictive Legends........................................28
7.3 Notice of Proposed Transfer................................28
7.4 Termination of Restrictions................................29
7.4.1 Securities Law Restrictions.......................29
7.4.2 Co-Sale Restrictions..............................29
7.5 Elimination of Legend......................................29
SECTION 8. MISCELLANEOUS..............................................30
8.1 Severability...............................................30
8.2 Descriptive Headings.......................................30
8.3 Notices....................................................30
8.4 Counterparts...............................................30
8.5 Entire Agreement...........................................30
8.6 Amendments.................................................31
8.7 Governing Law..............................................31
8.8 Intended Beneficiaries.....................................31
8.9 GS Group Assignment........................................31
8.10 No Inconsistent Agreements.................................31
iv.
<PAGE> 6
FOURTH AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
FOURTH AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT dated as of April
__, 1998 (the "Agreement") by and among CELL PATHWAYS, INC., a Delaware
corporation (the "Company"), FGN, INC., an Illinois corporation ("FGN") that is
a Holder of the Company's Common Stock, and Series A, Series B and Series E
Convertible Preferred Stock, NORTHWOOD VENTURES, a New York limited partnership
("Northwood Ventures") that is a Holder of the Company's Series A, Series B and
Series E Convertible Preferred Stock, TECHNOLOGY PARTNERS WEST FUND IV, L.P., a
California limited partnership ("Technology Partners") that is a Holder of the
Company's Series B, Series C and Series E Convertible Preferred Stock, QUEST
VENTURES II, a California limited partnership ("Quest II") that is a Holder of
the Company's Series B, Series C and Series E Convertible Preferred Stock, QUEST
VENTURES INTERNATIONAL, also a California limited partnership ("Quest
International") that is a Holder of the Company's Series B, Series C and Series
E Convertible Preferred Stock, and The Goldman Sachs Group, L.P., a Delaware
limited partnership ("GS Group") that is a Holder of Series F Convertible
Preferred Stock.
W I T N E S S E T H:
WHEREAS, the parties hereto entered into a Stockholders' Agreement
dated as of December 10, 1992 pursuant to which the parties entered into a
voting agreement, and for the benefit of themselves and the other Company
stockholders entered into agreements regarding registration rights, rights of
first refusal, rights of co-sale, Company covenants and transfers of Company
securities; and
WHEREAS, in connection with the issuance by the Company of its Series G
Convertible Preferred Stock the parties hereto desire to amend and restate the
Stockholders' Agreement in the form of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
1.1 "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company.
1.2 "CAUSE" shall mean, with respect to any Director, any of the
following: (i) the commission by such Director of any felony, (ii) the inability
of such Director to perform his or her duties due to abuse of alcohol or drugs,
(iii) serious misconduct by such Director in the course of performing such
Director's duties involving fraud or dishonesty, or (iv) habitual neglect by
such of his or her duties.
1.
<PAGE> 7
1.3 "COMMISSION" shall mean the United States Securities and Exchange
Commission or any successor to the functions of such agency.
1.4 "COMMON STOCK" shall mean the Company's Common Stock, $.01 par
value.
1.5 "COMPANY" shall mean Cell Pathways, Inc., a Delaware corporation,
and all successor corporations thereto.
1.6 "CO-SALE NOTICE" shall have the meaning given such term in
Subsection 5.1 hereof.
1.7 "DESIGNATED PREFERRED STOCK" shall mean the Series A, B, C, D, E, F
and G Convertible Preferred Stock.
1.8 "DESIGNATING HOLDER" shall mean, at any time, any Person who shall
have the right at such time pursuant to Section 2.3 hereof to designate one or
more individuals for election to the Board of Directors.
1.9 "DESIGNEES" shall mean any individual designated for election to
the Board of Directors pursuant to Section 2 of this Agreement.
1.10 "ELIGIBLE HOLDER" shall mean, at any time, any Original Holder who
is then a Holder of Registrable Securities and any Holder of Registrable
Securities to whom the registration rights conferred by Section 3 of this
Agreement have been transferred in compliance with Subsection 3.14 hereof.
1.11 "FOUNDING HOLDER" shall mean each of FGN, Northwood Ventures,
Technology Partners and Quest II and Quest International.
1.12 "HOLDER" shall mean, at any time, any Person who then owns of
record any Securities.
1.13 "INITIATING HOLDERS" shall mean any Eligible Holder(s) who hold,
in the aggregate, not less than 40% of either (i) the Common Stock issued and
issuable upon conversion of the Series C, Series D, Series E, Series F and
Series G Convertible Preferred Stock, or (ii) the Common Stock issued and
issuable upon conversion of the Series A and Series B Convertible Preferred
Stock.
1.14 "JUNIOR PREFERRED STOCK" shall mean the Series A and B Convertible
Preferred Stock, treated as one class.
1.15 "NEW SECURITIES" shall have the meaning given such term in
Subsection 4.2 hereof.
1.16 "ORIGINAL HOLDER" shall mean each Holder on the date of this
Agreement of Stock and each original Holder of any Series G Convertible
Preferred Stock issued by the Company in the course of the Company's offering of
such Stock during the period April, 10 1998 to June 30, 1998.
2.
<PAGE> 8
1.17 "OTHER SHARES" shall mean (i) all issued Common Stock, (ii) all
Common Stock issuable pursuant to options, rights, warrants, convertible
securities or other instruments or agreements, and (iii) all Common Stock issued
as a dividend or other distribution with respect to or in exchange for or in
replacement of the Securities referenced in clauses (i) and (ii) above, but in
each case excluding Registrable Securities held by Eligible Holders. For
purposes of Section 3 of this Agreement, shares of Common Stock issuable
pursuant to the conversion, exercise or exchange of Securities other than
Registrable Securities shall be deemed outstanding Other Shares.
1.18 "OTHER STOCKHOLDERS" shall mean Persons other than Eligible
Holders who, by virtue of agreements with the Company, are entitled to include
their Securities in certain registrations hereunder.
1.19 "ORIGINAL PREFERRED HOLDER" shall have the meaning given such term
in Subsection 5.1 hereof.
1.20 "PERSON" shall mean an individual, a corporation, a partnership, a
trust, an unincorporated organization or a governmental organization or any
agency or political subdivision thereof.
1.21 "PREFERRED STOCK" shall mean the Company's Preferred Stock, $.01
par value.
1.22 "PUBLIC OFFERING" shall mean an offering of Securities registered
under the Securities Act.
1.23 The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer
to a registration of Securities effected by preparing and filing a Registration
Statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such Registration Statement.
1.24 "REGISTRABLE SECURITIES" shall mean (i) Common Stock outstanding
on the date hereof, (ii) Common Stock issued pursuant to the conversion of
Designated Preferred Stock, (iii) Common Stock issuable pursuant to the
conversion of Designated Preferred Stock (including any Designated Preferred
Stock issued upon exercise of warrants) or the exercise of warrants, (iv) other
securities issued or issuable with respect to the Common Stock in connection
with a reclassification, recapitalization, merger, consolidation or other
reorganization, and (v) any Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the
Securities referenced in clauses (i), (ii), (iii) and (iv) above; provided,
however, that Registrable Securities shall not include any shares of Common
Stock after such shares have been sold pursuant to (a) a Registration Statement
declared effective under the Securities Act, (b) Rule 144, or (c) any other
exemption from registration to a Person who is free to resell such shares
without registration or restriction under the Securities Act; and provided,
further, that at any time subsequent to the completion of the first Public
Offering, Registrable Securities shall not include any Securities which are
eligible to be sold without registration under the Securities Act in compliance
with Subsection (k) of Rule 144. No Registrable Securities shall be deemed to
exist from and after such time as there are outstanding less than 15,000
Registrable Securities (as appropriately adjusted for any stock dividends,
combinations or splits with respect to the Common Stock). For purposes of
Section 3 of this Agreement, shares of
3.
<PAGE> 9
Common Stock issuable upon the conversion, exercise or exchange of Registrable
Securities shall be deemed outstanding Registrable Securities.
1.25 "REGISTRATION EXPENSES" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include (i) Selling Expenses,
(ii) fees and disbursements of counsel for any Eligible Holder(s) or (iii) the
compensation of regular employees of the Company (which shall be paid in any
event by the Company).
1.26 "REGISTRATION STATEMENT" shall mean any registration statement
filed with the Commission in accordance with the Securities Act, together with
all amendments or supplements thereto.
1.27 "RULE 144" shall mean Rule 144 promulgated by the Commission under
the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.28 "RULE 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.29 "SECURITIES" shall mean any debt or equity securities of the
Company, whether now or hereafter authorized, and any instrument convertible
into or exchangeable or exercisable for one or more debt or equity securities of
the Company.
1.30 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any federal statute or statutes which shall be enacted to take the
place of such Act, together with all rules and regulations promulgated
thereunder.
1.31 "SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended, or any federal statute or statutes which shall be enacted
to take the place of such Act, together with all rules and regulations
promulgated thereunder.
1.32 "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Securities and all fees and
disbursements of counsel for any Holder in connection with such sale (other than
the fees and disbursements of any such counsel to be paid by the Company
pursuant to Subsection 3.4 hereof).
1.33 "SENIOR PREFERRED STOCK" shall mean the Series C, D, E, F and G
Convertible Preferred Stock, treated as one class.
1.34 "SERIES A CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series A Convertible Preferred Stock, $.01 par value, and any Stock into which
such Stock may hereafter be changed, other than by exercise of the conversion
right of such Stock.
4.
<PAGE> 10
1.35 "SERIES B CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series B Convertible Preferred Stock, $.01 par value, and any Stock into which
such Stock may hereafter be changed, other than by exercise of the conversion
right of such Stock.
1.36 "SERIES C CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series C Convertible Preferred Stock, $.01 par value, and any Stock into which
such Stock may hereafter be changed, other than by exercise of the conversion
right of such Stock.
1.37 "SERIES D CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series D Convertible Preferred Stock, $.01 par value, and any Stock into which
such Stock may hereafter be changed, other than by exercise of the conversion
right of such Stock.
1.38 "SERIES E CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series E Convertible Preferred Stock, $.01 par value, and any Stock into which
such Stock may hereafter be changed, other than by exercise of the conversion
right of such Stock.
1.39 "SERIES F CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series F Convertible Preferred Stock, $.01 par value, and any Stock into which
such Stock may hereafter be changed, other than by exercise of the conversion
right of such Stock.
1.40 "SERIES G CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Series G Convertible Preferred Stock, $.01 par value, and any Stock into which
such Stock may hereafter be changed, other than by exercise of the conversion
right of such Stock.
1.41 "STOCK" shall include any and all shares of capital stock of the
Company, however designated.
1.42 "STOCKHOLDERS" shall mean the Holders of Company Stock.
1.43 "VOTING STOCK" shall mean Stock the Holders of which are entitled,
in the absence of contingencies, to participate generally in the election of the
members of the Board of Directors.
SECTION 2. VOTING AGREEMENT.
2.1 CHARTER DOCUMENTS. The Company has previously furnished to the
Founding Holders copies of its Certificate of Incorporation and Bylaws, in each
case as in effect on the date of this Agreement (the "Charter Documents"). From
and after the date of this Agreement each Founding Holder shall vote all shares
of Voting Stock now or hereafter owned or controlled by such Founding Holder
(including shares of Voting Stock hereafter acquired by such Founding Holder
pursuant to exercise of the Conversion Option or otherwise) at any regular or
special meeting of Stockholders, or, to the extent permitted by the Charter
Documents, in any written consent executed in lieu of such a meeting, and shall
take all action necessary, to ensure that the Charter Documents do not, at any
time, conflict with the provisions of this Agreement.
2.2 BOARD SIZE; VOTING AGREEMENT. The Board of Directors of the Company
shall consist of eight Directors. At any regular or special meeting of
Stockholders called for the purpose of electing members to serve on the Board of
Directors, or, to the extent permitted by
5.
<PAGE> 11
the Charter Documents, in any written consent electing members to serve on the
Board of Directors executed in lieu of such a meeting, the Founding Holders
shall vote their shares of Voting Stock (including any shares of Voting Stock
hereafter acquired), and shall take all action necessary, to ensure that the
Board of Directors of the Company consists of the Designees.
2.3 DIRECTOR DESIGNATION RIGHTS. The following Holders shall have the
following rights to designate individuals as Designees to serve as members of
the Company's Board of Directors:
2.3.1 TECHNOLOGY PARTNERS. Technology Partners shall have the
right so long as it is the Holder of not less than 291,000 shares of Series C
Convertible Preferred Stock (as adjusted for any stock dividends, combinations
or splits with respect to such Stock after the date hereof), to designate in
writing to the Secretary of the Company one individual for election to the Board
of Directors; provided, however, in the case of a classified Board of Directors,
that if the term of office of such Designee does not expire at such meeting then
Technology Partners may not designate any such individual.
2.3.2 QUEST II. Quest II shall have the right so long as Quest
II and Quest International are the Holders of not less than 164,000 shares of
Series C Convertible Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such Stock after the date hereof), to
designate in writing to the Secretary of the Company one individual for election
to the Board of Directors; provided, however, in the case of a classified Board
of Directors, that if the term of office of such Designee does not expire at
such meeting then Quest II may not designate any such individual.
2.3.3 NORTHWOOD VENTURES. Northwood Ventures shall have the
right so long as it is the Holder of not less than 276,250 shares of Series A
Convertible Preferred Stock and/or Series B Convertible Preferred Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
Stock after the date hereof), to designate in writing to the Secretary of the
Company one individual for election to the Board of Directors; provided,
however, in the case of a classified Board of Directors, that if the term of
office of such Designee does not expire at such meeting then Northwood Ventures
may not designate any such individual.
2.3.4 FGN. FGN shall have the right so long as it is the
Holder (including as trustee) of not less than 1,464,150 shares of Common Stock
(as adjusted for any stock dividends, combinations or splits with respect to
such Stock after the date hereof):
(i) to designate in writing to the Secretary of the
Company two individuals for election to the Board of Directors; provided,
however, in the case of a classified Board of Directors, that if the term of
office of either such Designee does not expire at such meeting, then FGN shall
have the right to designate only one such individual for election to the Board
of Directors pursuant to this clause (i); and provided, further, that if the
term of office of neither such Designee expires at such meeting, then FGN may
not designate any such individual pursuant to this clause (i); and
(ii) to designate in writing to the Secretary of the
Company two individuals for election to the Board of Directors, with the
approval in writing of the Holders of not less than 50% of the outstanding
shares of Series A Convertible Preferred Stock and Series B
6.
<PAGE> 12
Convertible Preferred Stock, voting as one class, and of the Holders of not less
than 50% of the outstanding shares of Series C, Series D, Series E and Series F
Convertible Preferred Stock, voting as one class; provided, however, in the case
of a classified Board of Directors, that if the term of office of either such
Designee does not expire at such meeting, then FGN shall have the right to
designate only one individual for election to the Board of Directors pursuant to
this clause (ii); and provided, further, that if the term of office of neither
such Designee expires at such meeting, then FGN may not designate any such
individual pursuant to this clause (ii).
2.4 TERMINATION OF DESIGNATION RIGHTS. The right of certain Holders to
designate individuals for election to the Board of Directors pursuant to
Subsection 2.3 hereof shall be subject to termination as follows:
2.4.1 FGN. At any time as FGN shall be a Holder (including as
trustee) of less than 1,464,150 shares of Common Stock (as adjusted for any
stock dividends, combinations or splits with respect to such Stock), then the
right of FGN to designate individuals for election to the Board of Directors
shall immediately cease.
2.4.2 TECHNOLOGY PARTNERS. At any time as Technology Partners
shall be a Holder of less than 291,000 shares of Series C Convertible Preferred
Stock (as adjusted for any stock dividends, combinations or splits with respect
to such Stock), then the right of Technology Partners to designate an individual
for election to the Board of Directors shall immediately cease.
2.4.3 QUEST II. At any time as Quest II and Quest
International shall be Holders of less than 164,000 shares of Series C
Convertible Preferred Stock (as adjusted for any stock dividends, combinations
or splits with respect to such Stock), then the right of Quest II to designate
an individual for election to the Board of Directors shall immediately cease.
2.4.4 NORTHWOOD VENTURES. At any time as Northwood Ventures
shall be a Holder of less than 276,250 shares of Series A and/or Series B
Convertible Preferred Stock (as adjusted for any stock dividends, combinations
or splits with respect to such Stock), then the right of Northwood Ventures to
designate an individual for election to the Board of Directors shall immediately
cease.
2.5 FAILURE TO DESIGNATE. Any Designating Holder having the right to
make any designation pursuant to this Section 2 in connection with any annual or
special meeting of Stockholders at which Directors are to be elected, or in
connection with a Stockholders' written consent to elect Directors, and who
shall fail to deliver such designation in writing to the Secretary of the
Company by 5:00 p.m. E.S.T. on the fifth business day preceding the date of the
Stockholders' meeting, shall be deemed to have designated the individual
previously designated by such Designating Holder for election to such position
on the Board of Directors. If the number of Directors to be elected at any
annual or special meeting, or pursuant to any written consent, of Stockholders
exceeds the number of Designees designated in connection with such meeting or
written consent, then such excess number of Directors shall be elected by the
Holders of all Voting Stock voting as a single class.
2.6 RECORD OF VOTE. To effectuate the provisions of this Section 2, the
Secretary of the Company, or if there be no Secretary such other officer of the
Company as the Board of Directors may appoint to fulfill the duties of
Secretary, shall not record any vote or consent (to
7.
<PAGE> 13
the extent action by consent is permitted by the Charter Documents) contrary to
the terms of this Section 2, and each Founding Holder hereby agrees that any
vote or consent given in connection with an election of Directors contrary to
the agreement of such Founding Holder in this Section 2 shall be null and void
and of no force or effect.
2.7 REMOVAL AND RESIGNATION.
2.7.1 RIGHT OF DESIGNATION. If, prior to his or her election
to the Board of Directors pursuant to this Section 2, any Designee shall be
unable or unwilling to serve, or is removed, as a Director of the Company, then
the Holder(s) who designated such Designee shall be entitled to designate a
replacement who shall then be a Designee (and who shall serve in the Director
class (if any) in which such removed Director served) for purposes of this
Section 2. If, following election to the Board of Directors pursuant to this
Section 2, any Designee shall resign or be removed or be unable to serve for any
reason prior to the expiration of his or her term as a Director, then the
Holder(s) who designated such Designee shall within 30 days of such event notify
the Board of Directors in writing of a replacement Designee, and the Founding
Holders shall vote their shares of Voting Stock (including shares of Voting
Stock acquired), at any annual or special meeting called for the purpose of
filling positions on the Board of Directors or, to the extent permitted by the
Charter Documents, in any written consent executed in lieu of such a meeting,
and shall take all action necessary, to ensure the election to the Board of
Directors of such replacement Designee to fill the unexpired term of the
Designee whom such replacement Designee is replacing. If a Holder or Holders
shall fail to so notify the Board of Directors, the Board of Directors, in its
discretion, may nominate any other individual to fill the vacancy, and the
Founding Holders shall vote their shares of Voting Stock (including shares of
Voting Stock hereafter acquired) for such individual as provided in this
Subsection 2.7.1.
2.7.2 REMOVAL. Each Founding Holder agrees to use such
Founding Holder's best efforts to call, or cause the appropriate officers and
Directors of the Company to call, a special or annual meeting of Stockholders
and to vote all of the shares of Voting Stock (including shares of Voting Stock
hereafter acquired) held by such Founding Holder for, or, to the extent
permitted by the Charter Documents, to take all actions by written consent in
lieu of any such meeting necessary to cause, the removal of:
(I) any Director designated pursuant to this
Section 2 if the designation rights of the Holder who designated such Director
shall have lapsed;
(II) any Director if the Holder who
designated such Director requests such Director's removal for any reason; or
(III) any Director where a majority of the
remaining Directors determine that such Director should be removed for Cause.
Each Founding Holder agrees that no Director shall be removed without
Cause except as set forth in clauses (i) and (ii) of this Subsection 2.7.2.
Notwithstanding the foregoing, any Director may be removed for Cause if the
Holders of Voting Stock entitling them to cast a majority of the votes at an
election of Directors consent to such removal in a writing specifying the Cause
for which such removal is being made.
8.
<PAGE> 14
2.8 BEST EFFORTS. In order to effectuate the provisions of this
Agreement, each Founding Holder agrees that when any action or vote is required
to be taken by such Founding Holder pursuant to this Agreement, such Founding
Holder shall use such Founding Holder's best efforts to call, or to cause the
appropriate Company officers and Directors to call, a special or annual meeting
of Stockholders, as the case may be, or, to the extent permitted by the Charter
Documents, to execute or cause to be executed a consent in writing in lieu of
any such meeting, in order to effectuate such Stockholder action.
2.9 FGN PREFERRED STOCK VOTING. In connection with any vote of
Stockholders, FGN hereby agrees that, at its election, it will either (i) vote
all of the shares of Designated Preferred Stock of any Series held by it on the
date hereof at the direction of the Holders of a majority of the outstanding
shares of such series, or (ii) abstain from voting shares of Stock of such
Series in connection with such vote of Stockholders.
2.10 OBSERVER. The parties hereto agree that GS Group shall have the
right to designate a representative (the "Representative") to attend and observe
each meeting of the Board of the Directors of the Company (the "Board") (or, if
a meeting is held by telephone conference, to participate therein for the
purpose of listening thereto), who shall be entitled to fully participate (other
than the right to vote) in such meeting as if he were a member of the Board. The
Company shall provide the Representative the same notice of the time and place
of any proposed meeting (or action by written consent) of the Board as is
provided to the other members of the Board. Such notice shall include true and
complete copies of all documents furnished to any director in connection with
such meeting or consent. The observer status provided in this Section 2.10 shall
also apply with respect to any matter material (or which is reasonably likely to
be material) to the Company that is dealt with by a committee of the Board of
Directors. The provisions of this Section 2.10 shall terminate upon the earliest
to occur of (i) the events set forth in clauses (i) and (iii) of Section 2.11 or
(ii) the written consent of GS Group. Before participating in his first Board
meeting, the Representative shall sign the form of confidentiality and
proprietary information agreement, required by the Company of its directors.
2.11 TERMINATION AND AMENDMENT OF VOTING AGREEMENT. The provisions of
this Section 2 shall terminate upon the earliest to occur of (i) the 10th
anniversary of the date of this Agreement, (ii) the written consent of all of
the Designating Holders (except with respect to Section 2.10), or (iii) the sale
of Common Stock in a firm commitment, underwritten Public Offering at a public
offering price (prior to deduction of underwriter's discounts and expenses)
equal to or exceeding $6.60 per share of Common Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) and resulting in
aggregate proceeds to the Company and/or selling Stockholders (prior to
deduction of underwriter's discounts and expenses and other expenses of the
offering) of not less than $10,000,000. Notwithstanding any other provision of
this Agreement, the provisions of this Section 2) may be amended, modified or
supplemented by, and only by, a written instrument executed by each of the
Designating Holders, except that Section 2.10 may be amended, modified or
supplemented only if the GS Group gives its written consent.
9.
<PAGE> 15
SECTION 3. REGISTRATION RIGHTS.
3.1 REQUESTED REGISTRATIONS.
3.1.1 REQUESTS FOR REGISTRATION. If the Company shall receive
from Initiating Holders at any time or times a written request that the Company
effect any registration under the Securities Act with respect to all or any part
of the Registrable Securities having an offering price to the public, net of
underwriting discounts and expenses, equal to or exceeding $6.60 per share of
Common Stock (as adjusted for any stock dividends, combinations or splits with
respect to such Stock) and the aggregate proceeds of which (after deduction for
underwriter's discounts and expenses related to the issuance) exceed
$10,000,000, then the Company will, subject to the limitations set forth in this
Section 3, use its best efforts to effect the registration of Registrable
Securities under the Securities Act and the registration or qualification
thereof under all applicable state securities laws. To be effective, any request
pursuant to this Subsection 3.1 shall state to the reasonable satisfaction of
the Company the intended method of disposition of the Registrable Securities
sought to be registered under the Securities Act.
3.1.2 NOTICE OF REGISTRATION. Whenever the Company shall,
pursuant to this Subsection 3.1, be requested by Initiating Holders to effect
the registration of any Registrable Securities under the Securities Act, the
Company shall promptly give written notice of such proposed registration (the
"Registration Notice") to each other Eligible Holder stating that such Eligible
Holders have the right to request that any or all of the Registrable Securities
held by them be included in such registration. To be effective, any Eligible
Holder's request for inclusion in the registration must be received by the
Company in writing not later than 20 days following the date of mailing, first
class postage prepaid, of the Company's Registration Notice. Subject to the
limitations contained in Subsections 3.1.3, 3.1.4 and 3.11 hereof, the Company
shall, as soon as reasonably practicable, use its best efforts to effect the
registration under the Securities Act and applicable state securities laws of
all Registrable Securities with respect to which the Company has received timely
written requests pursuant to the preceding sentence from the Eligible Holders
thereof for inclusion therein so as to permit the sale or other disposition of
such Registrable Securities in accordance with the intended method of
disposition thereof described in the requests of such Eligible Holders.
3.1.3 REFUSAL OF REQUEST. The Company shall not be obligated
to effect, or to take any action to effect, any registration pursuant to this
Subsection 3.1:
(A) Before the earlier of (i) December 10, 1995 or
(ii) one year after the effective date of the first Registration Statement filed
by the Company covering a firm commitment underwritten offering of any of its
Securities to the general public;
(B) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service of
process in such jurisdiction and except as may be required by the Securities
Act;
(C) For Initiating Holders holding Common Stock
issued or issuable upon conversion of the Series C, Series D, Series E, Series F
and Series G Convertible Preferred Stock after the Company has initiated one
such registration for such Initiating Holders pursuant
10.
<PAGE> 16
to this Subsection 3.1 (counting for this purpose only Registration Statements
which have been declared or ordered effective and pursuant to which Securities
have been sold, and Registration Statements which have been withdrawn by the
requesting Eligible Holders as to which such Eligible Holders have not elected
to bear the Registration Expenses pursuant to Subsection 3.4 hereof);
(D) For Initiating Holders holding Common Stock
issued or issuable upon conversion of the Series A and Series B Convertible
Preferred Stock after the Company has initiated one such registration for such
Initiating Holders pursuant to this Subsection 3.1 (counting for this purpose
only Registration Statements which have been declared or ordered effective and
pursuant to which Securities have been sold, and Registration Statements which
have been withdrawn by the requesting Eligible Holders as to which such Eligible
Holders have not elected to bear the Registration Expenses pursuant to
Subsection 3.4 hereof);
(E) During the period starting with the date 60 days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date 180 days after the effective date of, a Company initiated
registration, provided that the Company is actively employing in good faith all
reasonable efforts to cause such Registration Statement to become effective;
(F) If the Initiating Holders propose to dispose
of shares of Registrable Securities which may be immediately registered on Form
S-3 pursuant to a request made under Subsection 3.5 hereof;
(G) If the Initiating Holders do not request that
such offering be firmly underwritten by underwriters selected by the Initiating
Holders and reasonably acceptable to the Company, subject to the right of the
Company pursuant to Subsection 3.1.5 hereof to select such underwriters; or
(H) If the Company and the Initiating Holders are
unable to obtain the commitment of the underwriter described in clause (G) above
to firmly underwrite the offering.
3.1.4 DEFERRAL OF REGISTRATION. If in the good faith judgment
of the Board of Directors any registration would be seriously detrimental to the
Company and the Board of Directors concludes, as a result, that it is essential
at such time to defer the filing of any Registration Statement, and if the
Company shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
for such Registration Statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such Registration Statement, then
the Company shall have the right to defer such filing for the period during
which the disclosure required by such registration would be seriously
detrimental, provided that (except as provided in Subsection 3.1.3(E) above) the
Company may not defer the filing for a period of more than 180 days after
receipt of the request of the Initiating Holders, and provided, further, that
the Company shall not defer its obligation in this manner more than once in any
twelve month period.
The Registration Statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of this Subsection 3.1.4 and
Subsection 3.11 hereof, include other
11.
<PAGE> 17
Securities with respect to which registration rights have been granted, and may
include Securities being sold for the account of the Company.
3.1.5 UNDERWRITING. The registration rights of any Eligible
Holder pursuant to Subsection 3.1 shall be conditioned upon such Eligible
Holder's participation in such underwriting and the inclusion of such Eligible
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by such Eligible Holder and Initiating Holders holding a majority of the
Registrable Securities requested by all Initiating Holders to be included in
such registration with respect to such participation and inclusion) to the
extent provided herein. An Eligible Holder may elect to include in such
underwriting all or a part of the Registrable Securities held by such Eligible
Holder. Subject to Section 6.3, the Holders of at least 51% of the Registrable
Securities included in any Registration Statement filed pursuant to this
Subsection 3.1 shall have the right to select the underwriter or underwriters
who shall serve as the manager and/or co-managers for the offering of
Registrable Securities covered by the Registration Statement, except that if the
requested registration is the initial registration under the Securities Act by
the Company of an underwritten public offering of Common Stock, then the Company
shall have the right to select such underwriter or underwriters, but only with
the consent of the Eligible Holders of not less than a majority of the
Registrable Securities requested to be included therein.
3.1.6 REGISTRATION PROCEDURES. If the Company shall request
inclusion in any registration pursuant to Subsection 3.1 of Securities being
sold for its own account, or if other Persons shall request inclusion in any
registration pursuant to Subsection 3.1, then the Initiating Holders shall, on
behalf of all Eligible Holders, offer to include such Securities in the
underwriting and may condition such offer to such other Persons on their
acceptance of the further applicable provisions of this Section 3 (including
Subsection 3.10). Subject to Section 6.3, the Company shall (together with all
Eligible Holders and other Persons proposing to distribute their Securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
such underwriting by Initiating Holders holding a majority of the Registrable
Securities held by all Initiating Holders (subject to the right of the Company
under Subsection 3.1.5 to select such underwriter(s)), which underwriters shall
be reasonably acceptable to the Company.
3.1.7 MARKETING RESTRICTIONS. Notwithstanding any other
provision of this Subsection 3.1, if the representative of the underwriters
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the number of shares to
be included in the registration shall be allocated as set forth in Subsection
3.11 hereof. If a Person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such Person
shall be excluded therefrom by written notice from the Company, the underwriter
or Initiating Holders holding a majority of the Registrable Securities requested
by all Initiating Holders to be included in such registration. The Securities
(including any Registrable Securities) so excluded shall also be withdrawn from
registration. If shares are so withdrawn from the registration and if the number
of shares to be included in such registration was previously reduced as a result
of marketing factors pursuant to Subsection 3.11, then the Company shall offer
to all Holders (including Eligible Holders) who have retained rights to include
Securities in the registration the right to include additional Securities in
such registration in an aggregate amount equal to the number of shares so
12.
<PAGE> 18
withdrawn, with such shares to be allocated among such Holders requesting
additional inclusion in accordance with Subsection 3.11.
3.2 INCIDENTAL REGISTRATION.
3.2.1 NOTICE OF REGISTRATION. If the Company shall determine
at any time to register any of its Common Stock under the Securities Act and any
applicable state securities laws, either for its own account or for the account
of any Holder or Holders exercising his or their respective registration rights
(other than pursuant to Subsections 3.1 or 3.5 hereof), on a form which permits
inclusion of Registrable Securities, then the Company shall each such time give
written notice to all Eligible Holders of its intention to effect such a
registration. Upon the written request of any Eligible Holder or Holders given
within 20 days after receipt of any such notice, the Company shall, subject to
the limitations contained in Subsections 3.2.2 and 3.11 hereof, use its best
efforts to cause all Registrable Securities which Eligible Holders shall have
requested be registered, to be registered under the Securities Act and any
applicable state securities laws, all to the extent requisite to permit the sale
or other disposition by such Eligible Holders of the Registrable Securities so
registered. No registrations of Registrable Securities under this Subsection 3.2
shall relieve the Company of its obligation to effect registrations under
Subsection 3.1 hereof, or shall constitute a registration request by any
Eligible Holder thereunder. Subject to Section 6.3, the Company shall have the
right to select the underwriter or underwriters who shall serve as the manager
and/or co-managers for all registrations of Securities under this Subsection
3.2.
3.2.2 NO REGISTRATION RIGHTS. Eligible Holders shall have no
right to participate in any registration initiated by the Company, whether for
its own account or for the account of any other Holders, where such
registration:
(A) relates solely to a Rule 145 transaction;
(B) relates solely to employee benefit plans; or
(C) is on any registration form that does not permit
secondary sales.
3.2.3 UNDERWRITING. If the registration of which the Company
has given notice pursuant to Subsection 3.2.1 is for a Public Offering involving
an underwriting, the Company shall so advise the Eligible Holders as a part of
the written notice given pursuant to Subsection 3.2.1. In such event, the right
of any Eligible Holder to registration pursuant to this Subsection 3.2 shall be
conditioned upon such Eligible Holder's participation in such underwriting and
the inclusion of such Eligible Holder's Registrable Securities in the
underwriting to the extent provided herein. All Eligible Holders proposing to
distribute their Securities through such underwriting shall (together with the
Company and the other Holders with registration rights to participate therein
distributing their Securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company. If any Holder does not
agree to the terms of any such underwriting, such Holder shall be excluded
therefrom by written notice from the Company or the underwriter. Any Registrable
Securities or other Securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
13.
<PAGE> 19
3.2.4 MARKETING RESTRICTIONS. Notwithstanding any other
provision of this Subsection 3.2, if the representative of the underwriters
advises the Company in writing that marketing factors require a limitation on
the number of shares to be underwritten, the number of shares to be included in
the registration shall be allocated as set forth in Subsection 3.11 hereof. If
shares are withdrawn from the registration pursuant to Subsection 3.2.3 hereof
and if the number of shares of Registrable Securities to be included in such
registration was previously reduced as a result of marketing factors, the
Company shall then offer to all Holders who have retained the right to include
Securities in the registration the right to include additional Securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among the Holders requesting additional
inclusion in accordance with Subsection 3.11 hereof.
3.3 REGISTRATION PROCEDURES. Whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Securities, the Company will use its best efforts to, as
expeditiously as possible:
3.3.1 REGISTRATION STATEMENT. Prepare and file with the
Commission a Registration Statement with respect to such Registrable Securities
and use its best efforts to cause such Registration Statement to become and
remain effective; provided, however, that before so filing a Registration
Statement or any amendments or supplements thereto, the Company will furnish to
one counsel selected by the Holders of not less than a majority of the
Securities included in such Registration Statement copies of all such documents
proposed to be filed, which documents shall be subject to the review of such
counsel;
3.3.2 AMENDMENTS. Prepare and file with the Commission such
amendments and supplements to such Registration Statement as may be necessary to
keep such Registration Statement effective for a period of not less than one
year and to comply with the provisions of the Securities Act with respect to the
sale or other disposition of all Registrable Securities covered by such
Registration Statement during such period in accordance with the intended method
or methods of disposition by the Eligible Holders thereof set forth in such
Registration Statement;
3.3.3 COPIES. Furnish to each Eligible Holder of Registrable
Securities included in the Registration Statement such number of copies of such
Registration Statement, each amendment and supplement thereto, the prospectus
included therein (including each preliminary prospectus), and such other
documents, as such Eligible Holder may reasonably request in order to facilitate
the public sale or other disposition of the Securities owned by such Eligible
Holder and included in such Registration Statement;
3.3.4 STATE REGISTRATION. Use every reasonable effort to
register or qualify all the Registrable Securities covered by such Registration
Statement under the securities laws of such jurisdictions as each Eligible
Holder including Registrable Securities therein shall reasonably request, and do
any and all other acts and things which may be necessary under such securities
laws to enable each such Eligible Holder to consummate the public sale or other
disposition in such jurisdiction of the Registrable Securities owned by such
Eligible Holder and included in such Registration Statement; provided, however,
that the Company shall not be required to (i) qualify to do business as a
foreign corporation in any jurisdiction wherein it would
14.
<PAGE> 20
not otherwise be required to qualify but for this subsection, (ii) subject
itself to taxation in any such jurisdiction, or (iii) consent to general service
of process in any such jurisdiction;
3.3.5 LISTING. Cause all Registrable Securities covered
by such Registration Statement to be listed on each securities exchange on which
the Common Stock is then listed;
3.3.6 TRANSFER AGENT/REGISTRAR. Provide a transfer agent
and registrar for the Common Stock not later than the effective date of such
Registration Statement; and
3.3.7 UNDERWRITING. In connection with any underwritten public
offering pursuant to a Registration Statement filed pursuant to Subsection 3.1
or 3.2 hereof, enter into an underwriting agreement reasonably necessary to
effect the offer and sale of Registrable Securities, provided such underwriting
agreement contains customary underwriting provisions and, if the underwriter so
requests, contains customary contribution provisions.
3.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Subsections 3.1 and 3.2 hereof, and the reasonable fees of one counsel for the
selling Stockholders in the case of registrations pursuant to Subsection 3.1
hereof, shall be borne by the Company. All Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the Holders of Securities included therein pro rata on the basis of the
number of such Securities held by each. Notwithstanding the foregoing, the
Eligible Holders participating in any registration may elect to bear the
Registration Expenses for any registration proceeding begun pursuant to
Subsection 3.1 hereof and subsequently withdrawn by the Eligible Holders
registering shares therein, in which case such registration proceeding shall not
be counted as a request for registration pursuant to Subsection 3.1 hereof. All
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Subsection 3.5 hereof and all Selling
Expenses relating to any such registration, qualification or compliance shall be
borne by the Holders of Securities included therein pro rata on the basis of the
number of such Securities held by each.
3.5 REGISTRATION ON FORM S-3.
3.5.1 REQUESTED REGISTRATIONS. Following its initial Public
Offering on a firm commitment, underwritten basis, the Company shall use its
best efforts to qualify for registration on Form S-3 promulgated under the
Securities Act or any comparable or successor form or forms. After the Company
has qualified for the use of Form S-3, in addition to the rights contained in
the foregoing provisions of this Section 3, the Eligible Holders of Registrable
Securities shall have the right to request registrations on Form S-3 (such
requests to be in writing and to state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Eligible Holder or Holders); provided, however, that the Company
shall not be obligated to effect any such registration (i) if the Eligible
Holders, together with the Holders of any other Securities entitled to inclusion
in such registration, propose to sell Registrable Securities and such other
Securities (if any) on Form S-3 at an aggregate price to the public of less than
$10,000,000, (ii) in the event that the Company shall furnish the certification
described in Subsection 3.1.4 hereof (but subject to the limitations set forth
therein), (iii) if the Company has effected a registration of its Securities
within 12 months immediately preceding such registration, (iv) with respect to
any Securities that may be sold by
15.
<PAGE> 21
the Holder thereof under Rule 144, or (v) if it is to be effected more than five
(5) years after the Company's initial Public Offering.
3.5.2 INCORPORATION BY REFERENCE. If a request complying with
the requirements of Subsection 3.5.1 hereof is delivered to the Company, the
provisions of Subsections 3.1.1 through 3.1.4 hereof shall apply to such
registration to the extent not inconsistent with this Subsection 3.5. If the
registration is for an underwritten offering, the provisions of Subsections
3.1.5 through 3.1.7 hereof shall also apply to such registration.
3.6 INDEMNIFICATION.
3.6.1 COMPANY INDEMNIFICATION. The Company shall indemnify
each Eligible Holder participating in a registration, each of such Eligible
Holder's officers, directors and partners, its legal counsel and accountants and
each Person controlling such Eligible Holder within the meaning of Section 15 of
the Securities Act, with respect to whom registration, qualification, or
compliance has been effected pursuant to this Section 3, and each underwriter,
if any, and each Person who controls within the meaning of Section 15 of the
Securities Act any underwriter, against all expenses, claims, losses, damages
and liabilities (or actions, proceedings, or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any Registration Statement, prospectus, offering
circular, or other document incident to any such registration, qualification, or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
of any rule or regulation promulgated thereunder applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, qualification, or compliance, and will reimburse each such
Eligible Holder, each of such Eligible Holder's officers, directors, partners,
legal counsel and accountants, and each Person so controlling such Eligible
Holder, as well as each such underwriter, and each Person who so controls any
such underwriter, for any legal and any other expenses reasonably incurred by
them in connection with investigating and defending or settling any such claim,
loss, damage, liability or action; provided, however, that the Company shall not
be liable in any such case to the extent that any such claim, loss, damage,
liability or action arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by or on behalf
of such Eligible Holder or underwriter and stated to be specifically for use
therein. Notwithstanding the foregoing, the Company's obligations under this
Subsection 3.6.1 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld).
3.6.2 ELIGIBLE HOLDER INDEMNIFICATION. Each Eligible Holder
including Registrable Securities in any registration, qualification, or
compliance effected pursuant to this Section 3 shall, severally and not jointly,
indemnify the Company, each of the Company's directors, officers, partners,
legal counsel, and accountants and each underwriter, if any, of the Securities
covered by such a registration statement, each Person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, each
other Eligible Holder and each Other Stockholder including Securities in such
registration, and each of their respective officers, directors and partners, and
each Person controlling such other Eligible Holder or Other Stockholder, against
all claims, losses, damages and liabilities (or actions in respect
16.
<PAGE> 22
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any Registration Statement,
prospectus, offering circular, or other document incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such other Eligible Holders, Other Stockholders, directors,
officers, partners, legal counsel, and accountants, underwriters, and control
Persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such Registration Statement, prospectus, offering circular, or other
document in reliance upon and in conformity with written information furnished
to the Company by such Eligible Holder and stated to be specifically for use
therein. Notwithstanding the foregoing, the obligation of any Eligible Holder
under this Subsection 3.6.2 shall not apply to amounts paid in settlement of any
such claims, losses, damages, or liabilities (or actions in respect thereof) if
such settlement is effected without the consent of such Eligible Holder (which
consent shall not be unreasonably withheld).
3.6.3 PROCEDURES. Each party entitled to indemnification under
this Subsection 3.6 (the "Indemnified Party") shall give written notice to the
party required to provide indemnification hereunder (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of such claim or any litigation resulting therefrom; provided,
however, that counsel for the Indemnifying Party who shall conduct the defense
of such claim or any litigation resulting therefrom shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld); and
provided however, that (i) if the Indemnifying Party fails to take reasonable
steps necessary to defend diligently the action or proceeding within 20 days
after receiving notice from such Indemnified Party that the Indemnified Party
believes it has failed to do so; or (ii) if such Indemnified Party who is a
defendant in any action or proceeding which is also brought against the
Indemnifying Party reasonably shall have concluded that there may be one or more
legal defenses available to such Indemnified Party which are not available to
the Indemnifying Party; or (iii) if representation of both parties by the same
counsel is otherwise inappropriate under applicable standards of professional
conduct, then, in any such case, the Indemnified Party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction who shall be
approved by the majority of the Eligible Holders of the registration in respect
of which such indemnification is sought), and the Indemnifying Party shall be
liable for any expenses therefor; and provided further, that the Indemnified
Party may participate in such defense at such Indemnified Party's expense. The
failure of any Indemnified Party to give written notice as provided herein shall
not relieve any Indemnifying Party of its obligations under this Subsection 3.6
to the extent such failure is not materially prejudicial. No Indemnifying Party
in the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to each Indemnified Party in connection therewith of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as any Indemnifying Party may reasonably
17.
<PAGE> 23
request in writing and as shall be reasonably required in connection with the
defense of such claim and any litigation resulting therefrom.
3.6.4 CONTRIBUTION. If the indemnification provided for in
this Subsection 3.6 is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any loss, liability, claim,
damage or expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party, on the one hand, and of the
Indemnified Party, on the other, in connection with the statements or omissions
that resulted in such loss, liability, claim, damage or expense as well as any
other relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of material fact or
the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party, as well as the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
3.6.5 CONFLICTING PROVISIONS. Notwithstanding the foregoing,
to the extent that the provisions on indemnification and contribution contained
in any underwriting agreement entered into in connection with an underwritten
public offering of Securities are in conflict with the foregoing provisions, the
provisions contained in such underwriting agreement shall control.
3.6.6 SURVIVAL. The obligations of the parties set forth in
this Subsection 3.6 for the benefit of any Indemnified Party shall not be waived
or otherwise affected by reason of any investigation or inquiry made by or on
behalf of such Indemnified Party.
3.7 ELIGIBLE HOLDER INFORMATION. Each Eligible Holder shall furnish to
the Company such information regarding such Eligible Holder and the distribution
of Securities proposed by such Eligible Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Section 3.
3.8 OTHER AGREEMENTS. From and after the date of this Agreement the
Company shall not, without the prior written consent of Eligible Holders holding
a majority of the then outstanding Registrable Securities, enter into any
agreement with any Holder or prospective Holder of any Securities giving such
Holder or prospective Holder any registration rights the terms of which are more
favorable than the registration rights granted to the Eligible Holders
hereunder.
3.9 RULE 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act in respect of the
Common Stock or securities of the Company convertible into or exchangeable or
exercisable for Common Stock, the Company convenants that (I) so long as it
remains subject to the reporting provisions of the Exchange Act, it will timely
file the reports required to be filed by it under the Securities Act or the
Exchange Act (including, but not limited to, the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under
the Securities Act), and (ii) will take such
18.
<PAGE> 24
further action as any Holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable securities without registration under the Securities Act within the
limitation of the exemptions provided by (A) Rule 144 under the Securities Act,
as such Rule may be amended form time to time, or (B) any similar rule or
regulation hereafter adopted by the Commission.
3.10 MARKET STAND-OFF AGREEMENT. If requested by the Company and any
underwriter of Common Stock (or other Securities) with respect to any
registration or prospective registration of Securities, a Holder shall not sell
or otherwise transfer or dispose of any Common Stock (or other Securities) of
the Company held by such Holder (other than those included in the registration)
during the time reasonably requested by the underwriter, not to exceed 180 days,
following the effective date of a Registration Statement of the Company filed
under the Securities Act with respect to such registration. The obligations
described in this Subsection 3.10 shall not apply to any registration relating
solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that
may in the future be promulgated under the Securities Act, or any registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
in the future be promulgated under the Securities Act. The Company may impose
stop transfer instructions with respect to the Securities subject to the
foregoing restriction until the end of such 180 day or other market stand-off
period.
3.11 ALLOCATION OF REGISTRATION OPPORTUNITIES.
3.11.1 REQUESTED REGISTRATIONS. In any case where a
registration is to be effected pursuant to Subsection 3.1 hereof and all of the
Registrable Securities and Other Shares (including shares of Common Stock issued
or issuable upon conversion of shares of any currently unissued Series of
Preferred Stock of the Company) requested to be included in a registration on
behalf of Eligible Holders or Other Stockholders cannot be so included as a
result of limitations on the aggregate number of shares of Registrable
Securities and Other Shares that may be so included, then the number of shares
of Registrable Securities and Other Shares that may be so included shall be
allocated among the Eligible Holders and Other Stockholders requesting inclusion
of shares as follows:
(A) First, (i) if Eligible Holders of Common Stock
issued or issuable upon conversion of Senior Preferred Stock shall have
initiated the registration, then Eligible Holders of Common Stock issued and
issuable upon conversion of the Senior Preferred Stock shall be entitled to
participate in the registration pro rata on the basis of the number of
Registrable Securities which each such Holder shall have requested be
registered, and then Eligible Holders of Common Stock issued and issuable upon
conversion of the Junior Preferred Stock shall be entitled to participate in the
registration pro rata on the basis of the number of Registrable Securities which
each such Holder shall have requested be registered; or (ii) if Eligible Holders
of Common Stock issued or issuable upon conversion of Junior Preferred Stock
shall have initiated the registration, then Eligible Holders of Common Stock
issued and issuable upon conversion of the Junior Preferred Stock shall be
entitled to participate in the registration pro rata on the basis of the number
of Registrable Securities which each such Holder shall have requested be
registered, and then Eligible Holders of Common Stock issued and issuable upon
conversion of the Senior Preferred Stock shall be entitled to participate in the
registration pro rata on the basis of the number of Registrable Securities which
each such Holder shall have requested be registered;
19.
<PAGE> 25
(B) Second, all such Other Stockholders and the
other such Eligible Holders shall be entitled to participate in the registration
in accordance with the relative priorities, if any, as shall exist among them;
and
(C) Third, the Company shall be entitled to
participate in the registration.
3.11.2 INCIDENTAL REGISTRATIONS. In any case where a
registration is to be effected pursuant to Subsection 3.2 hereof and all of the
Registrable Securities and Other Shares (including shares of Common Stock issued
or issuable upon conversion of shares of any currently unissued Series of
Preferred Stock) requested to be included in such registration on behalf of
Eligible Holders and Other Stockholders cannot be so included as a result of
limitations on the aggregate number of shares of Registrable Securities and
Other Shares that may be so included, then the number of shares of Registrable
Securities and Other Shares that may be so included shall be allocated among the
Eligible Holders and Other Stockholders requesting inclusion of shares as
follows:
(A) First, the Person(s) (including the Company
in the case of an offering initiated by the Company) initiating such
registration shall be entitled to participate in the registration in accordance
with the relative priorities, if any, as shall exist among them;
(B) Second, the Eligible Holders and Other
Stockholders shall be entitled to participate in the registration pro rata on
the basis of the number of Registrable Securities and Other Shares which each
such Holder shall have requested be registered; and
(C) Third, if such registration shall have been
initiated other than by the Company, then the Company shall be entitled to
include Securities in such registration.
3.12 DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 3.
3.13 SALES TO UNDERWRITER. Notwithstanding anything in this Agreement
to the contrary, in lieu of converting any Designated Preferred Stock prior to
or simultaneously with the filing or the effectiveness of any Registration
Statement filed pursuant to this Agreement, the Holder of such Designated
Preferred Stock may sell such Designated Preferred Stock to the underwriter of
the offering being registered if such underwriter consents thereto and if such
underwriter undertakes to convert such Designated Preferred Stock before making
any distribution pursuant to such Registration Statement and to include the
resulting Common Stock among the Securities being offered pursuant to such
Registration Statement.
3.14 TRANSFER OF REGISTRATION RIGHTS. The rights of an Eligible Holder
under this Section 3 to require the Company to register Securities may be
transferred or assigned by such Eligible Holder only to a transferee or assignee
of not less than 150,000 shares of Registrable Securities (as presently
constituted and subject to subsequent adjustments for stock splits, stock
dividends, reverse stock splits, and the like); provided, however, that the
Company is given written notice at the time of, or within a reasonable time
after, said transfer or assignment stating the name and address of the
transferee or assignee and identifying the Securities with respect to
20.
<PAGE> 26
which such registration rights are being transferred or assigned; and provided
further, that the transferee or assignee of such rights assumes in writing (a
copy of which shall be delivered to the Company) the obligations of such
Eligible Holder under this Section 3.
3.15 TERMINATION OF REGISTRATION RIGHTS. The rights of any Eligible
Holder to request registration or inclusion of Registrable Securities in any
registration pursuant to Subsection 3.1, 3.2 or 3.5 of this Agreement shall
terminate on the earlier of (i) the closing of the first Company initiated
Public Offering of Common Stock, provided that all shares of Registrable
Securities held by such Eligible Holder may immediately be sold under Rule 144
during any 90 day period, or (ii) on such date after the closing of the first
Company initiated Public Offering of Common Stock as all shares of Registrable
Securities held by such Holder may immediately be sold under Rule 144 during any
90 day period.
SECTION 4. RIGHT OF FIRST REFUSAL.
4.1 GRANT OF RIGHT. The Company hereby grants to each Original Holder
who owns any shares of Designated Preferred Stock or any shares of Common Stock
issued upon the conversion of shares of Designated Preferred Stock (each such
Original Holder an "Offeree Holder") a right of first refusal to purchase such
Offeree Holder's pro rata share of New Securities which the Company may, from
time to time, propose to sell and issue. An Offeree Holder's pro rata share of
New Securities for purposes of this Section 4 shall be the ratio immediately
prior to the issuance of the New Securities of (i) the sum of the number of
shares of Common Stock owned by such Offeree Holder plus the number of shares of
Common Stock into which such Offeree Holder's Designated Preferred Stock is then
convertible, to (ii) the sum of the number of shares of Common Stock owned by
all Offeree Holders plus the number of shares of Common Stock into which the
Designated Preferred Stock of all Offeree Holders is then convertible.
4.2 NEW SECURITIES DEFINED. "New Securities" shall mean any Stock
(including Common Stock and/or Preferred Stock) whether now or hereafter
authorized, and rights, options or warrants to purchase Stock, and Securities of
any type whatsoever that are, or may become, convertible into Stock; provided,
however, that the term "New Securities" shall not include: (i) any shares of
Designated Preferred Stock; (ii) any Securities issued upon conversion of the
Designated Preferred Stock; (iii) any Securities issued pursuant to the
acquisition of another business entity or business segment of any such entity by
the Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company will own more than 50 percent of the voting
power of such business entity or business segment of any such entity; (iv) any
Securities issued to employees, consultants, officers or directors of the
Company pursuant to the Company's 1993 Stock Option Plan or any other stock
option, stock purchase or stock bonus plan, agreement or arrangement approved by
the Board of Directors; (v) any Securities issued in connection with lease
financing arrangements or strategic partnerships approved by the Board of
Directors; (vi) any Securities issued in a Public Offering; (vii) any Securities
issued in connection with any stock split, stock dividend or recapitalization of
the Company; and (viii) any right, option or warrant to acquire any Security
excluded from the definition of New Securities pursuant to clauses (i) through
(vii) above.
4.3 EXERCISE OF RIGHT. In the event the Company proposes to undertake
an issuance of New Securities, it shall give to each Offeree Holder written
notice ("Offer Notice") of its
21.
<PAGE> 27
intention, describing the type of New Securities to be offered, their price and
the general terms upon which the Company proposes to issue such New Securities,
and offering to each Offeree Holder the right to purchase such Offeree Holder's
pro rata share of the New Securities. Each Offeree Holder shall have 20 days
after any such Offer Notice is given by the Company within which to give to the
Company written notice of such Offeree Holder's acceptance of such offer and
agreement to purchase such Offeree Holder's entire pro rata share of such New
Securities for the price and upon the terms specified in the Offer Notice.
Failure by any Offeree Holder to timely tender such Offeree Holder's acceptance
and agreement to the Company pursuant to any Offer Notice shall be deemed a
rejection of the offer contained in such Offer Notice and a waiver of such
Offeree Holder's right of first refusal with respect to the proposed issuance of
New Securities described therein.
4.4 REFUSAL OF OFFER. If any Offeree Holder (a "Declining Holder")
fails to exercise such Offeree Holder's right to purchase New Securities
pursuant to Subsection 4.3 hereof, then the Company shall give written notice of
such fact to the remaining Offeree Holders who shall have exercised their right
of first refusal pursuant to Subsection 4.3 hereof ("Exercising Holders") and
offer to each Exercising Holder the right to purchase such portion of the
Declining Holder's pro rata share of the New Securities (the "Refused
Securities") as such Exercising Holder's pro rata share of the New Securities
bears to the sum of the pro rata shares of the New Securities of all Exercising
Holders. Each Exercising Holder shall have 15 days after any such notice is
given by the Company within which to give to the Company written notice of such
Exercising Holder's acceptance of such offer and agreement to purchase such
Exercising Holder's share of the Refused Securities so offered. Failure by any
Exercising Holder to timely tender such Exercising Holder's acceptance to the
Company in connection with any offer made pursuant to this Subsection 4.4 shall
be deemed a rejection of such offer and a waiver of such Exercising Holder's
right of refusal with respect to the proposed issuance of New Securities
described therein.
4.5 FAILURE TO EXERCISE. In the event the Offeree Holders fail to
exercise their right of first refusal with respect to all of the New Securities
by the end of the 15-day offer period provided in Subsection 4.4 hereof, or if
the Offeree Holders waive their right of first refusal with respect to the
issuance of New Securities pursuant to Subsection 4.6 hereof, then the Company
shall have 120 days thereafter within which to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within 120 days from the date of said agreement) to sell the New
Securities not being sold to the Offeree Holders at a price and upon terms no
more favorable to the purchasers thereof than specified in the Company's Offer
Notice. In the event the Company has not within such 120-day period either sold
or entered into an agreement to sell the New Securities in accordance with the
preceding sentence, the Company shall not thereafter issue or sell any of the
New Securities described in the Offer Notice without first again offering such
Securities to the Offeree Holders in the manner provided in this Section 4.
4.6 EXPIRATION. The right of first refusal granted under this Section 4
shall expire upon, and shall not be applicable to, the first sale of Common
Stock of the Company to the public effected pursuant to a Public Offering. The
right of first refusal set forth in this Section 4 may be waived as to all of
the Holders of any Series of Designated Preferred Stock by a written waiver
executed by Holders owning shares of such Series of Designated Preferred Stock
and
22.
<PAGE> 28
Common Stock issued upon conversion of such Series of Designated Preferred Stock
representing not less than 50 percent of the sum of (i) the number of shares of
Common Stock issued upon the conversion of such Series of Designated Preferred
Stock, and (ii) the number of shares of Common Stock then issuable upon
conversion of the outstanding shares of such Series of Designated Preferred
Stock.
4.7 TRANSFER OF RIGHT. The right of first refusal of an Offeree Holder
set forth in this Section 4 may not be assigned or transferred, except that such
right may be assigned by such Offeree Holder (i) to any wholly-owned subsidiary
or parent of, or to any corporation or entity that is, within the meaning of the
Securities Act, controlling, controlled by or under common control with, such
Offeree Holder, (ii) to any other Offeree Holder or (iii) to any other Person
with the prior approval of the Board of Directors.
SECTION 5. RIGHT OF CO-SALE.
5.1 SALES BY FGN. If FGN proposes to sell or transfer any shares of
Common Stock held by it in one or more related transactions which will result in
the transfer by FGN of 450,000 or more shares of Common Stock (as adjusted for
any stock dividends, combinations or splits with respect to such shares), then
FGN shall promptly give written notice (the "Co-Sale Notice") to each Original
Holder of Designated Preferred Stock (each such Holder an "Original Preferred
Holder") at least 15 days prior to the closing of such sale or transfer. The
Co-Sale Notice shall describe in reasonable detail the proposed sale or transfer
by FGN, including, without limitation, the number of shares of Common Stock to
be sold or transferred, the nature of such sale or transfer, the consideration
to be received by FGN, the name and address of each prospective purchaser or
transferee and whether the sale or transfer is being made pursuant to the
provisions of Subsection 5.5 hereof.
5.2 RIGHT OF CO-SALE. Each Original Preferred Holder shall have the
right, exercisable upon written notice given to FGN within 15 days after receipt
of the Co-Sale Notice, to participate in such sale of Common Stock on the same
terms and conditions as set forth in the Co-Sale Notice. To the extent one or
more of the Original Preferred Holders exercise such right of participation in
accordance with the terms and conditions set forth below, the number of shares
of Common Stock that FGN may sell in the proposed transaction shall be
correspondingly reduced. Each Original Preferred Holder shall have the right to
sell all or any part of that number of shares of Common Stock equal to the
product obtained by multiplying (i) the aggregate number of shares of Common
Stock covered by the Co-Sale Notice by (ii) a fraction the numerator of which is
the sum of the number of shares of Common Stock owned by such Original Preferred
Holder at the time of the sale or transfer plus the number of shares of Common
Stock into which such Original Preferred Holder's Designated Preferred Stock is
then convertible, and the denominator of which is the sum of the number of
shares of Common Stock owned by all of the Original Holders at the time of such
sale or transfer plus the number of shares of Common Stock into which the
Designated Preferred Stock of all Original Holders is then convertible.
5.3 DELIVERY OF CERTIFICATES. Each Original Preferred Holder who
exercises his or its right to participate in FGN's sale pursuant to Subsection
5.2 hereof (a "Participant") shall effect his or its participation in the sale
by promptly delivering to FGN for transfer to the prospective purchaser one or
more certificates, properly endorsed for transfer, which represent either (i)
the
23.
<PAGE> 29
number of shares of Common Stock which such Participant elects to sell, or (ii)
that number of shares of Designated Preferred Stock which is at such time
convertible into the number of shares of Common Stock which such Participant
elects to sell; provided, however, that if the prospective purchaser objects to
the delivery of Designated Preferred Stock in lieu of Common Stock, such
Participant shall convert his or its Designated Preferred Stock into Common
Stock and deliver Common Stock to the prospective purchaser. The Company agrees
to make any such conversion concurrently with the actual transfer of such shares
to the purchaser. The Stock certificate or certificates that the Participant
delivers to FGN pursuant to this Subsection 5.3 shall be transferred to the
prospective purchaser in consummation of the sale of Common Stock pursuant to
the terms and conditions specified in the Co-Sale Notice, and FGN shall
concurrently therewith remit to such Participant that portion of the sale
proceeds which such Participant is entitled to receive by reason of such
Participant's participation in such sale. If any Participant fails to deliver
his or its Stock certificates to FGN as required by this Subsection 5.3 within
10 days of any written notice given by FGN to such Participant requesting such
delivery, then such Participant shall be deemed to have waived his or its rights
of co-sale under this Section 5 with respect to the transaction described in the
Co-Sale Notice.
5.4 FUTURE RIGHTS. The exercise or non exercise of the rights of
Original Preferred Holders hereunder to participate in one or more sales of
Common Stock made by FGN shall not adversely affect their rights to participate
in subsequent sales of Common Stock by FGN to the extent permitted by this
Section 5.
5.5 EXEMPT TRANSFERS. Notwithstanding the foregoing, the co-sale rights
of Original Preferred Holders set forth in this Section 5 shall not apply to:
(i) any pledge of Stock by FGN made pursuant to a bona fide loan transaction
that creates a mere security interest; (ii) any transfer of Stock to the
officers, directors, employees or stockholders of FGN or the Company, or to any
consultants or other Persons providing services to FGN or the Company, or to the
ancestors, descendants or spouse of any of such Persons, or to trusts for the
benefit of any such Persons; or (iii) any bona fide gift; provided, however,
that FGN shall inform the Original Preferred Holders of such pledge, transfer or
gift prior to effecting it and the pledgee, transferee or donee shall furnish to
the Company (on behalf of the Original Preferred Holders) a written agreement to
be bound by and to comply with all of the provisions of this Section 5. In
addition, and notwithstanding the foregoing, the co-sale rights of Original
Preferred Holders set forth in this Section 5 shall not apply to the sale of any
Stock by FGN pursuant to any Public Offering.
5.6 PROHIBITED TRANSFERS. In the event FGN should sell any Common Stock
in contravention of the co-sale rights of the Original Preferred Holders under
this Section 5 ("Prohibited Transfer"), each Original Preferred Holder shall
have the right to sell to FGN such number of shares of Common Stock that such
Original Preferred Holder would have been entitled to transfer to the purchaser
had the Prohibited Transfer been effected pursuant to and in compliance with the
terms of this Section 5. Such sale shall be made on the following terms and
conditions:
(A) The price per share at which each Original
Preferred Holder's shares of Common Stock are to be sold to FGN shall be equal
to the price per share paid by the purchaser to FGN in the Prohibited Transfer.
24.
<PAGE> 30
(B) Within 30 days after the later of the dates
on which such Original Preferred Holder (i) received notice of the Prohibited
Transfer or (ii) otherwise became aware of the Prohibited Transfer, such
Original Preferred Holder shall, in order to exercise the option provided for in
this Subsection 5.6, deliver to FGN the certificate or certificates representing
shares of the Original Preferred Holder's Common Stock to be sold, each
certificate to be properly endorsed for transfer.
(C) FGN shall, within 5 days after its receipt of
the certificate or certificates for the shares of Common Stock to be sold by
such Original Preferred Holder pursuant to this Subsection 5.6, pay the
aggregate purchase price therefor to such Original Preferred Holder.
5.7 TERMINATION OF CO-SALE RIGHTS. The co-sale rights of Original
Preferred Holders set forth in this Section 5 shall terminate upon the earliest
to occur of: (i) the closing of a firm commitment underwritten Public Offering
covering the offer and sale of Common Stock at a price of not less than $6.60
per share (as adjusted for any stock dividends, combinations or splits with
respect to the Common Stock) and an aggregate offering price (before deduction
of underwriters' discounts and expenses) of not less than $10,000,000; (ii) the
closing of the sale by the Company of all or substantially all of its assets or
the acquisition of the Company by another Person by means of a merger or
consolidation resulting in the exchange of the outstanding shares of the
Company's Stock for securities or consideration to be issued, or caused to be
issued, by the acquiring entity or its subsidiary or (iii) such time as the sum
of the number of shares of Common Stock held by FGN plus the number of shares of
Common Stock into which FGN's Designated Preferred Stock is then convertible
constitutes less than 10 percent of the sum of the number of shares of Common
Stock then outstanding plus the number of shares of Common Stock issuable upon
the exercise of all options, warrants and rights to acquire Common Stock and the
exchange or conversion of all Securities exchangeable for or convertible into
Common Stock (including, without limitation, all shares of Preferred Stock).
SECTION 6. COMPANY COVENANTS.
The Company covenants and agrees, until the closing of the Company's
first Public Offering but only so long as any Designated Preferred Stock remains
outstanding, as follows:
6.1 FINANCIAL STATEMENTS AND INFORMATION. The Company shall furnish the
following reports to each Holder:
6.1.1 ANNUAL REPORTS. As soon as practicable after the end of
each fiscal year of the Company, and in any event within 120 days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and consolidated statements of income and cash
flows of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
6.1.2 QUARTERLY REPORTS. As soon as practicable after the end
of the first, second and third fiscal quarters, and in any event within 90 days
thereafter, a consolidated
25.
<PAGE> 31
balance sheet of the Company and its subsidiaries, if any, as of the end of each
such fiscal quarter, and consolidated statements of income and cash flows of the
Company and its subsidiaries, if any, for such period and for the current fiscal
year to date, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in comparative form the
figures for the corresponding periods of the previous Company fiscal year,
subject to changes resulting from normal year end audit adjustments, all in
reasonable detail and certified by the principal financial or accounting officer
of the Company, except that such financial statements need not contain the notes
required by generally accepted accounting principles.
6.1.3 COMMISSION REPORTS. From the date that the Company
becomes subject to the reporting requirements of the Securities Exchange Act,
and in lieu of the financial information required pursuant to Subsections 6.1.1
and 6.1.2 hereof, copies of the Company's annual reports on Form 10-K and the
Company's quarterly reports on Form 10-Q, respectively.
6.1.4 ADDITIONAL INFORMATION. The Company shall permit any
Holder of at least 2,000,000 shares of Registrable Securities (as adjusted for
any stock dividends, combinations or splits with respect to such shares) and any
Person designated from time to time by such Holder, at the expense of such
Holder, to visit and inspect any of the properties of the Company, including its
books and records (and to make copies thereof and take extracts therefrom), and
to discuss its affairs, finances and accounts with the Company's officers and
its independent public accountants, all at such reasonable times and as often as
any such Holder may reasonably request.
6.1.5 INSPECTION RIGHTS. The provisions of this Section 6
shall not be in limitation of any rights which any Holder may have to inspect
the books and records of the Company and its subsidiaries (if any), or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
6.1.6 CONFIDENTIALITY. Anything in this Section 6 to the
contrary notwithstanding, no Holder by reason of this Agreement shall have
access to any trade secrets or proprietary information of the Company or of any
subsidiary of the Company. Each Holder shall hold in confidence and trust all
information delivered by the Company to such Holder, shall not disclose such
information to any third party, and shall use such information solely to
evaluate and protect such Holder's investment in Stock, except as otherwise
provided in a confidentiality agreement between such Holder and the Company.
6.2 KEY MAN INSURANCE. The Company shall use its best efforts to obtain
key man accidental death and disability insurance on the life of Floyd G.
Nichols in the amount of $1,000,000, payable to the Company.
6.3 UNDERWRITING PUBLIC OFFERING. (a) From and after the date hereof
and until June 30, 1998, with respect to (i) any public offering of equity
securities by the Company (whether in a primary or secondary offering) in the
United States through an underwriter or (ii) any merger and acquisition
transaction involving the Company or any subsidiary (including the sale of the
Company or any subsidiary), the Company shall first
26.
<PAGE> 32
negotiate with Goldman, Sachs & Co. in good faith to provide investment banking
services for the Company with respect to the transaction (including, in the case
of any public offering of securities, the Company shall first negotiate with
Goldman, Sachs & Co. to act as the lead managing underwriter of such offering).
Should the parties be unable to agree upon reasonable terms after good faith
discussions, with in a reasonable period of time, the Company will be free to
negotiate with others but will also cooperate and discuss in good faith with
Goldman, Sachs & Co. to provide Goldman, Sachs & Co. a mutually satisfactory
investment banking role in the transaction.
(b) If Goldman, Sachs & Co. acts as a managing
underwriter in any public offering of securities of the Company, to the extent
required by applicable law, a Qualified Independent Underwriter (as defined in
Schedule E to the National Association of Securities Dealers, Inc. By-Laws)
shall be retained by the Company and shall be acceptable to Goldman, Sachs & Co.
(which consent shall not be unreasonably withheld), and the Company shall pay
all fees and expenses (other than underwriting discounts and commissions) of
such Qualified Independent Underwriter.
SECTION 7. TRANSFER OF SECURITIES.
7.1 RESTRICTIONS ON TRANSFER. The Common Stock and Designated Preferred
Stock held by the Holders shall not be transferable except upon the conditions
specified in this Section 7, which conditions are intended to insure compliance
with the provisions of the Securities Act and applicable state securities laws
with respect to the transfer of Securities.
7.2 RESTRICTIVE LEGENDS. Unless and until otherwise permitted by this
Section 7, each certificate for Common Stock or Designated Preferred Stock
issued to any Holder, or to any subsequent transferee of any Holder, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
THUS MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. FURTHER, SUCH TRANSFER IS SUBJECT
TO THE CONDITIONS SPECIFIED IN A FOURTH AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT DATED AS OF APRIL __, 1998, BY AND
AMONG THE COMPANY AND ITS STOCKHOLDERS, A COPY OF WHICH
STOCKHOLDERS' AGREEMENT IS ON FILE AND MAY BE INSPECTED AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED BY THE
COMPANY TO THE HOLDER HEREOF UPON REQUEST AND WITHOUT CHARGE.
"THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER
WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF COMPANY STOCK OR SERIES
THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF
SUCH PREFERENCES AND/OR RIGHTS."
27.
<PAGE> 33
The Company may order its Stock transfer agents to stop the transfer of
any shares of Stock bearing the legend set forth in this Subsection 7.2 until
the conditions of this Section 7 with respect to the transfer of such shares
have been satisfied.
7.3 NOTICE OF PROPOSED TRANSFER. If, prior to any transfer or sale of
any Stock, the Holder desiring to effect such transfer or sale shall deliver a
written notice to the Company describing the manner of such transfer or sale
and, if requested by the Company, a written opinion of counsel for such Holder
(provided that such counsel, and the form and substance of such opinion, are
reasonably satisfactory to the Company) to the effect that (i) such transfer or
sale may be effected without the registration of such Securities under the
Securities Act and all applicable state securities laws, and (ii) all action
necessary for compliance with the Securities Act and such state securities laws
has been taken, then the Company shall thereupon permit or cause its transfer
agent (if any) to permit such transfer or sale to be effected.
7.4 TERMINATION OF RESTRICTIONS.
7.4.1 SECURITIES LAW RESTRICTIONS. The restrictions imposed by
this Section 7 upon the transferability of Stock shall terminate as to any
particular share of Stock when (i) such Stock shall have been effectively
registered under the Securities Act and sold by the Holder thereof in accordance
with such registration, or (ii) a written opinion to the effect that such
restrictions are no longer required or necessary under any federal or state
securities laws and regulations has been received from counsel for the Holder
thereof (provided that such counsel, and the form and substance of such opinion,
are reasonably satisfactory to the Company) or counsel for the Company, or (iii)
such Stock shall have been sold without registration under the Securities Act in
compliance with Rule 144, or (iv) the Company is reasonably satisfied that the
Holder of such Stock shall, in accordance with the terms of Subsection (k) of
Rule 144, be entitled to sell such Stock pursuant to such subsection, or (v) a
letter or an order shall have been issued to the Holder thereof by the staff of
the Commission stating that no enforcement action shall be recommended by such
staff or taken by the Commission if such Stock is transferred without
registration under the Securities Act in accordance with the conditions set
forth in such letter or order and such letter or order specifies that no
subsequent restrictions on transfer are required.
7.4.2 CO-SALE RESTRICTIONS. Notwithstanding the foregoing, if
the restrictions of this Section 7 shall terminate with respect to the shares of
Common Stock of FGN but such shares shall remain subject to the rights of
co-sale of Original Preferred Holders pursuant to Section 5 of this Agreement,
then the shares of such Common Stock shall contain the following legend:
"THE SALE, TRANSFER OR OTHER DISPOSITION OF THE
SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
THE CONDITIONS SPECIFIED IN A FOURTH AMENDED AND
RESTATED STOCKHOLDERS' AGREEMENT DATED AS OF APRIL
__, 1998, BY AND AMONG THE COMPANY AND ITS
STOCKHOLDERS, A COPY OF WHICH STOCKHOLDERS' AGREEMENT
IS ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE
28.
<PAGE> 34
FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON
REQUEST AND WITHOUT CHARGE."
7.5 ELIMINATION OF LEGEND. Whenever the restrictions imposed by this
Section 7 shall terminate, as hereinabove provided, the Holder of any particular
share of Stock then outstanding as to which such restrictions shall have
terminated shall be entitled to receive from the Company, without expense to
such Holder, one or more new certificates for Stock not bearing the restrictive
legend set forth in Subsection 7.2 hereof.
SECTION 8. MISCELLANEOUS.
8.1 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
8.2 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
8.3 NOTICES. All communications provided for under this Agreement shall
be in writing and shall be delivered by hand or by first class regular mail,
postage prepaid, to the following addresses, or such other addresses as shall be
given by notice delivered hereunder, and shall be deemed to have been given on
the day of personal delivery thereof on the third business day after such
mailing:
If to any Holder:
Addressed to such Holder at such Holder's address as shown on
the books of the Company or its transfer agent;
If to the Company, to:
Cell Pathways, Inc.
702 Electronic Drive
Horsham, Pennsylvania 19044
Attention: Mr. Robert J. Towarnicki
with a copy to:
Cell Pathways, Inc.
702 Electronic Drive
Horsham, Pennsylvania 19044
Attention: Corporate Secretary
or to such other Persons or at such other addresses as shall be furnished by any
such party by like notice given to the other parties to this Agreement.
29.
<PAGE> 35
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
8.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
by and among the parties hereto with respect to the subject matter hereof.
8.6 AMENDMENTS. Except as otherwise specifically provided in this
Agreement, this Agreement may be amended, modified or supplemented only by a
written instrument executed by each of (i) the Company, (ii) Holders of 50
percent or more of the shares of Common Stock then outstanding, (iii) Holders of
50 percent or more of the shares of Series A and Series B Convertible Preferred
Stock then outstanding, voting as one class, and (iv) the Holders of 50 percent
or more of the shares of Series C, Series D, Series E, Series F and Series G
Convertible Preferred Stock then outstanding, voting as one class.
8.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in that State.
8.8 INTENDED BENEFICIARIES. Sections 3, 4, 5, 6 and 7 of this Agreement
are made by the parties hereto for the express benefit of Holders of Securities
to the extent provided therein, and such Holders shall be entitled to rights
thereunder subject to the limitations set forth therein.
8.9 GS GROUP ASSIGNMENT. GS Group shall have the right, without having
to comply with the provisions of Section 7 of this Agreement, to transfer all or
a part of the Stock held by it to one or more other partnerships, corporations,
trusts or other organizations which control, are controlled by or are under
common control with GS Group or one or more of the then current, former or
future partners of GS Group, provided that such transfer occurs in compliance
with all applicable securities laws; and such transferee shall be deemed an
Original Holder entitled to the rights and subject to the limitations of this
Agreement.
8.10 NO INCONSISTENT AGREEMENTS. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holders or otherwise
conflicts with the provisions hereof. The Company agrees and hereby represents
that the rights granted to the Holders hereunder do not in any way conflict with
and are not inconsistent with the rights granted to holders of the Company's
securities under any other agreements.
30.
<PAGE> 36
THE COMPANY:
CELL PATHWAYS, INC.
By: __________________________________________
Its: _________________________________________
STOCKHOLDERS:
FGN, INC.
By: __________________________________________
Its: _________________________________________
NORTHWOOD VENTURES
By: __________________________________________
Its: _________________________________________
TECHNOLOGY PARTNERS WEST FUND IV, L.P.
By: __________________________________________
Its: _________________________________________
QUEST VENTURES II
By: __________________________________________
Its: _________________________________________
QUEST VENTURES INTERNATIONAL
By: __________________________________________
Its: _________________________________________
THE GOLDMAN SACHS GROUP, L.P.
By: __________________________________________
Its: _________________________________________
NEW YORK LIFE INSURANCE COMPANY
By: __________________________________________
Its: _________________________________________
ATTORNEY IN FACT FOR OTHER STOCKHOLDERS
By: __________________________________________
Its: _________________________________________
31.
<PAGE> 1
EXHIBIT 10.2
LEASE
BY AND BETWEEN
ARE-702 ELECTRONIC DRIVE, L.P.
as Landlord
and
CELL PATHWAYS, INC.
as Tenant
<PAGE> 2
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Lease of Premises......................................................... 1
2. Basic Lease Provisions.................................................... 1
3. Term...................................................................... 2
4. Possession and Commencement Date.......................................... 3
5. Rent...................................................................... 3
6. Rent Adjustments.......................................................... 4
7. Operating Expenses........................................................ 4
8. Rentable Area............................................................. 7
9. Security Deposit.......................................................... 7
10. Use...................................................................... 8
11. Brokers.................................................................. 9
12. Holding Over............................................................ 10
13. Intentionally Deleted................................................... 10
14. Condition of Demised Premises........................................... 10
15. Intentionally Deleted................................................... 11
16. Utilities and Services.................................................. 11
17. Alterations............................................................. 12
18. Repairs and Maintenance................................................. 14
19. Liens................................................................... 15
20. Indemnification and Exculpation......................................... 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
21. Insurance - Waiver of Subrogation...................................... 16
22. Damage or Destruction.................................................. 18
23. Eminent Domain......................................................... 19
24. Defaults and Remedies.................................................. 20
25. Assignment or Subletting............................................... 25
26. Attorneys' Fees and Costs............................................. 28
27. Bankruptcy............................................................ 28
28. Estoppel Certificate................................................... 29
29. Joint and Several Obligations.......................................... 29
30. Definition of Landlord; Limitation of Landlord's Liability............ 30
31. Project Control by Landlord............................................ 30
32. Quiet Enjoyment........................................................ 31
33. Quitclaim Deed......................................................... 31
34. Intentionally Deleted.................................................. 31
35. Subordination and Attornment........................................... 31
36. Surrender.............................................................. 32
37. Waiver and Modification................................................ 32
38. Waiver of Jury Trial and Counterclaims................................. 33
39. Hazardous Materials................................................... 33
40. Right to Extend Term................................................... 36
41. Tenant Signage......................................................... 37
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
42. Miscellaneous ......................................................... 37
</TABLE>
<TABLE>
<S> <C>
EXHIBIT "A" ................................................. LEGAL DESCRIPTION
EXHIBIT "B" ............................................................. PLANS
EXHIBIT "C" ................................................. TENANT'S PROPERTY
EXHIBIT "D" ....................................... TENANT ESTOPPEL CERTIFICATE
EXHIBIT "E" ....................................... FORM OF MEMORANDUM OF LEASE
</TABLE>
iii
<PAGE> 5
LEASE
THIS LEASE is made as of June 25, 1998 ("Effective Date"), by and between
ARE-702 Electronic Drive, L.P., a Delaware limited partnership ("Landlord") and
Cell Pathways, Inc., a Delaware corporation ("Tenant").
1. Lease of Premises
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
upon the terms and conditions hereof, those certain premises (the "Demised
Premises") which shall include the building (the "Building") located at the
address set forth below, and all public areas which are not a part of the
Building, including, without limitation, driveways, sidewalks, parking areas
and landscaped areas (the "Common Areas"). The legal description of the real
property upon which the Building and Common Areas are located ("Project") is
attached hereto as Exhibit "A".
2. Basic Lease Provisions
2.1. For convenience of the parties, certain basic provisions of this
Lease are set forth herein. The provisions set forth herein are subject to the
remaining terms and conditions of this Lease and are to be interpreted in light
of such remaining terms and conditions.
2.1.1 Address of the Building:
702 Electronic Drive
Horsham, Pennsylvania
2.1.2 Intentionally Deleted.
2.1.3 (a) Rentable Area of Demised Premises: 40,000 sq. ft.
(b) Rentable Area of Building and Project: 40,000 sq. ft.
2.1.4 Initial Basic Annual Rent: $819,000
2.1.5 Initial Monthly Rental Installments of Basic Annual Rent:
$68,250
2.1.6 Tenant's Pro Rata Share: 100% of the Building and Common Areas
2.1.7 (a) Term Commencement Date: As defined in Section 4.1 hereof.
(b) Term Expiration Date: Ten years from the Term Commencement
Date, subject to extension or earlier termination as
otherwise
<PAGE> 6
provided herein.
2.1.8 Security Deposit: $400,000.
2.1.9 Permitted Use: Scientific research laboratories and related office
uses consistent with Section 10 hereof.
2.1.10 Address for Rent Payment:
135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101
Attention: Accounts Receivable
Address for Notices to Landlord:
135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101
Attention: General Counsel
With a copy to:
11440 West Bernardo Court, Suite 170
San Diego, CA 92127
Attention: Asset Management
2.1.11 Address for Notices to Tenant:
702 Electronic Drive
Horsham, Pennsylvania 19044
Attention: Brian J. Hayden
With a copy to:
702 Electronic Drive
Horsham, Pennsylvania 19044
Attention: Richard H. Troy, Esq.
2.1.12 The following Exhibits are attached hereto and incorporated herein:
Exhibit "A" -Exhibit "E"
3. Term
3.1. This Lease shall take effect upon the Effective Date, and, except as
specifically
2
<PAGE> 7
otherwise provided within this Lease, each of the provisions hereof shall be
binding upon and inure to the benefit of Landlord and Tenant, and each of their
respective successors and permitted assigns, from and after the Effective Date.
3.2. The term of this Lease (the "Term") shall be that period from the Term
Commencement Date as defined in Section 4.1 below and through the Term
Expiration Date, as such may be terminated or extended as provided herein.
4. Possession and Commencement Date
4.1. Landlord shall tender possession of the Demised Premises to Tenant on
the Effective Date.
4.2. Tenant has commenced and shall cause to be completed certain
improvements to the Demised Premises pursuant to the Plans attached hereto as
Exhibit "B" ("Tenant's Work") for which Landlord shall pay to Tenant the Tenant
Improvement Allowance (as defined below), which shall include the cost of
construction, cost of space planning, architect, engineering and other related
services, building permits, and other planning and inspection fees. Tenant shall
be entitled to an allowance to be used by Tenant towards construction of
Tenant's Work ("Tenant Improvement Allowance"), the amount of which shall be
THREE MILLION DOLLARS ($3,000,000).
4.3. Tenant, at Tenant's sole cost and expense and without cost to Landlord
(except for the Tenant Improvement Allowance), shall complete Tenant's Work in
all respects in accordance with the Plans. Tenant's Work shall be "Complete(d)"
at such time as Tenant shall (1) furnish evidence satisfactory to Landlord that
all of Tenant's Work has been completed and paid for in full (which may be
evidenced by Tenant's Architect's Certificate of Substantial Completion and
Tenant's Contractor's and subcontractor's final waivers and releases of liens)
(and such work has been accepted by Landlord); that any and all liens therefor
that have been or might be filed have been discharged of record (by payment,
bond, order of a court of competent jurisdiction or otherwise) or waived and
that no security interests relating thereto are outstanding; (2) furnish to
Landlord all certifications and approvals with respect to Tenant's Work that may
be required from any governmental authority and any board of fire underwriters
or similar body for the use and occupancy of the Demised Premises; and (3)
furnish an affidavit from Tenant's Architect certifying that all work performed
in the Demised Premises is in substantial accordance with the Plans. Landlord,
within ten (10) business days following receipt by Landlord of notice that
Tenant's Work is completed and the accompanying materials, shall pay to Tenant
the Tenant Improvement Allowance.
5. Rent
5.1. Tenant agrees, commencing on the Term Commencement Date, to pay
Landlord as Basic Annual Rent for the Demised Premises the sum set forth in
Section 2.1.4, subject to the rental increases provided in Section 6 hereof.
Basic Annual Rent shall be paid in the equal monthly installments set forth in
Section 2.1.5, subject to the rental increases provided in Section 6 hereof.
3
<PAGE> 8
each in advance on the first day of each and every calendar month during the
Term.
5.2. In addition to Basic Annual Rent, Tenant agrees to pay to Landlord as
additional rent ("Additional Rent") at times hereinafter specified in this Lease
(i) Tenant's pro rata share, as set forth in Section 2.1.6 ("Tenant's Pro Rata
Share") of Operating Expenses as provided in Section 7 and (ii) any other
amounts that Tenant assumes or agrees to pay under the provisions of this Lease
that are owed to Landlord, including, without limitation, any and all other sums
that may become due by reason of any default of Tenant or failure on Tenant's
part to comply with the agreements, terms, covenants and conditions of this
Lease to be performed by Tenant, after notice and lapse of applicable cure
period.
5.3. Basic Annual Rent and Additional Rent shall together be denominated
"Rent". Rent shall be paid to Landlord, without abatement, deduction, or offset,
in lawful money of the United States of America, at the office of Landlord as
set forth in Section 2.1.10 or to such other person or at such other place as
Landlord may from time to time designate in writing. In the event the Term
commences or ends on a day other than the first day of a calendar month, then
the Rent for such fraction of a month shall be prorated for such period on the
basis of a thirty (30) day month and shall be paid at the then current rate for
such fractional month.
6. Rent Adjustments
Basic Annual Rent shall be adjusted on the first (1st) anniversary of the
Term Commencement Date, and on such date every year thereafter during the Term
(each, a "Rent Adjustment Date"). On every Rent Adjustment Date, Basic Annual
Rent shall increase on account of any such adjustment three percent (3%) from
the prior year's Basic Annual Rent.
7. Operating Expenses
7.1. Tenant shall be responsible for the payment of, and shall directly
pay for the following costs and expenses ("Operating Expenses") with respect to
the Building and Common Areas:
7.1.1 Government impositions including, without limitation, property tax
costs consisting of real and personal property taxes and assessments (including
amounts due under any improvement bond upon the Building or the Common Areas,
including the parcel or parcels of real property upon which the Building or the
Common Areas are located or assessments levied in lieu thereof) imposed by any
governmental authority or agency; any tax on or measured by gross rentals
received from the rental of space in the Building, or tax based on the square
footage of the Demised Premises, the Building or the Common Areas as well as any
parking charges, utilities surcharges, or any other costs levied, assessed or
imposed by, or at the direction of, or resulting from statutes or regulations,
or interpretations thereof, promulgated by any federal, state, regional,
municipal or local government authority in connection with the use or occupancy
of the Building or the parking facilities serving the Building; any tax on this
transaction or any document to which Tenant is a party
4
<PAGE> 9
creating or transferring an interest in the Demised Premises; any fee for a
business license to operate an office building; and any expenses, including the
reasonable cost of attorneys or experts, reasonably incurred in seeking
reduction by the taxing authority of the applicable taxes, less tax refunds
obtained as a result of an application for review thereof, and any net income
franchise, capital stock, estate or inheritance taxes or taxes which are the
personal obligation of Tenant.
7.1.2 All other costs of any kind paid or incurred in connection with
the operation and maintenance of the Building and the Common Areas including, by
way of examples and not as a limitation upon the generality of the foregoing,
costs of repairs and replacements to the Building or the Common Areas (subject
to Section 7.2 hereof) as appropriate to maintain Building or the Common Areas
as required hereunder, license, permit and inspection fees; sales, use and
excise taxes on goods and services purchased by Tenant in connection with the
operation, maintenance or repair of the Common Areas and Building systems and
equipment; telephone, postage, stationary supplies and other expenses incurred
in connection with the operation, maintenance, or repair of the Common Areas;
accounting, legal and other professional fees and expenses incurred in
connection with the Common Areas; costs of complying with any applicable laws or
hazardous waste remediation rules or regulations, except to the extent the
compliance relates to an event or condition that occurred or arose out of
conditions that occurred or were caused prior to the date upon which Tenant took
possession of the Demised Premises pursuant to a prior lease with Marave
Associates L.P.; the costs of any subsequent tenant or other capital improvement
to the property, including, without limitation, the costs of capital
improvements required to cause the Building to comply with any retroactive law,
rule or regulation; and service contracts; costs of services of independent
contractors retained to do work of nature or type herein referenced.
7.1.3 All costs of insurance, including premiums and deductibles for
environmental insurance, public liability, property casualty, earthquake and
environmental coverages; portions of insured losses paid by Landlord as part of
the deductible portion of such losses by reason of insurance policy terms; costs
of management services, which fee for property management services shall not
exceed two percent (2%) of the Basic Annual Rent.
7.1.4 Notwithstanding the foregoing, after the fifth (5th) anniversary
of the Effective Date, the cost of any capital improvements installed shall be
prorated over a five (5) year period, such that, upon the installation of such
capital improvement, Tenant shall only pay the prorated portion of the capital
improvement for the remainder of the Term, and Landlord shall be responsible for
paying any remainder, provided, that, if Tenant shall extend the Lease beyond
the Initial Term, any amounts paid by Landlord pursuant to this Section 7.1.2
shall be reimbursed by Tenant.
7.2. As used herein, the term "Operating Expenses" shall not include costs
incurred by Landlord pursuant to its obligations under Section 18.1 hereof,
including capital expenditures related thereto; any uninsured loss under any
insurance policy required to be carried by Landlord pursuant to Section 21.1 and
Section 21.2, unless such loss results in whole or in part from any act,
neglect, fault of or omissions of any duty by Tenant, or its agents, servants,
employees or invitees; leasing
5
<PAGE> 10
commissions; expenses of initial development and construction, including but not
limited to, grading, paving, landscaping, and decorating; costs of repair to the
extent reimbursed by payment received by Landlord of insurance proceeds;
interest upon loans to Landlord or secured by mortgages or deeds of trust
covering the Demised Premises or a portion thereof (provided interest upon a
government assessment or improvement bond payable in installments is an expense
under Section 7.1.1 above); salaries of executive officers of Landlord;
depreciation claimed by Landlord for tax purposes (provided this exclusion of
"depreciation" is not intended to delete from Operating Expenses actual costs
of repairs and replacements which are provided for in Section 7.1.2 above); and
taxes of the types set forth within the last sentence of Section 7.1.1 above.
7.3. Tenant shall pay to Landlord on the first day of each calendar month
of the Term, as Additional Rent, Landlord's estimate of Operating Expenses set
forth in Section 7.1.3 for such month.
7.3.1 Within ninety (90) days after the conclusion of each calendar
year (or such longer period as may be reasonably required), Landlord shall
furnish to Tenant a statement showing in reasonable detail the actual Operating
Expenses set forth in Section 7.1.3 for the previous calendar year. Any
additional sum due from Tenant to Landlord shall be immediately due and payable.
If the amounts paid by Tenant pursuant to Section 7.3 exceeds the Operating
Expenses for the previous calendar year, Landlord shall, at Landlord's option,
either (i) credit the excess amount to the next succeeding installments of
estimated Additional Rent, or (ii) pay the excess to Tenant within thirty (30)
days after delivery of such statements.
7.3.2 Any amount due under Section 7.3 for any period which is less
than a full month shall be prorated (based on a thirty (30) day month) for such
fractional month.
7.4. Landlord's annual statement shall be final and binding upon Tenant
unless Tenant, within thirty (30) days after Tenant's receipt thereof, shall
contest any item therein by giving written notice to Landlord, specifying each
item contested and the reason therefor. If, during such thirty (30) day period,
Tenant reasonably and in good faith questions or contests the correctness of
Landlord's statement of Operating Expenses, Landlord will provide Tenant with
access to Landlord's books and records and such information as Landlord
reasonably determines to be responsive to Tenant questions. In the event that
after Tenant's review of such information, Landlord and Tenant cannot agree
upon the amount of Operating Expenses, then Tenant shall have the right to have
an independent public accounting firm selected from among the ten (10) largest
in the United States hired by Tenant (at Tenant's sole cost and expense) and
approved by Landlord (which approval shall not be unreasonably withheld or
delayed) audit and/or review such Landlord's books and records for the year in
question (the "Independent Review"). The results of any such Independent Review
shall be binding on Landlord and Tenant. If the Independent Review shows that
Operating Expenses actually paid for the calendar year in question exceeded
Tenant's obligations for such calendar year, Landlord shall at Landlord's
option either (1) credit the excess amount to the next succeeding installments
of estimated Additional Rent or (2) pay the excess to Tenant within thirty (30)
days after delivery of such statement. If the Independent Review shows that
Tenant's payments of Operating
6
<PAGE> 11
Expenses for such calendar year were less than Tenant's obligation for the
calendar year, Tenant shall pay the deficiency to the Landlord within thirty
(30) days after delivery of such statement.
7.5. Tenant shall not be responsible for Operating Expenses attributable
to the time period prior to the Term Commencement Date. The responsibility of
Tenant for Operating Expenses shall continue to the latest of (i) the date of
termination of the Lease, (ii) the date Tenant has fully vacated the Demised
Premises (including, without limitation, the removal of all items required
hereby to be removed and the completion of all procedures necessary to fully
release and terminate any permits or licenses restricting the use of the Demised
Premises in any manner), or (iii) if termination of the Lease is due to the
default of Tenant, the date of rental commencement of a replacement tenant.
7.6. Operating Expenses for the calendar year in which Tenant's obligation
to share therein commences and in the calendar year in which such obligation
ceases, shall be prorated on a basis reasonably determined by Landlord.
Expenses such as taxes, assessments and insurance premiums which are incurred
for an extended time period shall be prorated based upon time periods to which
applicable so that the amounts attributed to the Demised Premises relate in a
reasonable manner to the time period wherein Tenant has an obligation to share
in Operating Expenses.
7.7. The parties agree that statements in this Lease to the effect that
Landlord is to perform certain of its obligations hereunder at its own or sole
cost and expense shall not be interpreted as excluding any cost from Operating
Expenses if such cost is an Operating Expense pursuant to the terms of this
Lease.
8. Rentable Area
The Rentable Area of the Demised Premises and the Rentable Area of the
Building shall be as set forth in Section 2.1.3 hereof.
9. Security Deposit
9.1. Tenant has deposited with Landlord the sum set forth in Section 2.1.8
(the "Security Deposit") in cash or a Letter of Credit (as hereinafter
defined), which Security Deposit shall be held by Landlord as security for the
performance by Tenant of all of the terms, covenants, and conditions of this
Lease to be kept and performed by Tenant during the Term. If Tenant defaults
with respect to any provision of this Lease, including, but not limited to, any
provision relating to the payment of Rent, Landlord may (but shall not be
required to) use, apply or retain all or any part of the Security Deposit for
the payment of any Rent or any other sum in default, or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
shall, upon demand therefor, deposit cash (or replenish the Letter of Credit if
elected pursuant to Section 9.2 hereof) with Landlord in an amount sufficient
to restore the Security Deposit to its original amount, and Tenant's failure to
do so shall be a material breach of this Lease. Landlord shall not be required
to keep the Security
7
<PAGE> 12
Deposit separate from its general fund, and Tenant shall not be entitled to any
interest on the Security Deposit.
9.2. In lieu of depositing cash as the Security Deposit, Tenant shall have
the right, but not the obligation, to deliver to Landlord an unconditional,
irrevocable standby letter of credit in the amount of $400,000 (the "Letter of
Credit"), which Letter of Credit shall (i) be in a form reasonably acceptable
to Landlord, (ii) be issued by the Northern Trust Company, (iii) be for the
benefit of Landlord, but shall be assignable by Landlord to any subsequent
purchaser or encumbrancer of the Demised Premises, (iv) be automatically
renewable from year to year throughout the Term, (v) be payable by draft sight
in San Diego or La Jolla, California, and/or by facsimile and overnight
delivery to Chicago, Illinois, upon presentation of a certification signed by
an officer of Landlord which states that a default under the Lease has occurred
and has not been cured within any applicable cure period, and (vi) be payable
in the event such Letter of Credit is not renewed on or before the date which
is thirty (30) days prior to its expiration.
9.3. In the event of bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for all periods prior to the
filing of such proceedings.
9.4. Landlord may deliver the Security Deposit to any purchaser of
Landlord's interest in the Demised Premises and thereupon Landlord shall be
discharged from any further liability with respect to the Security Deposit.
This provision shall also apply to any subsequent transfers.
9.5. If Tenant shall fully perform every provision of this Lease to be
performed by Tenant, the Security Deposit, or any balance thereof, shall be
returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest hereunder) within ninety (90) days after the expiration or earlier
termination of this Lease.
10. Use
10.1. Tenant shall use the Demised Premises for the purpose set forth in
Section 2.1.9 and shall not use the Demised Premises, or permit or suffer the
Demised Premises to be used, for any other purpose without the prior written
consent of Landlord which may be withheld in Landlord's sole discretion.
10.2. Tenant shall not use or occupy the Demised Premises in violation of
any federal, state and local laws and regulations, zoning ordinances, or of the
certificate of occupancy issued for the Building, and shall, upon five (5)
days' written notice from Landlord, discontinue any use of the Demised Premises
which is determined by any governmental authority having jurisdiction to be a
violation of law, regulation or zoning ordinance or the certificate of
occupancy, or which in the reasonable opinion of Landlord violates law,
regulation, zoning ordinance or the certificate of occupancy. Tenant shall
comply with any direction of any governmental authority having jurisdiction
which shall, by reason of the nature of Tenant's use or occupancy of the Demised
8
<PAGE> 13
Premises, impose any duty upon Tenant or Landlord with respect to the Demised
Premises or with respect to the use or occupation thereof.
10.3. Tenant shall not do or permit to be done anything which will
invalidate any fire, environmental, extended coverage or any other insurance
policy covering the Building and Common Areas and shall comply with all rules,
orders, regulations, and requirements of the insurers of the Building and Common
Areas.
10.4. Tenant shall at all times provide Landlord with a key to all
entrances to the Building, and shall make available keys to interior areas upon
reasonable advance notice of Landlord. Tenant must, upon termination of this
Lease return to Landlord all keys to the entrances to the Building and to
offices and restrooms, either furnished to, or otherwise procured by Tenant. In
the event any key so furnished is lost, Tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
10.5. Tenant shall not use or allow the Demised Premises to be used for
immoral or unlawful purpose, nor shall Tenant knowingly cause, maintain or
permit any nuisance or waste in, on, or about the Building or Common Areas.
10.6. Notwithstanding any other provision herein to the contrary, Tenant
shall be responsible for all liabilities, costs and expense arising out of or in
connection with the compliance of the Demised Premises, the Building and the
Common Areas as occupied and used by Tenant with the Americans With Disabilities
Act, 42 U.S.C. Section 12101, et seq. (together with regulations promulgated
pursuant thereto, "ADA") and Tenant shall indemnify, defend and hold harmless
from and against any loss, cost, liability or expense (including reasonable
attorneys fees and disbursements) arising out of any failure of the Demised
Premises, the Building and the Common Areas to comply with the ADA.
11. Brokers
11.1. Tenant represents and warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease and
knows of no real estate broker or agent who is or might be entitled to a
commission in connection with this Lease, other than as stated in Section 11.5
hereof.
11.2. Tenant hereby indemnifies and shall defend, hold and save Landlord
harmless from and against any and all claims for any commissions or fees in
connection with this Lease made by any broker or finder having worked, or
claiming to have worked, on behalf of Tenant, other than as stated in Section
11.5 hereof.
11.3. Tenant represents and warrants that no broker or agent has made any
representation or warranty relied upon by Tenant in Tenant's decision to enter
into this Lease other than as contained in this Lease.
9
<PAGE> 14
11.4. Tenant acknowledges and agrees that the employment of brokers by
Landlord is for the purpose of solicitation of offers of lease from prospective
tenants and no authority is granted to any broker to furnish any representation
(written or oral) or warranty from Landlord unless expressly contained within
this Lease. Landlord in executing this Lease does so in reliance upon Tenant's
representations and warranties contained within Sections 11.1 and 11.3 hereof.
11.5. Landlord hereby indemnifies and agrees to defend, hold and save
Tenant harmless from and against any and all claims for any commission or fees
in connection with this Lease made by any broker or finder having worked, or
claiming to have worked, on behalf of Landlord, including from Thomas Giannone
of Julien J. Studley, Inc.
12. HOLDING OVER
12.1. If, with Landlord's express written consent, Tenant holds possession
of all or any part of the Demised Premises after the expiration or earlier
termination of the Term, Tenant shall become a tenant from month-to-month upon
the date of such expiration or earlier termination, and in such case Tenant
shall continue to pay Basic Annual Rent in the amount payable upon the date of
the expiration or earlier termination of this Lease or such other amount as
Landlord may indicate, in Landlord's sole and absolute discretion, in such
written consent, and all other provisions, representations, covenants and
agreements contained herein, other than with respect to the Term and any
extensions thereof, but specifically including, without limitation, the
adjustment of Basic Annual Rent pursuant to Article 6 hereof, shall remain in
full force and effect.
12.2. Notwithstanding the foregoing, if Tenant remains in possession of the
Demised Premises after the expiration or earlier termination of the Term
without the express written consent of Landlord, Tenant shall become a tenant
at sufferance upon the terms of this Lease except that the monthly rental shall
be equal to one hundred fifty percent (150%) of the Basic Annual Rent and
Additional Rent in effect during the last thirty (30) days of the Term. Tenant
shall be responsible for all damages suffered by Landlord resulting from or
occasioned by Tenant's holding over.
12.3. Acceptance by Landlord of Rent after such expiration or earlier
termination of the Term shall not result in a renewal or reinstatement of this
Lease.
12.4. The foregoing provisions of this Article 12 are in addition to and do
not affect Landlord's right to re-entry or any other rights of Landlord
hereunder or as otherwise provided by law.
13. INTENTIONALLY DELETED.
14. CONDITION OF DEMISED PREMISES
Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the condition of the
Demised Premises, or with respect
10
<PAGE> 15
to the suitability for the conduct of Tenant's business. Tenant shall accept the
Demised Premises AS-IS WHERE IS with all faults. The taking of possession of the
Demised Premises by Tenant shall, except as otherwise agreed in writing by
Landlord and Tenant conclusively establish that the Demised Premises and
Building were at such time in good, sanitary and satisfactory condition and
repair.
15. INTENTIONALLY DELETED
16. UTILITIES AND SERVICES
16.1. Tenant shall pay directly for all water, (including the cost to
service, repair and replace reverse osmosis, deionized and other treated water)
gas, heat, light, power, telephone and other utilities supplied to the Demised
Premises and the Common Areas, together with any fees, surcharges and taxes
thereon.
16.2. Tenant shall pay directly for all sewer fees, cable T.V., trash
collection, cleaning, including windows, heating, ventilation, air-conditioning,
maintenance of landscape and grounds, maintenance of drives and parking areas,
security services and devices, building supplies, and maintenance for and
replacement of equipment utilized for operation and maintenance of the Building
and the Common Areas.
16.3. Landlord shall not be liable for, nor shall any eviction of Tenant
result from, the failure to furnish any such utility or service whether or not
such failure is caused by accident, breakage, repairs, strikes, lockouts or
other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, inability despite the
exercise of reasonable diligence or by any other cause, including the gross
negligence of Landlord. In the event of such failure, Tenant shall not be
entitled to any abatement or reduction of Rent, nor be relieved from the
operation of any covenant or agreement of this Lease.
16.4. Tenant shall pay directly to the applicable utility or service
provider, prior to delinquency, for all utilities and services which may be
furnished to Tenant, the Demised Premises or the Common Areas during the Term.
16.5. Landlord reserves the right to stop service of Building systems at
any time, when necessary, by reason of accident or emergency or for repairs,
alterations or improvements, in the judgment of Landlord desirable or necessary
to be made pursuant to Section 18.1 hereof, until said repairs, alterations or
improvements shall have been completed. It is expressly understood and agreed
that any covenants on Landlord's part to furnish any service pursuant to any of
the terms, covenants, conditions, provisions or agreements of this Lease, or to
perform any act or thing for the benefit of Tenant, shall not be deemed
breached if Landlord is unable to furnish or perform the same by virtue of a
strike or labor trouble or any other cause whatsoever.
11
<PAGE> 16
16.6. Subject to Landlord's obligation under Section 18.1 hereof, and
to the condition of the Demised Premises upon the Effective Date, Tenant shall
at all times maintain the Building and the Common Areas in a first class manner
equivalent to other comparable properties reasonably proximate to the Building
in the same city and/or geographic area.
17. Alterations
17.1. Except for alterations which individually do not exceed $10,000, and
other than Tenant's Work, Tenant shall make no alterations, additions or
improvements in or to the Demised Premises or the Common Areas without
Landlord's prior written consent, which approval shall not be unreasonably
withheld (provided, however, that in the event any proposed alteration,
addition or improvement affects (i) any structural portions of the Building
including exterior walls, roof, foundation and core of the Building, (ii) the
exterior of the Building or (iii) any Building systems, including elevator,
plumbing, air conditioning, heating electrical, security, life safety and power,
then Landlord may withhold its consent with respect thereto in its reasonable
discretion regardless of the cost of the alterations), and then only by
architects, contractors, suppliers or mechanics approved by Landlord in
Landlord's reasonable discretion.
17.2. Intentionally Deleted.
17.3. Tenant agrees that any work by Tenant shall be accomplished in such
a manner as to permit any fire sprinkler system and fire water supply lines to
remain fully operable at all times.
17.4. Tenant covenants and agrees that all work done by Tenant shall be
performed in full compliance with all laws, rules, orders, ordinances,
directions, regulations, and requirements of all governmental agencies,
offices, departments, bureaus and boards having jurisdiction, and in full
compliance with the rules, orders, directions, regulations, and requirements of
any applicable fire rating bureau. Tenant shall provide Landlord with
"as-built" plans showing any change in the Demised Premises.
17.5. In seeking Landlord's approval, Tenant shall provide Landlord, at
least fourteen (14) days in advance of any proposed construction, with plans,
specifications, bid proposals, work contracts and such other information
concerning the nature and cost of the alterations as may be reasonably
requested by Landlord, and shall, if required by Landlord, secure at Tenant's
own cost and expenses a completion and lien indemnity bond satisfactory to
Landlord for said work.
17.6. All alterations, attached equipment, decorations, fixtures, trade
fixtures, additions and improvements, subject to Section 17.8, attached to or
built into the Demised Premises, made by either of Landlord or Tenant, including
(without limiting the generality for the foregoing) all floor and wallcovering,
built-in cabinet work and paneling, sinks and relating plumbing fixtures,
exterior venting fume hoods and walk-in freezers and refrigerators, clean rooms,
climatized rooms, ductwork, conduits, electrical panels and circuits, shall
become the property of Landlord upon the expiration or earlier termination of
the term of this Lease, and shall remain upon and be surrendered with the
12
<PAGE> 17
Demised Premises as a part thereof, provided, however, that Landlord may,
subject to the following sentence, at any time elect to cause Tenant to remove
any such items from the Demised Premises any such items installed after
the Effective Date upon the expiration or earlier termination of this Lease,
and, if Landlord so elects, Tenant shall remove such alterations, attached
equipment, decorations, fixtures, trade fixtures, additions and improvements
upon the expiration or earlier termination of this Lease and restore any damage
caused by or occasioned as a result of such result. Landlord will inform Tenant
of whether Tenant will be required to remove any or all of the alterations
concurrently with approving Tenant's proposed specifications for the
alterations. It shall be reasonable for Landlord to reject Tenant's request to
make alterations if pursuant thereto Tenant has requested that the alterations
remain part of the Demised Premises upon the expiration or earlier termination
of the Lease with no obligation of Tenant to remove them.
17.7. Tenant shall repair any damage to the Demised Premises caused by
Tenant's removal of any property from the Demised Premises. During any such
restoration period, Tenant shall pay Rent to Landlord as provided herein as if
said space were otherwise occupied by Tenant.
17.8. Except as to those items listed on Exhibit "C" attached hereto and
incorporated herein (together with Tenant's personal property and items which
Landlord elects to cause Tenant to remove pursuant to Section 17.6, "Tenant's
Property"), all business and trade fixtures, machinery and equipment (but not
including office and laboratory furniture and equipment and other movable
items), built-in furniture and cabinets, together with all additions and
accessories thereto, installed in and upon the Demised Premises shall be and
remain the property of Landlord and shall not be moved by Tenant at any time
during the Term. If Tenant shall fail to remove all of Tenant's Property from
the Demised Premises prior to termination of this Lease, then Landlord may, at
its option, remove the same in any manner that Landlord shall choose, and store
all such items without liability to Tenant for loss thereof or damage thereto,
and Tenant agrees to pay Landlord upon demand any expenses incurred in
connection with such removal and storage. To the extent permitted by law or
equity, Landlord may, at its option, without notice, sell such property or any
of the same, at private sale and without legal process, for such price as
Landlord may obtain and apply the proceeds of such sale against any amounts due
under this Lease from Tenant to Landlord and against any expenses incident to
the removal, storage and sale of such property. Tenant shall not be permitted
to remove (i) any part of the Building's systems, (ii) anything purchased or
paid for by Landlord directly or through the payment by Landlord to Tenant of
any construction or improvement allowance including the Tenant Improvement
Allowance, or (iii) anything that could result in significant damage to the
Building.
17.9. Notwithstanding any other provision of this Article 17 to the
contrary, in no event may Tenant remove any improvement from the Demised
Premises as to which Landlord contributed payment, including, without
limitation, the Tenant's Work referred to on Exhibit "B", without Landlord's
prior written consent, which may be withheld in Landlord's sole discretion.
17.10. Tenant shall pay to Landlord, as Additional Rent, an amount equal
to the lesser of (i) five percent (5%) of the cost to Tenant of all charges
incurred by Tenant or its contractors or
13
<PAGE> 18
agents in connection with any alterations, additions or improvements to the
Demised Premises and (ii) $25,000, to cover Landlord's overhead and expenses
for plan review, coordination, scheduling and supervision thereof. For purposes
of payment of such sum, Tenant shall submit to Landlord copies of all bills,
invoices, and statements covering the costs of such charges, which will be
accompanied by payment to Landlord of the percentage fee set forth above.
Tenant shall reimburse Landlord for any extra expense incurred by Landlord by
reason of faulty work done by Tenant or its contractors, or by reason of delays
caused by such work, or by reason of inadequate cleanup.
17.11. Prior to commencement of any work or the delivery of any material to
the Demised Premises by any contractor, subcontractor or materialman (herein
collectively called "Contractor"), Tenant shall deliver to Landlord a signed,
acknowledged and sealed waiver of liens (herein called "Contractor's Waiver of
Liens") from each such Contractor in form and content reasonably satisfactory to
Landlord, and Tenant shall at Tenant's expense cause a duly executed and
notarized counterpart thereof to be filed with the Prothonotary of the county in
which the Demised Premises are located. The Contractor's Waiver of Liens shall
provide, among other things, that the Contractor waives any and all lien rights
that it may have against Landlord's estate, rights, title and interest in the
Demised Premises and the Common Areas, and any part thereof. Landlord shall have
the right to post and keep posted in the Demised Premises and Common Areas
notices of non-responsibility, or such other notices as Landlord may deem to be
proper for the protection of Landlord or Landlord's estate, right, title and
interests in the Demised Premises and Common Areas and any part thereof.
18. Repairs and Maintenance
18.1. Landlord shall maintain the structural portions of the Building only,
including, without limitation, the structural portions of the roof and covering
materials, foundations and exterior walls, and the full cost thereof shall not
be included as a part of Operating Expenses, unless such maintenance or repairs
are required in whole or in part because of any act, neglect, fault of or
omissions of any duty by Tenant, its agents, servants, employees or invitees, in
which case Tenant shall pay to Landlord the cost of such maintenance and repairs
as Additional Rent.
18.2. Except for Landlord's obligation under Section 18.1, Tenant shall at
Tenant's sole cost and expense keep the Demised Premises and every part thereof
in good condition and repair, in the manner described in Section 16.6 hereof,
damage thereto from ordinary wear and tear excepted. Tenant shall, upon the
expiration or earlier termination of this Lease, surrender the Demised Premises
to Landlord in as good as condition as when received, ordinary wear and tear
excepted. Landlord shall have no obligation to alter, remodel, improve, repair,
decorate or paint the Demised Premises or any part thereof.
18.3. Landlord shall not be liable for any failure to make any repairs or
to perform any maintenance which is an obligation of Landlord unless such
failure shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant. Tenant waives
the rights under any law, statute or ordinance now or hereafter in effect to
make repairs at Landlord's expense.
14
<PAGE> 19
18.4. In the event of fire, earthquake, flood, vandalism, war, or similar
cause of damage or destruction, this Article 18 shall not be applicable and the
provisions of Article 22 shall apply and control.
19. Liens
19.1. Tenant shall keep the Demised Premises and the real property upon
which the Building is situated free from any liens arising out of work
performed, materials furnished or obligations incurred by Tenant. Tenant further
covenants and agrees that any mechanic's lien filed against the Building or the
Common Areas for work claimed to have been done for, or materials claimed to
have been furnished to Tenant, will be discharged by Tenant, by bond or
otherwise, within ten (10) days after the filing thereof, at the sole cost and
expense of Tenant.
19.2. Should Tenant fail to discharge any lien of the nature described in
Section 19.1, Landlord may at Landlord's election pay such claim or post a bond
or otherwise provide security to eliminate the lien as a claim against title and
the cost thereof shall be immediately due from Tenant as Additional Rent.
19.3. In the event Tenant shall lease or finance the acquisition of office
equipment, furnishings, or other personal property of a removable nature
utilized by Tenant in the operation of Tenant's business or which are Tenant's
Property, Tenant warrants that any Uniform Commercial Code Financing Statement
executed by Tenant will upon its face or by exhibit thereto indicate that such
Financing Statement is applicable only to such Tenant's Property located within
the Demised Premises. In no event shall the address of the Building be furnished
on the statement without qualifying language as to applicability of the lien
only to such Tenant's Property, located in an identified suite held by Tenant.
Should any holder of a Financing Statement executed by Tenant record or place of
record a Financing Statement which appears to constitute a lien against any
interest of Landlord or against equipment which may be located other than within
the Demised Premises, Tenant shall within ten (10) days after filing such
Financing Statement cause (i) a copy of the Security Agreement or other
documents to which Financing Statement pertains to be furnished to Landlord to
facilitate Landlord's being in a position to show such lien is not applicable to
Landlord's interest, and (ii) cause Tenant's lender to amend any documents of
record so as to clarify that such lien is not applicable to any interest of
Landlord in the Building or the Common Areas.
20. Indemnification and Exculpation
20.1. Tenant hereby indemnifies and agrees to defend, hold and save
Landlord harmless from and against any and all demands, claims, liabilities,
losses, costs, expenses, actions, causes of action, damages or judgments, and
all reasonable expenses incurred in investigating or resisting the same
(including, without limitation, reasonable attorneys' fees, charges and
disbursements), for injury or death to person or injury to property occurring
within or about the Demised Premises or the Common Areas, arising directly or
indirectly out of Tenant's, it's employees, agents or guests use
15
<PAGE> 20
or occupancy of the Demised Premises or a breach or default by Tenant in the
performance of any of its obligations hereunder, except to the extent caused
solely by the willful act or negligence of the Landlord.
20.2. Landlord shall not be liable to Tenant and Tenant assumes all risk of
damage to personal property or scientific research, including loss of records
kept within the Demised Premises if the cause of such damage is of a nature
which, if Tenant had elected to maintain fire and theft insurance with extended
coverage and business records endorsement available on a commercially reasonable
basis, would be a loss subject to settlement by the insurance carrier,
including, but not limited to, damage or losses caused by fire, electrical
malfunctions, gas explosion, and water damage of any type, including, but not
limited to, broken water lines, malfunction of fire sprinkler system, roof
leakage or stoppages of lines unless and except if such loss is due to willful
disregard of Landlord after written notice by Tenant of need for a repair which
Landlord is responsible to make for an unreasonable period of time. Tenant
further waives any claim for injury to Tenant's business or loss of income
relating to any such damage or destruction of personal property including any
loss of records.
20.3. Landlord shall not be liable for any damages arising from any act,
omission or neglect of any third party.
20.4. Security devices and services, if any, while intended to deter crime
may not in given instances prevent theft or other criminal acts. Tenant
acknowledges and agrees that Landlord shall not be liable for injuries or losses
caused by criminal acts of third parties, and Tenant assumes the risk that a
criminal may circumvent any security device or service or that a security device
or service may malfunction. Tenant shall, at Tenant's cost, obtain insurance
coverage to the extent Tenant desires protection against such criminal acts.
21. Insurance - Waiver of Subrogation
21.1. Landlord, as part of Operating Expenses, shall carry insurance upon
the Building, in an amount equal to full replacement cost (exclusive of the
costs of excavation, foundations, and footings, and without reference to
depreciation taken by Landlord upon its books or tax returns) or such lesser
coverage as Landlord may elect provided such coverage is not less than ninety
percent (90%) of such full replacement cost or the amount of such insurance
Landlord's mortgage lender requires Landlord to maintain, providing protection
against any peril generally included within the classification "Fire and
Extended Coverage" together with insurance against sprinkler damage (if
applicable), vandalism and malicious mischief. Landlord, subject to availability
thereof and, as part of Operating Expenses, shall further insure as Landlord
deems appropriate coverage against flood, environmental hazard and earthquake,
loss or failure of building equipment, rental loss during the period of repair
or rebuild, workmen's compensation insurance and fidelity bonds for employees
employed to perform services. Notwithstanding the foregoing, Landlord may, but
shall not be deemed required to, provide insurance as to any improvements
installed by Tenant or which are in addition to the standard improvements
customarily furnished by Landlord without regard to whether
16
<PAGE> 21
or not such are made a part of the Building.
21.2. Landlord, as part of Operating Expenses, shall further carry public
liability insurance, from carriers satisfying the requirements set forth in
Section 21.4 hereof, with a single loss limit of not less than Five Million
Dollars ($5,000,000.00) for death or bodily injury, or property damage with
respect to the Demised Premises. Landlord shall obtain for Tenant from the
insurance companies or cause the insurance companies to furnish certificates of
coverage to Tenant within fifteen (15) days of receiving written request
therefore from Tenant; provided, that, Tenant shall not be named as an
additional insured under any such policy.
21.3. Tenant at its own cost shall procure and continue in effect from the
Term Commencement Date and continuing throughout the Term (and occupancy by
Tenant, if any, after the expiration or earlier termination of this Lease)
comprehensive public liability insurance with limits of not less than Five
Million Dollars ($5,000,000.00) per occurrence for death or bodily injury and
not less than Five Million Dollars ($5,000,000.00), or such lesser amount as
shall represent the replacement value of Tenant's Property, for property damage
with respect to the Demised Premises.
21.4. The aforesaid insurance required of Tenant shall name Landlord, its
officers, employees and agents, as an additional insured. Said insurance shall
be with companies having a rating of not less than policyholder rating of A and
financial category rating of at least Class XII in "Best's Insurance Guide."
Tenant shall obtain for Landlord from the insurance companies or cause the
insurance companies to furnish certificates of coverage to Landlord. No such
policy shall be cancelable or subject to reduction of coverage or other
modification or cancellation except after thirty (30) days prior written notice
to Landlord from the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of the coverage which
Landlord may carry. Tenant's policy may be a "blanket policy" which
specifically provides that the amount of insurance shall not be prejudiced by
other losses covered by the policy. Tenant shall, at least twenty (20) days
prior to the expiration of such policies, furnish Landlord with renewals or
binders. Tenant shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance, Landlord may (but shall
not be required to) procure said insurance on Tenant's behalf and require
Tenant to pay for the additional cost of such insurance as Additional Rent.
21.5. Tenant assumes the risk of damage to any fixtures, goods, inventory,
merchandise, equipment, and leasehold improvements, and Landlord shall not be
liable for injury to Tenant's business or any loss of income therefrom relative
to such damage all as more particularly heretofore set forth within this Lease.
Tenant at Tenant's cost shall carry such insurance as Tenant desires for
Tenant's protection with respect to personal property of Tenant or business
interruption.
21.6. In each instance where insurance is to name Landlord as an additional
insured, Tenant shall upon written request of Landlord also designate and
furnish certificates so evidencing Landlord as an additional insured to (i) any
lender of Landlord holding a security interest in the Building or real property
upon which the Building is situated, and/or (ii) the landlord under any lease
wherein Landlord is tenant of the real property whereupon the Building is
located if the interest of Landlord
17
<PAGE> 22
is or shall become that of a tenant under a ground lease rather than that of a
fee owner, and/or (iii) any management company retained by Landlord to manage
the Demised Premises.
21.7. Landlord and Tenant each hereby waive any and all rights of recovery
against the other or against the officers, directors, employees, agents, and
representatives of the other, on account of loss or damage occasioned to such
waiving party or its property or the property of others under its control to
the extent that such loss or damage is insured against under any fire and
extended coverage insurance policy which either may have in force at the time
of such loss or damage. Such waivers shall continue as long as their respective
insurers so permit. Any termination of such a waiver shall be by written notice
of circumstances as hereinafter set forth. Landlord and Tenant upon obtaining
the policies of insurance required or permitted under this Lease shall give
notice to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease. If such policies shall not be
obtainable with such waiver or shall be so obtainable only at a premium over
that chargeable without such waiver, the party seeking such policy shall notify
the other thereof, and the latter shall have ten (10) days thereafter to either
(i) procure such insurance with companies reasonably satisfactory to the other
party or (ii) agree to pay such additional premium (in the Tenant's case, in
the proportion which the area of the Demised Premises bears to the insured
area). If neither (i) nor (ii) are done, this Section 21.7 shall have no effect
during such time as such policies shall not be obtainable or the party in whose
favor a waiver of subrogation is desired refuses to pay the additional premium.
If such policies shall at any time be unobtainable, but shall be subsequently
obtainable, neither party shall be subsequently liable for a failure to obtain
such insurance until a reasonable time after notification thereof by the other
party. If the release of either Landlord or Tenant, as set forth in the first
sentence of this Section 21.7 shall contravene any law with respect to
exculpatory agreements, the liability of the party in question shall be deemed
not released but shall be secondary to the other's insurer.
21.8. Landlord may require insurance policy limits to be raised to conform
with the prudent practice at such time for comparable properties reasonably
proximate to the Building in the same city or geographic area.
22. Damage or Destruction
22.1. In the event of a partial destruction of the Building by fire or
other perils covered by extended coverage insurance, not exceeding twenty-five
percent (25%) of the full insurable value thereof, and if the damage thereto is
such that the Building may be repaired, reconstructed or restored within a
period of six (6) months from the date of the happening of such casualty and
Landlord will receive insurance proceeds sufficient to cover the cost of such
repairs (except for any deductible amount provided by Landlord's policy, which
deductible amount if paid by Landlord shall be an Operating Expense), Landlord
shall commence and proceed diligently with the work of repair, reconstruction
and restoration and this Lease shall continue in full force and effect.
22.2. In the event of any damage to or destruction of the Building, other
than as provided in Section 22.1, Landlord may elect to repair, reconstruct and
restore the Building in which case this
18
<PAGE> 23
Lease shall continue in full force and effect. If Landlord elects not to repair
then this Lease shall terminate as of date of destruction.
22.3. Landlord shall give written notice to Tenant of its election not to
repair, reconstruct or restore the Building or Common Areas within the sixty
(60) day period following the date of damage or destruction.
22.4. Upon any termination of this Lease under any of the provisions of
this Article, the parties shall be released thereby without further obligation
to the other from the date possession of the Demised Premises is surrendered to
the Landlord except for items which have theretofore occurred.
22.5. In the event of repair, reconstruction and restoration as herein
provided, the rental provided to be paid under this Lease shall be abated
proportionately based on the extent to which Tenant's use of the Demised
Premises is impaired during the period of such repair, reconstruction or
restoration, unless Landlord provides Tenant with other space during the period
of repair, which in Tenant's reasonable opinion is suitable for the temporary
conduct of Tenant's business.
22.6. Notwithstanding anything to the contrary contained in this Article,
should Landlord be delayed or prevented from completing the repair or
restoration of the damage to the Demised Premises after the occurrence of such
damage or destruction by reason of acts of God or war, governmental
restrictions, inability to procure the necessary labor or materials, strikes,
or other uses beyond the control of Landlord, the time for Landlord to commence
or complete repairs shall be extended, provided, at the election of Landlord,
Landlord shall be relieved of its obligation to make such repairs or
restoration and Tenant shall be released from its obligation under this Lease
as of the end of eight (8) months from date of destruction, if repairs required
to provide Tenant use of the Demised Premises are not then substantially
complete.
22.7. Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Demised Premises when the damage resulting from any casualty
covered under this Article occurs during the last twenty-four (24) months of
the Term, or to the extent that insurance proceeds are not available therefor.
23. EMINENT DOMAIN
23.1. In the event the whole of the Demised Premises, or such part thereof
as shall substantially interfere with the Tenant's use and occupancy thereof,
shall be taken for any public or quasi-public purpose by any lawful power or
authority by exercise of the right of appropriation, condemnation or eminent
domain, or sold to prevent such taking, Tenant or Landlord may terminate this
Lease effective as of the date possession is required to be surrendered to said
authority.
23.2. In the event of a partial taking of the Building, the Common Areas or
of drives, walkways, and parking areas serving the Building or the Project for
any public or quasi-public
19
<PAGE> 24
purpose by any lawful power of or authority by exercise of right of
appropriation, condemnation, or eminent domain, or sold to prevent such taking
then without regard as to whether any portion of the Demised Premises occupied
by Tenant was so taken. Tenant may elect to terminate this Lease as of such
taking if such taking is, in the reasonable opinion of Tenant, of a material
nature such as to make it uneconomical to continue use of the unappropriated
portion for purposes of office rentals or laboratory space.
23.3. Tenant shall be entitled to any award which is specifically awarded
as compensation for the taking of Tenant's Property and for costs of Tenant
moving to a new location. Except as before set forth, any award for such taking
shall belong to Landlord.
23.4. If upon any taking of the nature described in this Article 23 this
Lease continues in effect, the Landlord shall promptly proceed to restore the
Demised Premises to substantially its same condition prior to such partial
taking. The Rent shall be abated proportionately based upon the extent to which
Tenant's use of the Demised Premises has decreased on the basis of the
percentage of the rental value of the Demised Premises after such taking and the
rental value of the Demised Premises prior to such taking.
24. Defaults and Remedies
24.1. Late payment by Tenant to Landlord of Rent and other sums due will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Such costs
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Landlord by the terms of any mortgage or trust
deed covering the Demised Premises. Therefore, if any installment of Rent due
from Tenant is not received by Landlord within ten (10) days after the date such
payment is due, Tenant shall pay to Landlord an additional sum of five percent
(5%) of the overdue Rent as a late charge. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. In addition to the late charge, Rent
not paid when due shall bear interest from the 10th day after date due until
paid at the lesser of (i) twelve percent (12%) per annum or (ii) the maximum
rate permitted by law.
24.2. No payment by Tenant or receipt by Landlord of a lesser amount than
the Rent payment herein stipulated shall be deemed to be other than on account
of the Rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy provided.
If at any time a dispute shall arise as to any amount or sum of money to be paid
by Tenant to Landlord, Tenant shall have the right to make payment "under
protest" and such payment shall not be regarded as a voluntary payment, and
there shall survive the right on the part of Tenant to institute suit for
recovery of the payment paid under protest.
24.3. If Tenant fails to pay any sum of money (other than Basic Annual
Rent) required to
20
<PAGE> 25
be paid by it hereunder, or shall fail to perform any other act on its part to
be performed hereunder, Landlord may, with prior notice to Tenant, without
waiving or releasing Tenant from any obligations of Tenant, but shall not be
obligated to make such payment or perform such act. All sums so paid or incurred
by Landlord, together with interest thereon, from the date such sums were paid
or incurred, at the annual rate equal to twelve percent (12%) per annum or
highest rate permitted by law, whichever is less ("Default Rate"), shall be
payable to Landlord on demand as Additional Rent.
24.4. The occurrence of any one or more of the following events shall
constitute a "Default" hereunder by Tenant:
24.4.1 The abandonment or vacation of the Demised Premises by Tenant
prior to expiration or termination of the Lease;
24.4.2 The failure by Tenant to make any payment of Rent within five (5)
days of written notice from Landlord (provided such notice need only be given
twice in any calendar year);
24.4.3 The failure by Tenant to observe or perform any obligation or
covenant contained herein (other than described in Section 24.4.1 and 24.4.2) to
be performed by Tenant, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Landlord to Tenant. Such notice
shall be in lieu of, and not in addition to, any notice required under
Pennsylvania law, provided that if the nature of Tenant's default is such that
it reasonably requires more than thirty (30) days to cure, then Tenant shall not
be deemed to be in default if Tenant shall commence such cure within said thirty
(30) day period and thereafter diligently prosecute the same to completion,
provided, however, that such cure is completed no later than ninety (90) days
from the date of written notice;
24.4.4 Tenant makes an assignment for the benefit of creditors;
24.4.5 A receiver, trustee or custodian is appointed to, or does, take
title possession or control of all, or substantially all, of Tenant's assets;
24.4.6 Tenant files a voluntary petition under the Bankruptcy Code (or
any similar law) or an order for relief is entered against Tenant pursuant to a
voluntary or involuntary proceeding commenced under any chapter of the
Bankruptcy Code;
24.4.7 Any involuntary petition is filed against the Tenant under any
chapter of the Bankruptcy Code and is not dismissed within ninety (90) days; or
24.4.8 Tenant's interest in this Lease is attached, executed upon, or
otherwise judicially seized and such action is not released within ninety (90)
days of the action.
Notices given under this Section 24.4 shall specify the alleged default and
shall demand that Tenant perform the provisions of this Lease or pay the Rent
that is in arrears, as the case may be, within the
21
<PAGE> 26
applicable period of time, or quit the Demised Premises. No such notice shall be
deemed a forfeiture or a termination of this Lease unless Landlord elects
otherwise in such notice.
24.5. In the event of a Default by Tenant, and at any time thereafter
prior to cure, with additional notice and without limiting Landlord in the
exercise of any right or remedy which Landlord may have, Landlord shall be
entitled to terminate Tenant's right to possession of the Demised Premises by
any lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Demised Premises to Landlord. In such
event, Landlord shall have the immediate right to re-enter and remove all
persons and property, and such property may be removed and stored in a public
warehouse or elsewhere at the cost of, and for the account of Tenant, all
without resort to legal process and without being deemed guilty of trespass, or
becoming liable for any loss or damage which may be occasioned thereby provided
that Landlord shall act in a commercially reasonable manner. In the event that
Landlord shall elect to so terminate this Lease, then Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including:
24.5.1 The worth at the time of award of any unpaid Rent which had been
earned at the time of such termination; plus
24.5.2 The worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination until the time of award
exceeds that portion of such rental loss which Tenant proves could have been
reasonably avoided; plus
24.5.3 The worth at the time of award of the amount by which the unpaid
Rent for the balance of the term after the time of award exceeds the amount of
such rental loss which Tenant proves could have been reasonably avoided; plus
24.5.4 Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligation
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, the cost of restoring the
Demised Premises to the condition required under the terms of this Lease; plus
24.5.5 At the Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in Sections 24.5.1 and 24.5.2 above, "worth at the time of award" shall
be computed by allowing interest at the rate specified in Section 24.1. As used
in Section 24.5.3 above, the "worth at the time of the award" shall be computed
by taking the present value of such amount, by using the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award plus six (6)
percentage points.
24.6. If Landlord does not elect to terminate this Lease as provided in
this Section, then Landlord may, from time to time, recover all Rent as it
becomes due under this Lease. At any time
22
<PAGE> 27
thereafter and prior to cure, Landlord may elect to terminate this Lease and to
recover damage to which Landlord is entitled.
24.7. In the event Landlord elects to terminate this Lease and relet the
Demised Premises, it may execute any new lease in its own name. Tenant hereunder
shall have no right or authority whatsoever to collect any Rent from such
tenant. The proceeds of any such reletting shall be applied as follows:
First, to the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord, including, but not limited to, storage charges or
brokerage commissions owing from Tenant to Landlord as the result of such
reletting;
Second, to the payment of the costs and expenses of reletting the Demised
Premises, including alterations and repairs which Landlord deems reasonably
necessary and advisable and reasonable attorneys' fees, charges and
disbursements incurred by Landlord in connection with the retaking of the
Demised Premises and such reletting;
Third, to the payment of Rent and other charges due and unpaid hereunder;
and
Fourth, to the payment of future Rent and other damages payable by Tenant
under this Lease.
24.8. All rights, options, and remedies of Landlord contained in this Lease
shall be construed and held to be nonexclusive and cumulative. Landlord shall
have the right to pursue any one or all of such rights, options and remedies or
any other remedy or relief which may be provided by law, whether or not stated
in this Lease. No waiver of any default of Tenant hereunder shall be implied
from any acceptance by Landlord of any Rent or other payments due hereunder or
any omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver.
24.9. Tenant expressly waives (i) all rights under the Landlord and Tenant
Act of 1951, and all supplements and amendments thereto, and (ii) the right to
three (3) months or fifteen (15) or thirty (30) days' notice required under
certain circumstances by the Landlord and Tenant Act of 1951. Tenant hereby
agreeing that the respective notice periods provided for in this Lease shall be
sufficient in either or any such case.
24.9.1 When this Lease and the Term or any extension or renewal thereof
shall have expired, or terminated on account of any uncured Default on the part
of Tenant hereunder, or upon a Default, it shall be lawful for any attorney of
any court of record to appear as attorney for Tenant as well as for all persons
claiming by, through or under Tenant (and Tenant hereby appoints Landlord as the
attorney-in-fact of Tenant, coupled with an interest in Tenant's name, place
and stead as if signed and delivered by Tenant), and in any action or proceeding
in any court of competent jurisdiction to confess judgment in ejectment (and
otherwise enter judgment for possession of the
23
<PAGE> 28
Demised Premises) against Tenant and against all persons claiming by, through
or under Tenant, for the recovery by Landlord of possession of the Demised
Premises, for which this Lease and the appointments herein shall be sufficient
warrant; thereupon, if Landlord so desires, an appropriate writ of possession
may issue forthwith, without any prior writ or proceeding whatsoever, and
provided that if for any reason after such action shall have been commenced it
shall be determined that possession of the Demised Premises should remain in or
be restored to Tenant, Landlord shall have the right for the same default and
upon any subsequent default or defaults, or upon the termination of this Lease
or of Tenant's right of possession as hereinbefore set forth, to bring one or
more further action or actions as hereinbefore set forth to recover possession
of the Demised Premises and to confess judgment (and otherwise agree on behalf
of Tenant to the entry of judgment) for the recovery of possession of the
Demised Premises by Landlord as hereinbefore provided. The foregoing warrant
shall not be exhausted any one exercise thereof but shall be exercisable from
time to time and as often as there is any one or more uncured Defaults or
whenever this Lease and the Term or any extension or renewal thereof shall have
expired, or terminated on account of any uncured Default by Tenant hereunder.
24.9.2 In any action, a true copy of this Lease (and of the truth
of the copy such affidavit or verified complaint shall be sufficient evidence)
shall be sufficient warrant, and it shall not be necessary to file the original
as a warrant of attorney, any rule of court, custom or practice to the contrary
notwithstanding.
24.9.3 TENANT ACKNOWLEDGES AND AGREES THAT THIS LEASE CONTAINS
PROVISIONS UNDER WHICH LANDLORD MAY ENTER JUDGMENT BY CONFESSION AGAINST TENANT.
BEING FULLY AWARE OF TENANT'S RIGHTS TO PRIOR NOTICE AND A HEARING ON THE
VALIDITY OF ANY JUDGMENT OR OTHER CLAIMS THAT MAY BE ASSERTED AGAINST HIM/HER
BY LANDLORD HEREUNDER BEFORE JUDGMENT IS ENTERED, TENANT HEREBY FREELY,
KNOWINGLY AND INTELLIGENTLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND
CONSENTS TO LANDLORD'S ENTERING JUDGMENT AGAINST TENANT BY CONFESSION PURSUANT
TO THE TERMS OF THIS LEASE.
TENANT'S INITIALS: _______________________
24.10. In addition to any and all other rights or remedies of Landlord
in this Lease or by law or in equity provided, and at Landlord's sole election,
Landlord shall have the right, upon the occurrence of an uncured Default to
accelerate any and all Rent, Additional Rent and other sums payable by Tenant
hereunder to become due for the balance of the term of this Lease, whereupon
the same shall be immediately due and payable in full, and Landlord may
thereupon bring suit for the collection of Rent (including Rent in arrears and
to accelerate any and all Rent to become due for the balance of the Term of
this Lease) and for all other damages.
24.11. Whenever liquidated damages are specified anywhere in this
Lease, it is understood and agreed that said sum is to be paid to Landlord
because Landlord's actual damages will be
24
<PAGE> 29
difficult or impossible to ascertain with accuracy. The obligation of
Tenant set forth herein to pay Landlord's attorneys' fees in connection with
Tenant's default shall include the obligation of Tenant to pay all reasonable
attorneys' fees incurred by Landlord before, during and after trial and on
appeal. The parties further agree that any attorneys' fees incurred in
enforcing any judgment are recoverable as a separate item, and that this
provision is intended to be severable from the other provisions of this Lease,
shall survive the judgment, and is not to be deemed merged into the judgment.
24.12. Termination of this Lease or Tenant's right to possession by
Landlord shall not relieve Tenant from any liability to Landlord which has
theretofore accrued or shall arise based upon events which occurred prior to the
last to occur of (i) the date of Lease termination or (ii) the date possession
of Demised Premises is surrendered.
24.13. Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event shall
such failure to continue be for more than thirty (30) days after written notice
by Tenant specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for performance, then Landlord shall not be
in default if Landlord commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.
24.14. In the event of any default on the part of Landlord, Tenant will
give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgagee of a mortgage covering the Demised Premises and to any
landlord of any lease of any building in which Demised Premises is located whose
address shall have been furnished, and Tenant shall offer such beneficiary,
mortgagee and/or landlord a reasonable opportunity to cure the default,
including time to obtain possession of the Building by power of sale or a
judicial action if such should prove necessary to effect a cure, provided that
Landlord shall have furnished to Tenant in writing the names and addresses of
all such persons who are to receive such notices.
25. Assignment or Subletting
25.1. Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, directly or indirectly, sell, hypothecate,
assign, pledge, encumber or otherwise transfer this Lease, or sublet the Demised
Premises or any part thereof, or permit or suffer the Demised Premises or any
part thereof to be used or occupied as work space, storage space, mailing
privileges, concession or otherwise by anyone other than Tenant or Tenant's
employees, without the prior written consent of Landlord in each instance, which
consent shall not be unreasonably withheld.
25.2. If Tenant is a corporation, the shares of which are not actively
traded upon a stock exchange or in the over-the-counter market, a transfer or
series of transfers within any six (6) month period whereby thirty-five percent
(35%) or more of the issued and outstanding shares of such corporation are, or
the voting control is, transferred (but excepting transfers upon deaths of
individual shareholders) from a person or persons or entity or entities which
were owners thereof at
25
<PAGE> 30
time of execution of this Lease to persons or entities who were not owners of
shares of the corporation at time of execution of this Lease shall be deemed an
assignment of this Lease requiring the consent of Landlord as provided in
Section 25.1 above.
25.3. If Tenant desires to assign this Lease to any entity into which
Tenant is merged, with which Tenant is consolidated, or which acquires all or
substantially all of the assets of Tenant, provided that the assignee first
executes, acknowledges and delivers to Landlord an agreement whereby the
assignee agrees to be bound by all of the covenants and agreements in this
Lease and that the assignee shall have a net worth (determined in accordance
with generally accepted accounting principles consistently applied) immediately
after such assignment which is at least equal to the net worth (as so
determined) of Tenant immediately prior to the assignment (or as of the date
hereof, if greater), then Landlord, upon receipt of proof of foregoing shall
consent to such assignment.
25.4. In the event Tenant desires to assign, sublease, hypothecate or
otherwise transfer this Lease or sublet the Demised Premises, then at least
forty-five (45) days, but not more than ninety (90) days, prior to the date
when Tenant desires the assignment or sublease to be effective (the "Assignment
Date"), Tenant shall give Landlord a notice (the "Assignment Notice")
containing information (including references) concerning the character of the
proposed assignee or sublessee, the Assignment Date, any ownership or
commercial relationship between Tenant and the proposed assignee or sublessee,
and the consideration and all other material terms and conditions of the
proposed assignment or sublease along with such other information as Landlord
may reasonably require, all in such detail as Landlord shall reasonably
require. Tenant shall also tender to Landlord, reasonable attorneys fees and
other costs or overhead expenses incurred by Landlord in reviewing Tenants
request for such assignment. Notwithstanding the foregoing, if Tenant desires
to sublet 15,000 square feet of the Demised Premises or less, the forty-five
(45) day notice requirement herein shall be reduced to twenty-one (21) days.
25.5. Landlord in making its determination as to whether consent should be
given to a proposed assignment or sublease, may give consideration to the
financial strength of such successor (notwithstanding the assignor remaining
liable for Tenant's performance) and any change in use which such successor
proposes to make in use of Demised Premises. In no event shall Landlord be
deemed to be unreasonable for declining to consent to transfer to a successor
of poor reputation, lacking financial qualifications, or seeking change in use.
25.6. As conditions precedent to Landlord considering a request by Tenant
to Tenant's transfer of rights or subletting of the Demised Premises, Landlord
may require any or all of the following:
25.6.1 Tenant shall remain fully liable under this Lease during the
unexpired Term;
25.6.2 Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord that the value of Landlord's interest under this Lease
will not thereby be diminished or
26
<PAGE> 31
reduced. Such evidence shall include, but need not be limited to, evidence
respecting the relevant business experience and financial responsibility and
status of the third party concerned;
25.6.3 Tenant shall reimburse Landlord for Landlord's actual costs
and expenses, including, without limitation, reasonable attorneys' fees,
charges and disbursements incurred in connection with the review, processing
and documentation of such request;
25.6.4 Written agreement from any third party concerned that in the
event Landlord gives such third party notice that Tenant is in default under
this Lease, such third party shall thereafter make all payments otherwise due
Tenant directly to Landlord, which payments will be received by Landlord
without any liability on Landlord except to credit such payment against those
due under the Lease, and any such third party shall agree to attorn to Landlord
or its successors and assigns should this Lease be terminated for any reason;
provided, however, that in no event shall Landlord or its successors or assigns
be obligated to accept such attornment;
25.6.5 Any such transfer and consent shall be effected on forms
reasonably approved by Landlord as to form and substance
25.6.6 Tenant shall not then be in default hereunder in any respect;
25.6.7 Such third party's proposed use of the Demised Premises shall
be the same as Tenant's permitted use;
25.6.8 Landlord shall not be bound by any provision of any agreement
pertaining to Tenant's transfer of rights or subletting of the Demised Premises;
25.6.9 Any agreement pertaining to Tenant's transfer of this Lease
or subletting of any portion of the Demised Premises shall be in a form
acceptable to Landlord in Landlord's sole and absolute discretion, and any such
agreement shall not be modified or amended without Landlord's prior written
consent, which may be withheld in Landlord's sole and absolute discretion;
25.6.10 Tenant shall deliver to Landlord one original executed copy
of any and all written instruments evidencing or relating to Tenant's transfer
of rights or subletting of the Demised Premises; and
25.6.11 A list of Hazardous Materials, certified by the proposed
sublessee to be true and correct, which the proposed sublessee intends to use
or store in the Demised Premises. Additionally, Tenant shall deliver to
Landlord, on or before the date any proposed sublessee takes occupancy of the
Demised Premises, all of the items relating to Hazardous Materials of such
proposed sublessee as described in Article 39 below.
25.7. Any sale, assignment, hypothecation or transfer of this Lease
or subletting of the Demised Premises that is not in compliance with the
provisions of this Article 25 shall be void and
27
<PAGE> 32
shall, at the option of Landlord, terminate this Lease.
25.8. The consent by Landlord to an assignment or subletting shall not
relieve Tenant or any assignees of this Lease or sublessee of the Demised
Premises from obtaining the consent of Landlord to any further assignment or
subletting nor shall it release Tenant or any assignee or sublessee of Tenant
from full and primary liability under the Lease.
25.9. Notwithstanding any subletting or assignment, Tenant shall remain
fully and primarily liable for the payment of all Rent and other sums due, or
to become due hereunder, and for the full performance of all other terms,
conditions, and covenants to be kept and performed by Tenant. The acceptance of
Rent or any other sum due hereunder, or the acceptance of performance of any
other term, covenant, or condition thereof, from any other person or entity
shall not be deemed to be a waiver of any of the provisions of this Lease or a
consent to any subletting assignment or other transfer of the Demised Premises.
25.10. If Tenant shall sublet the Demised Premises or any part, Tenant
hereby immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or a
part of the Demised Premises and Landlord as assignee and as attorney-in-fact
for Tenant, or a receiver for Tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations under this Lease,
except that, until the occurrence of an act of Default by Tenant, Tenant shall
have the right to collect such rent.
26. ATTORNEYS' FEES AND COSTS
26.1. Tenant shall be responsible for all of Tenant's legal and related
costs and fees in connection with this Lease.
26.2. If either party commences an action against the other party arising
out of or in connection with this Lease, the prevailing party shall be entitled
to have and recover from the non-prevailing party reasonable attorneys fees,
charges and disbursements and costs of suit.
27. BANKRUPTCY
27.1. In the event a debtor, trustee, or debtor in possession under the
Bankruptcy Code, or other person with similar rights, duties and powers under
any other law, proposes to cure or under Section 24.4.4 or Section 24.4.5
prevent any default under this Lease or to assume or assign this Lease, and is
obliged to provide adequate assurance to Landlord that (i) a default will be
cured, (ii) Landlord will be compensated for its damages arising from any
breach of this Lease, or (iii) future performance under this Lease will occur,
then adequate assurance shall include any or all of the following, as
designated by Landlord.
27.1.1 Those acts specified in the Bankruptcy Code or other law as
included within the meaning of adequate assurance, even if this Lease does not
concern a shopping center or other
28
<PAGE> 33
facility described in such laws;
27.1.2 A prompt cash payment to compensate Landlord for any monetary
defaults or actual damages arising directly from a breach of this Lease;
27.1.3 A cash deposit in an amount at least equal to the Security Deposit
as referenced in Section 2.1.8.
27.1.4 The assumption or assignment of all of Tenant's interest and
obligations under this Lease.
28. Estoppel Certificate
Tenant shall within ten (10) days of written notice from Landlord, execute,
acknowledge and deliver a statement in writing substantially in the form
attached to this Lease as Exhibit "D" with the blanks filled in, and on any
other form reasonably requested by a proposed lender or purchaser, (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified is in full force and effect) and the dates to which the rental
and other charges are paid in advanced, if any, (ii) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed and (iii) setting
forth such further information with respect to this Lease or the Demised
Premises as may be requested thereon. Any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the real
property of which the Demised Premises are a part. Tenant's failure to deliver
such statement within such time shall, at the option of Landlord, constitute a
Default under this Lease, and, in any event, shall be conclusive upon Tenant
that the Lease is in full force and effect and without modification except as
may be represented by Landlord in any certificate prepared by Landlord and
delivered to Tenant for execution.
29. Joint and Several Obligations
29.1. If more than one person or entity executes this Lease as Tenant,
29.1.1 Each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
29.1.2 The term "Tenant" as used in this Lease shall mean and include
each of them jointly and severally. The act of, notice from, notice to, refund
to, or the signature of, any one or more of them, with respect to the tenancy of
this Lease, including, but not limited to, any renewal, extension, expiration,
termination or modification of this Lease, shall be binding upon each and all of
the persons executing this Lease as Tenant with the same force and effect as if
each and all of them had so acted, so given or received such notice or refund or
so signed.
29
<PAGE> 34
30. Definition of Landlord; Limitation of Landlord's Liability
30.1. The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only Landlord or the successor-in-interest of Landlord under this Lease
at the time in question. In the event of any transfer, assignment or the
conveyance of Landlord's fee title or leasehold interest, the landlord herein
named (and in case of any subsequent transfers or conveyances, the then grantor)
shall be automatically freed and relieved from, and after the date of such
transfer, assignment or conveyance, of all liability for the performance of any
covenants or obligations contained in this Lease thereafter to be performed by
Landlord and, without further agreement, the transferee of such title or
leasehold shall be deemed to have assumed and agreed to observe and perform any
and all obligations of Landlord hereunder during its ownership or ground lease
of the Demised Premises. Landlord may transfer its interest in the Demised
Premises or this Lease without the consent of Tenant and such transfer or
subsequent transfer shall not be deemed a violation on the part of Landlord or
the then grantor of any of the terms or conditions of this Lease.
30.2. If Landlord is in default of this Lease, and as a consequence, Tenant
recovers a money judgment against Landlord, the judgment shall be satisfied only
out of the proceeds of sale received on execution of the judgment and levy
against the right, title and interest of Landlord in the Building and Project,
and out of rent or other income from such real property receivable by Landlord
or out of the consideration received by Landlord from the sale, financing,
refinancing, or other disposition of all or any part of Landlord's right, title,
and interest in the Building and Project.
30.3. Landlord shall not be personally liable for any deficiency. If
Landlord is a partnership or joint venture, the partners of such partnership
shall not be personally liable and no partner of Landlord shall be sued or named
as a party in any suit or action or service of process be made against any
partner of Landlord except as may be necessary to secure jurisdiction of the
partnership or joint venture. If Landlord is a corporation, the shareholders,
directors, officers, employees, and/or agents of such corporation shall not be
personally liable and no shareholder, director, officer, employee or agent of
Landlord shall be sued or named as a party in any suit or action or service of
process made against any shareholder, director, officer, employee or agent of
Landlord. No partner, shareholder, director, employee, or agent of Landlord
shall be required to answer or otherwise plead to any service of process and no
judgment will be taken or writ of execution levied against any partner,
shareholder, director, employee or agent of Landlord.
30.4. Each of the covenants and agreements of this Article 30 shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or by common law and shall survive the termination of this
Lease.
31. Project Control by Landlord
31.1. Landlord reserves full control over the Building and the Common Areas
to the extent not inconsistent with Tenant's enjoyment of the Demised Premises.
30
<PAGE> 35
31.2. Landlord may, at any and all reasonable times during non-business
hours (or during business hours if Tenant so requests), and upon reasonable
advance notice (provided that no time restrictions shall apply or advance notice
need be given if an emergency necessitates an immediate entry), enter the
Demised Premises to (a) inspect the same and to determine whether Tenant is in
compliance with its obligations hereunder, (b) supply any service Landlord is
required to provide hereunder, (c) show the Demised Premises to prospective
lenders, insurers, investors, purchasers or, during the last year of the Term,
tenants, (d) post notices of nonresponsibility, and (e) access the structural
portion of the Demised Premises required to be maintained by Landlord. In
connection with any such alteration, improvement or repair, Landlord may erect
in the Demised Premises or the Common Areas scaffolding and other structures
reasonably required for the work to be performed. In no event shall Tenant's
Rent abate as a result of any such entry or work; provided, however, that all
such work shall be done in such a manner as to cause as little interference to
Tenant as reasonably possible. Landlord shall at all times retain a key with
which to unlock all of the doors in the Demised Premises. If an emergency
necessitates immediate access to the Demised Premises, Landlord may use whatever
force is necessary to enter the Demised Premises and any such entry to the
Demised Premises shall not constitute a forcible or unlawful entry to the
Demised Premises, an unlawful detainer of the Demised Premises, or an eviction
of Tenant from the Demised Premises, or any portion thereof.
32. Quiet Enjoyment
So long as Tenant is not in Default, Landlord covenants that Landlord or
anyone acting through or under Landlord will not disturb Tenant's occupancy of
the Demised Premises except as permitted by the provisions of this Lease.
33. Quitclaim Deed
Tenant shall execute and deliver to Landlord on the expiration or earlier
termination of this Lease, immediately on Landlord's request, in recordable
form, a quitclaim deed to the Demised Premises or such other documentation
reasonably requested by Landlord evidencing termination of this Lease.
34. Intentionally Deleted
35. Subordination and Attornment
35.1. This Lease shall be subject and subordinate to the lien of any
mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter
in force against the Common Areas or the Building and to all advances made or
hereafter to be made upon the security thereof without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination provided that Tenant receives a non-disturbance
agreement from any such mortgagee, beneficiary or landlord on such party's
standard form.
31
<PAGE> 36
35.2. Notwithstanding the foregoing, Tenant shall execute and deliver upon
demand such further instrument or instruments evidencing such subordination of
this Lease to the lien of any such mortgage or mortgages or deeds of trust or
lease in which Landlord is tenant as may be required by Landlord. However, if
any such mortgagee, beneficiary or Landlord under lease wherein Landlord is
tenant so elects, this Lease shall be deemed prior in lien to any such lease,
mortgage, or deed of trust upon or including the Demised Premises regardless
of date and Tenant will execute a statement in writing to such effect at
Landlord's request. If Tenant fails to execute any document required from
Tenant under this Section within ten (10) days after written request therefor,
Tenant hereby constitutes and appoints Landlord or its special attorney-in-fact
to execute and deliver any such document or documents in the name of Tenant.
Such power is coupled with an interest and is irrevocable.
35.3. In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
made by the Landlord covering the Demised Premises, the Tenant shall at the
election of the purchaser at such foreclosure or sale attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
36. Surrender
36.1. No surrender of possession of any part of the Demised Premises shall
release Tenant from any of its obligations hereunder unless accepted by
Landlord.
36.2. The voluntary or other surrender of this Lease by Tenant shall not
work a merger, unless Landlord consents and shall, at the option of Landlord,
operate as an assignment to it of any or all subleases or subtenancies.
36.3. The voluntary or other surrender of any ground or underlying lease
that now exists or may hereafter be executed affecting the Building or the
Common Areas, or a mutual cancellation, thereof, or of Landlord's interest
therein, shall not work a merger and shall, at the option of the successor of
Landlord's interest in the Building or Common Areas, operate as an assignment
of this Lease.
36.4. Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Demised Premises to Landlord broom clean and free of
debris; with all of Tenant's personal property and effects removed therefrom,
with all alterations, improvements and fixtures required by Landlord to be
removed from the Demised Premises in accordance with Section 17.6 hereof
actually removed and all damage as a result of or caused by such removal
repaired; and with all licenses, permits and similar items which restrict or
affect the used of the Demised Premises released and fully terminated.
37. Waiver and Modification
No provision of this Lease may be modified, amended or added to except by
an agreement
32
<PAGE> 37
in writing. The waiver by Landlord of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained.
38. Waiver of Jury Trial and Counterclaims
THE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S
USE OR OCCUPANCY OF THE DEMISED PREMISES, AND OR ANY CLAIM OF INJURY OR DAMAGE.
39. Hazardous Materials
39.1. Prohibition/Compliance. Tenant shall not cause or permit any
Hazardous Materials (as hereinafter defined) to be brought upon, kept or used in
or about the Building or Common Areas in violation of applicable law by Tenant,
its agents, employees, contractors or invitees. If Tenant breaches the
obligation stated in the preceding sentence, or if the presence of Hazardous
Materials results in contamination of the Building, the Common Areas or any
adjacent property or if contamination of the Building, the Common Areas or any
adjacent property by Hazardous Materials otherwise occurs during the term of
this Lease or any extension or renewal hereof or holding over hereunder other
than due to the affirmative act of ARE-702 Electronic Drive, L.P., Tenant hereby
indemnifies and shall defend and hold Landlord, its officers, directors,
employees, agents and contractors harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities, or losses (including, without
limitation, diminution in value of the Demised Premises or any portion of the
Building or the Common Areas, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Demised Premises, the damages
arising from any adverse impact on marketing of space in the Demised Premises,
the Building or the Common Areas, and sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees) which arise during or after
the Lease term as a result of such contamination. This indemnification of
Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Materials present in the air, soil or
ground water above on or under the Demised Premises. Without limiting the
foregoing, if the presence of any Hazardous Materials on the Building, the
Common Areas or any adjacent property, caused or permitted by Tenant results in
any contamination of the Building, the Common Areas or any adjacent property,
Tenant shall promptly take all actions at its sole expense as are necessary to
return the Building, the Common Areas or any adjacent property, to the condition
existing prior to the time of such contamination, provided that Landlord's
approval of such action shall first be obtained, which approval shall not
unreasonably be withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Building or the Common
Areas.
33
<PAGE> 38
39.2. Business. Landlord acknowledges that it is not the intent of this
Article 39 to prohibit Tenant from operating its business as described in
Section 2.1.9 above. Tenant may operate its business according to the custom of
the industry so long as the use or presence of Hazardous Materials is strictly
and properly monitored according to all applicable governmental requirements.
As a material inducement to Landlord to allow Tenant to use Hazardous Materials
in connection with its business, Tenant agrees to deliver to Landlord prior
to the Term Commencement Date a list identifying each type of Hazardous
Materials to be present on the Demised Premises and setting forth any and all
governmental approvals or permits required in connection with the presence of
such Hazardous Materials on the Demised Premises ("Hazardous Materials List").
Tenant shall deliver to Landlord an updated Hazardous Materials List at least
once a year and shall also deliver an updated list before any new Hazardous
Materials is brought onto the Demised Premises. Tenant shall deliver to
Landlord true and correct copies of the following documents (the "Documents")
relating to the handling, storage, disposal and emission of Hazardous Materials
prior to the Term Commencement Date, or if unavailable at that time, concurrent
with the receipt from or submission to a governmental agency: permits;
approvals; reports and correspondence; written storage and management plans;
notice of violations of any laws; plans relating to the installation of any
storage tanks to be installed in or under Building or Common Areas (provided,
said installation of tanks shall only be permitted after Landlord has given
Tenant its written consent to do so, which consent may be withheld in Landlord's
sole and absolute discretion), and all closure plans or any other documents
required by any and all federal, state and local governmental agencies and
authorities for any storage tanks installed in, on or under the Building or the
Common Areas for the closure of any such tanks. Tenant is not required, however,
to provide Landlord with any portion(s) of the Documents containing information
of a proprietary nature which, in and of themselves, do not contain a reference
to any Hazardous Materials or hazardous activities. It is not the intent of
this Section to provide Landlord with information which could be detrimental to
Tenant's business should such information become possessed by Tenant's
competitors. At the written request of Landlord, Tenant agrees that it shall
enter into a written agreement with other tenant's at the Building (if any)
concerning the equitable allocation of fire control areas (as defined in the
Uniform Building Code, and adopted by the Township of Horsham ("UBC")) within
the Building for the storage of Hazardous Materials. In the event that Tenant's
use of Hazardous Materials is such that it utilizes fire control areas in the
Building in excess of Tenant's Pro Rata Share of the Building as set forth in
Section 2.1.6 above, Tenant agrees that it shall, at its own expense, and upon
the written request of Landlord, establish and maintain a separate area of the
Demised Premises classified buy the UBC as an "H" occupancy area, for the use
and storage of Hazardous Materials.
39.3. Termination of Lease. Notwithstanding the provisions of Section
39.1 above, if (i) Tenant or the proposed assignee or sublessee of Tenant has
been required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property
if the contamination resulted from such party's action or use of the property in
question, or (ii) Tenant or the proposed assignee or sublessee is subject to an
enforcement order issued by any governmental authority in connection with the
use, disposal or storage of a Hazardous Materials, Landlord shall have the right
to terminate this Lease in Landlord's sole and absolute discretion (with respect
to any such matter involving Tenant) and it shall not be unreasonable for
34
<PAGE> 39
Landlord to withhold its consent to any proposed assignment or subletting (with
respect to any such matter involving a proposed assignee or sublessee).
39.4. Testing. Unless due to the reasonable belief of Landlord that
further testing is required, not more than annually, prior to the expiration or
earlier termination of the Term, Landlord shall have the right to conduct
appropriate tests of the Demised Premises, the Building and the Project to
demonstrate that contamination has occurred as a result of Tenant's use of the
Demised Premises. Tenant shall be solely responsible for and shall defend,
indemnify and hold the Landlord, its agents and contractors harmless from and
against any and all claims, costs and liabilities including actual attorneys'
fees, charges and disbursements, arising out of or in connection with any
removal, clean up; restoration and materials required hereunder to return the
Demised Premises and any other property of whatever nature to their condition
existing prior to the time of any such contamination. Tenant shall only pay for
the cost of tests of the Demised Premises reasonably required by Landlord due
to the reasonable belief that testing is necessary, but not more than annually,
unless testing is reasonably required more than annually based upon the results
of the previous test.
39.5. Underground Tanks. If underground or other storage tanks storing
Hazardous Materials are located on the Demised Premises or are hereafter placed
on the Demised Premises at the request of or for the benefit of Tenant, Tenant
shall monitor the storage tanks, maintain appropriate records, implement
reporting procedures, properly close any underground storage tanks, and take or
cause to be taken all other steps necessary or required under all applicable
local, state and federal laws and regulations as they now exist or may
hereafter be adopted or amended.
39.6. Tenant's Obligations. Tenant's obligations under this Article 39
shall survive the expiration or earlier termination of the Lease. During any
period of time employed by Tenant or Landlord immediately following the
termination of this Lease to complete the removal from the Demised Premises of
any such Hazardous Materials and the release and termination of any licenses or
permits restricting the use of the Demised Premises, Tenant shall continue to
pay the full Rent in accordance with this Lease, which Rent shall be prorated
daily.
39.7. Definition of "Hazardous Materials." As used herein, the term
"Hazardous Materials" means any pollutant, contaminant, hazardous or toxic
substance, material or waste, including, without limitation, those that are or
become regulated by any local governmental authority, the Commonwealth of
Pennsylvania, or the United States government. The term "Hazardous Material"
includes, without limitation, any material or substance which is (i) designated
as a "hazardous substance" pursuant to Section 311 of the Federal Water
Pollution Control Act (33 U.S.C. Section 1317), (ii) defined as a "hazardous
waste" pursuant to Section 1004 of the Federal Resource Conversation and
Recovery Act, 42 U.S.C. Section 6901, et. seq. (42 U.S.C. Section 6903) or
(iii) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 9601 et. seq. (42 U.S.C. Section 9601), all as amended from time to
time and together with the rules and regulations promulgated thereunder.
35
<PAGE> 40
40. Right to Extend Term
Tenant shall have the right to extend the Term of the Lease upon the
following terms and conditions:
40.1. Tenant shall have two (2) consecutive rights (each, an "Extension
Right") to extend the term of this Lease for five (5) years each (each, an
"Extension Term") on the same terms and conditions as the Lease other than Basic
Annual Rent. During any Extension Term, Basic Annual Rent shall be adjusted on
the commencement of each Extension Term to the "Prevailing Rate". The term
"Prevailing Rate" as used herein shall mean the fair market rental rate then
being charged for like space similarly situated in comparable buildings
reasonably proximate to the Building in the same city and/or geographical area,
taking into consideration applicable expenses, for the purpose of setting the
Basic Annual Rent, as well as the value of rent concessions, build-out
allowances and the like. Other leases entered into by Landlord for comparable
space shall be evidence of the "Prevailing Rate". The Prevailing Rate shall in
no event less than the Basic Annual Rent payable on the date immediately
preceding the commencement such Extension Term.
40.2. Extension Rights are personal to Cell Pathways, Inc. and are not
assignable separate and apart from this Lease.
40.3. Extension Rights are conditional upon Tenant giving Landlord written
notice of its election to exercise each Extension Right at least one (1) year
prior to the end of the expiration of the initial term of the Lease or the
expiration of any Extension Term. Landlord shall then notify Tenant within
thirty (30) business days of the then Prevailing Rate. Tenant shall have thirty
(30) business days from the date of Landlord's notice of the Prevailing Rate to
exercise the Extension Right by giving Landlord written notice of intent to
renew the Lease for the Extension Term upon the same terms and conditions.
40.4. Notwithstanding anything set forth above to the contrary, Extension
Rights shall not be in effect and Tenant may not exercise any of the Extension
Rights:
40.4.1 during any period of time that Tenant is in Default under any
provision of this Lease; or
40.4.2 if Tenant has been in Default under any provision of this Lease
three (3) or more times, whether or not the Defaults are cured, during the
twelve (12) month period immediately prior to the date that Tenant intends to
exercise an Extension Right.
40.5. The period of time within which any Extension Rights may be exercised
shall not be extended or enlarged by reason of the Tenant's inability to
exercise the Extension Rights because of the provisions of Section 40.4 above.
40.6. The Extension Rights shall terminate and be of no further force or
effect even after
36
<PAGE> 41
Tenant's due and timely exercise of an Extension Right, if, after such exercise,
but prior to the commencement date of an Extension Term, (i) Tenant fails to
timely cure any Default by Tenant under this Lease; or (ii) Tenant has Defaulted
three (3) or more times during the period from the date of the exercise of an
Extension Right to the date of the commencement of the Extension Term, whether
or not such Defaults are cured.
41. Tenant Signage.
Tenant shall have the exclusive right to install signage on the facade of
the Building. The signage shall consist only of the names of Tenant, any
permitted sublessee and any party to which this Lease may be assigned so long as
Landlord reasonably determines that such successor's name will not detract from
the first-class character of the Building. The type, location and design of such
signage shall be subject to the reasonable approval of Landlord. Fabrication,
installation, insurance, and maintenance of such signage shall be at Tenant's
sole cost and expense. Tenant covenants and agrees that all work done by Tenant
shall be performed in full compliance with all laws, rules, orders, ordinances,
directions, regulations, and requirements of all governmental agencies, offices,
departments, bureaus and boards having jurisdiction, and in full compliance with
the rules, orders, directions, regulations, and requirements of any applicable
fire rating bureau. Except for the foregoing, no sign, advertisement or notice
visible from the exterior of the Building shall be inscribed, painted or affixed
by Tenant on any part of the Building or Common Areas without the prior consent
of Landlord. Tenant shall remove such signage promptly following the expiration
or earlier termination of this Lease. Any such removal shall be at Tenant's sole
expense, and Tenant shall bear the cost of any resulting repairs to the Building
that are reasonably necessary due to the removal. Should Tenant fail to remove
such signage within ten (10) days following the termination of this Lease, or if
Tenant sooner requests that Landlord remove the signage, Landlord shall effect
the removal and repair at Tenant's expense.
42. Miscellaneous
42.1. Real Estate Investment Trust. Notwithstanding anything to the
contrary set forth herein, nothing in this Lease shall be construed to require
Landlord to take any action or fail to take any action if, in the opinion of
Landlord's counsel, a copy of which shall be provided to Tenant, such action or
inaction would be likely to result in Landlord losing its status as a real
estate investment trust, as defined in Section 856 of the Internal Revenue Code
(as amended).
42.2. Terms and Headings. Where applicable in this Lease, the singular
includes the plural and the masculine or neuter includes the masculine, feminine
and neuter. The section headings of this Lease are not a part of this Lease and
shall have no effect upon the construction or interpretation of any part hereof.
42.3. Examination of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution by and delivery
to both Landlord and Tenant.
37
<PAGE> 42
42.4. Time. Time is of the essence with respect to the performance of
every provision of this Lease.
42.5. Covenants and Conditions. Each provision of this Lease performable
by Tenant shall be deemed both a covenant and a condition.
42.6. Consents. Whenever consent or approval of either party is required,
that party shall not unreasonably withhold such consent or approval, except as
may be expressly set forth to the contrary.
42.7. Entire Agreement. The terms of this Lease are intended by the
parties as a final expression of their agreement with respect to the terms as
are included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement. The Basic Lease Provisions, General Provisions, and
Exhibits all constitute a single document and are incorporated herein.
42.8. Severability. Any provision of this Lease which shall provide to be
invalid, void, or illegal in no way affects, impairs or invalidates any other
provision hereof, and such other provisions shall remain in full force and
effect.
42.9. Recording. Landlord may record a short form memorandum hereof in the
form of Exhibit "E" hereto. Neither party shall record this Lease. Tenant shall
be responsible for the cost of recording any Memorandum of Lease, including any
transfer or other taxes incurred in connection with said recordation.
42.10. Impartial Construction. The language in all parts of this Lease
shall be in all cases construed as a whole according to its fair meaning and
not strictly for or against either Landlord or Tenant.
42.11. Inurement. Each of the covenants, conditions and agreements herein
contained shall inure to the benefit of and shall apply to and be binding upon
the parties hereto and their respective heirs, legatees, devisees, executors,
administrators, successors, assigns, sublessees, or any person who may come
into possession of said Demised Premises or any part thereof in any manner
whatsoever. Nothing in this Section 42.11 contained shall in any way alter the
provisions against assignment or subletting in this Lease provided.
42.12. Notices. Any notice, consent, demand, bill, statement, or other
communication required or permitted to be given hereunder must be in writing
and may be given by personal delivery, reputable overnight courier or by mail,
and if given by mail shall be deemed sufficiently given two (2) days after time
when deposited in United States Mail is sent by registered or certified mail,
and if given by other means shall be deemed given when received, addressed to
Tenant at the Demised Premises, or to Tenant or Landlord at the addresses shown
in Sections 2.1.10 and 2.1.11 of the Basic Lease Provisions. Either party may,
by notice to the other given pursuant to this Section, specify additional or
different addresses for notice purposes.
38
<PAGE> 43
42.13. Pennsylvania Jurisdiction. This Lease has been negotiated and
entered into in the State of Pennsylvania and shall be governed by, construed
and enforced in accordance with the laws of the State of Pennsylvania, applied
to contracts made in Pennsylvania for Pennsylvania domiciliaries to be wholly
performed in Pennsylvania.
42.14. Authority. That individual or those individuals signing this Lease
guarantee, warrant and represent that said individual or individuals have the
power, authority and legal capacity to sign this Lease on behalf of and to bind
all entities, corporations, partnerships, joint ventures or other organizations
and/or entities on whose behalf said individual or individuals have signed.
39
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
Landlord:
ARE-702 Electronic Drive, L.P.
a Delaware limited partnership
By: AREE-HOLDINGS, L.P.,
a Delaware limited partnership,
its general partner
By: ARE-GP HOLDINGS QRS CORP.,
a Delaware corporation,
its general partner
By: /s/ Peter J. Nelson
-------------------------------
Name: Peter J. Nelson
-----------------------------
Its: C.F.O.
------------------------------
Tenant:
CELL PATHWAYS, INC.,
a Delaware corporation
By: /s/ Brian J. Hayden
-------------------------------
Name: Brian J. Hayden
-----------------------------
Its: VP Financial, CFO & Treasurer
------------------------------
40
<PAGE> 45
EXHIBITS
EXHIBIT "A" LEGAL DESCRIPTION
EXHIBIT "B" PLANS
EXHIBIT "C" TENANT'S PROPERTY
EXHIBIT "D" ESTOPPEL CERTIFICATE
EXHIBIT "E" FORM OF MEMORANDUM OF LEASE
41
<PAGE> 46
EXHIBIT "A"
LEGAL DESCRIPTION
A-1
<PAGE> 47
ALL THAT CERTAIN tract or parcel of land, SITUATE in Horsham Township,
Montgomery County, Pennsylvania, bounded and described according to a Plan of
Horsham Industrial Properties, Inc., made by Robert T. Bennett, dated June 17,
1982 and revised and recorded in Plan Book A-44 page 259, as follows, to wit:
BEGINNING from a point at the intersection of the center line of Dresher Road
(33 feet wide) with the center line of the concrete paving on Welsh Road (80
feet wide), THENCE extending along the center line of Dresher Road, North 46
degrees 25 minutes 00 seconds East a distance of plus or minus 1.090.00 feet
to a point; THENCE leaving the center line of Dresher Road crossing the
Southeasterly right of way extending along lands now or lake of the F.M.C.
Corp., South 40 degrees 33 minutes 15 seconds East, a distance of 440.58 feet
to a point, said point being the point and place of beginning; THENCE extending
along lands now or late of Horsham Industrial Properties, Inc., North 49
degrees 14 minutes 45 seconds East, a distance of 385.00 feet to a point on the
line of lands now or late of Penallen Corporation formerly of Horsham
Industrial Properties, Inc.; THENCE along lands of the same, South 40 degrees
33 minutes 15 seconds East, a distance of 546.14 feet to a point; THENCE
extending along the same, South 49 degrees 14 minutes 45 seconds West, a
distance of 71.40 feet to a point on the Northerly right of way of Electronic
Drive; THENCE extending along the same, on the arc of a circle curving to the
left having a radius of 60.00 feet the arc distance of 163.80 feet to a point;
THENCE extending along the same on the arc of a circle curving to the right
having a radius of 40 feet the arc distance of 46.37 feet to a point; THENCE
extending along the same, South 49 degrees 14 minutes 45 seconds West, a
distance of 191.99 feet to a point on the line of lands of the aforementioned
F.M.C. Corp.; THENCE extending along the same North 40 degrees 33 minutes 15
seconds West, a distance of 546.14 feet to the point and place of beginning.
BEING LOT NO. 1.
BEING ASSESSMENT PARCEL NUMBER 36-00-04134-50-1.
BEING the same premises which Horsham Rental Properties, A Pennsylvania Limited
Partnership by Deed dated 10/16/1996 and recorded 11/12/1996 in Montgomery
County, Pennsylvania in Deed Book 5167 page 767, conveyed unto Marave
Associates, L.P., A Pennsylvania Limited Partnership, in fee.
<PAGE> 48
EXHIBIT "B"
PLANS
Attached hereto is a reduced copy of the Cover Sheet/Site Plan, Drawing number
A0.1, for a project titled Proposed Building Renovations, prepared for Tenant by
Integrated Project Services of Lafayette Hill, Pennsylvania, dated 9/12/97. Said
Drawing Number A0.1 and all architectural, mechanical, electrical and plumbing
drawing identified thereon, and all amendments thereto, are incorporated herein
by reference as though the originals of all such drawings were attached hereto.
B-1
<PAGE> 49
CELL PATHWAYS
2 ELECTRONICS DRIVE, HORSHAM TOWNSHIP, PA
P.N. 97056.00
[Site Plan]
<PAGE> 50
EXHIBIT "C"
TENANT'S PROPERTY
Furniture
File Cabinets
Projection Equipment
Glass washer and portable deionized water system
Phone systems, including phones
Computers and printers
Duplicating Equipment
Fax machines
Laboratory Equipment - Horsham, PA
Laboratory Equipment - Aurora, CO (will move to Horsham, PA.).
Laboratory Supplies
Office Supplies
Portable Appliances
C-1
<PAGE> 51
EXHIBIT "D"
TENANT ESTOPPEL CERTIFICATE
---------------------------
THIS TENANT ESTOPPEL CERTIFICATE ("Certificate"), dated as of _________,
1998, is executed by Cell Pathways, Inc. ("Tenant") in favor of
__________________________________________________, together with its nominees,
designees and assigns (collectively, "Purchaser"), and in favor of any lender
of Purchaser, together with its nominees, designees and assigns (collectively,
"Lender").
RECITALS
------------
A. Purchaser and ARE-702 Electronic Drive, L.P., a Delaware limited
partnership ("Landlord"), have entered into that certain Purchase and Sale
Agreement and Joint Escrow Instructions, dated as of ________________ (the
"Purchase Agreement"), whereby Purchaser has agreed to purchase, among other
things, the improved real property located in the City of Horsham, State of
Pennsylvania, more particularly described on Exhibit "A" attached to the
Purchase Agreement (the "Property").
B. Tenant and Landlord have entered into that certain Lease Agreement,
dated as of _______________ (together with all amendments, modifications,
supplements, guarantees and restatements thereof, the "Lease"), for a portion
of the Property.
C. Pursuant to the Lease, Tenant has agreed that upon the request of
Landlord, Tenant would execute and deliver an estoppel certificate certifying
the status of the Lease.
D. In connection with the Purchase Agreement, Landlord has requested that
Tenant execute this Certificate with an understanding that Purchaser will rely
on the representations and agreements below in purchasing the Property and
Lender will rely on the representations and agreements below in granting to
Purchaser a loan.
NOW, THEREFORE, Tenant certifies, warrants, and represents to Purchaser
and Lender as follows:
SECTION 1. LEASE.
Attached hereto as Exhibit "1" is a true, correct and complete copy of the
Lease, including the following amendments, modifications, supplements,
guarantees and restatements thereof, which together represent all of the
amendments, modifications, supplements, guarantees and restatements thereof:
D-1
<PAGE> 52
________________________________________________________________________________
(If none, please state "None.")
SECTION 2. LEASED PREMISES.
Pursuant to the Lease, Tenant leases those certain premises (the "Leased
Premises") consisting of approximately __________________ (____________)
rentable square feet within the Property, as more particularly described in the
Lease. In addition, pursuant to the terms of the Lease, Tenant has the
[non-exclusive] right to use [____ parking spaces/the parking area] located on
the Property during the term of the Lease. [Cross-out the preceding sentence or
portions thereof if inapplicable.]
SECTION 3. FULL FORCE OF LEASE.
The Lease has been duly authorized, executed and delivered by Tenant, is
in full force and effect has not been terminated and constitutes a legally
valid instrument, binding and enforceable against Tenant in accordance with its
terms, subject only to applicable limitations imposed by laws relating to
bankruptcy and creditor's rights.
SECTION 4. COMPLETE AGREEMENT.
The Lease constitutes the complete agreement between Landlord and Tenant
for the Leased Premises and the Property, except as modified by the Lease
amendments noted above (if any), has not been modified, altered or amended.
SECTION 5. ACCEPTANCE OF LEASED PREMISES.
Tenant has accepted possession and is currently occupying the Leased
Premises.
SECTION 6. LEASE TERM.
The term of the Lease commenced on __________________________ and ends on
_________________________________, subject to the following options to extend:
____________________________________________________________________.
(If none, please state "None.")
SECTION 7. PURCHASE RIGHTS.
Tenant has no option, right of first refusal, right of first offer, or
other right to acquire or purchase all or any portion of the Leased Premises or
all or any portion of, or interest in, the Property, except as follows:
______________________________________________________________________________
___________________________________________________________.
(If none, please state "None.")
D-2
<PAGE> 53
SECTION 8. RIGHTS OF TENANT.
Except as expressly stated in this Certificate, Tenant:
(a) has no right to renew or extend the term of the Lease;
(b) has no option or other right to purchase all or any part of the
Leased Premises or all or any part of the Property;
(c) has no right, title, or interest in the Leased Premises, other than
as Tenant under the Lease.
SECTION 9. RENT.
(a) The obligation to pay rent under the Lease commenced on
_____________. The rent under the Lease is current, and Tenant is not in
default in the performance of any of its obligations under the Lease.
(b) Tenant is currently paying base rent under the Lease in the amount of
_______________ Dollars ($_________) per month. Tenant has not received and is
not, presently, entitled to any abatement, refunds, rebates, concessions or
forgiveness of rent or other charges, free rent, partial rent, or credits,
offsets or reductions in rent, except as follows: _____________________________
_______________________________________________________________________________
______________________________________
(If none, please state "None.")
(c) Tenant's estimated share of operating expenses, common area charges,
insurance, real estate taxes and administrative and overhead expenses is
____________ percent (_____%) and is currently being paid at the rate of
___________________ Dollars ($________) per month, payable to: ________________
_______________________________________________________
(d) There are no existing defenses or offsets against rent due or to
become due under the terms of the Lease, and there presently is no default or
other wrongful act or omission by Landlord under the Lease or otherwise in
connection with Tenant's occupancy of the Leased Premises, nor is there a state
of facts which with the passage of time or the giving of notice or both could
ripen into a default on the part of Tenant, or to the best knowledge of Tenant,
could ripen into a default on the part of Landlord under the Lease, except as
follows: ______________________________________________________________________
_______________________________________________________________________________
______________________________________
(If none, please state "None.")
D-3
<PAGE> 54
SECTION 10. SECURITY DEPOSIT.
The amount of Tenant's security deposit held by Landlord under the Lease
is _____________ Dollars ($___________).
SECTION 11. PREPAID RENT.
The amount of prepaid rent, separate from the security deposit, is
_________ Dollars ($________), covering the period from ________ to ________ .
SECTION 12. INSURANCE.
All insurance, if any, required to be maintained by Tenant under the Lease
is presently in effect.
SECTION 13. PENDING ACTIONS.
There is not pending or, to the knowledge of Tenant, threatened against or
contemplated by the Tenant, any petition in bankruptcy, whether voluntary or
otherwise, any assignment for the benefit of creditors, or any petition seeking
reorganization or arrangement under the federal bankruptcy laws or those of any
state.
SECTION 14. TENANT'S WORK.
As of the date of this Certificate, to the best of Tenant's knowledge,
Landlord has performed all obligations required of Landlord pursuant to the
Lease; no offsets, counterclaims, or defenses of Tenant under the Lease exist
against Landlord; and no events have occurred that, with the passage of time or
the giving of notice, would constitute a basis for offsets, counterclaims, or
defenses against Landlord, except as follows:_________________________________
______________________________________________________________________________
(If none, please state "None.")
SECTION 15. ASSIGNMENTS BY LANDLORD.
Tenant has received no notice of any assignment, hypothecation or pledge
of the Lease or rentals under the Lease by Landlord. Tenant hereby consents to
an assignment of the lease and rents to be executed by Landlord to Purchaser or
Lender in connection with the Loan and acknowledges that said assignment does
not violate the provisions of the Lease. Tenant acknowledges that the interest
of the Landlord under the Lease is to be assigned to Purchaser or Lender solely
is security for the purposes specified in said assignment and Purchaser or
Lender shall have no duty, liability or obligation whatsoever under the Lease
or any extension or renewal thereof, either by virtue of said
D-4
<PAGE> 55
assignment or by any subsequent receipt or collection of rents thereunder,
unless Purchaser or Lender shall specifically undertake such liability in
writing. Tenant agrees that upon receipt of a written notice from Purchaser or
Lender of a default by Landlord under the Loan, Tenant will thereafter pay rent
to Purchaser or Lender in accordance with the terms of the Lease.
SECTION 16. ASSIGNMENTS BY TENANT.
Except as listed below, Tenant has not sublet or assigned the Leased
Premises or the Lease or any portion thereof to any sublessee or assignee. No
one except Tenant and its employees will occupy the Leased Premises. The
address for notices to be sent to Tenant is as set forth in the Lease.
SECTION 17. ENVIRONMENTAL MATTERS.
The operation and use of the Leased Premises does not involve the
generation, treatment, storage, disposal or release into the environment of any
hazardous materials, regulated materials and/or solid waste, except those used
in the ordinary course of operating a medical laboratory or otherwise used in
accordance with all applicable laws.
SECTION 18. SUCCESSION OF INTEREST.
Tenant agrees that, in the event Purchaser or Lender succeeds to interest
of Landlord under the Lease:
(a) Purchaser or Lender shall not be liable for any act or omission of any
prior landlord (including Landlord);
(b) Lender shall not be liable for the return of any security deposit;
(c) Purchaser or Lender shall not be bound by any rent or additional rent
which Tenant might have prepaid under the Lease for more than the current
month;
(d) Purchaser or Lender shall not be bound by any amendments or
modifications of the Lease made without prior consent of Purchaser or Lender;
(e) Purchaser or Lender shall not be subject to any offsets or defenses
which Tenant might have against any prior landlord (including Landlord); or
(f) Purchaser or Lender shall not be liable under the Lease to Tenant for
the performance of Landlord's obligations under the Lease beyond Purchaser or
Lender's interest in the Property.
D-5
<PAGE> 56
SECTION 19. NOTICE OF DEFAULT.
Tenant agrees to give Purchaser and Lender a copy of any notice of default
under the Lease served upon Landlord at the same time as such notice is given to
the Landlord. Tenant further agrees that if Landlord shall fail to cure such
default within the applicable grace period, if any, provided in the Lease, then
Purchaser or Lender shall have an additional sixty (60) days within which to
cure such default, or if such default cannot be cured within such sixty (60) day
period, such sixty (60) day period shall be extended so long as Purchaser or
Lender has commenced and is diligently pursuing the remedies necessary to cure
such default (including, but not limited to, commencement of foreclosure
proceedings, if necessary to effect (such cure), in which event the Lease shall
not be terminated while such remedies are being pursued.
SECTION 20. NOTIFICATION BY TENANT.
From the date of this Certificate and continuing until __________, Tenant
agrees to immediately notify Purchaser and Lender, in writing by registered or
certified mail, return receipt requested, at the following addresses, on the
occurrence of any event or the discovery of any fact that would make any
representation contained in this Certificate inaccurate:
If To Purchaser: _________________________
_________________________
_________________________
_________________________
With A Copy To: _________________________
_________________________
_________________________
_________________________
Tenant makes this Certificate with the knowledge that it will be relied
upon by Purchaser and Lender in agreeing to purchase the Property.
Tenant has executed this Certificate as of the date first written above by
the person named below, who is duly authorized to do so.
TENANT,
CELL PATHWAYS, INC., A Delaware corporation
By: _________________________
Name: _________________________
Its: _________________________
D-6
<PAGE> 57
EXHIBIT "E"
FORM OF MEMORANDUM OF LEASE
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is made as of June 25, 1998 (the "Execution
Date"), by and between ARE-702 Electronic Drive, L.P., a Delaware limited
partnership with an address at 135 N. Los Robles Ave. Suite 250, Pasadena,
California ("Landlord"), and Cell Pathways, Inc., a Delaware corporation with
an address at 702 Electronic Drive, Horsham, Pennsylvania ("Tenant"),
collectively referred to herein as the "Parties", and each, individually, a
"Party."
WITNESSETH:
WHEREAS, Landlord is the fee owner of certain property located in the
Township of Horsham, Montgomery County, Pennsylvania, and more particularly
described on EXHIBIT "A" attached hereto and made a part hereof and the
building and improvements thereon (collectively, such land, building and
improvements, as they may be expanded, reduced, altered or improved, are
hereinafter called the "Leased Premises").
WHEREAS, pursuant to a certain Lease of even date herewith (the
"Lease"), Landlord has leased the Leased Premises to Tenant, and Tenant has
accepted and leased the Leased Premises from Landlord; and
WHEREAS, Landlord and Tenant desire to execute and record this
Memorandum to provide record notice of the Lease and certain terms contained
therein.
NOW, THEREFORE, the Parties confirm as follows:
1. Premises. Pursuant to the Lease, which is dated the date entered in
the caption of this Memorandum, Landlord has leased to tenant, and
Tenant has leased from Landlord, on the terms and conditions set forth
in the Lease, the Leased Premises.
2. Term. The term of the Lease consists of (i) an initial term ("Initial
Term") of ten (10) years beginning on June 25, 1998 and ending on June
24, 2008 hereof and (ii) subject to the conditions for the exercise
thereof as provided in the Lease, Tenant shall have the option to
extend (sometimes the "Option to Extend") the Term for two (2)
extension period(s) of five (5) years each.
3. Tenant's Improvements. By virtue of the Lease, Tenant has the right
(and, as to the initial improvements, the obligation) to construct
certain leasehold improvements upon the
E-1
<PAGE> 58
Leased Premises, all as specifically set forth in the Lease. No work,
improvements, alterations or other items of labor or material for which any
mechanic's or materialmen's lien may be filed, performed by or on behalf of
Tenant, or any person or entity holding any interest in the leased Premises
by, through or under Tenant, shall be deemed to be for the use or benefit
of Landlord, and in no event shall any mechanic's or materialmen's liens
for any such work, labor or materials be filed against or attached to the
estate of the Landlord, and Tenant shall be solely responsible for the
payment for any and all such work, labor and materials.
4. Inquiries. Inquiries concerning the precise terms of the Lease may be made
to:
If to Tenant: Cell Pathways, Inc.
702 Electronic Drive
Horsham, Pennsylvania 19044
Attention: Brian J. Hayden
If to Landlord: ARE-702 Electronic Drive, L.P.
c/o Alexandria Real Estate Equities, Inc.
135 N. Los Robles Ave., Suite 250
Pasadena, CA 91101
Attention: Corporate Secretary
5. Successors. The lease provides that all of the rights and obligations
created therein shall bind and inure to the benefit of the respective
heirs, personal representatives, successors, grantees and assigns of
Landlord and Tenant and that the respective restrictions, covenants and
obligations pertaining to the Leased Premises shall run with the land.
6. Incorporation and Conflicts. All of the terms and conditions of the Lease
are incorporated herein by reference as though set forth fully herein.
This Memorandum is intended for notice purposes only and in the event of
any conflict between the terms hereof and of the Lease, the Lease shall
prevail. Nothing contained herein is intended to modify or alter the
terms, conditions or provisions of the Lease.
E-2
<PAGE> 59
IN WITNESS WHEREOF, this Memorandum of Lease is executed as of the date
first above written.
LANDLORD: TENANT:
ARE-702 Electronic Drive, L.P., CELL PATHWAYS, INC.,
a Delaware limited partnership A Delaware corporation
By: AREE-HOLDINGS, L.P., By: __________________________________
a Delaware corporation, Name: ________________________________
its general partner Its: _________________________________
By: ARE-GP HOLDINGS QRS CORP.,
a Delaware corporation,
its general partner
By: _________________________
Name: _______________________
Its: ________________________
Execution Date: _______________, 1998 Execution Date: ________________, 1998
E-3
<PAGE> 60
COMMONWEALTH OF PENNSYLVANIA)
) ss.
COUNTY OF _______________ )
On the ___ day of _______________ 1998, before me, a Notary Public in and
for the Commonwealth and County aforesaid, the undersigned officer, personally
appeared _________________ who acknowledged himself to be the (Vice) President
of ___________________ a corporation, and that (s)he as such officer, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the said corporation by himself/herself as
such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
________________________________
NOTARY PUBLIC
(NOTARIAL SEAL)
My Commission Expires:
COMMONWEALTH OF PENNSYLVANIA)
) ss.
COUNTY OF _______________ )
On the ___ day of _______________ 1998, before me, a Notary Public in and
for the Commonwealth and County aforesaid, the undersigned officer, personally
appeared _________________ who acknowledged himself to be the (Vice) President
of ___________________ a corporation, and that (s)he as such officer, being
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing the name of the said corporation by himself/herself as
such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
________________________________
NOTARY PUBLIC
(NOTARIAL SEAL)
My Commission Expires:
E-4
<PAGE> 1
EXHIBIT 10.3
CELL PATHWAYS, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED SEPTEMBER 13, 1993
AMENDED AND RESTATED OCTOBER 14, 1997
AMENDED JUNE 22, 1998
1. PURPOSES.
(a) The Cell Pathways, Inc. 1993 Stock Option Plan was originally
adopted by the Board of Directors of Cell Pathways, Inc., a Delaware corporation
(the "Company") in 1993, and is hereby continued, amended and restated with the
name of the Cell Pathways, Inc. 1997 Equity Incentive Plan (the "Plan"). The
purpose of the Plan is to provide a means by which selected Employees and
Directors of and Consultants to the Company, and its Affiliates, may be given an
opportunity to benefit from increases in value of the stock of the Company
through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v)
stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Cell Pathways, Inc., a Delaware corporation.
1.
<PAGE> 2
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the service of an individual to the
Company, whether as an Employee, Director or Consultant, is not interrupted or
terminated. The Board or the chief executive officer of the Company may
determine, in that party's sole discretion, whether Continuous Service shall be
considered interrupted in the case of: (i) any leave of absence approved by the
Board or the chief executive officer of the Company, including sick leave,
military leave, or any other personal leave; or (ii) transfers between the
Company, Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of common stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Company's common stock) on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable.
(2) In the absence of such markets for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
2.
<PAGE> 3
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "PLAN" means this 1997 Equity Incentive Plan.
3.
<PAGE> 4
(y) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect with respect to the Company at the time discretion
is being exercised regarding the Plan.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 of the Plan.
(bb) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, any right to purchase restricted stock, and any
Stock Appreciation Right.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock Option,
a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted
stock, a Stock Appreciation Right, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; whether a person shall be permitted to receive stock upon
exercise of an Independent Stock Appreciation Right; and the number of shares
with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section
(4) Generally, to exercise such powers and to perform such
acts as the Board
4.
<PAGE> 5
deems necessary or expedient to promote the best interests of the Company which
are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the Listing Date, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to a committee of one or more members of the
Board and the term "Committee" shall apply to any person or persons to whom such
authority has been delegated. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Stock Award, or (ii) not
persons with respect to whom the Company wishes to comply with Section 162(m) of
the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate Two Million Three Hundred Fifty Thousand
(2,350,000) shares of the Company's common stock and including the 511,250
shares subject to outstanding options and the 473,600 shares issued upon
exercise of options since the inception of the Plan. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan. Shares
subject to Stock Appreciation Rights exercised in accordance with Section 8 of
the Plan shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
5.
<PAGE> 6
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and such Option is not exercisable after the expiration of five (5) years
from the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options and
Stock Appreciation Rights covering more than one million five hundred thousand
(1,500,000) shares of the Company's common stock in any calendar year. This
subsection 5(c) shall not apply prior to the Listing Date and, following the
Listing Date, shall not apply until (i) the earliest of: (A) the first material
modification of the Plan (including any increase to the number of shares
reserved for issuance under the Plan in accordance with Section 4); (B) the
issuance of all of the shares of common stock reserved for issuance under the
Plan; (C) the expiration of the Plan; or (D) the first meeting of stockholders
at which directors are to be elected that occurs after the close of the third
calendar year following the calendar year in which occurred the first
registration of an equity security under section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment arrangement, except that payment of the common
stock's "par value" (as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other
6.
<PAGE> 7
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
only be transferable by the Optionee upon such terms and conditions as are set
forth in the Option Agreement for such Nonstatutory Stock Option, as the Board
or the Committee shall determine in its discretion. The person to whom the
Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF CONTINUOUS SERVICES. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) within such
period of time specified in the Option Agreement, or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Service (other
than upon the Optionee's death or disability) would result in liability under
Section 16(b) of the Exchange Act, then the Option shall
7.
<PAGE> 8
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the Option Agreement, or (ii) the tenth (10th) day after the last date
on which such exercise would result in such liability under Section 16(b) of the
Exchange Act. Finally, an Optionee's Option Agreement may also provide that if
the exercise of the Option following the termination of the Optionee's
Continuous Service (other than upon the Optionee's death or disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the first paragraph of this subsection 6(f), or (ii) the expiration of
a period of three (3) months after the termination of the Optionee's Continuous
Service during which the exercise of the Option would not be in violation of
such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Service terminates as a result of the Optionee's disability, the Optionee may
exercise his or her Option (to the extent that the Optionee was entitled to
exercise it as of the date of termination), but only within such period of time
specified in the Option Agreement, or the expiration of the term of the Option
as set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Service, the Option may be exercised (to the extent
the Optionee was entitled to exercise the Option as of the date of death) by the
Optionee's estate, by a person who acquired the right to exercise the Option by
bequest or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period
specified in the Option Agreement, or the expiration of the term of such Option
as set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) EARLY EXERCISE. The Option Agreement may, but need not, include a
provision whereby the Optionee may elect at any time during Continuous Service
to exercise the Option as to any part or all of the shares subject to the Option
prior to the full vesting of the Option. Any unvested shares so purchased may be
subject to a repurchase right in favor of the Company or to any other
restriction the Board determines to be appropriate.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option
8.
<PAGE> 9
evidenced by such an Option Agreement, in whole or in part, by surrendering
other shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a
number of shares equal to the number of shares surrendered as part or all of the
exercise price of such Option; (ii) shall have an expiration date which is the
same as the expiration date of the Option the exercise of which gave rise to
such Re-Load Option; and (iii) shall have an exercise price which is equal to
one hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock
Option and which is granted to a 10% stockholder (as described in subsection
5(b)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and the limits on the grants of Options under subsection
5(c) and shall be subject to such other terms and conditions as the Board or
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such Stock Award Agreement. Notwithstanding the
foregoing, the Board or the Committee may determine that eligible participants
in the Plan may be awarded stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.
(b) TRANSFERABILITY. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable by the grantee only upon such terms and
conditions as are set forth in the
9.
<PAGE> 10
applicable Stock Award Agreement, as the Board or the Committee shall determine
in its discretion, so long as stock awarded under such Stock Award Agreement
remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment arrangement, except that payment of the common stock's "par
value" (as defined in the Delaware General Corporation Law) shall not be made by
deferred payment, or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board or the Committee in its discretion. Notwithstanding the foregoing,
the Board or the Committee to which administration of the Plan has been
delegated may award stock pursuant to a stock bonus agreement in consideration
for past services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of stock held by that person which have not vested as
of the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. Except as
provided in subsection 5(c), no limitation shall exist on the aggregate amount
of cash payments the Company may make under the Plan in connection with the
exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on
10.
<PAGE> 11
the date of the Option surrender) in an amount up to the excess of (A) the Fair
Market Value (on the date of the Option surrender) of the number of shares of
stock covered by that portion of the surrendered Option in which the Optionee is
vested over (B) the aggregate exercise price payable for such vested shares.
(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights
will be granted appurtenant to an Option and may apply to all or any portion of
the shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They shall
be denominated in share equivalents. The appreciation distribution payable on
the exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (on the date of the grant
of the Independent Right) of such number of shares of Company stock. The
appreciation distribution payable on the exercised Independent Right shall be in
cash or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the exercise of the Independent Right.
11.
<PAGE> 12
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent
of the affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different numbers
of shares of stock, but having an exercise price per share not less than the
Fair Market Value or, in the case of a 10% stockholder (as described in
subsection 5(b)) receiving a new grant of an Incentive Stock Option, not less
than one hundred ten percent (110%) of the Fair Market Value) per share of stock
on the new grant date. Notwithstanding the foregoing, the Board or the Committee
may grant an Option and/or Stock Appreciation Right with an exercise price lower
than that set forth above if such Option and/or Stock Appreciation Right is
granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled
under this Section 9 shall continue to be counted against the maximum award of
Options and Stock Appreciation Rights permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original and
the substituted Options and Stock Appreciation Rights shall be counted against
the maximum awards of Options and Stock Appreciation Rights permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 9(b) shall be applicable only to the extent required by Section
162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
12.
<PAGE> 13
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause the right of the Company's Board of Directors
and/or the Company's stockholders to remove any Director as provided in the
Company's By-Laws and the provisions of the Delaware General Corporation Law
California Corporations Code, or the right to terminate the relationship of any
Consultant subject to the terms of such Consultant's agreement with the Company
or Affiliate of the Company.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to
13.
<PAGE> 14
such requirements, shall be inoperative if (i) the issuance of the shares upon
the exercise or acquisition of stock under the Stock Award has been registered
under a then currently effective registration statement under the Securities
Act, or (ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person during any calendar year pursuant to subsection 5(c), and
the outstanding Stock Awards will be appropriately adjusted in the type(s) and
number of securities and price per share of stock subject to such outstanding
Stock Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company".)
(b) If at any time while unexercised Options remain outstanding under
this Plan (a) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than the Company or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, any person
acquiring securities from the Company solely pursuant to written agreement with
the Company, or any corporation owned, directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock in the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities, (b) during any period of two
consecutive years commencing the day after the first election of directors
following termination of the stockholder voting provisions of the Company's
Stockholders' Agreement dated as of December 10, 1992, as amended,
14.
<PAGE> 15
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clauses (a) (c)
or (d) of this Section 13(b)) whose election by the board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof, (c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
(i) where no person within the meaning of subsection (a) above becomes the
"beneficial owner" (as defined above) of 20% or more of the resulting voting
power and where the voting securities of the Company outstanding immediately
prior thereto continue to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or controlling entity) more
than 50% of the combined voting power of the voting securities of the Company or
such surviving or controlling entity outstanding immediately after such merger
or consolidation or (ii) (without derogating from the power of the Committee in
other situations) which the Committee determines should not, because of the
nature and purpose of the transaction, qualify as an Acceleration Event under
this subsection, or (d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets (each of (a),
(b), (c) and (d) an "Acceleration Event"), then each outstanding Option that has
not theretofore become vested and/or exercisable according to its terms shall
become vested and/or exercisable. Upon the occurrence of an Acceleration Event,
the Committee shall provide for cancellation of the unexercised portions of all
Options outstanding as of the Cancellation Date; provided, however, that if an
Option has been held for less than six months, then for purposes of such
cancellation the Acceleration Event and/or Cancellation Date shall be restricted
in such manner as the Committee may determine necessary to comply with the
conditions and requirements of Rule 16b-3. "Cancellation Date" shall mean (i)
the 60th day following the occurrence of any Acceleration Event described in
clause (a) or (b) of the first sentence hereof, and (ii) the closing of any
merger, consolidation, liquidation or sale of assets stockholder approval of
which constituted an Acceleration Event under clause (c) or (d) of the first
sentence hereof. Upon cancellation of any Option pursuant to this Section 13(b)
following an Acceleration Event under clause (a), (b) or (d) of the first
sentence hereof, the Company shall make, and upon cancellation of any Option
pursuant to this Section 13(b) following an Acceleration Event under clause (c)
of the first sentence hereof, the Company may make, in exchange therefor, a cash
payment under such Option in an amount equal to the product of the number of
shares covered by the unexercised portion of the Option multiplied by the
difference between the per share exercise price of such Option and (i) in the
case of a transaction described in clause (a) or (b) of the first sentence
hereof, the highest Fair Market Value of such share at any time during the
60-day period immediately preceding the Cancellation Date, and (ii) in the case
of a transaction described in clause (c) or (d) of the first sentence hereof,
the Fair Market Value of such share on the Cancellation Date. The instrument
evidencing any Option may also provide for acceleration of otherwise
unexercisable portions of any Option upon other specified events or occurrences
as the Committee shall determine, such as involuntary terminations of the
Optionee's employment following certain changes in the control of the Company.
15.
<PAGE> 16
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b 3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
16.
<PAGE> 17
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 12, 2007, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the written consent of the person to whom the Stock Award was
granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board.
17.
<PAGE> 1
EXHIBIT 10.4
CELL PATHWAYS, INC.
INCENTIVE STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Agreement") made as of this day of , 1998 by and
between CELL PATHWAYS, INC., a Delaware corporation ("Company"), and , a
resident of the State of ("Grantee").
The Parties Hereto Do Hereby Agree As Follows:
1. Grant of Option. The Company considers it desirable and in its best
interest that Grantee as an employee and/or director of the Company be given an
inducement to acquire a proprietary interest in the Company and an added
incentive to advance the interests of the Company by being granted an option to
purchase shares of the Company's Common Stock, $0.01 par value ("Common Stock"),
in accordance with the Company's 1997 Equity Incentive Plan, as amended (the
"Plan"). In consideration of Grantee's rendering services ("Services") as an
employee and/or director of the Company during the requisite vesting periods,
and in further consideration of the agreements set forth herein, the Company
therefore hereby grants to Grantee the right, privilege and option ("Option") to
purchase an aggregate of shares of Common Stock (the "Optioned Shares") at
the price ("Exercise Price") of $ per share thereof, in the manner and
subject to the conditions hereinafter provided. This Option shall be treated as
an incentive stock option under the Internal Revenue Code of 1986, as amended
(the "Code").
2. Option Exercise Period. This Option may be exercised, with respect to
vested shares, from the time such shares have vested pursuant to Section 3
hereof until the termination of the option pursuant to Section 5 hereof. This
option shall not be exercisable under this Section 2 to the extent such exercise
would cause the aggregate fair market value of any shares subject to incentive
stock options granted you by the Company or any affiliate (valued as of their
grant date) which would become exercisable for the first time during any
calendar year to exceed $100,000.
3. Option Vesting Period. The Optioned Shares shall vest based upon the
following schedule:
a. First Anniversary: On the first anniversary of the date of this
Agreement, one quarter of the Optioned Shares will vest, provided that
Grantee continues to render Services to the Company or a subsidiary of the
Company on such date.
b. Second Anniversary: On the second anniversary date of this
Agreement, another quarter of the Optioned Shares will vest provided that
Grantee continues to render Services to the Company or a subsidiary of the
Company on such date.
c. Third Anniversary: On the third anniversary date of this Agreement,
an additional quarter of the Optioned Shares will vest provided that
Grantee continues to render Services to the Company or a subsidiary of the
Company on such date.
1.
<PAGE> 2
d. Fourth Anniversary: On the fourth anniversary date of this
Agreement, an additional quarter of the Optioned Shares will vest provided
that Grantee continues to render Services to the Company or a subsidiary of
the Company on such date.
If the Company and its subsidiaries shall terminate Grantee's Services for any
reason (other than the failure of Grantee substantially to perform his duties)
with the effect that Grantee shall cease to render Services to the Company and
its subsidiaries prior to the time that all Optioned Shares shall have vested,
then such number of Optioned Shares shall vest on the date of termination as
would have vested on the next ensuing anniversary (or other vesting date) of
this Agreement which would have occurred but for such termination.
4. Method of Exercise. (a) As to those Optioned Shares that have vested,
the Option may be exercised by the Grantee executing, dating and delivering to
the Secretary of the Company at the Company's principal place of business a
written Option Exercise Notice in the form of Exhibit A attached hereto,
accompanied by a check made payable to the Company in the amount of the
aggregate Exercise Price for the number of shares for which the Option is then
being exercised. If the Company is required to withhold on account of any
present or future tax imposed as a result of such exercise, the notice of
exercise shall be accompanied by a check made payable to the Company in the
amount of such withholding.
5. Termination of Option. Except as otherwise stated in this Agreement or
as the parties may otherwise agree, the Option (to the extent not theretofore
exercised) shall terminate and expire at 5:00 p.m., Chicago time, on the day
immediately prior to the 10th anniversary of the date of this Agreement.
6. Transfer of Option. Grantee may not transfer this Option except by will
or the laws of descent and distribution. This Option shall not be otherwise
sold, assigned, pledged, hypothecated or otherwise transferred or disposed of in
any way, whether by operation of law or otherwise, and during the Grantee's
lifetime shall be exercisable only by the Grantee or his guardian or legal
representative.
7. Capitalization Adjustments. Subject to the provisions of the Plan, if
the outstanding shares of stock or other securities of the class then subject to
the Option are increased or decreased, or are changed into or exchanged for a
different number or kind of Company shares or other Company securities, in any
such case as a result of one or more recapitalizations, stock splits, reverse
stock splits, stock dividends or the like, then appropriate adjustments shall be
made in the number and/or kind of Company shares or other Company securities for
which the unexercised portion of this Option may thereafter be exercised, all
without any change in the aggregate Exercise Price applicable to the unexercised
portion of the Option, but with a corresponding adjustment in the Exercise Price
per share of other unit; provided, that this sentence shall not be operative
with respect to the anticipated filing of the Company's Sixth Amended and
Restated Certificate of Incorporation, as the effect of
2.
<PAGE> 3
such filing is already provided for in Section 1 of this Agreement. No
fractional share of Company stock shall be issued under the Option in connection
with any such adjustment. Such adjustments shall be made by or under authority
of the Company's Board of Directors or duly authorized Committee thereof, whose
determinations as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
8. Certain Transactions. If at any time while this Option remains
outstanding:
a. any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) other than the Company, FGN, Inc., any affiliate
of FGN, Inc., any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, any person acquiring
securities from the Company solely pursuant to written agreement with
the Company (including, in particular, any investor purchasing from the
Company in a private placement before the Company's shares have become
publicly traded), or any corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions
as their ownership of stock in the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20%
(which percentage shall be 50% prior to the completion of the Company's
first public offering of securities) or more of the combined voting
power of the Company's then outstanding securities, or
b. during any period of two consecutive years commencing the day
after the first election of directors following termination of the
stockholder voting provisions of the Company's Stockholders' Agreement
dated as of December 10, 1992, as amended, individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in clauses
(a), (c) or (d) of this Section) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof, or
c. the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation (i) where no person within the meaning of
subsection (a) above becomes the "beneficial owner" (as defined above)
of 20% or more of the resulting voting power and where the voting
securities of the Company outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or controlling
entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving or controlling entity
outstanding immediately after such merger or consolidation or
(ii)(without derogating from the power of the Committee in other
situations) which the Committee determines should not, because of the
nature and purpose of the transaction, qualify as an Acceleration Event
under this subsection, or
3.
<PAGE> 4
d. the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets,
(each of (a), (b), (c) and (d) above, an "Acceleration Event"), then the Option
shall become vested and may be exercised as to all Optioned Shares for which it
has not previously been exercised, and all Optioned Shares for which the Option
has been exercised but which have not yet vested shall vest.
Upon the occurrence of an Acceleration Event the Company's Stock Option
Committee shall provide for cancellation of the unexercised portion of the
Option as of the Cancellation Date; provided, however, that if the Option has
been held for less than six months then for purposes of such cancellation the
Acceleration Event and/or Cancellation Date shall be restricted in such manner
as the Company's Stock Option Committee may determine necessary to comply with
the conditions and requirements of Rule 16b-3. "Cancellation Date" shall mean
(i) the 60th day following the occurrence of any Acceleration Event described in
clause (a) or (b) of the first sentence hereof, and (ii) the closing of any
merger, consolidation, liquidation or sale of assets stockholder approval of
which constituted an Acceleration Event under clause (c) or (d) of the first
sentence hereof. Upon cancellation of the Option pursuant an Acceleration Event
under clause (a), (b) or (d) of the first sentence hereof, the Company shall
make, and upon cancellation of the Option following an Acceleration Event under
clause (c) of the first sentence hereof, the Company may make, in exchange
therefor, a cash payment under the Option in an amount equal to the product of
the number of Optioned Shares covered by the unexercised portion of the Option
multiplied by the difference between the Exercise Price and (i) in the case of a
transaction described in clause (a) or (b) of the first sentence hereof, the
highest fair market value of an Optioned Share at any time during the 60-day
period immediately preceding the Cancellation Date, and (ii) in the case of a
transaction described in clause (c) or (d) of the first sentence hereof, the
fair market value of an Optioned Share on the Cancellation Date. The "fair
market value" of Optioned Shares shall be determined by the Company's Stock
Option Committee by reference to any national securities market on which the
Optioned Shares may then be trading, or as otherwise determined by the Company's
Stock Option Committee.
9. Securities Laws. Grantee hereby represents and agrees for himself, and
for his transferees by will or the laws of descent and distribution, that unless
a registration statement under the Securities Act of 1933, as amended, is in
effect as to shares purchased upon any exercise of the Option, (i) any and all
shares so purchased shall be acquired for his personal account and not with a
view to or for sale in connection with any distribution, and (ii) each notice of
the exercise of any portion of the Option shall be accompanied by a
representation and warranty in writing, signed by the person entitled to
exercise the same, that the shares are being so acquired in good faith for his
personal account and not with a view to or for sale in connection with any
distribution. Notwithstanding anything else contained in this Agreement, no
share of stock or other securities shall be issued pursuant to any exercise of
the Option unless and until, in the opinion of counsel for the Company, such
securities may be issued and delivered without causing the Company to be in
violation of or incur any liability under any federal, state or other securities
laws, any requirement of any securities exchange listing agreement to which the
Company may be a party, or any other requirement of law or of any regulatory
body having jurisdiction over the Company.
4.
<PAGE> 5
10. Stock Restrictions. No shares of stock or other securities issued upon
exercise of the Option may be sold, assigned, pledged, hypothecated or otherwise
transferred or disposed of in any way unless and until, in the opinion of
counsel for the Company, such securities may be so transferred or disposed of
without causing the Company to be in violation of or incur any liability under
any federal, state or other securities laws, any requirement of any securities
exchange listing agreement to which the Company may be a party, or any other
requirement of law or of any regulatory body having jurisdiction over the
Company.
11. Restrictive Legends. Unless and until otherwise permitted by this
Section 11, each certificate for stock or other securities issued pursuant to
exercise of this Option shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, ARE HELD FOR
INVESTMENT PURPOSES ONLY AND MAY NOT BE SOLD, TRANSFERRED OR
DISTRIBUTED AT ANY TIME UNLESS A REGISTRATION STATEMENT IS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE
SECURITIES ACT OF 1933 COVERING SUCH SHARES OR UNLESS, IN THE
OPINION OF COUNSEL FOR THE COMPANY, SUCH A REGISTRATION STATEMENT
IN NOT REQUIRED".
The Company may order its stock transfer agents to stop the transfer of any
shares of stock or other securities bearing the legend set forth in this Section
11 until the conditions of Section 10 hereof with respect to the transfer of
such stock or other securities have been satisfied.
12. Stock Option Plan. The Option is subject to, and the Company and
Grantee agree to be bound by, all of the terms and conditions of the Plan, as
the same shall have been amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive Grantee, without his
consent, of this Option or any of his rights hereunder. Pursuant to the Plan,
the Company's Stock Option Committee is vested with final authority to interpret
and construe the Plan and the Option, and is authorized to adopt rules and
regulations for carrying out the Plan. A copy of the Plan in its present form is
available for inspection during business hours by Grantee or other persons
entitled to exercise this Option at the Company's principal office.
13. No Employment or Stockholder Rights. Neither this Agreement nor the
establishment of the Plan shall be construed to (i) give Grantee any right to
become employed by, or continue to be a director of, or consultant to, the
Company or any of its subsidiaries, (ii) give Grantee any benefits not
specifically provided by this Agreement, or (iii) in any manner limit the right
of the Company or any of its subsidiaries to modify, amend or terminate the Plan
or any of its other benefit plans. Grantee shall not have any rights as a
stockholder of the Company with respect to any of the Optioned Shares until such
time as such shares have been issued upon exercise.
14. Notices. Any notice to be given to the Company shall be addressed to
the Company in care of its Secretary at its principal office, and any notice to
be given to Grantee shall be addressed to him
5.
<PAGE> 6
at the address given beneath his signature hereto or at such other address as
Grantee may hereafter designate in writing to the Company.
15. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, other than its conflict of laws provisions.
IN WITNESS WHEREOF, the Company has entered into this Agreement and granted
the Option as of the date of this Agreement first written above.
CELL PATHWAYS, INC.
By__________________________________________________
Senior Vice President, General Counsel and Secretary
ACCEPTED:
____________________________________________________
____________________________________________________
Street Address
____________________________________________________
City and State
6.
<PAGE> 7
EXHIBIT A
OPTION EXERCISE NOTICE
To: Cell Pathways, Inc.
Attention: Secretary
The undersigned hereby exercises his/her option to acquire shares of
[e.g., Common Stock] (the "Securities") pursuant to the option granted
to the undersigned in that certain Stock Option Agreement (the "Agreement")
dated , 19__, by and between Cell Pathways, Inc. (the "Company") and
the undersigned, and in connection with this exercise does hereby tender
herewith as provided in the Agreement the full Exercise Price (as defined in the
Agreement) with respect to the Securities, and does hereby represent and warrant
to the Company that the Securities are being acquired in good faith for the
undersigned's own account and not with a view to or for sale in connection with
any distribution.
IN WITNESS WHEREOF, the undersigned has signed this Option Exercise Notice
as of the date written below.
_________________________________________
Signature
_________________________________________
Print Name
_________________________________________
Date
7.
<PAGE> 1
EXHIBIT 10.5
CELL PATHWAYS, INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON OCTOBER 14, 1997
AMENDED JUNE 22, 1998
1. PURPOSE.
(a) The purpose of the 1997 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Cell Pathways,
Inc., a Delaware corporation (the "Company") who is not otherwise an employee of
the Company or of any Affiliate of the Company (each such person being hereafter
referred to as a "Non-Employee Director") will be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to secure and retain the
services of persons capable of serving as Non-Employee Directors of the Company,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
1.
<PAGE> 2
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board").
(b) The Board may delegate administration of the Plan to a committee
composed of one (1) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate Four Hundred Fifty-Three
Thousand Nine Hundred Twenty-Five (453,925) shares of the Company's common
stock. If any option granted under the Plan shall for any reason expire or
otherwise terminate without having been exercised in full, the stock not
purchased under such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
2
<PAGE> 3
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is a Non-Employee Director on the date that the
registration of the initial offering of the Company's common stock for sale to
the public becomes effective (the "Effective Date") automatically shall be
granted an option to purchase Five Thousand Four Hundred Forty-Seven (5,447)
shares of common stock of the Company on the terms and conditions set forth
herein.
(b) Each person who is, after the Effective Date, elected for the first
time to be a Non-Employee Director automatically shall, upon the date of his or
her initial election to be a Non-Employee Director by the Board or stockholders
of the Company, be granted an option to purchase Eighteen Thousand Thousand One
Hundred Fifty-Seven (18,157) shares of common stock of the Company on the terms
and conditions set forth herein.
(c) On the date of each Annual Meeting of Stockholders of the Company,
commencing with the Annual Meeting of Stockholders occurring in 1998, each
person who has then been a Non-Employee Director for a period of at least three
hundred sixty five (365) days automatically shall be granted an option to
purchase Five Thousand Four Hundred Forty-Seven (5,447) shares of common stock
of the Company on the terms and conditions set forth herein.
3
<PAGE> 4
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's continuous
service with the Company, whether as a Director, or if his or her status
changes, as an employee of or consultant to the Company or any Affiliate of the
Company, terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of service. In any and all circumstances, an option may
be exercised following termination of the optionee's service with the Company
and all Affiliates of the Company only as to that number of shares as to which
it was exercisable on the date of termination of such service under the
provisions of subparagraph 6(e).
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted. For purposes of the Plan, "fair market value" means, as
of any date, the value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the fair market value of a share of common stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Company's common stock) on the last market trading day prior
to the day of
4
<PAGE> 5
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the common stock, the
fair market value shall be determined in good faith by the Board.
Notwithstanding the foregoing, for purposes of options granted
pursuant to subparagraph 5(a), "fair market value" shall mean the price per
share at which shares of common stock are first sold to the public in the
Company's initial public offering as specified in the final prospectus with
respect to that offering.
(c) The optionee may elect to make payment of the exercise price under
one of the following alternatives:
(i) Payment of the exercise price per share in cash at the
time of exercise; or
(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at fair market value on
the date preceding the date of exercise; or
(iii) Payment by a combination of the methods of payment
specified in
5
<PAGE> 6
subparagraph 6(c)(i) and 6(c)(ii) above.
Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company prior to
the issuance of shares of the Company's common stock.
(d) An option shall not be transferable except by will or by the laws
of descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his or her
guardian or legal representative, unless otherwise specified in the option, in
which case the option may be transferred upon such terms and conditions as are
set forth in the option, as the Board or the Committee shall determine in its
discretion, including (without limitation) pursuant to a "domestic relations
order." Notwithstanding the foregoing, the person to whom an option is granted
may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the optionee,
shall thereafter be entitled to exercise the option.
(e) Options granted under the Plan shall vest and become exercisable as
follows:
(i) An option granted pursuant to subparagraph 5(a) shall be
fully vested and exercisable on March 31, 1998, provided that the optionee has,
during the entire period prior to such vesting date, continuously served as a
Director of the Company or as an employee of or consultant to the Company or any
Affiliate of the Company, whereupon such option shall become fully vested and
exercisable in accordance with its terms.
6
<PAGE> 7
(ii) An option granted pursuant to subparagraph 5(b) shall
become vested and exercisable in three equal annual installments occurring on
the first through third anniversary dates of the date of grant of the option,
provided that the optionee has, during the entire period prior to such vesting
date, continuously served as a Director of the Company or as an employee of or
consultant to the Company or any Affiliate of the Company, whereupon such option
shall become vested and exercisable with respect to such installment in
accordance with its terms.
(iii) An option granted pursuant to subparagraph 5(c) shall be
fully vested and exercisable one year after the date of grant of the option,
provided that the optionee has, during the entire period prior to such vesting
date, continuously served as a Director of the Company or as an employee of or
consultant to the Company or any Affiliate of the Company, whereupon such option
shall become fully vested and exercisable in accordance with its terms.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
7
<PAGE> 8
circumstances under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such options.
8
<PAGE> 9
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall impair any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through such Non-Employee
Director, shall have any right, title or interest in or to any option reserved
for the purposes of the Plan except as to such shares of common stock, if any,
as shall have been reserved for such Non-Employee Director pursuant to any
previous option grant.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to
9
<PAGE> 10
evidence the removal of any restrictions on transfer, that such Non-Employee
Director make arrangements satisfactory to the Company to insure that the amount
of any federal or other withholding tax required to be withheld with respect to
such sale or transfer, or such removal, is made available to the Company for
timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan, and the outstanding options will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding options. Such adjustments shall be made by
the Board or the Committee, the determination of which shall be final, binding
and conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
all or substantially all of the assets of the Company; (2) a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation (a) where no person within the meaning of subsection (3) below
becomes the "beneficial owner" (as defined below) of 20% or more of the
resulting voting power and where the voting securities of the Company
outstanding immediately prior thereto
10
<PAGE> 11
continue to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or controlling entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving or controlling entity outstanding immediately after such merger or
consolidation or (b) (without derogating from the power of the Board or
Committee in other situations) which the Board or Committee determines should
not, because of the nature and purpose of the transaction, have the effect of
accelerating the vesting, exercisability and termination of options under this
subsection, or (3) the acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least twenty percent (20%) of the combined voting power entitled
to vote in the election of directors, then the vesting and exercisability of all
outstanding options shall be accelerated prior to such event and the options
terminated if not exercised (if applicable) after such acceleration and at or
prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
Except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy any Nasdaq or securities exchange listing requirements.
(b) Rights and obligations under any option granted before any
amendment of the Plan
11
<PAGE> 12
shall not be impaired by such amendment unless (i) the Company requests the
consent of the person to whom the option was granted and (ii) such person
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the tenth (10th) anniversary of
its adoption by the Board. No options may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, approval by the Stockholders of the Company and the Effective Date of
the Initial Public Offering.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
12
<PAGE> 1
EXHIBIT 10.6
CELL PATHWAYS, INC.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Agreement") made as of this day of
, 1998, by and between CELL PATHWAYS, INC., a Delaware corporation
("Company"), and , a resident of the State of ("Grantee").
The Parties Hereto Do Hereby Agree As Follows:
1. Grant of Option. The Company considers it desirable and in its best
interest that Grantee [as a (consultant) (director) (other) to the Company] be
given an inducement to acquire a proprietary interest in the Company and an
added incentive to advance the interests of the Company by being granted an
option to purchase share of the Company's Common Stock, $0.01 par value ("Common
Stock"), in accordance with the Company's 1997 Equity Incentive Plan, as amended
(the "Plan"). In consideration of Grantee's agreement [to perform consulting
services for] [to serve as a director of] the Company, the Company therefore
hereby grants to Grantee the right, privilege and option ("Option") to purchase
an aggregate of shares of Common Stock (the "Optioned Shares") at the price
("Exercise Price") of $ per share thereof, in the manner and subject to the
conditions hereinafter provided. This Option shall be treated as a non-qualified
stock option under the Internal Revenue Code of 1986, as amended (the "Code").
2. Option Exercise Period. This Option may be exercised, with respect
to vested shares, from the time such shares have vested pursuant to Section 3
hereof until the termination of the option pursuant to Section 5 hereof.
3. Option Vesting Period. The Optioned Shares shall vest based upon the
following schedule:
a. First Anniversary: On the first anniversary of the
date of this Agreement, one quarter of the Optioned Shares
will vest, provided that Grantee continues to render services
to the Company or a subsidiary of the Company on such date.
b. Second Anniversary: On the second anniversary date
of this Agreement an additional quarter of the Optioned Shares
will vest provided that Grantee continues to render services
to the Company or a subsidiary of the Company on such date.
c. Third Anniversary: On the third anniversary date
of this Agreement an additional quarter of the Optioned Shares
will vest provided that Grantee continues to render services
to the Company or a subsidiary of the Company on such date.
1.
<PAGE> 2
d. Fourth Anniversary: On the fourth anniversary date
of this Agreement an quarter of the Optioned Shares will vest
provided that Grantee continues to render services to the
Company or a subsidiary of the Company on such date.
If the Company or its subsidiaries shall terminate Grantee's Services for any
reason (other than the failure of Grantee substantially to perform his duties)
with the effect that Grantee shall cease to render Services to the Company or
its subsidiaries prior to the time that all Optioned Shares shall have vested,
then such number of Optioned Shares shall vest on the date of termination as
would have vested on the next ensuing anniversary of this Agreement which would
have occurred but for such termination.
4. Method of Exercise. (a) As to those Optioned Shares that have
vested, the Option may be exercised by the Grantee executing, dating and
delivering to the Secretary of the Company at the Company's principal place of
business a written Option Exercise Notice in the form of Exhibit A attached
hereto, accompanied by a check made payable to the Company in the amount of the
aggregate Exercise Price for the number of shares for which the Option is then
being exercised. If the Company is required to withhold on account of any
present or future tax imposed as a result of such exercise, the notice of
exercise shall be accompanied by a check made payable to the Company in the
amount of such withholding.
5. Termination of Option. Except as otherwise stated in this Agreement
or as the parties may otherwise agree, the Option (to the extent not theretofore
exercised) shall terminate and expire at 5:00 p.m., Chicago time, on the day
immediately prior to the 10th anniversary of the date of this Agreement.
6. Transfer of Option. Grantee may not transfer this Option except by
will or the laws of descent and distribution. This Option shall not be otherwise
sold, assigned, pledged, hypothecated or otherwise transferred or disposed of in
any way, whether by operation of law or otherwise, and during the Grantee's
lifetime shall be exercisable only by the Grantee or his guardian or legal
representative.
7. Capitalization Adjustments. Subject to the provisions of the Plan,
if the outstanding shares of stock or other securities of the class then subject
to the Option are increased or decreased, or are changed into or exchanged for a
different number or kind of Company shares or other Company securities, in any
such case as a result of one or more recapitalizations, stock splits, reverse
stock splits, stock dividends or the like, then appropriate adjustments shall be
made in the number and/or kind of Company shares or other Company securities for
which the unexercised portion of this Option may thereafter be exercised, all
without any change in the aggregate Exercise Price applicable to the unexercised
portion of the Option, but with a corresponding adjustment in the Exercise Price
per share of other unit. No fractional share of Company stock shall be issued
under the Option in connection with any such adjustment. Such adjustments shall
be made by or under authority of the Company's Board of Directors or duly
authorized Committee thereof, whose determinations as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive.
2.
<PAGE> 3
8. Certain Transactions. If at any time while this Option remains
outstanding:
a. any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) other than the Company,
FGN, Inc., any affiliate of FGN, Inc., any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, any person acquiring securities from the Company
solely pursuant to written agreement with the Company
(including, in particular, any investor purchasing from the
Company in a private placement before the Company's shares
have become publicly traded), or any corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock
in the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20%
(which percentage shall be 50% prior to the completion of the
Company's first public offering of securities) or more of the
combined voting power of the Company's then outstanding
securities, or
b. during any period of two consecutive years
commencing the day after the first election of directors
following termination of the stockholder voting provisions of
the Company's Stockholders' Agreement dated as of December 10,
1992, as amended, individuals who at the beginning of such
period constitute the Board, and any new director (other than
a director designated by a person who has entered into an
agreement with the Company to effect a transaction described
in clauses (a) (c) or (d) of this Section) whose election by
the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors
at the beginning off the period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof, or
c. the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than a merger or consolidation (i) where no person
within the meaning of subsection (a) above becomes the
"beneficial owner" (as defined above) of 20% or more of the
resulting voting power and where the voting securities of the
Company outstanding immediately prior thereto continue to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving or
controlling entity) more than 50% of the combined voting power
of the voting securities of the Company or such surviving or
controlling entity outstanding immediately after such merger
or consolidation or (ii)(without derogating from the power of
the Committee in other situations) which the Committee
determines should not, because of the nature and purpose of
the transaction, qualify as an Acceleration Event under this
subsection, or
3.
<PAGE> 4
d. the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
of the Company's assets,
(each of (a), (b), (c) and (d) above, an "Acceleration Event"), then the Option
shall become vested and may be exercised as to all Optioned Shares for which it
has not previously been exercised and as to all Optioned Shares for which the
Option has been exercised but which have not yet vested such Optioned Shares
shall vest.
Upon the occurrence of an Acceleration Event the Company's Stock Option
Committee shall provide for cancellation of the unexercised portion of the
Option as of the Cancellation Date; provided, however, that if the Option has
been held for less than six months then for purposes of such cancellation the
Acceleration Event and/or Cancellation Date shall be restricted in such manner
as the Company's Stock Option Committee may determine necessary to comply with
the conditions and requirements of Rule 16b-3. "Cancellation Date" shall mean
(i) the 60th day following the occurrence of any Acceleration Event described in
clause (a) or (b) of the first sentence hereof, and (ii) the closing of any
merger, consolidation, liquidation or sale of assets stockholder approval of
which constituted an Acceleration Event under clause (c) or (d) of the first
sentence hereof. Upon cancellation of the Option pursuant to an Acceleration
Event under clause (a), (b) or (d) of the first sentence hereof, the Company
shall make, and upon cancellation of the Option following an Acceleration Event
under clause (c) of the first sentence hereof, the Company may make, in exchange
therefor, a cash payment under the Option in an amount equal to the product of
the number of Optioned Shares covered by the unexercised portion of the Option
multiplied by the difference between the Exercise Price and (i) in the case of a
transaction described in clause (a) or (b) of the first sentence hereof, the
highest fair market value of an Optioned Share at any time during the 60-day
period immediately preceding the Cancellation Date, and (ii) in the case of a
transaction described in clause (c) or (d) of the first sentence hereof, the
fair market value of an Optioned Share on the Cancellation Date. The "fair
market value" of Optioned Shares shall be determined by the Company's Stock
Option Committee by reference to any national securities market on which the
Optioned Shares may then be trading, or as otherwise determined by the Company's
Stock Option Committee.
9. Securities Laws. Grantee hereby represents and agrees for himself,
and for his transferees by will or the laws of descent and distribution, that
unless a registration statement under the Securities Act of 1933, as amended, is
in effect as to shares purchased upon any exercise of the Option, (i) any and
all shares so purchased shall be acquired for his personal account and not with
a view to or for sale in connection with any distribution, and (ii) each notice
of the exercise of any portion of the Option shall be accompanied by a
representation and warranty in writing, signed by the person entitled to
exercise the same, that the shares are being so acquired in good faith for his
personal account and not with a view to or for sale in connection with any
distribution. Notwithstanding anything else contained in this Agreement, no
share of stock or other securities shall be issued pursuant to any exercise of
the Option unless and until, in the opinion of counsel for the Company, such
securities may be issued and delivered without causing the Company to be in
violation of or incur any liability under any federal, state or other securities
laws, any requirement of any securities exchange listing agreement to which the
Company may
4.
<PAGE> 5
be a party, or any other requirement of law or of any regulatory body having
jurisdiction over the Company.
10. Stock Restrictions. No shares of stock or other securities issued
upon exercise of the Option may be sold, assigned, pledged, hypothecated or
otherwise transferred or disposed of in any way unless and until, in the opinion
of counsel for the Company, such securities may be so transferred or disposed of
without causing the Company to be in violation of or incur any liability under
any federal, state or other securities laws, any requirement of any securities
exchange listing agreement to which the Company may be a party, or any other
requirement of law or of any regulatory body having jurisdiction over the
Company.
11. Restrictive Legends. Unless and until otherwise permitted by this
Section 11, each certificate for stock or other securities issued pursuant to
exercise of this Option shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, ARE HELD FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE SOLD, TRANSFERRED OR DISTRIBUTED AT ANY TIME UNLESS A REGISTRATION
STATEMENT IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE
SECURITIES ACT OF 1933 COVERING SUCH SHARES OR UNLESS, IN THE OPINION OF COUNSEL
FOR THE COMPANY, SUCH A REGISTRATION STATEMENT IN NOT REQUIRED".
The Company may order its stock transfer agents to stop the transfer of any
shares of stock or other securities bearing the legend set forth in this Section
11 until the conditions of Section 10 hereof with respect to the transfer of
such stock or other securities have been satisfied.
12. Stock Option Plan. The Option is subject to, and the Company and
Grantee agree to be bound by, all of the terms and conditions of the Plan, as
the same shall have been amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive Grantee, without his
consent, of this Option or any of his rights hereunder. Pursuant to the Plan,
the Company's Stock Option Committee is vested with final authority to interpret
and construe the Plan and the Option, and is authorized to adopt rules and
regulations for carrying out the Plan. A copy of the Plan in its present form is
available for inspection during business hours by Grantee or other persons
entitled to exercise this Option at the Company's principal office.
13. No Employment or Stockholder Rights. Neither this Agreement nor the
establishment of the Plan shall be construed to (i) give Grantee any right to
become employed by, or continue to be a director of, or consultant to, the
Company or any of its subsidiaries, (ii) give Grantee any benefits not
specifically provided by this Agreement, or (iii) in any manner limit the right
of the Company or any of its subsidiaries to modify, amend or terminate the Plan
or any of its other benefit plans. Grantee shall not have any rights as a
stockholder of the Company with respect to any of the Optioned Shares until such
time as such shares have been delivered to him.
5.
<PAGE> 6
14. Notices. Any notice to be given to the Company shall be addressed
to the Company in care of its Secretary at its principal office, and any notice
to be given to Grantee shall be addressed to him at the address given beneath
his signature hereto or at such other address as Grantee may hereafter designate
in writing to the Company.
15. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, other than its conflict laws provisions.
IN WITNESS WHEREOF, the Company has entered into this Agreement and
granted the Option as of the date of this Agreement first written above.
CELL PATHWAYS, INC.
By___________________________________
Senior Vice President, General Counsel
and Secretary
ACCEPTED:
_____________________________________
_____________________________________
Street Address
_____________________________________
City and State
6.
<PAGE> 7
EXHIBIT A
OPTION EXERCISE NOTICE
To: Cell Pathways, Inc.
Attention: Secretary
The undersigned hereby exercises his/her option to acquire shares
of [e.g., Common Stock] (the "Securities") pursuant to the
option granted to the undersigned in that certain Stock Option Agreement (the
"Agreement") dated , 19__, by and between Cell Pathways, Inc.
(the "Company") and the undersigned, and in connection with this exercise does
hereby tender herewith as provided in the Agreement the full Exercise Price (as
defined in the Agreement) with respect to the Securities, and does hereby
represent and warrant to the Company that the Securities are being acquired in
good faith for the undersigned's own account and not with a view to or for sale
in connection with any distribution.
IN WITNESS WHEREOF, the undersigned has signed this Option Exercise
Notice as of the date written below.
_____________________________________
Signature
_____________________________________
Print Name
_____________________________________
Date
7.
<PAGE> 1
Exhibit 10.17
SEVERANCE AGREEMENT
Severance Agreement made as of April 17, 1998, between Tseng Labs,
Inc. (the "Company") and John J. Gibbons (the "Employee").
WHEREAS, the Employee is presently employed by the Company as its
President and Chief Executive Officer;
WHEREAS, the Board of Directors of the Company (the "Board") desires
to provide this Agreement to the Employee in recognition of the extraordinary
efforts made by the Employee on behalf of the Company and as additional
compensation for the valuable services rendered and to be rendered by the
Employee to the Company;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. For all purposes of this Agreement, the following
terms shall have the meanings specified in this Section unless the context
clearly otherwise requires:
(a) "Annual Base Salary" shall mean twelve times the highest monthly
base salary paid (including any base salary which has been earned but deferred
and including salary reductions under employee benefit plans) to the Employee by
the Company and its Affiliates during the twelve-month period immediately
preceding the date of the Employee's Termination of Employment.
(b) "Affiliate" shall mean any entity directly or indirectly
controlled by, controlling or under common control with the Company.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall mean (i) misappropriation of funds, (ii) habitual
insobriety or substance abuse while performing duties for the Company, (iii)
conviction of a felony involving moral turpitude, or (iv) gross negligence in
the performance of duties, which gross negligence has had a material adverse
effect on the business, operations or financial condition of the Company and its
Affiliates taken as a whole.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 2
(f) "Company" shall mean Tseng Labs, Inc. and any successor to its
business or assets.
(g) "Disability" shall mean the Employee has had a continuous
illness, injury or incapacity for a period of six consecutive months that
prevents him from carrying out the responsibilities of his position with the
Company or the Board otherwise determines that the Employee has incurred a
long-term disability.
(h) "Separation Period" shall mean the two-year period beginning on
the date of the Employee's Termination of Employment.
(i) "Termination Date" shall mean the date of receipt of the Notice
of Termination described in Section 2 hereof or any later date specified
therein, as the case may be.
(j) "Termination of Employment" shall mean a termination of the
Employee's employment with the Company and its Affiliates either (x) on account
of the Employee's death or Disability or (y) under any of the following
circumstances that occur after or in connection with a substantial acquisition
by the Company, a merger or consolidation involving the Company, a liquidation
of the Company or a change of control of the Company (as determined under the
Tseng Labs, Inc. 1995 Stock Option Plan) after the date of this Agreement:
(A) A termination of employment initiated by the Company for
any reason other than Cause;
(B) A termination of employment, initiated by the Employee
upon one or more of the following occurrences (other than for
Cause):
(i) any failure of the Company to comply with any of the
terms of this Agreement;
(ii) any change resulting in a significant reduction by
the Company of the authority, duties, compensation or
responsibilities of the Employee;
(iii) any reduction in the Employee's base salary; or
(iv) any requirement that the Employee move his
principal place of business more than 25 miles from the
Company's headquarters as of the effective date of this
Agreement.
-2-
<PAGE> 3
2. Notice of Termination. Any Termination of Employment (other than
on account of death) shall be communicated by a Notice of Termination to the
other party hereto given in accordance with Section 14. For purposes of this
Agreement, a "Notice of Termination" means a written notice which indicates that
the Employee's employment will terminate and, if the Termination Date is other
than the date of receipt of such notice, specifies the Termination Date (which
date shall not be more than 15 days after the giving of such notice).
3. Compensation Upon Termination of Employment. In the event of the
Employee's Termination of Employment, the Company shall pay or provide to the
Employee (or, in the event of the Employee's death, to the Employee's estate),
the following:
(i) The Employee's earned but unpaid compensation as of the
Termination Date and the benefits, if any, to which the Employee is
entitled as a former employee under the employee benefit programs
and compensation plans maintained for the benefit of the Company's
officers and employees.
(ii) A lump sum cash payment on the Termination Date equal to
the Annual Base Salary the Employee would have earned if the
Employee had continued working for the Company during the Separation
Period.
(iii) Continued group hospitalization, health care and
dental care coverage for the Employee and his spouse and dependents,
if any, while living during the Separation Period, with coverage
equivalent to the coverage to which the Employee and his spouse and
dependents, if any, would have been entitled had the Employee
continued working for the Company during the Separation Period at
his Annual Base Salary, based on the Company's benefit plans in
effect at the Termination Date; provided that, in lieu of continuing
the Employee and his spouse and dependents, if any, in the Company's
benefit plans, the Company may pay to the Employee a lump sum cash
payment, on the Termination Date, equal to the cost (including tax
costs) to the Employee of acquiring and maintaining such coverage
for the Separation Period; and further provided that the COBRA
health continuation coverage period under Section 4980B of the Code
shall begin at the end of the Separation Period.
(iv) All options to purchase stock of the Company that are
held by the Employee and that have not previously vested shall be
fully vested as of the Employee's Termination of Employment. The
Employee's outstanding stock options may be exercised during the
three-year period following the date on which the Employee is no
longer an employee or a
-3-
<PAGE> 4
member of the Board (or, in the case of options granted under the
Tseng Labs, Inc. 1995 Stock Option Plan, such longer period as may
be specified in the Plan in the case of retirement approved by the
Company, if the Employee is eligible for retirement), but not later
than the expiration of the option term.
(v) The Company shall reimburse the Employee for the cost of $10,000
of outplacement services, or the Employee may elect to receive an
immediate $10,000 cash payment from the Company at or after the
Termination Date in lieu of such outplacement services. As an
alternative, the Employee may elect to receive a combination of
reimbursement for outplacement services and a cash payment, with the
total value of the reimbursement and payment equaling $10,000. All
reimbursements and payments under this subsection (v) shall be
accompanied by an additional cash payment from the Company in an
amount that covers the federal, state, local and other taxes imposed
on the Employee as a result of the reimbursements and payments under
this subsection (v).
4. Other Payments. The severance compensation due under Section 3
shall be in addition to and not in lieu of any payments or benefits due to the
Employee under any other plan, policy or program of the Company, except that no
payments shall be due to the Employee under the Company's severance pay plan
then in effect for employees, if any.
5. Term of Agreement. The term of this Agreement shall be for five
years from the date of this Agreement and shall be automatically renewed for
successive one-year periods unless the Company notifies the Employee in writing
that this Agreement will not be renewed at least 60 days prior to the end of the
then current term; provided, however, that (a) in the event of a Termination of
Employment, this Agreement shall remain in effect until all of the obligations
of the Company hereunder are satisfied or have expired, and (b) this Agreement
shall terminate if the Employee's employment with the Company and its Affiliates
shall terminate for any reason other than a Termination of Employment.
6. Enforcement.
(a) In the event that the Company shall fail or refuse to make
payment of any amounts due the Employee under this Agreement within the time
periods provided therein, the Company shall pay to the Employee, in addition to
the payment of any other sums provided in this Agreement, interest, compounded
daily, on any amount remaining unpaid from the date payment is required under
this Agreement, until paid to the Employee, at the rate from time to time
announced by First Union Bank as its "prime rate"
-4-
<PAGE> 5
plus 2%, each change in such rate to take effect on the effective date of the
change in such prime rate.
(b) It is the intent of the parties that the Employee not be
required to incur any expenses associated with the enforcement of his rights
under this Agreement by arbitration, litigation or other legal action because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Employee hereunder. Accordingly, the Company
shall pay the Employee on demand the amount necessary to reimburse the Employee
in full for all expenses (including without limitation all attorneys' fees and
legal expenses) incurred by the Employee in enforcing any of the obligations of
the Company under this Agreement.
7. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for herein be reduced by any compensation earned by other employment or
otherwise.
8. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in or rights
under any benefit, bonus, incentive or other plan or program provided by the
Company or any of its Affiliates and for which the Employee may qualify, except
as provided in Section 4 above.
9. No Set-Off. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Employee or others.
10. Taxes. Any payment required under this Agreement shall be
subject to all requirements of applicable law with regard to federal, state,
local and other withholding of taxes.
11. Parachute Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined that any payment or distribution by the
Company to or for the benefit of the Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code, the Company shall pay the Employee an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee, after deduction of any excise tax imposed under Section 4999 of
the Code, and any federal, state and local income and employment tax and excise
taxes imposed upon the Gross-Up Payment, shall be equal to the Payment.
-5-
<PAGE> 6
For purposes of determining the amount of the Gross-Up Payment, the Employee
shall be deemed to pay federal income tax and employment taxes at the highest
marginal rate of federal income and employment taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Employee's
residence on the Termination Date, net of the maximum reduction in federal
income taxes that may be obtained from the deduction of such state and local
taxes.
(b) The Employee may have an independent public accountant selected
by the Employee (the "Accounting Firm") determine whether and to what extent the
excise tax under Section 4999 of the Code is applicable to any Payment. If the
Accounting Firm determines that an excise tax is payable, the Company shall pay
to the Employee such amounts as are then due to the Employee under this Section
11, based on the Accounting Firm's determination. Payment shall be made within
five days after the Employee notifies the Company of the Accounting Firm's
determination and requests payment.
(c) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Payment or Gross-Up
Payment, a change is finally determined to be required in the amount of taxes
paid by the Employee, the Company shall pay to the Employee a sufficient amount
(or the Employee shall reimburse the Company for the amount of any overpayment,
if an overpayment shall have been made by the Company) such that the net amount
which is payable to the Employee after taking into account the provisions of
Section 4999 of the Code shall reflect the intent of the parties as expressed in
subsection (a) above. The Accounting Firm shall determine the amount of any such
payment to be made, and the payment shall be made within five days after the
Employee or the Company (as the case may be) requests payment. The payment shall
include, without limitation, any interest and penalties imposed on the Employee
as a result of the imposition of tax under Section 4999 of the Code.
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (b) and (c) above shall
be borne solely by the Company. The Company agrees to indemnify and hold
harmless the Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to
subsections (b) and (c) above, except for claims, damages or expenses resulting
from the gross negligence or willful misconduct of the Accounting Firm.
12. Arbitration; Expenses.
(a) In the event of any dispute under the provisions of this
Agreement, either party shall have the right to have such dispute, controversy
or claim to be settled by arbitration in Bucks County, Pennsylvania, in
accordance with the commercial arbitration rules then in effect of the American
Arbitration Association, before a panel of three
-6-
<PAGE> 7
arbitrators, one of whom shall be selected by the Company, one of whom shall be
selected by the Employee, and the third of whom shall be selected by the other
two arbitrators. Any award entered by the arbitrators shall be final, binding
and nonappealable and judgment may be entered thereon by any party in accordance
with applicable law in any court of competent jurisdiction. This arbitration
provision shall be specifically enforceable. The party or parties bringing the
challenge under this Agreement shall in all circumstances have the burden of
proof.
(b) In the event of an arbitration or lawsuit by either party to
enforce the provisions of this Agreement, Employee shall be entitled to recover
reasonable costs, attorney's fees and other expenses from the Company pursuant
to Section 6(b).
13. Successor Company. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Employee, to acknowledge expressly
that this Agreement is binding upon and enforceable against the Company in
accordance with the terms hereof, and to become jointly and severally obligated
with the Company to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. Failure of the Company to obtain such agreement prior to the
effective date of any such succession shall be a breach of this Agreement. As
used in this Agreement, the Company shall mean the Company as hereinbefore
defined and any such successors to its business or assets, jointly and
severally.
14. Notice. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, or by overnight express courier
service, as follows:
If to the Company, to:
Tseng Labs, Inc.
Attn: Chairman of the Compensation Committee
6 Terry Drive
Newtown, PA 18940
If to the Employee, to:
John J. Gibbons
2660 Shady Lane
Lansdale, PA 19446
-7-
<PAGE> 8
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other party in the manner specified in
this Section; provided, however, that if no such notice is given by the Company,
notice at the last address of the Company or to any successor pursuant to
Section 13 shall be deemed sufficient for the purposes hereof. Any such notice
shall be deemed delivered and effective when received in the case of personal
delivery, five days after deposit, postage prepaid, with the U.S. Postal Service
in the case of registered or certified mail, or on the next business day in the
case of overnight express courier service.
15. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the Commonwealth of Pennsylvania without giving
effect to any conflict of laws provisions.
16. Contents of Agreement, Amendment and Assignment.
(a) This Agreement supersedes all prior agreements, sets forth the
entire understanding between the parties with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment executed by the Employee and approved by the Board and
executed on the Company's behalf by the Chairman of the Compensation Committee
of the Board. The provisions of this Agreement may provide for payments to the
Employee under certain compensation or benefit plans or agreements under
circumstances where such plans or agreements would not provide for payment
thereof. It is the specific intention of the parties that the provisions of this
Agreement shall supersede any provisions to the contrary in such plans or
agreements, and such plans or agreements shall be deemed to have been amended to
correspond with this Agreement without further action by the Company or the
Board.
(b) Nothing in this Agreement shall be construed as giving the
Employee any right to be retained in the employ of the Company.
(c) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors and assigns of the parties hereto, except
that the duties and responsibilities of the Employee and the Company hereunder
shall not be assignable in whole or in part by the Company. Any payments to be
made to the Employee after his death shall be made to the personal
representative of his estate.
17. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
-8-
<PAGE> 9
18. Remedies Cumulative; No Waiver. No right conferred upon the
Employee by this Agreement is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and shall be
in addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No delay or omission by the Employee in exercising
any right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, including, without limitation, any delay by the
Employee in requesting payment under Section 11 or any delay by the Employee in
delivering a Notice of Termination pursuant to Section 2 after an event has
occurred which would, if the Employee had resigned, have constituted a
Termination of Employment pursuant to Section 1(j) of this Agreement.
19. Miscellaneous. All section headings are for convenience only.
This Agreement may be executed in several counterparts, each of which is an
original. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of the date first above written.
Attest: TSENG LABS, INC.
/s/ Barbara J. Hawkins /s/ Christopher F. Sutphin
__________________________ By: ________________________________________
Secretary Chairman, Compensation Committee
of the Board of Directors
__________________________
Date
/s/ John J. Gibbons
__________________________ ____________________________________________
Witness John J. Gibbons
__________________________
Date
-9-
<PAGE> 1
Exhibit 10.18
SEVERANCE AGREEMENT
Severance Agreement made as of April 17, 1998, between Tseng Labs,
Inc. (the "Company") and Mark Karsch (the "Employee").
WHEREAS, the Employee is presently employed by the Company as its
Senior Vice President and Chief Financial Officer;
WHEREAS, the Board of Directors of the Company (the "Board") desires
to provide this Agreement to the Employee in recognition of the extraordinary
efforts made by the Employee on behalf of the Company and as additional
compensation for the valuable services rendered and to be rendered by the
Employee to the Company;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. For all purposes of this Agreement, the following
terms shall have the meanings specified in this Section unless the context
clearly otherwise requires:
(a) "Annual Base Salary" shall mean twelve times the highest monthly
base salary paid (including any base salary which has been earned but deferred
and including salary reductions under employee benefit plans) to the Employee by
the Company and its Affiliates during the twelve-month period immediately
preceding the date of the Employee's Termination of Employment.
(b) "Affiliate" shall mean any entity directly or indirectly
controlled by, controlling or under common control with the Company.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall mean (i) misappropriation of funds, (ii) habitual
insobriety or substance abuse while performing duties for the Company, (iii)
conviction of a felony involving moral turpitude, or (iv) gross negligence in
the performance of duties, which gross negligence has had a material adverse
effect on the business, operations or financial condition of the Company and its
Affiliates taken as a whole.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 2
(f) "Company" shall mean Tseng Labs, Inc. and any successor to its
business or assets.
(g) "Disability" shall mean the Employee has had a continuous
illness, injury or incapacity for a period of six consecutive months that
prevents him from carrying out the responsibilities of his position with the
Company or the Board otherwise determines that the Employee has incurred a
long-term disability.
(h) "Separation Period" shall mean the two-year period beginning on
the date of the Employee's Termination of Employment.
(i) "Termination Date" shall mean the date of receipt of the Notice
of Termination described in Section 2 hereof or any later date specified
therein, as the case may be.
(j) "Termination of Employment" shall mean a termination of the
Employee's employment with the Company and its Affiliates either (x) on account
of death or Disability or (y) under any of the following circumstances that
occur after or in connection with a substantial acquisition by the Company, a
merger or consolidation involving the Company, a liquidation of the Company or a
change of control of the Company (as determined under the Tseng Labs, Inc.
1995 Stock Option Plan) after the date of this Agreement:
(A) A termination of employment initiated by the Company for
any reason other than Cause;
(B) A termination of employment, initiated by the Employee
upon one or more of the following occurrences (other than for Cause):
(i) any failure of the Company to comply with any of the
terms of this Agreement;
(ii) any change resulting in a significant reduction by
the Company of the authority, duties, compensation or
responsibilities of the Employee;
(iii) any reduction in the Employee's base salary; or
(iv) any requirement that the Employee move his
principal place of business more than 25 miles from the Company's
headquarters as of the effective date of this Agreement.
2. Notice of Termination. Any Termination of Employment (other than
on account of death) shall be communicated by a Notice of Termination to the
other party hereto given in accordance with Section 14. For purposes of this
Agreement, a "Notice of Termination"
2
<PAGE> 3
means a written notice which indicates that the Employee's employment will
terminate and, if the Termination Date is other than the date of receipt of such
notice, specifies the Termination Date (which date shall not be more than 15
days after the giving of such notice).
3. Compensation Upon Termination of Employment. In the event of the
Employee's Termination of Employment, the Company shall pay or provide to the
Employee (or, in the event of the Employee's death, to the Employee's estate),
the following:
(i) The Employee's earned but unpaid compensation as of the
Termination Date and the benefits, if any, to which the Employee is
entitled as a former employee under the employee benefit programs and
compensation plans maintained for the benefit of the Company's officers
and employees.
(ii) A lump sum cash payment on the Termination Date equal to
the Annual Base Salary the Employee would have earned if the Employee had
continued working for the Company during the Separation Period.
(iii) Continued group hospitalization, health care and dental
care coverage for the Employee and his spouse and dependents, if any,
while living during the Separation Period, with coverage equivalent to the
coverage to which the Employee and his spouse and dependents, if any,
would have been entitled had the Employee continued working for the
Company during the Separation Period at his Annual Base Salary, based on
the Company's benefit plans in effect at the Termination Date; provided
that, in lieu of continuing the Employee and his spouse and dependents, if
any, in the Company's benefit plans, the Company may pay to the Employee a
lump sum cash payment, on the Termination Date, equal to the cost
(including tax costs) to the Employee of acquiring and maintaining such
coverage for the Separation Period; and further provided that the COBRA
health continuation coverage period under Section 4980B of the Code shall
begin at the end of the Separation Period.
(iv) All options to purchase stock of the Company that are
held by the Employee and that have not previously vested shall be fully
vested as of the Employee's Termination of Employment. The Employee's
outstanding stock options may be exercised during the three-year period
following the date on which the Employee is no longer an employee or a
member of the Board (or, in the case of options granted under the Tseng
Labs, Inc. 1995 Stock Option Plan, such longer period as may be specified
in the Plan in the case of retirement approved by the Company, if the
Employee is eligible for retirement), but not later than the expiration of
the option term.
(v) The Company shall reimburse the Employee for the cost of
$10,000 of outplacement services, or the Employee may elect to receive an
immediate $10,000 cash payment from the Company at or after the
Termination Date in lieu of such outplacement services. As an alternative,
the Employee may elect to receive a
3
<PAGE> 4
combination of reimbursement for outplacement services and a cash payment,
with the total value of the reimbursement and payment equaling $10,000.
All reimbursements and payments under this subsection (v) shall be
accompanied by an additional cash payment from the Company in an amount
that covers the federal, state, local and other taxes imposed on the
Employee as a result of the reimbursements and payments under this
subsection (v).
4. Other Payments. The severance compensation due under Section 3
shall be in addition to and not in lieu of any payments or benefits due to the
Employee under any other plan, policy or program of the Company, except that no
payments shall be due to the Employee under the Company's severance pay plan
then in effect for employees, if any.
5. Term of Agreement. The term of this Agreement shall be for five
years from the date of this Agreement and shall be automatically renewed for
successive one-year periods unless the Company notifies the Employee in writing
that this Agreement will not be renewed at least 60 days prior to the end of the
then current term; provided, however, that (a) in the event of a Termination of
Employment, this Agreement shall remain in effect until all of the obligations
of the Company hereunder are satisfied or have expired, and (b) this Agreement
shall terminate if the Employee's employment with the Company and its Affiliates
shall terminate for any reason other than a Termination of Employment.
6. Enforcement.
(a) In the event that the Company shall fail or refuse to make
payment of any amounts due the Employee under this Agreement within the time
periods provided therein, the Company shall pay to the Employee, in addition to
the payment of any other sums provided in this Agreement, interest, compounded
daily, on any amount remaining unpaid from the date payment is required under
this Agreement, until paid to the Employee, at the rate from time to time
announced by First Union Bank as its "prime rate" plus 2%, each change in such
rate to take effect on the effective date of the change in such prime rate.
(b) It is the intent of the parties that the Employee not be
required to incur any expenses associated with the enforcement of his rights
under this Agreement by arbitration, litigation or other legal action because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Employee hereunder. Accordingly, the Company
shall pay the Employee on demand the amount necessary to reimburse the Employee
in full for all expenses (including without limitation all attorneys' fees and
legal expenses) incurred by the Employee in enforcing any of the obligations of
the Company under this Agreement.
7. No Mitigation. The Employee shall not be required to mitigate the
amount of any payment or benefit provided for in this Agreement by seeking other
employment
4
<PAGE> 5
or otherwise, nor shall the amount of any payment or benefit provided for herein
be reduced by any compensation earned by other employment or otherwise.
8. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in or rights
under any benefit, bonus, incentive or other plan or program provided by the
Company or any of its Affiliates and for which the Employee may qualify, except
as provided in Section 4 above.
9. No Set-Off. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Employee or others.
10. Taxes. Any payment required under this Agreement shall be
subject to all requirements of applicable law with regard to federal, state,
local and other withholding of taxes.
11. Parachute Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall be determined that any payment or distribution by the
Company to or for the benefit of the Employee, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code, the Company shall pay the Employee an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee, after deduction of any excise tax imposed under Section 4999 of
the Code, and any federal, state and local income and employment tax and excise
taxes imposed upon the Gross-Up Payment, shall be equal to the Payment. For
purposes of determining the amount of the Gross-Up Payment, the Employee shall
be deemed to pay federal income tax and employment taxes at the highest marginal
rate of federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Employee's residence
on the Termination Date, net of the maximum reduction in federal income taxes
that may be obtained from the deduction of such state and local taxes.
(b) The Employee may have an independent public accountant selected
by the Employee (the "Accounting Firm") determine whether and to what extent the
excise tax under Section 4999 of the Code is applicable to any Payment. If the
Accounting Firm determines that an excise tax is payable, the Company shall pay
to the Employee such amounts as are then due to the Employee under this Section
11, based on the Accounting Firm's determination. Payment shall be made within
five days after the Employee notifies the Company of the Accounting Firm's
determination and requests payment.
5
<PAGE> 6
(c) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Payment or Gross-Up
Payment, a change is finally determined to be required in the amount of taxes
paid by the Employee, the Company shall pay to the Employee a sufficient amount
(or the Employee shall reimburse the Company for the amount of any overpayment,
if an overpayment shall have been made by the Company) such that the net amount
which is payable to the Employee after taking into account the provisions of
Section 4999 of the Code shall reflect the intent of the parties as expressed in
subsection (a) above. The Accounting Firm shall determine the amount of any such
payment to be made, and the payment shall be made within five days after the
Employee or the Company (as the case may be) requests payment. The payment shall
include, without limitation, any interest and penalties imposed on the Employee
as a result of the imposition of tax under Section 4999 of the Code.
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (b) and (c) above shall
be borne solely by the Company. The Company agrees to indemnify and hold
harmless the Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to
subsections (b) and (c) above, except for claims, damages or expenses resulting
from the gross negligence or willful misconduct of the Accounting Firm.
12. Arbitration; Expenses.
(a) In the event of any dispute under the provisions of this
Agreement, either party shall have the right to have such dispute, controversy
or claim to be settled by arbitration in Bucks County, Pennsylvania, in
accordance with the commercial arbitration rules then in effect of the American
Arbitration Association, before a panel of three arbitrators, one of whom shall
be selected by the Company, one of whom shall be selected by the Employee, and
the third of whom shall be selected by the other two arbitrators. Any award
entered by the arbitrators shall be final, binding and nonappealable and
judgment may be entered thereon by any party in accordance with applicable law
in any court of competent jurisdiction. This arbitration provision shall be
specifically enforceable. The party or parties bringing the challenge under this
Agreement shall in all circumstances have the burden of proof.
(b) In the event of an arbitration or lawsuit by either party to
enforce the provisions of this Agreement, Employee shall be entitled to recover
reasonable costs, attorney's fees and other expenses from the Company pursuant
to Section 6(b).
13. Successor Company. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Employee, to acknowledge expressly
that this Agreement is binding upon and enforceable against the Company in
accordance with the terms hereof, and to become jointly and severally obligated
with the Company to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
6
<PAGE> 7
Failure of the Company to obtain such agreement prior to the effective date of
any such succession shall be a breach of this Agreement. As used in this
Agreement, the Company shall mean the Company as hereinbefore defined and any
such successors to its business or assets, jointly and severally.
14. Notice. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, or by overnight express courier
service, as follows:
If to the Company, to:
Tseng Labs, Inc.
Attn: Chairman of the Compensation Committee
6 Terry Drive
Newtown, PA 18940
If to the Employee, to:
Mark Karsch
2279 Locust Drive
Lansdale, PA 19446
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other party in the manner specified in
this Section; provided, however, that if no such notice is given by the Company,
notice at the last address of the Company or to any successor pursuant to
Section 13 shall be deemed sufficient for the purposes hereof. Any such notice
shall be deemed delivered and effective when received in the case of personal
delivery, five days after deposit, postage prepaid, with the U.S. Postal Service
in the case of registered or certified mail, or on the next business day in the
case of overnight express courier service.
15. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the Commonwealth of Pennsylvania without giving
effect to any conflict of laws provisions.
7
<PAGE> 8
16. Contents of Agreement, Amendment and Assignment.
(a) This Agreement supersedes all prior agreements, sets forth the
entire understanding between the parties with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment executed by the Employee and approved by the Board and
executed on the Company's behalf by the Chairman of the Compensation Committee
of the Board. The provisions of this Agreement may provide for payments to the
Employee under certain compensation or benefit plans or agreements under
circumstances where such plans or agreements would not provide for payment
thereof. It is the specific intention of the parties that the provisions of this
Agreement shall supersede any provisions to the contrary in such plans or
agreements, and such plans or agreements shall be deemed to have been amended to
correspond with this Agreement without further action by the Company or the
Board.
(b) Nothing in this Agreement shall be construed as giving the
Employee any right to be retained in the employ of the Company.
(c) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors and assigns of the parties hereto, except
that the duties and responsibilities of the Employee and the Company hereunder
shall not be assignable in whole or in part by the Company. Any payments to be
made to the Employee after his death shall be made to the personal
representative of his estate.
17. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
18. Remedies Cumulative; No Waiver. No right conferred upon the
Employee by this Agreement is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and shall be
in addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No delay or omission by the Employee in exercising
any right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, including, without limitation, any delay by the
Employee in requesting payment under Section 11 or any delay by the Employee in
delivering a Notice of Termination pursuant to Section 2 after an event has
occurred which would, if the Employee had resigned, have constituted a
Termination of Employment pursuant to Section 1(j) of this Agreement.
19. Miscellaneous. All section headings are for convenience only.
This Agreement may be executed in several counterparts, each of which is an
original. It shall not be
8
<PAGE> 9
necessary in making proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement as of the date first above written.
Attest: TSENG LABS, INC.
/s/ Barbara J. Hawkins /s/ Christopher F. Sutphin
_________________________ By: ________________________________________
Secretary Chairman, Compensation Committee
of the Board of Directors
_________________________
Date
/s/ Mark Karsch
_________________________ ____________________________________________
Witness Mark Karsch
_________________________
Date
<PAGE> 1
Exhibit 23.3
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cell Pathways, Inc.:
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Denver, Colorado
July 22, 1998
<PAGE> 1
Exhibit 23.4
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this S-4 Registration Statement of our report dated February 6,
1998 included in Tseng Labs, Inc. and subsidiaries' Form 10-K for the year
ended December 31, 1997 and to all references to our firm included in this S-4
Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
July 22, 1998
<PAGE> 1
[LETTERHEAD OF JANNEY MONTGOMERY SCOTT]
EXHIBIT 23.5
CONSENT OF JANNEY MONTGOMERY SCOTT INC.
We hereby consent to the reference in the Registration Statement on Form S-4, to
the form of our opinion with respect to the merger of Tseng Sub, Inc., a
wholly-owned subsidiary of Cell Pathways Holdings, Inc., with and into Tseng
Labs, Inc., and to our firm, respectively, and to the inclusion of such form of
opinion as an Appendix to the Joint Proxy Statement/Prospectus included in the
Registration Statement. By giving such consent, we do not hereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
JANNEY MONTGOMERY SCOTT INC.
July 20, 1998
<PAGE> 1
EXHIBIT 99.1
CELL PATHWAYS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 1998
The undersigned stockholder of Cell Pathways, Inc., a Delaware corporation
("CPI"), hereby acknowledges receipt of the Notice of Special Meeting of the
Stockholders of CPI and Joint Proxy Statement/Prospectus of Holdco, Inc., a
Delaware corporation ("Holdco"), and hereby appoints ____________ and
_____________, and each of them, proxies and attorneys-in-fact with full power
of substitution to each, on behalf and in the name of the undersigned, to
represent the undersigned at the Special Meeting of the Stockholders of CPI, to
be held at _________________, on __________, _________, 1998 at 9:00 a.m., local
time, and at any and all postponements, continuations and adjournments thereof,
and to vote all shares of common stock and/or preferred stock which the
undersigned may be entitled to vote if then and there personally present, with
all powers that the undersigned would possess if personally present, upon and in
respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that
may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 1.
PROPOSAL 1: TO: (i) adopt and approve the Agreement and Plan of
Reorganization, dated as of June 23, 1998, by and between CPI and
Tseng Labs, Inc., a Utah corporation, and (ii) approve the merger
of CPI Merger Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of Holdco, with and into CPI pursuant to which CPI will
become a wholly-owned subsidiary of Holdco.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on other side)
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To adopt and approve an amendment to the CPI Certificate of
Incorporation which provides that the holders of CPI Preferred
Stock will only receive the consideration for their shares set
forth in the Reorganization Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED __________________________, 19__
______________________________________
______________________________________
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating
title. If signer is a partnership, please
sign in partnership name by authorized
person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 1
EXHIBIT 99.2
TSENG LABS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 1998
The undersigned stockholder of Tseng Labs, Inc., a Utah corporation
("Tseng"), hereby acknowledges receipt of the Notice of Special Meeting of the
Stockholders of Tseng and Joint Proxy Statement/Prospectus of Tseng, Cell
Pathways, Inc. and Cell Pathways Holdings, Inc., a Delaware corporation
("CPHI"), and hereby appoints John J. Gibbons and Mark Karsch, and each of them,
proxies and attorneys-in-fact with full power of substitution to each, on behalf
and in the name of the undersigned, to represent the undersigned at the Special
Meeting of the Stockholders of Tseng, to be held at _________________, on
__________, _________, 1998 at 9:00 a.m., local time, and at any and all
postponements, continuations and adjournments thereof (the "Tseng Special
Meeting"), and to vote all shares of common stock which the undersigned may be
entitled to vote if then and there personally present, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THE SHARES OF TSENG COMMON STOCK
OF THE UNDERSIGNED WILL BE VOTED "FOR" PROPOSAL 1 AND PROPOSAL 2, AS MORE
SPECIFICALLY DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH. IF
ANY OTHER MATTERS SHOULD PROPERLY COME BEFORE THE TSENG SPECIAL MEETING, SUCH
SHARES WILL BE VOTED WITH RESPECT TO SUCH MATTERS IN ACCORDANCE WITH THE
JUDGMENT OF THE PERSONS VOTING SUCH PROXIES.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS
DESCRIBED BELOW.
PROPOSAL 1: TO: (i) approve and adopt the Agreement and Plan of
Reorganization, dated as of June 23, 1998, between Tseng and Cell
Pathways, Inc. a Delaware corporation, and (ii) approve the merger
of Tseng Sub, Inc., a Utah corporation and wholly-owned subsidiary
of CPHI, with and into Tseng (the "Tseng Merger") and the filing
of Articles of Merger with the Secretary of State of Utah pursuant
to which Tseng will become a wholly-owned subsidiary of CPHI and
the stockholders of Tseng will receive shares of CPHI Common Stock
in exchange for their Tseng Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 2: TO: vote upon and authorize the adjournment of the Tseng Special
Meeting, if necessary, to allow for the collection of additional
stockholder votes to obtain a quorum or in order to obtain more
votes in favor of the approval and adoption of the Reorganization
Agreement and the approval of the Tseng Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3: TO: transact such other business as may properly come before the
Tseng Special Meeting.
DATED __________________________, 19__
______________________________________
______________________________________
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators, trustees,
guardians and attorneys-in-fact should add
their titles. If signer is a corporation,
please give full corporate name and have a
duly authorized officer sign, stating
title. If signer is a partnership, please
sign in partnership name by authorized
person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 1
Exhibit 99.3
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the inclusion of the information
regarding the undersigned in the Registration Statement on Form S-4 (the
"Registration Statement") of Cell Pathways Holdings, Inc. (the "CPHI") and any
amendment thereto, in connection with the undersigned being a director nominee
of CPHI. The undersigned hereby further consents to being named in the
Registration Statement and any amendment thereto as a director nominee of CPHI
and that upon election as a director of CPHI in accordance with its By-laws,
the undersigned will serve as a director of CPHI until his successor is duly
elected and qualified.
Date: July 21, 1998 /s/ John J. Gibbons
-------------------
John J. Gibbons
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 8,461
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,640
<PP&E> 1,776
<DEPRECIATION> 133
<TOTAL-ASSETS> 10,980
<CURRENT-LIABILITIES> 3,257
<BONDS> 62
1,092
32,158
<COMMON> 30
<OTHER-SE> (25,566)
<TOTAL-LIABILITY-AND-EQUITY> 10,980
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 10,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,297)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,297)
<EPS-PRIMARY> (3.63)
<EPS-DILUTED> (3.63)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 20,349
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,787
<PP&E> 1,226
<DEPRECIATION> 199
<TOTAL-ASSETS> 22,332
<CURRENT-LIABILITIES> 2,040
<BONDS> 0
1,092
53,571
<COMMON> 30
<OTHER-SE> (34,401)
<TOTAL-LIABILITY-AND-EQUITY> 22,332
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,620)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,620)
<EPS-PRIMARY> (2.88)
<EPS-DILUTED> (2.88)
</TABLE>
