<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 12, 1997
------------------
SOMATIX THERAPY CORPORATION
--------------------------------------------------
(Exact name of registrant as specified in charter)
x
Delaware 0-14758 94-2762045
- ---------------------------- ----------- -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
950 Marina Village Parkway, Suite 100, Alameda, California 94501
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 748-3000
------------------
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report.)
Page 1 of __
<PAGE> 2
Item 5. Other Events.
As reported in the Current Report on Form 8-K of Somatix Therapy
Corporation (the "Company") filed on January 27, 1997, the Company, Cell
Genesys, Inc. ("CGI") and S. Merger Corp., a wholly-owned subsidiary of CGI,
previously entered into an Agreement and Plan of Merger and Reorganization,
dated as of January 12, 1997 (the "Merger Agreement"). On March 27, 1997, in
connection with the agreement of the Company to consent to a cross-license and
settlement agreement involving CGI and certain other parties, the Merger
Agreement was amended and restated to, among other things, eliminate two
contingent downward adjustments to the exchange ratios applicable to the common
stock and Series A preferred stock of the Company. A copy of the amended and
restated Merger Agreement (the "Amended and Restated Merger Agreement") is
attached hereto as Exhibit 2.1.
In accordance with Section 7.13 of the Amended and Restated Merger
Agreement, the Company was obligated to cause its independent certified public
accountants to prepare and audit balance sheets and related financial
statements of Somatix at and as of December 31, 1996 (the "Audited December 31,
1996 Financial Statements"). The Audited December 31, 1996 Financial
Statements, together with the Report of Ernst & Young, LLP, Independent
Auditors, are set forth immediately below.
2.
<PAGE> 3
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Somatix Therapy Corporation
We have audited the accompanying consolidated balance sheets of Somatix Therapy
Corporation as of December 31, 1996, and June 30, 1996, the consolidated
statements of operations and cash flows for the six month period ended December
31, 1996, and the consolidated statements of stockholders' equity for the year
ended June 30, 1996 and the six months ended December 31, 1996. 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
misstatements. 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 consolidated financial position of Somatix Therapy
Corporation at December 31, 1996 and June 30, 1996 , and the results of its
operations and its cash flows for the six month period ended December 31, 1996
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Somatix Therapy Corporation will continue as a going concern. As more fully
described in Note 1, the Company has incurred recurring losses from operations.
This raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans as to these matters are also described in Note 1.
The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability or classification of assets or
the amounts and classification of liabilities that might result from the outcome
of this uncertainty.
ERNST & YOUNG LLP
Palo Alto, California
January 31, 1997
<PAGE> 4
SOMATIX THERAPY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 5,786,000 $ 6,703,000
Marketable securities .................................. 3,905,000 7,738,000
Other current assets ................................... 998,000 889,000
------------- -------------
Total current assets ............................. 10,689,000 15,330,000
Marketable securities ...................................... -- 595,000
Restricted cash ............................................ 300,000 650,000
Equipment and improvements, at cost:
Laboratory and production equipment .................... 4,173,000 4,136,000
Equipment under capital leases ......................... 3,737,000 3,435,000
Furniture and office equipment ......................... 1,136,000 1,266,000
Leasehold improvements ................................. 4,465,000 4,286,000
------------- -------------
13,511,000 13,123,000
Less accumulated depreciation and amortization ......... 11,495,000 10,459,000
------------- -------------
Net equipment and improvements ......................... 2,016,000 2,664,000
Other assets ............................................... 513,000 131,000
------------- -------------
$ 13,518,000 $ 19,370,000
============= =============
</TABLE>
See accompanying notes.
<PAGE> 5
SOMATIX THERAPY CORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
-------------- --------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities ............... $ 2,095,000 $ 2,237,000
Accrued compensation and related expenses .............. 801,000 1,169,000
Capital lease obligations .............................. 983,000 861,000
Accrued restructuring costs ............................ 1,096,000 414,000
Other current liabilities .............................. 239,000 186,000
-------------- --------------
Total current liabilities ......................... 5,214,000 4,867,000
Capital lease obligations, net of current portion, ......... 992,000 1,217,000
Accrued restructuring costs,
net of current portion ................................. 634,000 834,000
Other liabilities .......................................... 78,000 249,000
Stockholders' equity
Preferred stock, par value $0.01
per share, 1,000,000 shares authorized;
Series A, 247,651 shares, issued and
outstanding (239,811 at June 30, 1996;
liquidation preference of $6,191,275 at
December 31, 1996) ..................................... 2,000 2,000
Series B, 33,333 shares, issued and
outstanding (none at June 30, 1996;
liquidation preference of $5,000,000 at
December 31, 1996) ................................... 1,000 --
Common stock, par value $0.01 per share,
40,000,000 shares authorized,
24,476,848 issued and outstanding
(24,369,403 at June 30, 1996) .......................... 245,000 244,000
Additional paid-in capital ............................... 187,401,000 182,118,000
Accumulated deficit ...................................... (181,049,000) (170,161,000)
-------------- --------------
Total stockholders' equity ........................... 6,600,000 12,203,000
-------------- --------------
$ 13,518,000 $ 19,370,000
============== ==============
</TABLE>
See accompanying notes.
<PAGE> 6
SOMATIX THERAPY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
December 31, December 31,
1996 1995
-------------- --------------
(unaudited)
<S> <C> <C>
Costs and expenses:
Research and development $ 7,639,000 $ 8,131,000
General and administrative 2,703,000 1,970,000
Restructuring costs 1,060,000 --
-------------- --------------
Total costs and expenses 11,402,000 10,101,000
-------------- --------------
Operating loss (11,402,000) (10,101,000)
Other income, net 515,000 421,000
-------------- --------------
Net loss $ (10,887,000) $ (9,680,000)
============== ==============
Net loss per share $ (0.45) $ (0.43)
============== ==============
Shares used in calculation of
net loss per share 24,402,640 22,282,529
============== ==============
</TABLE>
See accompanying notes.
<PAGE> 7
SOMATIX THERAPY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
December 31, December 31,
1996 1995
-------------- --------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................................ $ (10,887,000) $ (9,680,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization .............................................. 1,036,000 931,000
Increase in other current assets ........................................... (109,000) (60,000)
Increase in other assets ................................................... (382,000) (25,000)
Decrease in accounts payable
and accrued liabilities .................................................. (143,000) (695,000)
Decrease in accrued compensation
and related expenses ..................................................... (368,000) (166,000)
Increase (decrease) in accrued
restructuring costs ..................................................... 482,000 (704,000)
Decrease in other
liabilities .............................................................. (118,000) (64,000)
-------------- --------------
Net cash used in operating
activities ..................................................... (10,489,000) (10,463,000)
Cash flows from investing activities:
Maturities of marketable securities .......................................... 4,440,000 1,700,000
Purchase of marketable securities ............................................ (12,000) (13,120,000)
Decrease (increase) in restricted cash ....................................... 350,000 (350,000)
Purchase of equipment and
improvements ............................................................... (388,000) (246,000)
-------------- --------------
Net cash provided by (used in)
investing activities .......................................... 4,390,000 (12,016,000)
Cash flows from financing activities:
Borrowings under sale/leaseback
agreement .................................................................. 398,000 179,000
Principal payments under capital
lease obligations .......................................................... (501,000) (394,000)
Net proceeds from issuance of
common stock ............................................................... 5,285,000 11,550,000
-------------- --------------
Net cash provided by
financing activities .......................................... 5,182,000 11,335,000
Net decrease in cash ............................................................ (917,000) (11,144,000)
Cash and cash equivalents,
beginning of period .......................................................... 6,703,000 14,326,000
-------------- --------------
Cash and cash equivalents,
end of period ................................................................ $ 5,786,000 $ 3,182,000
============== ==============
Cash paid for interest .......................................................... $ 139,000 $ 162,000
============== ==============
Supplemental disclosures of non-cash investing and financing activities:
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Conversion of preferred stock into common stock ............................ $ 743,000 $ --
============== ==============
</TABLE>
See accompanying notes.
<PAGE> 9
SOMATIX THERAPY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock
---------------------------------------------------------
Series A Series B
----------------------------- --------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Balances, June 30, 1995 ........................ 254,000 $ 3,000 -- $ --
Issuance of shares of common stock
under stock option & purchase plans .......... -- -- -- --
Paid in kind dividends for preferred stock ..... 16,354 -- -- --
Conversion of preferred stock into
common stock ................................. (30,543) (1,000) -- --
Exercise of warrants to purchase
common stock ................................. -- -- -- --
Purchase of common stock by Bristol
Myers Squibb, net of issuance costs .......... -- -- -- --
Net Loss ....................................... -- -- -- --
------------- ------------- ------------- -----------
Balances, June 30, 1996 ........................ 239,811 2,000 -- --
Issuance of shares of common stock
under stock option & purchase plans .......... -- -- -- --
Exercise of warrants to purchase
common stock ................................. -- -- -- --
Paid in kind dividends for Series A
preferred stock .............................. 7,840 -- -- --
Private placement of preferred stock
at $150.00 per share, net of
issuance costs ............................... -- -- 33,333 1,000
Net Loss ....................................... -- -- -- --
============= ============= ============= ===========
Balances, December 31, 1996 .................... 247,651 $ 2,000 33,333 $ 1,000
============= ============= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1995 ........................ 20,991,996 $ 210,000 $ 159,749,000 $(149,473,000) $ 10,489,000
Issuance of shares of common stock
under stock option & purchase plans .......... 323,666 3,000 857,000 -- 860,000
Paid in kind dividends for preferred stock ..... -- -- -- -- --
Conversion of preferred stock into
common stock ................................. 190,893 2,000 (1,000) -- --
Exercise of warrants to purchase
common stock ................................. 559,627 6,000 1,572,000 -- 1,578,000
Purchase of common stock by Bristol
Myers Squibb, net of issuance costs .......... 2,303,221 23,000 19,941,000 -- 19,964,000
Net Loss ....................................... -- -- -- (20,688,000) (20,688,000)
------------- ------------- ------------- ------------- -------------
Balances, June 30, 1996 ........................ 24,369,403 244,000 182,118,000 (170,161,000) 12,203,000
Issuance of shares of common stock
under stock option & purchase plans .......... 94,549 1,000 283,000 -- 284,000
Exercise of warrants to purchase
common stock ................................. 12,896 -- -- -- --
Paid in kind dividends for Series A
preferred stock .............................. -- -- -- -- --
Private placement of preferred stock
at $150.00 per share, net of
issuance costs ............................... -- -- 5,000,000 -- 5,001,000
Net Loss ....................................... -- -- -- (10,888,000) (10,888,000)
============= ============= ============= ============= =============
Balances, December 31, 1996 .................... 24,476,848 $ 245,000 $ 187,401,000 $(181,049,000) $ 6,600,000
============= ============= ============= ============= =============
</TABLE>
<PAGE> 10
See accompanying notes.
<PAGE> 11
SOMATIX THERAPY CORPORATION
Notes to Financial Statements
(Information for the six month period ended December 31, 1995 is unaudited)
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
COMPANY AND BASIS OF PRESENTATION.
Somatix Therapy Corporation ("Somatix" or the "Company") is a leader in the
emerging field of gene therapy. Somatix is applying its gene therapy expertise
to research and develop therapies to treat a variety of diseases. The Company is
the result of three transactions. The first transaction, which was consummated
in March 1991, combined Somatix Corporation and Hana Biologics, Inc. The second
transaction occurred in January 1992, when the Company acquired GeneSys
Therapeutics Corporation. The third transaction occurred in February 1995, when
the Company acquired Merlin Pharmaceutical Corporation (see Note 2). The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany accounts and transactions have been
eliminated.
The Company's fiscal year end is June 30. The information at December 31, 1995,
and for the periods then ended, is unaudited, but includes all adjustments
(consisting only of normal recurring entries) which the Company's management
believes to be necessary for the fair presentation of the financial position,
results of operations and changes in cash flows for the periods presented.
Interim results are not necessarily indicative of results for a full year. The
accompanying consolidated financial statements should be read in conjunction
with the Company's audited financial statements for the fiscal year ended June
30, 1996.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred a loss in
each period since inception. The Company's accumulated deficit was $181,049,000
at December 31, 1996. Somatix expects to incur additional losses. As discussed
under Note 8 below, the Company has entered into a Merger Agreement whereby the
Company would become a wholly-owned subsidiary of Cell Genesys, Inc. pursuant to
a merger transaction (the "Merger"). The Company believes that its existing
capital resources, $5,475,000 of working capital at December 31, 1996, will be
adequate to satisfy its requirements during the pendency of the Merger. The
Company has, however, agreed to certain covenants regarding the operation of its
business pending stockholder approval of the Merger, which covenants limit the
amount and types of financing the Company may obtain during the pendency of the
Merger. Although the Company believes that it has sufficient access to capital
to fund its operations through the consummation of the Merger or any termination
of the Merger Agreement, such covenants limit the Company's flexibility in
raising further capital and would therefore materially and adversely affect the
Company's operations if the Merger is not consummated.
Absent the consummation of the Merger, the Company's ability to continue
operations will be dependent upon its ability to raise substantial additional
funds immediately after any termination of the proposed Merger, including funds
raised through collaborative relationships and public or private financings. No
assurance can be given that additional funding will be available on acceptable
terms, or at all. This raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on recoverability or
classification of assets or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.
CASH AND CASH EQUIVALENTS.
At December 31, 1996, cash equivalents consist of short-term corporate debt
securities totaling $4,000,000 with maturities at the date of acquisition of
three months or less. Cash equivalents are stated at cost which approximates
fair value.
USE OF ESTIMATES.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
MARKETABLE SECURITIES.
<PAGE> 12
At December 31, 1996, current marketable securities consist of government
securities totaling $3,805,000 and corporate debt securities totaling $100,000
having maturities between three months and one year. Marketable securities are
stated at cost which approximates fair value and the unrealized gains and losses
at December 31, 1996 are not significant.
In accordance with SFAS 115, debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in investment income. Interest on securities classified
as held-to-maturity is included in investment income.
It is the Company's policy to invest funds not required for current operations
in financial instruments with strong credit ratings. The Company has not
experienced significant losses to date on these investments.
EQUIPMENT AND IMPROVEMENTS.
Depreciation of equipment and furniture is provided over estimated useful lives
of three to ten years using the straight-line method. Assets under capital
leases are amortized by the straight-line method over their useful lives of
three to five years. Leasehold improvements are amortized over the remaining
lives of the applicable leases.
OTHER ASSETS.
Other assets include a note receivable from a board member for $400,000, secured
by 100,000 shares of common stock. The note bears interest at a rate of 8.5% and
the interest is payable quarterly, for the first five years, with the principal
due at maturity or earlier by rendering consulting services to the Company.
RETIREMENT PLAN.
On January 1, 1993, the Company established a defined contribution plan which
covers all employees 21 years and older. The Company's contributions to the plan
are at the discretion of the Company's Board of Directors. Amounts contributed
to the plan for the six-month period ending December 31, 1996 and 1995 was
$109,000 and $29,000, respectively.
INCOME TAXES.
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
PER SHARE INFORMATION.
Per share information is based on the weighted average number of common shares
outstanding during each period. Shares issuable upon the exercise of stock
options and warrants and the conversion of preferred stock are not included
since their inclusion would be anti-dilutive. In addition, the paid in kind
dividends on the preferred stock are excluded as their impact would also be
anti-dilutive.
2. ACQUISITION OF MERLIN PHARMACEUTICAL CORPORATION
<PAGE> 13
On February 13, 1995, the Company completed its acquisition (the "Acquisition")
of Merlin Pharmaceutical Corporation ("Merlin"), a privately-held gene therapy
company. The Company issued 2,257,385 shares of common stock in exchange for all
of the outstanding capital stock of Merlin and assumed options and warrants to
purchase an aggregate of 743,371 shares of the Company's common stock at
exercise prices between $0.01 and $1.94 per share.
The transaction was accounted for as a purchase and the consideration issued by
the Company was allocated to the tangible assets and intangible in-process
technology acquired based on their estimated fair values on the Acquisition
date. The aggregate purchase price of $13,702,000 consisted of (in thousands):
<TABLE>
<S> <C>
Fair value of common stock issued $ 9,144
Fair value of warrants and options assumed 3,110
Acquisition costs 900
Liabilities assumed 548
-------
Total purchase price $13,702
=======
</TABLE>
The aggregate purchase price exceeded the fair value of Merlin's tangible assets
by $13,679,000. This amount was allocated to acquired in-process technology and
charged to operations in fiscal year 1995. The allocation of the aggregate
purchase price was as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 23
In-process technology 13,679
-------
$13,702
=======
</TABLE>
3. STOCKHOLDERS' EQUITY
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
OTHER BENEFIT OR BONUS PLANS
1992 Stock Option Plan. The 1992 Stock Option Plan ("the Plan") provides for the
granting of options for common stock to employees, officers, directors and
consultants of the Company. The Company grants option shares of common stock for
issuance under the plan at no less than the fair market value of the stock (85%
of fair market value for non-qualified options). Options granted under the Plan
have a maximum term of ten years and generally vest over four years at the rate
of 25% one year from the beginning of the quarter closest to the grant date, and
1/16 quarterly thereafter.
Information with respect to the Plan activity for the fiscal year ended June 30,
1996, and six months ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, 1996 December 31, 1996
--------------------------- ----------------------------
Shares Weighted-Average Shares Weighted-Average
(000) Exercise Price (000) Exercise Price
----- -------------- ----- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 2,383 $3.34 2,377 $3.71
Granted 423 5.70 417 4.36
Exercised (263) 3.23 (95) 3.01
Canceled (166) 4.32 (133) 4.30
----- -----
Outstanding at end of period 2,377 3.71 2,566 3.81
===== =====
Weighted average fair value of
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
options granted during the year $3.20 $2.45
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------ ------------------------------------------------------------ ----------------------------
Number Weighted Average Weighted- Number Weighted-
Range of Exercise Outstanding Remaining Average Exercisable Average
Prices (000) Contractual Life Exercise Price (000) Exercise Price
- ------------------ ------------------------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
$2.44 - 3.00 1,538 7.42 $ 2.91 1,254 $ 2.89
$3.06 - 3.75 223 8.54 3.59 165 3.63
$4.50 - 5.75 614 9.25 4.63 137 4.88
$6.25 - 8.50 153 9.15 6.81 30 6.77
$15.32 - 18.72 38 2.05 15.95 38 15.95
</TABLE>
Statement 123
Pro forma information regarding net loss and net loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of Somatix' options were estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for fiscal
year 1996 and for the six months ended December 31, 1996, respectively:
risk-free interest rates of 5.94% and 6.41%; no dividend yields; volatility
factors of the expected market price of the Company's common stock of 0.675 for
both years; and an expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The following table
illustrates what net loss would have been had the Company accounted for its
stock options under the provisions of FAS 123. Because Statement 123 is
applicable only to options granted subsequent to December 31, 1994, its pro
forma effect will not be fully reflected until 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1996
------------------------------ ----------------------
in thousands (except per share data)
<S> <C> <C>
Net loss As reported $20,688 $10,887
Pro forma 21,347 11,304
------------------------------ ----------------------
Net loss per share As reported $(0.90) $(0.45)
Pro forma $(0.93) $(0.46)
------------------------------ ----------------------
</TABLE>
Other Option Plans. As a result of mergers and acquisition, the Company adopted
additional option plans. At December 31, 1996, options to purchase 479,436
shares were outstanding with an exercise price ranging from $0.0116 to $14.04
per share. All shares are exercisable; 6,250 are subject to repurchase rights.
PRIVATE PLACEMENT OF COMMON AND PREFERRED STOCK
Preferred Stock Series A. On June 29, 1995 the Company closed a private
placement of units of common and preferred stock in the aggregate amount of
$16,543,000, before issuance costs of $1,476,000. The financing consisted of
$10,100,000 in common stock units of the Company ("Common Stock Units";
2,769,892 shares) and $6,400,000 in preferred stock units of the Company
("Preferred Stock Units"; 254,000 shares).
<PAGE> 15
The Common Stock Units were priced at $3.68, and consisted of one share of the
Company's common stock ("Common Stock") and a warrant to purchase 0.56 of a
share of Common Stock. The Preferred Stock Units were priced at $25.00, and
consisted of one share of the Company's convertible preferred stock (the
"Preferred Stock"), convertible to 6.25 shares of Common Stock at $4.00 per
share, and warrants for 3.5 shares of Common Stock. In both cases the warrants
have exercise prices of $4.00 per share and have three year terms.
The Preferred Stock terms include a paid-in-kind dividend paid quarterly until
converted to common stock at the rate of 7% per year, a liquidation preference
of $25.00 per share, extraordinary voting rights in the event the Company's net
cash position, as defined, falls below $5,000,000, and a conversion price reset
provision. Under the reset provision, thirteen months after closing, the
conversion price may be reset to the lower of the current conversion price or
the twenty day average closing price of the Common Stock in the thirteenth
month. The conversion price after reset may not be less than $2.00 per share.
Purchasers of the Preferred Stock Units have agreed to certain trading
restrictions during this measurement period. The Preferred Stock will
automatically convert to Common Stock at any time after two and one-half years
after closing if the Common Stock trades at a 100% premium to the
then-applicable conversion price.
Preferred Stock Series B. On September 25, 1996, the Company sold 33,333 shares
of convertible Series B-1 preferred stock ("Preferred Stock") in a private
placement pursuant to Regulation S under the Securities Act of 1933, as amended,
for an aggregate consideration of $5,000,000 in cash. In addition, the Company
has the right to sell up to $10,000,000 in additional shares of Preferred Stock
during the three (3) year period beginning March 25, 1997 and ending September
25, 1999. The Preferred Stock is not entitled to dividends and is convertible
into common stock at a premium over an average of the market price of the
Company's Common Stock on the earlier of (i) the investor's option, (ii)
immediately following any sixty (60) day trading period after March 1997 in
which the Company's common stock has traded above 130% of the closing price of
the common stock on September 24, 1996, or (iii) September 25, 1999. The Company
also issued to the investor a warrant to purchase 650,000 shares of the
Company's common stock at a price equal to 130% of the closing price of the
Company's common stock on September 24, 1996. Such warrant is exercisable
between March 1998 and September 2002.
OUTSTANDING WARRANTS
As of December 31, 1996, the Company had outstanding warrants to purchase
2,579,132 shares of common stock at prices ranging from $0.01 to $7.25 per
share. The outstanding warrants resulted from the private placement of preferred
and common stock during fiscal year 1995 and the sale/leaseback agreements
entered into during fiscal year 1994. The warrants became exercisable in 1995
and expire at various dates through 1999. At December 31, 1996, 2,579,132 shares
of common stock were reserved for that purpose.
SHARES RESERVED
At December 31, 1996, common stock was reserved for the following:
<TABLE>
<S> <C>
Exercise of stock warrants 2,579,132
Conversion of preferred stock 2,867,273
Stock option plans 3,105,806
---------
8,552,211
</TABLE>
See Note 3 in the June 30, 1996 financial statements with respect to any
potential future equity issuance to Baxter Healthcare Corporation, Bristol-Myers
Squibb, and private group of investors.
4. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
<S> <C> <C>
Net operating loss carryforward $ 41,800 $37,000
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C>
Research and development credit
carryforward 5,100 4,600
Capitalized research and development 1,800 2,900
Restructuring costs 700 500
-------- --------
Gross deferred tax assets 49,400 45,000
Valuation allowance (49,400) (45,000)
-------- --------
Net deferred tax asset $ -- $ --
-------- --------
</TABLE>
The valuation allowance increased $8,100,000 for the year ended June 30, 1996.
At December 31, 1996 the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $117,000,000 and
$33,000,000, respectively, which expire in the years 1996 through 2011. The
Company has federal tax credit carryforwards of approximately $4,200,000 which
will expire in the years 1996 through 2011.
Because of "change in ownership" provisions of the Tax Reform Act of 1986, a
portion of the Company's net operating loss carryforwards and tax credits will
be subject to an annual limitation regarding their utilization against taxable
income in future periods.
5. COMMITMENTS
The Company leases certain laboratory, production, and office equipment under
capital leases, and all office and laboratory space under operating leases. The
operating lease agreements generally require the Company to pay operating costs
including property taxes, insurance and maintenance.
Future minimum lease payments under capital and operating leases at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1997 $ 1,203,000 $1,643,000
1998 773,000 1,427,000
1999 266,000 883,000
2000 106,000 791,000
2001 -- 815,000
Thereafter -- 4,608,000
------------ ------------
Total minimum lease payments 2,348,000 $ 10,167,000
============
Less amount representing interest 373,000
------------
Present value of minimum lease payments 1,975,000
Less current portion 983,000
------------
Long-term portion $ 992,000
============
</TABLE>
At December 31, 1996, the Company has certificates of deposit totaling $300,000
which secure obligations under certain operating leases.
Rent expense was $567,000 and $485,000 for the six-month period ending December
31, 1996, and 1995, respectively. At December 31, 1996, the net book value of
equipment under capital leases is $1,260,000, compared to $1,400,000 at December
31, 1995. Certain other facilities are sub-leased under a non-cancelable lease
for terms substantially identical to the original lease.
6. OTHER INCOME
Other income is comprised of the following:
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Interest income $339,000 $503,000
Interest expense (139,000) (162,000)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C>
Other income (expense), net 315,000 80,000
--------- ----------
$ 515,000 $ 421,000
========= ==========
</TABLE>
7. RESTRUCTURING COSTS
In June 1995, the Company initiated certain changes in the structure of its
research and development efforts. These changes included a selective reduction
in the Company's overall research, clinical and administrative work force.
Accordingly, the Company recorded restructuring costs of $2,752,000 in the
fourth quarter of fiscal year 1995, which included employee severance costs for
20 employees, totaling $314,000, of which $176,000 was paid during 1995.
Restructuring costs also included the write-down of certain assets to net
realizable value and the accrual of future rent obligations on vacated buildings
and other such future costs related to the restructuring. As of December 31,
1996, the remaining accrued costs amounted to $1,016,000 which relate to future
rent obligations.
On September 24, 1996, the Company implemented a cost reduction program,
delaying a Phase III clinical trial for its Autologus GVAXTM Cancer Vaccine and
significantly reduced the clinical development staff. Accordingly, the Company
recorded restructuring costs of $ 1,060,000 in the first quarter of fiscal 1997,
which included employee severance and related costs for 25 employees totaling
$912,000. At December 31, 1996, the remaining accrued costs amounted to
$714,000.
8. SUBSEQUENT EVENTS
The Company entered into an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") with Cell Genesys, Inc. and S Merger Corp. (a wholly-owned
subsidiary of Cell Genesys) dated as of January 12, 1997. Under the terms of the
Agreement, the Company will become a wholly-owned subsidiary of Cell Genesys in
a tax-free reorganization and stock-for-stock merger, and the Company's
stockholders shall become stockholders of Cell Genesys. Pending approval by
stockholders of both companies, Company stockholders will receive, in the
aggregate, 10.6 million shares of Cell Genesys stock subject to adjustments in
certain circumstances. The pendency of the merger may have a material and
adverse effect on the Company's liquidity and capital resources. If the merger
is not consummated, further funding will be required for on-going operations
<PAGE> 18
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger and
Reorganization dated as of January 12, 1997, as amended
and restated as of March 27, 1997, among Cell Genesys, Inc.,
S Merger Corp., and Somatix Therapy Corporation.
</TABLE>
17.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 3, 1997 SOMATIX THERAPY CORPORATION
(Registrant)
By: /s/ Edward O. Lanphier
---------------------------
Name: Edward O. Lanphier II
Title: Chief Financial Officer
3.
<PAGE> 1
EXHIBIT 2.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
CELL GENESYS, INC.
S MERGER CORP.
AND
SOMATIX THERAPY CORPORATION
DATED AS OF JANUARY 12, 1997,
AS AMENDED AND RESTATED AS OF MARCH 27, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.01. Certain Defined Terms.................................... 1
ARTICLE II
THE MERGER
SECTION 2.01. The Merger............................................... 7
SECTION 2.02. Closing.................................................. 7
SECTION 2.03. Effective Time........................................... 7
SECTION 2.04. Effect of the Merger..................................... 8
SECTION 2.05. Certificate of Incorporation; By-laws; Directors and
Officers of Surviving Corporation.............................. 8
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01. Conversion of Securities................................. 8
SECTION 3.02. Exchange of Shares Other than Treasury Shares............ 9
SECTION 3.03. Stock Transfer Books..................................... 9
SECTION 3.04. No Fractional Share Certificates......................... 10
SECTION 3.05. Options and Warrants to Purchase STC Common Stock........ 11
SECTION 3.06. Certain Adjustments...................................... 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STC
SECTION 4.01. Organization and Qualification; Subsidiaries............. 11
SECTION 4.02. Certificate of Incorporation and By-laws................. 12
SECTION 4.03. Capitalization........................................... 12
Authority Relative to This Agreement and the STC Stock
SECTION 4.04. Option Agreement......................................... 12
SECTION 4.05. No Conflict; Required Filings and Consents............... 13
SECTION 4.06. Permits; Compliance with Laws............................ 13
SEC Filings; Financial Statements; Projected Cash
SECTION 4.07. Balances; Operating Budget............................... 14
SECTION 4.08. Absence of Certain Changes or Events..................... 15
SECTION 4.09. Employee Benefit Plans; Labor Matters.................... 15
SECTION 4.10. Tax Matters.............................................. 16
SECTION 4.11. Contracts; Debt Instruments.............................. 16
SECTION 4.12. Litigation............................................... 16
SECTION 4.13. Environmental Matters.................................... 16
SECTION 4.14. Intellectual Property.................................... 17
SECTION 4.15. Taxes.................................................... 17
SECTION 4.16. Opinion of Financial Advisor............................. 17
SECTION 4.17. Brokers.................................................. 17
SECTION 4.18. Certain Interests........................................ 17
</TABLE>
(i)
<PAGE> 3
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CGI AND MERGER SUB
SECTION 5.01. Organization and Qualification; Subsidiaries............................ 18
SECTION 5.02. Certificate of Incorporation and By-laws................................ 18
SECTION 5.03. Capitalization.......................................................... 18
SECTION 5.04. Authority Relative to This Agreement and the CGI Stock Option Agreement. 19
SECTION 5.05. No Conflict; Required Filings and Consents.............................. 19
SECTION 5.06. Permits; Compliance with Laws........................................... 20
SECTION 5.07. SEC Filings; Financial Statements....................................... 20
SECTION 5.08. Absence of Certain Changes or Events.................................... 21
SECTION 5.09. Employee Benefit Plans; Labor Matters................................... 21
SECTION 5.10. Tax Matters............................................................. 22
SECTION 5.11. Contracts; Debt Instruments............................................. 22
SECTION 5.12. Litigation.............................................................. 22
SECTION 5.13. Environmental Matters................................................... 23
SECTION 5.14. Intellectual Property................................................... 23
SECTION 5.15. Taxes................................................................... 23
SECTION 5.16. Opinion of Financial Advisor............................................ 23
SECTION 5.17. Brokers................................................................. 23
SECTION 5.18. Certain Interests....................................................... 24
ARTICLE VI
COVENANTS
SECTION 6.01. Conduct of Business by STC Pending the Closing.......................... 24
SECTION 6.02. Conduct of Business by CGI Pending the Closing.......................... 25
SECTION 6.03. Cooperation; Steering Committee......................................... 27
SECTION 6.04. Notices of Certain Events............................................... 27
SECTION 6.05. Access to Information; Confidentiality.................................. 27
SECTION 6.06. No Solicitation of Transactions......................................... 27
SECTION 6.07. Plan of Reorganization.................................................. 28
SECTION 6.08. Subsequent Financial Statements......................................... 28
SECTION 6.09. Control of Operations................................................... 28
SECTION 6.10. Further Action; Consents; Filings....................................... 28
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. Registration Statement; Joint Proxy Statement........................... 29
SECTION 7.02. Stockholders' Meetings.................................................. 30
SECTION 7.03. Affiliates.............................................................. 30
SECTION 7.04. Directors' and Officers' Indemnification and Insurance.................. 31
SECTION 7.05. No Shelf Registration................................................... 32
SECTION 7.06. Public Announcements.................................................... 32
SECTION 7.07. Officers and Directors of CGI........................................... 32
SECTION 7.08. NMS Listing............................................................. 32
SECTION 7.09. Blue Sky................................................................ 32
SECTION 7.10. STC Stock Options....................................................... 32
</TABLE>
(ii)
<PAGE> 4
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 7.11. [INTENTIONALLY LEFT BLANK]............................... 33
SECTION 7.12. Bridge Facility.......................................... 33
SECTION 7.13. Audited Financial Statements............................. 34
SECTION 7.14. Additional Debt.......................................... 34
ARTICLE VIII
CONDITIONS TO THE MERGER
Conditions to the Obligations of Each Party to Consummate
SECTION 8.01. the Merger............................................... 35
SECTION 8.02. Conditions to the Obligations of STC..................... 35
SECTION 8.03. Conditions to the Obligations of CGI..................... 36
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination.............................................. 37
SECTION 9.02. Effect of Termination.................................... 38
SECTION 9.03. Amendment................................................ 38
SECTION 9.04. Waiver................................................... 38
SECTION 9.05. Expenses................................................. 38
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Non-Survival of Representations and Warranties........... 39
SECTION 10.02. Notices.................................................. 39
SECTION 10.03. Severability............................................. 39
SECTION 10.04. Assignment; Binding Effect; Benefit...................... 39
SECTION 10.05. Incorporation of Exhibits................................ 40
SECTION 10.06. Specific Performance..................................... 40
SECTION 10.07. Governing Law............................................ 40
SECTION 10.08. Waiver of Jury Trial..................................... 40
SECTION 10.09. Headings................................................. 40
SECTION 10.10. Counterparts............................................. 40
SECTION 10.11. Entire Agreement......................................... 40
EXHIBITS
Exhibit 1.00(a) Form of STC Stock Option Agreement
Exhibit 1.00(b) Form of CGI Stock Option Agreement
Exhibit 1.00(c) Form of Bridge Facility Promissory Note
Exhibit 1.01(a) Form of Stockholder Resolution Regarding the CGI Amendment
Exhibit 1.01(b) Form of Stockholder Resolution Regarding the STC Amendment
Exhibit 7.03(a) Form of STC Affiliate Agreement
Exhibit 7.03(b) Form of CGI Affiliate Agreement
</TABLE>
(iii)
<PAGE> 5
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as
of January 12, 1997 (as amended and restated as of March 27, 1997, and as
further amended, supplemented or otherwise modified from time to time, this
"Agreement"), among CELL GENESYS, INC., a corporation organized and existing
under the laws of the State of Delaware ("CGI"), S MERGER CORP., a corporation
organized and existing under the laws of the State of Delaware ("Merger Sub")
and a direct wholly owned subsidiary of CGI, and SOMATIX THERAPY CORPORATION, a
corporation organized and existing under the laws of the State of Delaware
("STC") (references in this Agreement to the "date hereof" or "the date of this
Agreement" or similar terms shall mean and be a reference to January 12, 1997);
WITNESSETH:
WHEREAS, the boards of directors of CGI, Merger Sub and STC have each
determined that it is fair to and in the best interests of their respective
stockholders for Merger Sub to merge (the "Merger") with and into STC upon the
terms and subject to the conditions set forth herein and in accordance with the
General Corporation Law of the State of Delaware (the "General Corporation
Law");
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to CGI and Merger Sub to enter into this Agreement, CGI, Merger Sub
and STC have entered into a stock option agreement, dated as of the date hereof
(the "STC Stock Option Agreement"), substantially in the form attached hereto as
Exhibit 1.00(a) pursuant to which STC has granted to Purchaser an option to
purchase from STC up to 5,441,480 shares of common stock, par value $.01 per
share, of STC (the "STC Common Stock"), representing approximately 19.9 percent
of the shares of STC Common Stock issued and outstanding on the date hereof, at
a price of $3.51 per Share, all upon the terms and subject to the conditions set
forth therein;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to STC to enter into this Agreement, CGI and STC have entered into a
stock option agreement, dated as of the date hereof (the "CGI Stock Option
Agreement"), substantially in the form attached hereto as Exhibit 1.00(b)
pursuant to which CGI has granted to STC an option to purchase from CGI up to
3,286,703 shares of common stock, par value $.001 per share, of CGI (the "CGI
Common Stock"), representing approximately 19.9 percent of the shares of CGI
Common Stock issued and outstanding on the date hereof, at a price of $9.12 per
Share, all upon the terms and subject to the conditions set forth therein;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to CGI and Merger Sub to enter into this Agreement, STC has made a
promissory note in favor of CGI, dated as of the date hereof (the "Bridge
Facility Promissory Note"), substantially in the form attached hereto as Exhibit
1.00(c) pursuant to which STC has agreed to repay with interest the aggregate
principal amount of all Advances (as defined below) made by CGI under the Bridge
Facility (as defined below), all upon the terms and subject to the conditions
set forth therein; and
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger qualify as a reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the "Code");
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1
<PAGE> 6
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. Unless the context otherwise requires,
the following terms, when used in this Agreement, shall have the respective
meanings specified below:
"Actual Balances" shall mean, on any specified date, the actual balances of
cash, cash equivalents and marketable securities held by STC on such date.
"affiliate" shall have the meaning specified in Rule 144 promulgated under
the Securities Act.
"Agreement" shall have the meaning specified in the preamble to this
Agreement.
"beneficial owner" shall mean, with respect to any shares of capital stock,
a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 promulgated under the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise
of consideration rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which are beneficially owned, directly or indirectly,
by any other persons with whom such person or any of its affiliates or
associates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any such shares of capital stock.
"Blue Sky Laws" shall mean state securities or "blue sky" laws.
"Bridge Facility" shall mean the loan facility to be provided by CGI to STC
pursuant to, and upon the terms and subject to the conditions set forth in,
Section 7.12 and the Bridge Facility Promissory Note.
"Bridge Facility Maturity Date" shall mean the earliest to occur of (i)
December 31, 1997; (ii) the 180th day after termination of this Agreement for
any reason whatsoever; and (iii) notwithstanding the immediately preceding
clause (ii), the first business day after termination of this Agreement by CGI
pursuant to Section 9.01(d).
"Bridge Facility Promissory Note" shall have the meaning specified in the
recitals to this Agreement.
"business day" shall mean any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining
a date when any payment is due, any day on which banks are not required or
authorized by law or executive order to close in San Francisco, California.
"Certificate of Merger" shall have the meaning specified in Section 2.03.
"CGI" shall have the meaning specified in the preamble to this Agreement.
"CGI Affiliate Agreement" shall have the meaning specified in Section
7.03(b).
"CGI Amendment" shall mean the proposed amendment, substantially in the form
attached hereto as Exhibit 1.01(a), to the certificate of incorporation of
CGI, to be included in the Joint Proxy Statement and voted on at CGI
Stockholders' Meeting.
"CGI Benefit Plans" shall have the meaning specified in Section 5.09(a).
"CGI Common Stock" shall have the meaning specified in the recitals to this
Agreement.
"CGI Director" shall mean any person serving as a director of CGI on the
date hereof who remains a director of CGI after the Effective Time or any
other designee selected by CGI.
"CGI Disclosure Schedule" shall mean the disclosure schedule delivered by
CGI to STC prior to the execution of this Agreement and forming a part hereof.
2
<PAGE> 7
"CGI Material Adverse Effect" shall mean any change in or effect on the
business of CGI and the CGI Subsidiaries that is, or could reasonably be
expected to be, materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise) or results of operations of CGI and the CGI
Subsidiaries taken as a whole; provided, however, that any change in or effect
upon the business of CGI and the CGI Subsidiaries that directly or indirectly
arises out of or is attributable to (i) any decrease in the market price of
CGI Common Stock (but not any change or effect underlying such decrease to the
extent such change or effect would otherwise constitute a CGI Material Adverse
Effect) or (ii) circumstances or events that generally affect the industries
in which CGI or the CGI Subsidiaries operate, shall not constitute a CGI
Material Adverse Effect; provided further that the foregoing proviso shall not
be deemed to cause the condition contained in Section 8.02(a) or (b) not to
have been satisfied.
"CGI Material Contract" shall have the meaning specified in Section 5.11.
"CGI Permits" shall have the meaning specified in Section 5.06(a).
"CGI Reports" shall have the meaning specified in Section 5.07(a).
"CGI Right" shall mean the preferred share purchase right to be issued with
respect to each share of CGI Common Stock issued to holders of STC Capital
Stock pursuant to the Merger as provided in Section 3(b) of the CGI Rights
Agreement.
"CGI Rights Agreement" shall mean the preferred shares rights agreement,
dated as of July 28, 1995, between CGI and The First National Bank of Boston,
as rights agent.
"CGI Stock Option Agreement" shall have the meaning specified in the
recitals to this Agreement.
"CGI Stock Plans" shall mean CGI's 1989 Incentive Stock Plan, as amended,
and 1992 Employee Stock Purchase Plan, as amended.
"CGI Stockholders' Meeting" shall have the meaning specified in Section
7.01(a).
"CGI Subsidiaries" shall have the meaning specified in Section 5.01.
"Closing" shall have the meaning specified in Section 2.02.
"Code" shall have the meaning specified in the recitals to this Agreement.
"Commitment Termination Event" shall mean any of (i) termination of this
Agreement or the Bridge Facility Promissory Note for any reason whatsoever;
(ii) the occurrence of an Event of Default under the Bridge Facility
Promissory Note; and (iii) a material breach of this Agreement or the Bridge
Facility Promissory Note.
"Common Exchange Ratio" shall have the meaning specified in Section 3.01(a).
"Competing Transaction" shall mean any of the following involving CGI or
STC, as the case may be (other than the Merger contemplated by this
Agreement):
(i) any merger, consolidation, share exchange, business combination or
other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 15 percent or more of the assets of such party and its
subsidiaries, taken as a whole, in a single transaction or series of
transactions;
(iii) any tender offer or exchange offer for 25 percent or more of the
outstanding voting securities of such party or the filing of a registration
statement under the Securities Act in connection therewith; or
3
<PAGE> 8
(iv) any person having acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 25
percent or more of the outstanding voting securities of such party;
(v) any solicitation by any person (A) proposing any transaction described
in clause (i), (ii), (iii) or (iv) above or (B) who is not a stockholder of
CGI or STC on the date hereof, in opposition to the approval of this
Agreement by the stockholders of CGI or STC; or
(vi) any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
"Confidentiality Agreement" shall mean the confidentiality agreement, dated
as of October 14, 1996, between CGI and STC.
"Costs" shall have the meaning specified in Section 7.04(d).
"DEA" the United States Drug Enforcement Administration.
"DLJ" shall mean Donaldson, Lufkin & Jenrette, financial advisors to STC.
"$" shall mean United States Dollars.
"Effective Time" shall have the meaning specified in Section 2.03.
"Environmental Law" shall mean any Law and any enforceable judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof.
"Environmental Permit" shall mean any permit, approval, identification
number, license or other authorization required under or issued pursuant to
any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall have the meaning specified in the Bridge Facility
Promissory Note.
"Excess Shares" shall have the meaning specified in Section 3.04(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning specified in Section 3.02.
"Exchange Fund" shall have the meaning specified in Section 3.02.
"Expenses" shall mean, with respect to any party hereto, all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses
of counsel, accountants, investment bankers, experts and consultants to a
party hereto and its affiliates) incurred by such party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of its obligations pursuant to this Agreement and
the consummation of the Merger, the preparation, printing, filing and mailing
of the Registration Statement and the Joint Proxy Statement, the solicitation
of shareholder approvals, the filing of HSR Act notice, if any, and all other
matters related to the closing of the Merger.
"FDA" shall mean the United States Food and Drug Administration.
"FDCA" shall mean the Federal Food, Drug, and Cosmetic Act, as amended.
"Fletcher" shall mean Fletcher International Limited, a company organized
under the laws of the Cayman Islands.
4
<PAGE> 9
"Fletcher Put Options" shall mean the put options granted by Fletcher to STC
pursuant to Section 1(a) of the subscription agreement, dated September 24,
1996, between STC and Fletcher and upon the terms and subject to the
conditions set forth in Annex A thereto.
"Fletcher Warrant" shall mean the warrant, dated September 25, 1996, issued
by STC to and in the name of Fletcher.
"General Corporation Law" shall have the meaning specified in the recitals
to this Agreement.
"Governmental Entity" shall mean any United States federal, state or local
or any foreign governmental, regulatory or administrative authority, agency or
commission or any court, tribunal or arbitral body.
"Governmental Order" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Entity.
"Hazardous Material" shall mean (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos- containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, together with the rules and regulations promulgated
thereunder.
"Indemnified Parties" shall have the meaning specified in Section 7.04(d).
"IRS" shall mean the United States Internal Revenue Service.
"Joint Proxy Statement" shall have the meaning specified in Section 7.01(a).
"Law" shall mean any federal, state or local statute, law, ordinance,
regulation, rule, code, order, other requirement or rule of law of the United
States or any other jurisdiction, including, without limitation, the FDCA, the
Controlled Substances Act, and any other similar act or law.
"Lehman Brothers" shall mean Lehman Brothers, Inc., financial advisors to
CGI.
"Liquidity Notice" shall have the meaning specified in Section 7.12(b).
"Merger" shall have the meaning specified in the recitals to this Agreement.
"Merger Sub" shall have the meaning specified in the preamble to this
Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NMS" shall mean the National Association of Securities Dealers Automated
Quotation System/National Market System.
"Operating Budget" shall have the meaning specified in Section 4.07(e).
"Permitted Financing" shall have the meaning specified in Section 7.14(b).
"person" shall mean an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association, entity or government or political subdivision, agency or
instrumentality of a government.
"Presurrender Dividends" shall have the meaning specified in Section 3.02.
"Projected Cash Balances" shall have the meaning specified in Section
4.07(d).
"Registration Statement" shall have the meaning specified in Section
7.01(a).
"Representatives" shall have the meaning specified in Section 6.05(a).
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"SEC" shall have the meaning specified in the recitals to this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Series A Exchange Ratio" shall have the meaning specified in Section
3.01(b).
"Series A Preferred Stock" shall mean the preferred stock of STC designated
as "Series A-1 Preferred Stock" and "Series A-2 Preferred Stock" pursuant to
the certificate of designation of preferences of preferred shares of STC filed
with the Secretary of State of the State of Delaware on June 29, 1995.
"Series B Exchange Ratio" shall have the meaning specified in Section
3.01(c).
"Series B Preferred Stock" shall mean the preferred stock of STC designated
as "Series B-1 Preferred Stock" pursuant to the certificate of designation of
preferences of preferred shares of STC filed with the Secretary of State of
the State of Delaware on September 25, 1996.
"STC" shall have the meaning specified in the preamble to this Agreement.
"STC Affiliate Agreement" shall have the meaning specified in Section
7.05(a).
"STC Amendment" shall mean the proposed amendment, substantially in the form
attached hereto as Exhibit 1.01(b), to the certificate of incorporation of
STC, to be included in the Joint Proxy Statement and voted on at the STC
Stockholders' Meeting.
"STC Benefit Plans" shall have the meaning specified in Section 4.09(a).
"STC Capital Stock" shall mean the STC Common Stock, the Series A Preferred
Stock and the Series B Preferred Stock.
"STC Common Stock" shall have the meaning specified in the recitals to this
Agreement.
"STC Director" shall mean any person serving as a director of STC on the
date hereof who becomes a director of CGI at the Effective Time or any other
designee selected by STC.
"STC Disclosure Schedule" shall mean the disclosure schedule delivered by
STC to CGI prior to the execution of this Agreement and forming a part hereof.
"STC Material Adverse Effect" shall mean any change in or effect on the
business of STC and the STC Subsidiaries that is, or could reasonably be
expected to be, materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise) or results of operations of STC and the STC
Subsidiaries taken as a whole; provided, however, that any change in or effect
upon the business of STC and the STC Subsidiaries that directly or indirectly
arises out of or is attributable to (i) the loss by STC of any of its
corporate partners (including, without limitation, any financial consequence
of such loss of corporate partners) due primarily to the public announcement
of this Agreement and the transactions contemplated hereby, (ii) any decrease
in the market price of the STC Common Stock (but not any change or effect
underlying such decrease to the extent such change or effect would otherwise
constitute an STC Material Adverse Effect), (iii) circumstances or events that
generally affect the industries in which STC or the STC Subsidiaries operate,
(iv) so long as STC has not breached Section 6.01 in any material respect, any
decrease in STC's cash balances and liquidity from the date hereof and (v) in
the event CGI has not, pursuant to Section 7.12, made available to STC funds
which, together with STC's then existing funds, are sufficient to avoid the
triggering of the rights specified in Section 7(B) of the certificate of
designation of STC applicable to the Series A Preferred Stock, the triggering
of such rights, shall not constitute an STC Material Adverse Effect; provided
further that the foregoing proviso shall not be deemed to cause the condition
contained in Section 8.03(a) or (b) not to have been satisfied.
"STC Material Contract" shall have the meaning specified in Section 4.11.
"STC Permits" shall have the meaning specified in Section 4.06(a).
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"STC Reports" shall have the meaning specified in Section 4.07(a).
"STC Stock Option" shall have the meaning specified in Section 3.05.
"STC Stock Option Agreement" shall have the meaning specified in the
recitals to this Agreement.
"STC Stock Plans" shall mean the Hana Biologics, Inc. 1988 Directors Stock
Option Plan, STC's 1988 Stock Option Plan, as amended, the GeneSys Therapeutic
Corporation 1991 Stock Option Plan, STC's 1992 Stock Option Plan, as amended,
and the Merlin Pharmaceutical Corporation 1993 Stock Option Plan.
"STC Stockholders' Meeting" shall have the meaning specified in Section
7.01(a).
"STC Subsidiaries" shall have the meaning specified in Section 4.01.
"subsidiary" shall mean, with respect to any person, any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such person (either alone or through or together with any other
subsidiary of such person) owns, directly or indirectly, a majority of the
stock or other equity interests, the holders of which are generally entitled
to vote for the election of the board of directors or other governing body of
such corporation or other legal entity.
"Surviving Corporation" shall have the meaning specified in Section 2.01.
"Taxes" shall mean any and all taxes, fees, levies, duties, tariffs, imposts
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed
by any Governmental Entity or taxing authority, including, without limitation,
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration
and documentation fees; and customers' duties, tariffs and similar charges.
"Terminating CGI Breach" shall have the meaning specified in Section
9.01(h).
"Terminating STC Breach" shall have the meaning specified in Section
9.01(g).
"Trust" shall have the meaning specified in Section 3.04(c).
"U.S. GAAP" shall mean United States generally accepted accounting
principles.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law, at
the Effective Time, Merger Sub shall be merged with and into STC. As a result of
the Merger, the separate corporate existence of Merger Sub shall cease and STC
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation").
SECTION 2.02. Closing. Unless this Agreement shall have been terminated and
the Merger shall have been abandoned pursuant to Section 9.01 and subject to the
satisfaction or waiver of the conditions set forth in Article VIII, the
consummation of the Merger shall take place as promptly as practicable (and in
any event within three business days) after satisfaction or waiver of the
conditions set forth in Article VIII, at a closing (the "Closing") to be held at
the offices of Shearman & Sterling, 555 California Street, San Francisco,
California, unless another date, time or place is agreed to by STC and CGI.
SECTION 2.03. Effective Time. At the time of the Closing, the parties shall
cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
such form as required by, and executed in accordance with the relevant
provisions of, the General Corporation Law (the date and time of such filing
being the "Effective Time").
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SECTION 2.04. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the General
Corporation Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided herein, all the
property, rights, privileges, powers and franchises of STC and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of STC
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 2.05. Certificate of Incorporation; By-laws; Directors and Officers of
Surviving Corporation. Unless otherwise agreed by STC and CGI prior to the
Effective Time, at the Effective Time:
(a) the certificate of incorporation and by-laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation and by-laws of the Surviving Corporation until thereafter amended
as provided by Law and such certificate of incorporation or by- laws;
(b) the officers of Merger Sub immediately prior to the Effective Time shall
be the initial officers of the Surviving Corporation until their successors are
elected or appointed and qualified or until their resignation or removal; and
(c) the directors of Merger Sub immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation until their successors are
elected or appointed and qualified or until their resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, STC or the holders
of any of the following securities:
(a) Each share of STC Common Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of STC Common Stock to be cancelled
pursuant to Section 3.01(d)) and all rights in respect thereof shall forthwith
cease to exist and shall be converted into and become exchangeable for the
number of shares of CGI Common Stock (and associated CGI Rights) equal to .3850
(the "Common Exchange Ratio");
(b) Each share of Series A Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Series A Preferred Stock
to be cancelled pursuant to Section 3.01(d)) and all rights in respect thereof
shall forthwith cease to exist and shall be converted into and become
exchangeable for the number of shares of CGI Common Stock (and associated CGI
Rights) equal to the product of 6.25 multiplied by the Common Exchange Ratio
(the "Series A Exchange Ratio");
(c) Each share of Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Series B Preferred Stock
to be cancelled pursuant to Section 3.01(d)) and all rights in respect thereof
shall forthwith cease to exist and shall be converted into and become
exchangeable for the number of shares of CGI Common Stock (and associated CGI
Rights) equal to the quotient of $150.00 divided by the average of the daily
closing prices of the CGI Common Stock over the 30-day period ending three days
prior to the Effective Time (the "Series B Exchange Ratio");
(d) Each share of STC Capital Stock held in the treasury of STC and each share
of STC Capital Stock owned by CGI or any direct or indirect wholly owned
subsidiary of CGI or of STC immediately prior to the Effective Time shall be
cancelled and extinguished without any conversion thereof and no payment shall
be made with respect thereto; and
(e) Each share of common stock, par value $.01 per share, of Merger Sub issued
and outstanding immediately prior to the Effective Time and all rights in
respect thereof shall forthwith cease to exist and shall be converted into and
become exchangeable for one newly and validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
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SECTION 3.02. Exchange of Shares Other than Treasury Shares. Subject to the
terms and conditions hereof, at or prior to the Effective Time, CGI shall
appoint, and shall retain for a period of at least six months after the
Effective Time, an exchange agent to effect the exchange of shares of STC
Capital Stock for CGI Common Stock (and associated CGI Rights) in accordance
with the provisions of this Article III (the "Exchange Agent"). As soon as
reasonably practicable after the Effective Time, CGI will instruct the Exchange
Agent to mail to each holder of record of STC Capital Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to certificates evidencing shares of STC Capital Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent and
shall be in such form and have such other provisions as CGI may reasonably
specify) and (ii) instructions to effect the surrender of certificates
evidencing shares of STC Capital Stock in exchange for certificates evidencing
shares of CGI Common Stock (and associated CGI Rights) and, in lieu of any
fractional shares thereof, cash. From time to time after the Effective Time, CGI
shall deposit, or cause to be deposited, certificates representing CGI Common
Stock (and associated CGI Rights) for conversion of shares of STC Capital Stock
in accordance with the provisions of Section 3.01 (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 evidencing shares of STC Capital Stock
may surrender the same, together with a duly executed letter of transmittal and
such other customary documents as CGI may reasonably require, to the Exchange
Agent, and, after the appointment of the Exchange Agent shall be terminated, any
such holder may surrender any such certificate, letter of transmittal and other
documents to CGI. Such holder shall be entitled upon such surrender to receive
in exchange therefor a certificate or certificates representing the number of
full shares of CGI Common Stock (and associated CGI Rights) into which the
shares of STC Capital Stock theretofore represented by the certificate or
certificates so surrendered shall have been converted in accordance with the
provisions of Section 3.01, together with a cash payment in lieu of fractional
shares, if any, in accordance with Section 3.04, and all such shares of CGI
Common Stock (and associated CGI Rights) shall be deemed to have been issued at
the Effective Time. Until so surrendered and exchanged, each outstanding
certificate which, prior to the Effective Time, represented issued and
outstanding shares of STC Capital Stock shall be deemed for all corporate
purposes of CGI, other than the payment of dividends and other distributions, if
any, to evidence ownership of the number of full shares of CGI Common Stock (and
associated CGI Rights) into which the shares of STC Capital Stock theretofore
represented thereby shall have been converted at the Effective Time. Unless and
until any such certificate theretofore representing shares of STC Capital Stock
is so surrendered, no dividend or other distribution, if any, payable to the
holders of record of CGI 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 of STC
Capital Stock, however, the record holder of the certificate or certificates
representing shares of CGI Common Stock issued in exchange therefor shall
receive from the Exchange Agent or from CGI, 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 CGI Common Stock ("Presurrender
Dividends"). No interest shall be payable with respect to the payment of
Presurrender Dividends upon the surrender of certificates theretofore
representing shares of STC Capital Stock. After the appointment of the Exchange
Agent shall have been terminated, such holders of CGI Common Stock which have
not received payment of Presurrender Dividends shall look only to CGI for
payment thereof. Notwithstanding the foregoing provisions of this Section 3.02,
risk of loss and title to such certificates representing shares of STC Capital
Stock shall pass only upon proper delivery of such certificates to the Exchange
Agent, and neither the Exchange Agent nor any party hereto shall be liable to a
holder of shares of STC Capital Stock for any CGI 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 3.03.
SECTION 3.03. Stock Transfer Books. At the Effective Time, the stock transfer
books of STC with respect to shares of STC Capital Stock shall each be closed,
and there shall be no further registration of transfers of shares of STC Capital
Stock thereafter on the records of any such stock transfer books. In the event
of a transfer of ownership of shares of STC Capital Stock that is not registered
in the stock transfer records of STC, at the Effective Time, a certificate or
certificates representing the number of full shares of CGI Common Stock into
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which such shares of STC Capital Stock 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 3.04, and a cash payment in the amount of
Presurrender Dividends, if any, in accordance with Section 3.02, if the
certificate or certificates representing such shares of STC Capital Stock is or
are surrendered as provided in Section 3.02, accompanied by all documents
required to evidence and effect such transfer and by evidence of payment of any
applicable stock transfer tax.
SECTION 3.04. No Fractional Share Certificates. (a) No scrip or fractional
share certificate for CGI Common Stock shall be issued upon the surrender for
exchange of certificates evidencing shares of STC Capital Stock, and an
outstanding fractional share interest shall not entitle the owner thereof (i) to
vote, (ii) to receive dividends or (iii) to any rights of a stockholder of CGI
or of the Surviving Corporation with respect to such fractional share interest.
(b) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of CGI Common
Stock to be issued and delivered to the Exchange Agent pursuant to Section 3.02
over (ii) the aggregate number of full shares of CGI Common Stock to be
distributed to holders of STC Capital Stock pursuant to Section 3.02 (such
excess being herein called the "Excess Shares"). Following the Effective Time,
the Exchange Agent, as agent for the holders of STC Capital Stock, shall sell
the Excess Shares at then prevailing prices on the NMS, all in the manner
provided in subsection (c) of this Section 3.04.
(c) The sale of the Excess Shares by the Exchange Agent shall be executed on
the NMS through one or more member firms of such exchange and shall be executed
in round lots to the extent practicable. The Exchange Agent shall use all
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's reasonable judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the holders of STC Capital Stock, the Exchange Agent
shall hold such proceeds in trust for the holders of STC Capital Stock (the
"Trust"). CGI shall pay all commissions, transfer taxes and other out-of- pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of Excess Shares. The Exchange
Agent shall determine the portion of the Trust to which each holder of STC
Capital Stock shall be entitled, if any, by multiplying the amount of the
aggregate net proceeds comprising the Trust by a fraction the numerator of which
is the amount of fractional share interests to which such holder of STC Capital
Stock is entitled (after taking into account all shares of STC Capital Stock
held at the Effective Time by such holder) and the denominator of which is the
aggregate amount of fractional share interests to which all holders of STC
Capital Stock are entitled.
(d) Notwithstanding the provisions of subsections (b) and (c) of this Section
3.04, CGI may, in lieu of the issuance and sale of Excess Shares and the making
of the payments contemplated in such subsections, pay to the Exchange Agent an
amount in cash sufficient for the Exchange Agent to pay each holder of STC
Capital 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 STC Capital Stock held at the Effective
Time by such holder) by (ii) the closing price for a share of CGI Common Stock
on the NMS on the first business day immediately following the Effective Time,
and, in such case, all references herein to the cash proceeds of the sale of the
Excess Shares and similar references shall be deemed to mean and refer to the
payments calculated as set forth in this subsection (d). In such event, Excess
Shares shall not be issued or otherwise transferred to the Exchange Agent
pursuant to Section 3.02.
(e) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of STC Capital Stock with respect to any fractional
share interests, the Exchange Agent shall make available such amounts, net of
any required withholding, excise or similar tax, to such holders of STC Capital
Stock, subject to and in accordance with the terms of Section 3.02.
(f) Any portion of the Exchange Fund or the Trust which remains undistributed
for six months after the Effective Time shall be delivered to CGI, and any
holder of STC Capital Stock who has not theretofore complied
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with the provisions of this Article III shall thereafter look only to CGI for
satisfaction of their claims for CGI Common Stock or any cash in lieu of
fractional shares of CGI Common Stock and any Presurrender Dividends.
SECTION 3.05. Options and Warrants to Purchase STC Common Stock. At the
Effective Time, each option or warrant granted by STC to purchase shares of STC
Common Stock (each, an "STC Stock Option") which is outstanding and unexercised
immediately prior to the Effective Time, shall be assumed by CGI and converted
into an option or warrant to purchase shares of CGI Common Stock in such number
and at such exercise price as provided below and otherwise having the same terms
and conditions as 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 Merger):
(a) the number of shares of CGI Common Stock to be subject to the new option
or warrant shall be equal to the product of (i) the number of shares of STC
Common Stock subject to the original option or warrant and (ii) the Common
Exchange Ratio;
(b) the exercise price per share of CGI Common Stock under the new option or
warrant shall be equal to the quotient of (i) the exercise price per share of
STC Common Stock under the original option or warrant divided by (ii) the Common
Exchange Ratio; and
(c) upon each exercise of options or warrants by a holder thereof, the
aggregate number of shares of CGI 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 herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with the requirements of Section 424(a) of the
Code.
SECTION 3.06. Certain Adjustments. If between the date of this Agreement and
the Effective Time, the outstanding shares of STC Capital Stock or CGI 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 ratios established pursuant
to the provisions of Section 3.01 shall be adjusted accordingly to provide to
the holders of STC Capital Stock the same economic effect as contemplated by
this Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange or dividend.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STC
STC hereby represents and warrants to CGI and Merger Sub that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Each of STC and
each subsidiary of STC (the "STC Subsidiaries") has been duly organized and is
validly existing and in good standing (to the extent applicable) under the laws
of the jurisdiction of its incorporation or organization, as the case may be,
and has the requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals could not reasonably be expected to have, individually or
in the aggregate, an STC Material Adverse Effect. Each of STC and each STC
Subsidiary is duly qualified or licensed to do business, and is in good standing
(to the extent applicable), in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its business makes
such qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that could not reasonably be expected
to have, individually or in the aggregate, an STC Material Adverse Effect.
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SECTION 4.02. Certificate of Incorporation and By-laws. The copies of STC's
certificate of incorporation and by-laws that are incorporated by reference as
exhibits to STC's Form 10-K for the period ending June 30, 1996 (the "STC 1996
10-K") are true, complete and correct copies thereof. Such certificate of
incorporation and by-laws are in full force and effect. STC is not in violation
of any of the provisions of its certificate of incorporation or by- laws.
SECTION 4.03. Capitalization. The authorized capital stock of STC consists of
40,000,000 shares of STC Common Stock and 1,000,000 shares of preferred stock.
As of January 6, 1997, (i) 27,344,121 shares of STC Common Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no shares of STC Common Stock are held in the treasury of STC, (iii) no shares
of STC Common Stock are held by the STC Subsidiaries, (iv) 3,052,491 shares of
STC Common Stock are reserved for future issuance pursuant to employee stock
options or stock incentive rights granted under the STC Stock Plans, (v)
5,441,480 shares of STC Common Stock are reserved for issuance pursuant to the
STC Stock Option Agreement, (vi) 2,047,651 shares of STC Common Stock are
reserved for issuance upon conversion of the Series A Preferred Stock, (vii)
1,500,000 shares of STC Common Stock are reserved for issuance upon conversion
of the Series B Preferred Stock, (viii) 224,000 shares of Series A-1 Preferred
Stock are issued and outstanding, (ix) 23,651 shares of Series A-2 Preferred
Stock are issued and outstanding and (x) 33,333 shares of Series B Preferred
Stock are issued and outstanding. There has been no change in the capitalization
of STC since January 6, 1997, excluding the exercise of outstanding stock
options. Except for the STC Stock Option Agreement and shares of STC Common
Stock issuable pursuant to the STC Stock Plans or pursuant to agreements or
arrangements described in Section 4.03 of the STC Disclosure Schedule, and the
warrants to purchase 889,000 shares of STC Common Stock issued to holders of the
Series A-1 Preferred Stock, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which STC is a party
or by which STC is bound relating to the issued or unissued capital stock of STC
or any STC Subsidiary or obligating STC or any STC Subsidiary to issue or sell
any shares of capital stock of, or other equity interests in, STC or any STC
Subsidiary. All shares of STC Common Stock subject to issuance as aforesaid,
upon issuance prior to the Effective Time on the terms and conditions specified
in the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except for the Fletcher Warrant,
there are no outstanding contractual obligations of STC or any STC Subsidiary to
repurchase, redeem or otherwise acquire any shares of STC Capital Stock or any
capital stock of any STC Subsidiary. Each outstanding share of capital stock of
each STC Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by STC or another STC Subsidiary is free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on STC's or such other STC Subsidiary's
voting rights, charges and other encumbrances of any nature whatsoever, except
where the failure to own such shares free and clear could not reasonably be
expected to have, individually or in the aggregate, an STC Material Adverse
Effect. Except as set forth in Section 4.03 of the STC Disclosure Schedule,
there are no material outstanding contractual obligations of STC or any STC
Subsidiary to provide funds to, or make any material investment (in the form of
a loan, capital contribution or otherwise) in, any STC Subsidiary or any other
person.
SECTION 4.04. Authority Relative to This Agreement and the STC Stock Option
Agreement. STC has all necessary corporate power and authority to execute and
deliver this Agreement and the STC Stock Option Agreement, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the STC Stock Option Agreement by STC and the consummation by STC of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of STC are necessary to authorize this Agreement or the STC Stock
Option Agreement or to consummate such transactions (other than the approval of
this Agreement and the Merger by the holders of a majority of the outstanding
shares of STC Capital Stock and Series A Preferred Stock entitled to vote with
respect thereto at the STC Stockholders' Meeting, in each case voting together
as a single class, and the filing and recordation of the Certificate of Merger
as required by the General Corporation Law). This Agreement and the STC Stock
Option Agreement have been duly executed and delivered by STC and, assuming the
due authorization, execution and delivery by the other parties hereto and
thereto, constitute legal, valid and binding obligations of STC, enforceable
against STC in accordance with their terms.
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SECTION 4.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement and the STC Stock Option Agreement by STC do not,
and the performance by STC of its obligations hereunder and thereunder and the
consummation of the Merger will not, (i) conflict with or violate any provision
of the certificate of incorporation or by-laws of STC or any equivalent
organizational documents of any STC Subsidiary, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 4.05(b) have been
obtained and all filings and notifications described in Section 4.05(b) have
been made, conflict with or violate any Law applicable to STC or any STC
Subsidiary or by which any property or asset of STC or any STC Subsidiary is
bound or affected or (iii) except as set forth in Section 4.05(a) of the STC
Disclosure Schedule, result in any breach of or constitute a default (or an
event which with the giving of notice or lapse of time or both could reasonably
be expected to become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of STC or any
STC Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation,
except, with respect to clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which could not reasonably
be expected, individually or in the aggregate, (A) to have an STC Material
Adverse Effect or (B) to prevent or materially delay the performance by STC of
its obligations pursuant to this Agreement or the STC Stock Option Agreement or
the consummation of the Merger.
(b) The execution and delivery of this Agreement and the STC Stock Option
Agreement by STC do not, and the performance by STC of its obligations hereunder
and thereunder and the consummation of the Merger will not, require any consent,
approval, authorization or permit of, or filing by STC with or notification by
STC to, any Governmental Entity except (i) pursuant to applicable requirements
of the Exchange Act, the Securities Act, Blue Sky Laws, the rules and
regulations of the NASD, state takeover laws, the premerger notification
requirements of the HSR Act, if any, and the filing and recordation of the
Certificate of Merger as required by the General Corporation Law, and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, could not reasonably be expected,
individually or in the aggregate, (A) to have an STC Material Adverse Effect or
(B) to prevent or materially delay the performance by STC of its obligations
pursuant to this Agreement or the STC Stock Option Agreement or the consummation
of the Merger.
SECTION 4.06. Permits; Compliance with Laws. (a) STC and the STC Subsidiaries
are in possession of all franchises, grants, authorizations, licenses,
establishment registrations, product listings, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity, including, without limitation, the FDA, the DEA, and similar authorities
in other jurisdictions, necessary for STC or any STC Subsidiary to own, lease
and operate its properties or to produce, store, distribute and market its
products or otherwise to carry on its business as it is now being conducted (the
"STC Permits"), except where the failure to have, or the suspension or
cancellation of, any of the STC Permits could not reasonably be expected to
have, individually or in the aggregate, an STC Material Adverse Effect, and, as
of the date of this Agreement, no suspension or cancellation of any of the STC
Permits is pending or, to the knowledge of STC, threatened, except where the
failure to have, or the suspension or cancellation of, any of the STC Permits
could not reasonably be expected to have, individually or in the aggregate, an
STC Material Adverse Effect. Neither STC nor any STC Subsidiary is in conflict
with, or in default or violation of, (i) any Law applicable to STC or any STC
Subsidiary or by which any property or asset of STC or any STC Subsidiary is
bound or affected or (ii) any STC Permits, except in the case of clauses (i) and
(ii) for any such conflicts, defaults or violations that could not reasonably be
expected to have, individually or in the aggregate, an STC Material Adverse
Effect.
(b) Except as disclosed in the STC Reports or in Section 4.06(b) of the STC
Disclosure Schedule or as could not reasonably be expected to have, individually
or in the aggregate, an STC Material Adverse Effect:
(i) to the knowledge of STC, all of the clinical studies which have been, or
are being, conducted by or for STC and the STC Subsidiaries are being
conducted in substantial compliance with generally accepted good clinical
practices and all applicable government regulatory requirements; and
(ii) to the knowledge of STC, none of STC, the STC Subsidiaries or any of
their respective officers, employees or agents (during the term of such
person's employment by STC or any STC Subsidiary or while
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acting as an agent of STC or any STC Subsidiary, or, to STC's knowledge, prior
to such employment) has made any untrue statement of a material fact or
fraudulent statement to the FDA or any similar Governmental Entity, failed to
disclose a material fact required to be disclosed to the FDA or similar
Governmental Entity, or committed an act, made a statement or failed to make a
statement that could reasonably be expected to provide a basis for the FDA or
similar Governmental Entity to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities" or similar
governmental policy or Law.
SECTION 4.07. SEC Filings; Financial Statements; Projected Cash Balances;
Operating Budget. (a) Except as disclosed in Section 4.07 of the STC Disclosure
Schedule, STC has timely filed all forms, reports and documents required to be
filed by it with the SEC and the NASD since June 30, 1994 through the date of
this Agreement (collectively and as amended, the "STC Reports"). Each STC Report
(i) was prepared in accordance with the requirements of the Securities Act, the
Exchange Act or the rules and regulations of the NASD, as the case may be, and
(ii) did not at the time it was filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No STC Subsidiary is subject to the
periodic reporting requirements of the Exchange Act or required to file any
form, report or other document with the SEC, the NASD, any other stock exchange
or any other comparable Governmental Entity.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the STC Reports was prepared, and each of the
consolidated financial statements (including, in each case, the notes thereto)
prepared and delivered pursuant to Section 7.13, if any, will be prepared, in
accordance with U.S. GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto) and each presented
or will present fairly, in all material respects, the consolidated financial
position of STC and the consolidated STC Subsidiaries as at the respective dates
thereof and for the respective periods indicated therein, except as otherwise
noted therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which did not have and could not reasonably be
expected to have, individually or in the aggregate, an STC Material Adverse
Effect).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of STC and the STC Subsidiaries as reported in the
STC Reports, including the notes thereto, none of STC or any STC Subsidiary has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a balance
sheet or in notes thereto prepared in accordance with U.S. GAAP, except for
liabilities or obligations incurred in the ordinary course of business
consistent with past practice since June 30, 1996 that have not had and could
not reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect.
(d) Within five days after the date hereof, STC shall furnish CGI with a
detailed schedule of STC's projected balances (the "Projected Cash Balances") of
cash, cash equivalents and marketable securities of STC for each month during
the period from the date hereof through August 31, 1997. The Projected Cash
Balances will be prepared (and any revised Projected Cash Balances delivered
after the date hereof will be prepared) by senior management of STC on the basis
of assumptions and supplemental data which represent a reasonable basis for such
preparation, and will reflect (and any revised Projected Cash Balances delivered
after the date hereof will reflect) the best currently available estimates and
judgment of senior management of STC as to the expected future balances of cash,
cash equivalents and marketable securities of the STC for the periods included.
(e) Within five days after the date hereof, STC shall furnish CGI with a
detailed schedule of STC's projected operating budget (the "Operating Budget")
of STC for each month during the period from the date hereof through August 31,
1997. The Operating Budget will be prepared (and any revised Operating Budget
delivered after the date hereof will be prepared) by senior management of STC on
the basis of assumptions and supplemental data which represent a reasonable
basis for such preparation, and will reflect (and any revised Operating Budget
delivered after the date hereof will reflect) the best currently available
estimates and judgment of senior management of STC as to the future operating
expenses of STC expected to be incurred by STC in the ordinary course consistent
with past practice for the periods included.
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SECTION 4.08. Absence of Certain Changes or Events. Since June 30, 1996,
except as contemplated by or as disclosed in this Agreement, as set forth in
Section 4.08 of the STC Disclosure Schedule or as disclosed in any STC Report
filed since June 30, 1996, STC and the STC Subsidiaries have conducted their
businesses only in the ordinary course consistent with past practice and, since
such date, there has not been (i) any STC Material Adverse Effect excluding any
changes and effects resulting from changes in economic, regulatory or political
conditions or changes in conditions generally applicable to the industries in
which STC and the STC Subsidiaries are involved, (ii) any event that could
reasonably be expected to prevent or materially delay the performance of its
obligations pursuant to this Agreement and the consummation of the Merger by
STC, (iii) any material change by STC in its accounting methods, principles or
practices, (iv) any declaration, setting aside or payment of any dividend or
distribution in respect of the shares of STC Capital Stock or any redemption,
purchase or other acquisition of any of STC's securities or (v) any increase in
the compensation or benefits or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of STC or
any STC Subsidiary except in the ordinary course of business consistent with
past practice.
SECTION 4.09. Employee Benefit Plans; Labor Matters. (a) With respect to each
employee benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan", as defined in Section 3(3) of ERISA)
maintained or contributed to by STC or any STC Subsidiary, or with respect to
which STC or any STC Subsidiary could incur liability under Section 4069,
4212(c) or 4204 of ERISA (the "STC Benefit Plans"), STC has delivered or made
available to CGI a true, complete and correct copy of (i) such STC Benefit Plan
and the most recent summary plan description related to such STC Benefit Plan,
if a summary plan description is required therefor, (ii) each trust agreement or
other funding arrangement relating to such STC Benefit Plan, (iii) the most
recent annual report (Form 5500) filed with the IRS) with respect to such STC
Benefit Plan, (iv) the most recent actuarial report or financial statement
relating to such STC Benefit Plan and (v) the most recent determination letter
issued by the IRS with respect to such STC Benefit Plan, if it is qualified
under Section 401(a) of the Code.
(b) Each STC Benefit Plan has been administered in all material respects in
accordance with its terms and all contributions required to be made under the
terms of any of the STC Benefit Plans as of the date of this Agreement have been
timely made or have been reflected on the most recent consolidated balance sheet
filed or incorporated by reference in the STC Reports prior to the date of this
Agreement. Except as set forth in Section 4.09(b) of the STC Disclosure
Schedule, with respect to the STC Benefit Plans, no event has occurred and, to
the knowledge of STC, there exists no condition or set of circumstances in
connection with which STC or any STC Subsidiary could be subject to any
liability under the terms of such STC Benefit Plans, ERISA, the Code or any
other applicable Law which could reasonably be expected to have, individually or
in the aggregate, an STC Material Adverse Effect.
(c) Except as set forth in Section 4.09(c) of the STC Disclosure Schedule,
neither STC nor any STC Subsidiary is a party to any collective bargaining or
other labor union contract applicable to persons employed by STC or any STC
Subsidiary and no collective bargaining agreement is being negotiated by STC or
any STC Subsidiary. As of the date of this Agreement, there is no labor dispute,
strike or work stoppage against STC or any STC Subsidiary pending or, to the
knowledge of STC, threatened which may interfere with the respective business
activities of STC or any STC Subsidiary, except where such dispute, strike or
work stoppage could not reasonably be expected to have, individually or in the
aggregate, an STC Material Adverse Effect. As of the date of this Agreement, to
the knowledge of STC, none of STC, any STC Subsidiary, or any of their
respective representatives or employees has committed any unfair labor practice
in connection with the operation of the respective businesses of STC or any STC
Subsidiary, and there is no charge or complaint against STC or any STC
Subsidiary by the National Labor Relations Board or any comparable Governmental
Entity pending or threatened in writing, except where such unfair labor
practice, charge or complaint could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect.
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(d) Except as set forth in Section 4.09(d) of the STC Disclosure Schedule,
STC has delivered to CGI true, complete and correct copies of (i) all
employment agreements with officers and employees and all consulting agreements
of STC and each STC Subsidiary providing for annual compensation in excess of
$25,000, (ii) all severance plans, agreements, programs and policies of STC and
each STC Subsidiary with or relating to their respective employees or
consultants, and (iii) all plans, programs, agreements and other arrangements of
STC and each STC Subsidiary with or relating to their respective employees or
consultants which contain "change of control" provisions.
(e) Except as provided in Section 4.09(e) of the STC Disclosure Schedule or
as otherwise required by Law, no STC Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.
SECTION 4.10. Tax Matters. Except as disclosed in the STC Reports, neither STC
nor, to the knowledge of STC, any of its affiliates has taken or agreed to take
any action (other than actions contemplated by this Agreement) that could
reasonably be expected to prevent the Merger from constituting a transaction
qualifying under Section 368 of the Code. STC is not aware of any agreement,
plan or other circumstance that could reasonably be expected to prevent the
Merger from so qualifying under Section 368 of the Code.
SECTION 4.11. Contracts; Debt Instruments. Except as disclosed in the STC
Reports or in Section 4.11 of the STC Disclosure Schedule, there is no contract
or agreement that is material to the business, financial condition or results of
operations of STC and the STC Subsidiaries taken as a whole (each, an "STC
Material Contract"). Except as disclosed in the STC Reports or in Section 4.11
of the STC Disclosure Schedule, neither STC nor any STC Subsidiary is in
violation of or in default under (nor does there exist any condition which with
the passage of time or the giving of notice could reasonably be expected to
cause such a violation of or default under) any loan or credit agreement, note,
bond, mortgage, indenture or lease, or any other contract, license, agreement,
arrangement or understanding to which it is a party or by which it or any of its
properties or assets is bound, except for violations or defaults that could not
reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect. Set forth in Section 4.11 of the STC Disclosure
Schedule is a description of any material changes to the amount and terms of the
indebtedness of STC and its subsidiaries as described in the notes to the
financial statements incorporated in STC 1996 10-K.
SECTION 4.12. Litigation. Except as disclosed in the STC Reports or in Section
4.12 of the STC Disclosure Schedule, there is no suit, claim, action, proceeding
or investigation pending or, to the knowledge of STC, threatened against STC or
any STC Subsidiary before any Governmental Entity that could reasonably be
expected to have, individually or in the aggregate, an STC Material Adverse
Effect, and, except as disclosed to CGI, to the knowledge of STC, there are no
existing facts or circumstances that could reasonably be expected to result in
such a suit, claim, action, proceeding or investigation. For purposes hereof,
nonmeritorious strike-suit litigation challenging the execution, adoption or
performance of this Agreement shall not be deemed material. Except as disclosed
to CGI, STC is not aware of any facts or circumstances which could reasonably be
expected to result in the denial of insurance coverage under policies issued to
STC and the STC Subsidiaries in respect of such suits, claims, actions,
proceedings and investigations, except in any case as could not reasonably be
expected to have, individually or in the aggregate, an STC Material Adverse
Effect. Except as disclosed in the STC Reports or in Section 4.12 of the STC
Disclosure Schedule, neither STC nor any STC Subsidiary is subject to any
outstanding order, writ, injunction or decree which could reasonably be expected
to have, individually or in the aggregate, an STC Material Adverse Effect.
SECTION 4.13. Environmental Matters. Except as disclosed in the STC Reports or
in Section 4.13 of the STC Disclosure Schedule or as could not reasonably be
expected to have, individually or in the aggregate, an STC Material Adverse
Effect, (i) STC and the STC Subsidiaries are in compliance with all applicable
Environmental Laws; (ii) all past noncompliance of STC or any STC Subsidiary
with Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and (iii) neither STC
nor any STC Subsidiary has released a Hazardous Material at, or transported a
Hazardous Material to or from, any real property currently or formerly owned,
leased or occupied by STC or any STC Subsidiary, in violation of any
Environmental Law.
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SECTION 4.14. Intellectual Property. Except as set forth in Section 4.14 of
the STC Disclosure Schedule, or as could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect, STC and the
STC Subsidiaries own or possess adequate licenses or other valid rights to use
all patents, patent rights, trademarks, trademark rights, trade names, trade
dress, trade name rights, copyrights, service marks, trade secrets, applications
for trademarks and for service marks, know-how and other proprietary rights and
information used or held for use in connection with the respective businesses of
STC and the STC Subsidiaries as currently conducted, and STC is unaware of any
assertion or claim challenging the validity of any of the foregoing. Section
4.14 of the STC Disclosure Schedule lists all licenses, sublicenses and other
agreements to which STC or any STC Subsidiary is a party and pursuant to which
(i) any third party is authorized to use any intellectual property right of STC
or any STC Subsidiary and (ii) STC or any STC Subsidiary is authorized to use
any intellectual property rights (other than pursuant to shrink-wrap licenses
and noncustomized software licenses) of a third party, and includes the identity
of all parties thereto, a description of the nature and subject matter thereof,
the royalty provisions, if any, therein and the term thereof. Except as set
forth in Section 4.14 of the STC Disclosure Schedule, the conduct of the
respective businesses of STC and the STC Subsidiaries as currently conducted
does not conflict in any way with any patent, patent right, license, trademark,
trademark right, trade dress, trade name, trade name right, service mark or
copyright of any third party that could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect. To the
knowledge of STC, there are no infringements of any proprietary rights owned by
or licensed by or to STC or any STC Subsidiary that could reasonably be expected
to have, individually or in the aggregate, an STC Material Adverse Effect.
SECTION 4.15. Taxes. Except as set forth in Section 4.15 of the STC Disclosure
Schedule and except for such matters as could not reasonably be expected to
have, individually or in the aggregate, an STC Material Adverse Effect, (i) each
of STC and each STC Subsidiary has timely filed or shall timely file all returns
and reports required to be filed by it with any taxing authority with respect to
Taxes for any period ending on or before the Effective Time, taking into account
any extension of time to file granted to or obtained on behalf of STC and the
STC Subsidiaries, (ii) all Taxes shown to be payable on such returns or reports
that are due prior to the Effective Time have been or will be paid, (iii) as of
the date hereof, no deficiency for any amount of Tax has been asserted or
assessed by a taxing authority against STC or any STC Subsidiary and (iv) each
of STC and each STC Subsidiary has provided adequate reserves in its financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any returns.
SECTION 4.16. Opinion of Financial Advisor. DLJ has delivered to the board of
directors of STC its written opinion to the effect that, as of the date hereof,
the Common Exchange Ratio, the Series A Exchange Ratio and the Series B Exchange
Ratio to be offered to the stockholders of STC in the proposed transaction are
fair to such stockholders from a financial point of view. DLJ has authorized the
inclusion of its opinion in the Joint Proxy Statement.
SECTION 4.17. Brokers. No broker, finder or investment banker (other than DLJ)
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of STC. STC has
heretofore made available to CGI true, complete and correct copies of all
agreements between STC and DLJ pursuant to which such firm would be entitled to
any payment relating to the Merger.
SECTION 4.18. Certain Interests. (a) Except as set forth in Section 4.18(a) of
the STC Disclosure Schedule, no officer or director (excluding outside
directors) of STC or any STC Subsidiary, and no relative or spouse (or relative
of such spouse) who resides with, or is a dependent of, any such officer or
director:
(i) has any direct or indirect financial interest in any competitor of
STC; provided, however, that the ownership of securities representing no
more than two percent of the outstanding voting power of any competitor,
supplier or customer, and which are also listed on any national securities
exchange or traded actively in the national over-the-counter market, shall
not be deemed to be a "financial interest" so long as the person owning such
securities has no other connection or relationship with such competitor,
supplier or customer;
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(ii) owns, directly or indirectly, in whole or in part, or has any other
interest, in any tangible or intangible property which STC or any STC
Subsidiary uses in the conduct of its business or otherwise; or
(iii) has outstanding any indebtedness to STC or any STC Subsidiary.
(b) Except as set forth in Section 4.18(b) of the STC Disclosure Schedule,
neither STC nor any STC Subsidiary has any liability or any other obligation
of any nature whatsoever to any officer, director or shareholder of STC or any
STC Subsidiary, or to any relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any such officer, director or shareholder,
other than immaterial liabilities and obligations incurred in the ordinary
course of business which are reflected in the STC Reports or with respect to
which adequate reserves have been taken.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CGI AND MERGER SUB
CGI and Merger Sub hereby jointly and severally represent and warrant to STC
that:
SECTION 5.01. Organization and Qualification; Subsidiaries. Each of CGI,
Merger Sub and each other subsidiary of CGI (the "CGI Subsidiaries") has been
duly organized and is validly existing and in good standing (to the extent
applicable) under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has the requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect. Each of CGI, Merger Sub and each other CGI Subsidiary is duly qualified
or licensed to do business, and is in good standing (to the extent applicable),
in each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that could not reasonably be expected to have, individually or
in the aggregate, a CGI Material Adverse Effect.
SECTION 5.02. Certificate of Incorporation and By-laws. Except as set forth in
Section 5.02 of the CGI Disclosure Schedule, the copies of CGI's certificate of
incorporation and by-laws that are incorporated by reference as exhibits to
CGI's Form 10-K for the period ending December 31, 1995 (the "CGI 1995 10-K")
are true, complete and correct copies thereof. CGI has heretofore furnished STC
with true, complete and correct copies of the certificate of incorporation and
by-laws of Merger Sub. Such certificates of incorporation and by-laws are in
full force and effect. Neither CGI nor Merger Sub is in violation of any of the
provisions of its certificate of incorporation or by- laws.
SECTION 5.03. Capitalization. The authorized capital stock of CGI consists of
25,000,000 shares of CGI Common Stock and 5,000,000 shares of preferred stock.
As of January 10, 1997, (i) 16,516,0099 shares of CGI Common Stock are issued
and outstanding, all of which are validly issued, fully paid and nonassessable,
(ii) no shares of CGI Common Stock are held in the treasury of STC, (iii) no
shares of CGI Common Stock are held by the CGI Subsidiaries, (iv) 2,363,240
shares of CGI Common Stock are reserved for future issuance pursuant to employee
stock options or stock incentive rights granted under the CGI Stock Plans and
(v) 3,286,703 shares of CGI Common Stock are reserved for issuance pursuant to
the CGI Stock Option Agreement. As of the date hereof, there are no shares of
preferred stock of CGI issued and outstanding. Except for the CGI Stock Option
Agreement, shares of CGI Common Stock issuable pursuant to the CGI Stock Plans
or pursuant to agreements or arrangements described in Section 5.03 of the CGI
Disclosure Schedule, the CGI Rights issued and issuable pursuant to the CGI
Rights Plan, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which CGI is a party or by which
CGI is bound relating to the issued or unissued capital stock of CGI, Merger Sub
or any other CGI Subsidiary or obligating CGI, Merger Sub or any other CGI
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, CGI, Merger Sub or any other CGI Subsidiary. All shares of CGI
Common Stock subject to issuance as aforesaid, upon issuance
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prior to the Effective Time on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of CGI, Merger Sub or any other CGI Subsidiary to
repurchase, redeem or otherwise acquire any shares of CGI Common Stock or any
capital stock of any CGI Subsidiary. Each outstanding share of capital stock of
each CGI Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by CGI or another CGI Subsidiary is free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on CGI's or such other CGI Subsidiary's
voting rights, charges and other encumbrances of any nature whatsoever, except
where the failure to own such shares free and clear could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect. Except as set forth in Section 5.03 of the CGI Disclosure Schedule,
there are no material outstanding contractual obligations of CGI, Merger Sub or
any other CGI Subsidiary to provide funds to, or make any material investment
(in the form of a loan, capital contribution or otherwise) in, any CGI
Subsidiary or any other person.
SECTION 5.04. Authority Relative to This Agreement and the CGI Stock Option
Agreement. CGI and Merger Sub have all necessary corporate power and authority
to execute and deliver this Agreement and the CGI Stock Option Agreement, to
perform their respective obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the CGI Stock Option Agreement by CGI and Merger Sub and the
consummation by CGI and Merger Sub of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action,
and no other corporate proceedings on the part of CGI or Merger Sub are
necessary to authorize this Agreement or the CGI Stock Option Agreement or to
consummate such transactions (other than the approval of this Agreement and the
Merger by the holders of a majority of the votes cast by CGI's stockholders with
respect thereto at the CGI Stockholders' Meeting and the filing and recordation
of the Certificate of Merger as required by the General Corporation Law). This
Agreement and the CGI Stock Option Agreement have been duly executed and
delivered by CGI and Merger Sub and, assuming the due authorization, execution
and delivery by STC, constitute legal, valid and binding obligations of CGI and
Merger Sub, enforceable against CGI and Merger Sub in accordance with their
terms.
SECTION 5.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement and the CGI Stock Option Agreement by CGI and
Merger Sub do not, and the performance by CGI and Merger Sub of their
obligations hereunder and thereunder and the consummation of the Merger will
not, (i) conflict with or violate any provision of the certificate of
incorporation or by-laws of CGI or Merger Sub or any equivalent organizational
documents of any other CGI Subsidiary, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 5.05(b) have been
obtained and all filings and notifications described in Section 5.05(b) have
been made, conflict with or violate any Law applicable to CGI or any other CGI
Subsidiary or by which any property or asset of CGI, Merger Sub or any other CGI
Subsidiary is bound or affected or (iii) except as set forth in Section 5.05(a)
of the CGI Disclosure Schedule, result in any breach of or constitute a default
(or an event which with the giving of notice or lapse of time or both could
reasonably be expected to become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of CGI, Merger
Sub or any other CGI Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation, except, with respect to clauses (ii) and (iii), for
any such conflicts, violations, breaches, defaults or other occurrences which
could not reasonably be expected, individually or in the aggregate, (A) to have
a CGI Material Adverse Effect or (B) to prevent or materially delay the
performance by CGI or Merger Sub of its obligations pursuant to this Agreement
or the CGI Stock Option Agreement or the consummation of the Merger.
(b) The execution and delivery of this Agreement and the CGI Stock Option
Agreement by CGI and Merger Sub do not, and the performance by CGI and Merger
Sub of their respective obligations hereunder and thereunder and the
consummation of the Merger will not, require any consent, approval,
authorization or permit of, or filing by CGI or Merger Sub with or
notification by CGI or Merger Sub to, any Governmental Entity, except (i)
pursuant to applicable requirements of the Exchange Act, the Securities Act,
Blue Sky Laws, the rules
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and regulations of the NASD, state takeover laws, the premerger notification
requirements of the HSR Act, if any, and the filing and recordation of the
Certificate of Merger as required by the General Corporation Law and (ii)
where failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, could not reasonably be expected,
individually or in the aggregate, (A) to have a CGI Material Adverse Effect or
(B) to prevent or materially delay the performance by CGI or Merger Sub of its
obligations pursuant to this Agreement or the CGI Stock Option Agreement or
the consummation of the Merger.
SECTION 5.06. Permits; Compliance with Laws. (a) Each of CGI, Merger Sub and
each other CGI Subsidiary is in possession of all franchises, grants,
authorizations, licenses, establishment registrations, product listings,
permits, easements, variances, exceptions, consents, certificates, approvals and
orders of any Governmental Entity, including, without limitation, the FDA, the
DEA and similar authorities in other jurisdictions, necessary for it to own,
lease and operate its properties or to store, distribute and market its products
or otherwise to carry on its business as it is now being conducted (the "CGI
Permits"), except where the failure to have, or the suspension or cancellation
of, any of the CGI Permits could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect, and, as of the
date of this Agreement, no suspension or cancellation of any of the CGI Permits
is pending or, to the knowledge of CGI, threatened, except where the failure to
have, or the suspension or cancellation of, any of the CGI Permits could not
reasonably be expected to have, individually or in the aggregate, a CGI Material
Adverse Effect. None of CGI, Merger Sub or any other CGI Subsidiary is in
conflict with, or in default or violation of, (i) any Law applicable to CGI,
Merger Sub or any other CGI Subsidiary or by which any property or asset of CGI,
Merger Sub or any other CGI Subsidiary is bound or affected or (ii) any CGI
Permits, except in the case of clauses (i) and (ii) for any such conflicts,
defaults or violations that could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect.
(b) Except as disclosed in the CGI Reports or in Section 5.06(b) of the CGI
Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect:
(i) to the knowledge of CGI, all of the clinical studies which have been,
or are being, conducted by or for CGI and the CGI Subsidiaries are being
conducted in substantial compliance with generally accepted good clinical
practices and all applicable government regulatory requirements; and
(ii) to the knowledge of CGI, none of CGI, the CGI Subsidiaries or any of
their respective officers, employees or agents (during the term of such
person's employment by CGI or any CGI Subsidiary or while acting as an agent
of CGI or any CGI Subsidiary, or, to CGI's knowledge, prior to such
employment) has made any untrue statement of a material fact or fraudulent
statement to the FDA or any similar Governmental Entity, failed to disclose
a material fact required to be disclosed to the FDA or similar Governmental
Entity, or committed an act, made a statement or failed to make a statement
that could reasonably be expected to provide a basis for the FDA or similar
Governmental Entity to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities" or similar
governmental policy or Law.
SECTION 5.07. SEC Filings; Financial Statements. (a) Except as disclosed in
Section 5.07 of the CGI Disclosure Schedule, CGI has timely filed all forms,
reports and documents required to be filed by it with the SEC and the NASD since
December 31, 1993 through the date of this Agreement (collectively and as
amended, the "CGI Reports"). Each CGI Report (i) was prepared in accordance with
the requirements of the Securities Act, the Exchange Act or the NASD, as the
case may be, and (ii) did not at the time it was filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No CGI
Subsidiary is subject to the periodic reporting requirements of the Exchange Act
or required to file any form, report or other document with the SEC, the NASD,
any other stock exchange or any other comparable Governmental Entity.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the CGI Reports was prepared in accordance
with U.S. GAAP applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each presented fairly,
in all material
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respects, the consolidated financial position of CGI and the consolidated CGI
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments which did not
and could not reasonably be expected to have, individually or in the aggregate,
a CGI Material Adverse Effect).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of CGI and its Subsidiaries as reported in the CGI
Reports, including the notes thereto, none of CGI or any CGI Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on a balance sheet or in
notes thereto prepared in accordance with U.S. GAAP, except for liabilities or
obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1995 that have not had and could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect.
SECTION 5.08. Absence of Certain Changes or Events. Since December 31, 1995,
except as contemplated by or as disclosed in this Agreement, as set forth in
Section 5.08 of the CGI Disclosure Schedule or as disclosed in any CGI Report
filed since December 31, 1995, CGI and the CGI Subsidiaries have conducted their
businesses only in the ordinary course consistent with past practice and, since
such date, there has not been (i) any CGI Material Adverse Effect excluding any
changes and effects resulting from changes in economic, regulatory or political
conditions or changes in conditions generally applicable to the industries in
which CGI and the CGI Subsidiaries are involved, (ii) any event that could
reasonably be expected to prevent or materially delay the performance of their
obligations pursuant to this Agreement and the consummation of the Merger by
Merger Sub, (iii) any material change by CGI in its accounting methods,
principles or practices, (iv) any declaration, setting aside or payment of any
dividend or distribution in respect of the shares of CGI Common Stock or any
redemption, purchase or other acquisition of any of CGI's securities or (v) any
increase in the compensation or benefits or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement,
profit-sharing, stock option (including, without limitation, the granting of
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any executive officers of CGI
or any CGI Subsidiary except in the ordinary course of business consistent with
past practice.
SECTION 5.09. Employee Benefit Plans; Labor Matters. (a) With respect to each
employee benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan", as defined in Section 3(3) of ERISA)
maintained or contributed to by CGI or any CGI Subsidiary, or with respect to
which CGI or any CGI Subsidiary could incur liability under Section 4069,
4212(c) or 4204 of ERISA (the "CGI Benefit Plans", CGI has delivered or made
available to STC a true, complete and correct copy of (i) such CGI Benefit Plan
and the most recent summary plan description related to such CGI Benefit Plan,
if a summary plan description is required therefor, (ii) each trust agreement or
other funding arrangement relating to such CGI Benefit Plan, (iii) the most
recent annual report (Form 5500) filed with the IRS with respect to such CGI
Benefit Plan, (iv) the most recent actuarial report or financial statement
relating to such CGI Benefit Plan and (v) the most recent determination letter
issued by the IRS with respect to such CGI Benefit Plan, if it is qualified
under Section 401(a) of the Code.
(b) Each CGI Benefit Plan has been administered in all material respects in
accordance with its terms and all contributions required to be made under the
terms of any of the CGI Benefit Plans as of the date of this Agreement have been
timely made or have been reflected on the most recent consolidated balance sheet
filed or incorporated by reference in the CGI Reports prior to the date of this
Agreement. Except as set forth in Section 5.09(b) of the CGI Disclosure
Schedule, with respect to the CGI Benefit Plans, no event has occurred and, to
the knowledge of CGI, there exists no condition or set of circumstances in
connection with which CGI or any CGI Subsidiary could be subject to any
liability under the terms of such CGI Benefit Plans, ERISA, the Code or any
other applicable Law which could reasonably be expected to have, individually or
in the aggregate, a CGI Material Adverse Effect.
(c) Except as set forth in Section 5.09(c) of the CGI Disclosure Schedule,
neither CGI nor any CGI Subsidiary is a party to any collective bargaining or
other labor union contract applicable to persons employed
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by CGI or any CGI Subsidiary and no collective bargaining agreement is being
negotiated by CGI or any CGI Subsidiary. As of the date of this Agreement, there
is no labor dispute, strike or work stoppage against CGI or any CGI Subsidiary
pending or, to the knowledge of CGI, threatened which may interfere with the
respective business activities of CGI or any CGI Subsidiary, except where such
dispute, strike or work stoppage could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect. As of the date
of this Agreement, to the knowledge of CGI, none of CGI, any CGI Subsidiary, or
any of their respective representatives or employees has committed any unfair
labor practice in connection with the operation of the respective businesses of
CGI or any CGI Subsidiary, and there is no charge or complaint against CGI or
any CGI Subsidiary by the National Labor Relations Board or any comparable
Governmental Entity pending or threatened in writing, except where such unfair
labor practice, charge or complaint could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect.
(d) CGI has delivered to STC true, complete and correct copies of (i) all
employment agreements with officers of CGI and each CGI Subsidiary providing for
annual compensation in excess of $25,000, (b) all severance plans, agreements,
programs and policies of CGI and each CGI Subsidiary with or relating to their
respective employees and (iii) all plans, programs, agreements and other
arrangements of CGI and each CGI Subsidiary with or relating to their respective
employees which contain "change of control" provisions.
(e) Except as provided in Section 5.09(e) of the CGI Disclosure Schedule or as
otherwise required by Law, no CGI Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.
SECTION 5.10. Tax Matters. Except as disclosed in the CGI Reports, neither CGI
nor, to the knowledge of CGI, any of its affiliates has taken or agreed to take
any action (other than actions contemplated by this Agreement) that could
reasonably be expected to prevent the Merger from constituting a transaction
qualifying under Section 368 of the Code. CGI is not aware of any agreement,
plan or other circumstance that could reasonably be expected to prevent the
Merger from so qualifying under Section 368 of the Code.
SECTION 5.11. Contracts; Debt Instruments. Except as disclosed in the CGI
Reports or in Section 5.11 of the CGI Disclosure Schedule, there is no contract
or agreement that is material to the business, financial condition or results of
operations of CGI and the CGI Subsidiaries taken as a whole (each, a "CGI
Material Contract"). Except as disclosed in the CGI Reports or in Section 5.11
of the CGI Disclosure Schedule, neither CGI nor any CGI Subsidiary is in
violation of or in default under (nor does there exist any condition which with
the passage of time or the giving of notice could reasonably be expected to
cause such a violation of or default under) any loan or credit agreement, note,
bond, mortgage, indenture or lease, or any other contract, license, agreement,
arrangement or understanding to which it is a party or by which it or any of its
properties or assets is bound, except for violations or defaults that could not
reasonably be expected to have, individually or in the aggregate, a CGI Material
Adverse Effect. Set forth in Section 5.11 of the CGI Disclosure Schedule is a
description of any material changes to the amount and terms of the indebtedness
of CGI and its subsidiaries as described in the notes to the financial
statements incorporated in the CGI 1995 10-K.
SECTION 5.12. Litigation. Except as disclosed in the CGI Reports or in Section
5.12 of the CGI Disclosure Schedule, there is no suit, claim, action, proceeding
or investigation pending or, to the knowledge of CGI, threatened against CGI or
any CGI Subsidiary before any Governmental Entity that could reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect, and, except as disclosed to STC, to the knowledge of CGI, there are no
existing facts or circumstances that could reasonably be expected to result in
such a suit, claim, action, proceeding or investigation. For purposes hereof,
nonmeritorious strike-suit litigation challenging the execution, adoption or
performance of this Agreement shall not be deemed material. Except as disclosed
to STC, CGI is not aware of any facts or circumstances which could reasonably be
expected to result in the denial of insurance coverage under policies issued to
CGI and the CGI Subsidiaries in respect of such suits, claims, actions,
proceedings and investigations, except in any case as could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect. Except as disclosed in the CGI Reports or in Section 5.12 of the CGI
Disclosure Schedule, neither CGI nor any CGI Subsidiary is subject to any
outstanding order, writ, injunction or decree which could reasonably be expected
to have, individually or in the aggregate, a CGI Material Adverse Effect.
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SECTION 5.13. Environmental Matters. Except as disclosed in the CGI Reports or
in Section 5.13 of the CGI Disclosure Schedule or as could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect, (i) CGI and the CGI Subsidiaries are in compliance with all applicable
Environmental Laws; (ii) all past noncompliance of CGI or any CGI Subsidiary
with Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and (iii) neither CGI
nor any CGI Subsidiary has released a Hazardous Material at, or transported a
Hazardous Material to or from, any real property currently or formerly owned,
leased or occupied by CGI or any CGI Subsidiary in violation of any
Environmental Law.
SECTION 5.14. Intellectual Property. Except as disclosed in Section 5.14 of
the CGI Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect, CGI and the CGI
Subsidiaries own or possess adequate licenses or other valid rights to use all
patents, patent rights, trademarks, trademark rights, trade names, trade dress,
trade name rights, copyrights, service marks, trade secrets, applications for
trademarks and for service marks, know-how and other proprietary rights and
information used or held for use in connection with the respective businesses of
CGI and the CGI Subsidiaries as currently conducted, and CGI is unaware of any
assertion or claim challenging the validity of any of the foregoing. Section
5.14 of the CGI Disclosure Schedule lists all licenses, sublicenses and other
agreements to which CGI or any CGI Subsidiary is a party and pursuant to which
(i) any third party is authorized to use any intellectual property right of CGI
or any CGI Subsidiary and (ii) CGI or any CGI Subsidiary is authorized to use
any intellectual property rights (other than pursuant to shrink-wrap licenses
and noncustomized software licenses) of a third party, and includes the identity
of all parties thereto, a description of the nature and subject matter thereof,
the royalty provisions, if any, therein and the term thereof. Except as set
forth in Section 5.14 of the CGI Disclosure Schedule, the conduct of the
respective businesses of CGI and the CGI Subsidiaries as currently conducted
does not conflict in any way with any patent, patent right, license, trademark,
trademark right, trade dress, trade name, trade name right, service mark or
copyright of any third party that could reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect. Except as
disclosed in Section 5.14 of the CGI Disclosure Schedule, to the knowledge of
CGI, there are no infringements of any proprietary rights owned by or licensed
by or to CGI or any CGI Subsidiary that could reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect.
SECTION 5.15. Taxes. Except as set forth in Section 5.15 of the CGI Disclosure
Schedule and except for such matters as could not reasonably be expected to
have, individually or in the aggregate, a CGI Material Adverse Effect, (i) each
of CGI, Merger Sub and each other CGI Subsidiary has timely filed or shall
timely file all returns and reports required to be filed by it with any taxing
authority with respect to Taxes for any period ending on or before the Effective
Time, taking into account any extension of time to file granted to or obtained
on behalf of CGI, Merger Sub and the other CGI Subsidiaries, (ii) all Taxes
shown to be payable on such returns or reports that are due prior to the
Effective Time have been or will be paid, (iii) as of the date hereof, no
deficiency for any amount of Tax has been asserted or assessed by a taxing
authority against CGI, Merger Sub or any other CGI Subsidiary and (iv) each of
CGI, Merger Sub and each other CGI Subsidiary has provided adequate reserves in
its financial statements for any Taxes that have not been paid, whether or not
shown as being due on any returns.
SECTION 5.16. Opinion of Financial Advisor. Lehman Brothers has delivered to
the board of directors of CGI its written opinion to the effect that, as of the
date hereof, each of the Common Exchange Ratio, the Series A Exchange Ratio and
the Series B Exchange Ratio is fair to the holders of shares of CGI Common Stock
from a financial point of view. Lehman Brothers has authorized the inclusion of
its opinion in the Joint Proxy Statement.
SECTION 5.17. Brokers. No broker, finder or investment banker (other than
Lehman Brothers) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of CGI. CGI has heretofore made available to STC true, complete and
correct copies of all agreements between CGI and Lehman Brothers pursuant to
which such firm would be entitled to any payment relating to the Merger.
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SECTION 5.18. Certain Interests. (a) Except as set forth in Section 5.18(a) of
the CGI Disclosure Schedule or in the CGI SEC Reports, no officer or director
(excluding outside directors) of CGI or any CGI Subsidiary, and no relative or
spouse (or relative of such spouse) who resides with, or is a dependent of, any
such shareholder, officer or director:
(i) has any direct or indirect financial interest in any competitor;
provided, however, that the ownership of securities representing no more than
two percent of the outstanding voting power of any competitor, supplier or
customer, and which are also listed on any national securities exchange or
traded actively in the national over-the-counter market, shall not be deemed
to be a "financial interest" so long as the person owning such securities has
no other connection or relationship with such competitor, supplier or
customer;
(ii) owns, directly or indirectly, in whole or in part, or has any other
interest in any tangible or intangible property which CGI or any CGI
Subsidiary uses in the conduct of its business or otherwise; or
(iii) has outstanding any indebtedness to CGI or any CGI Subsidiary.
(b) Except as set forth in Section 5.18(b) of the CGI Disclosure Schedule,
neither CGI nor any CGI Subsidiary has any liability or any other material
obligation of any nature whatsoever to any officer or director of CGI or any CGI
Subsidiary, or to any relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any such officer or director, other than
immaterial liabilities and obligations incurred in the ordinary course of
business which are reflected in the CGI Reports or with respect to which
adequate reserves have been taken.
ARTICLE VI
COVENANTS
SECTION 6.01. Conduct of Business by STC Pending the Closing. STC agrees that,
between the date of this Agreement and the Effective Time, except as set forth
in Section 6.01 of the STC Disclosure Schedule or as expressly contemplated by
any other provision of this Agreement, unless CGI shall otherwise agree in
writing, (x) the respective businesses of STC and the STC Subsidiaries shall be
conducted only in, and STC and the STC Subsidiaries shall not take any action
except in, the ordinary course of business consistent with past practice and (y)
STC shall use all reasonable efforts to keep available the services of such of
the current officers, employees and consultants of STC and the STC Subsidiaries
and to preserve the current relationships of STC and the STC Subsidiaries with
such of the corporate partners, customers, suppliers and other persons with
which STC or any STC Subsidiary has significant business relations in order to
preserve substantially intact its business organization. By way of amplification
and not limitation, except as set forth in Section 6.01 of the STC Disclosure
Schedule or as expressly contemplated by any other provision of this Agreement
and the STC Stock Option Agreement, neither STC nor any STC Subsidiary shall,
between the date of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following without the prior written
consent of CGI, which consent shall not be unreasonably withheld or delayed:
(a) amend or otherwise change its certificate of incorporation or by-laws or
equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license or encumbrance of, (i) any shares of capital
stock of STC or any STC Subsidiary of any class, or securities convertible into
or exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of STC or any STC Subsidiary, except for (A) issuances of
STC Common Stock pursuant to options and warrants thereon outstanding on the
date hereof and described in Section 4.03 and (B) issuances of non-cash
dividends required to be made under the terms of the certificate of designation
of STC applicable to the Series A Preferred Stock, or (ii) any property or
assets of STC or any STC Subsidiary;
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(c) (i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any interest in any corporation, partnership,
other business organization or person or any division thereof or any assets,
other than acquisitions of assets; (ii) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of any person for
borrowed money; (iii) terminate, cancel or request any material change in, or
agree to any material change in, any STC Material Contract or enter into any
corporate partnering transaction or similar arrangement or any other contract or
agreement material to the business, results of operations or financial condition
of STC and the STC Subsidiaries taken as a whole; (iv) make or authorize any
capital expenditure, except for capital expenditures not in excess of $5,000
individually and $50,000 in the aggregate; provided that CGI will not
unreasonably withhold its consent to reasonable expenditures in excess thereof;
or (v) enter into or amend any contract, agreement, commitment or arrangement
that, if fully performed, would not be permitted under this Section 6.01(c);
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock or the Fletcher Warrant, except that any STC Subsidiary may pay
dividends or make other distributions to STC or any other STC Subsidiary and may
pay noncash dividends required to be made under the terms of the certificate of
designation of STC applicable to the Series A Preferred Stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
(f) increase the compensation payable or to become payable to its officers,
consultants or employees, or grant any rights to severance or termination pay
to, or enter into any employment or severance agreement which provides benefits
upon a change in control of STC that would be triggered by the Merger with, any
director, officer, consultant or other employee of STC or any STC Subsidiary who
is not currently entitled to such benefits from the Merger, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit-sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer,
consultant or employee of STC or any STC Subsidiary, except to the extent
required by applicable Law or the terms of a collective bargaining agreement;
(g) take any action with respect to accounting policies or procedures, other
than actions in the ordinary course of business consistent with past practice or
as required by U.S. GAAP;
(h) make any tax election or settle or compromise any material federal, state
or local United States income tax liability, or any income tax liability of any
other jurisdiction, other than those made in the ordinary course of business
consistent with past practice and those for which specific reserves have been
recorded on the consolidated balance sheet of STC and the consolidated STC
Subsidiaries dated as of June 30, 1996 included in the 1996 STC 10-K and only to
the extent of such reserves; or
(i) authorize or enter into any formal or informal agreement or otherwise make
any commitment to do any of the foregoing.
SECTION 6.02. Conduct of Business by CGI Pending the Closing. CGI agrees that,
between the date of this Agreement and the Effective Time, except as set forth
in Section 6.02 of the CGI Disclosure Schedule or as expressly contemplated by
any other provision of this Agreement, unless STC shall otherwise agree in
writing, (x) the respective businesses of CGI and the CGI Subsidiaries shall be
conducted only in, and CGI and the CGI Subsidiaries shall not take any action
except in, the ordinary course of business consistent with past practice and (y)
CGI shall use all reasonable efforts to keep available the services of such of
the current officers, significant employees and consultants of CGI and the CGI
Subsidiaries and to preserve the current relationships of CGI and the CGI
Subsidiaries with such of the corporate partners, customers, suppliers and other
persons with which CGI or any CGI Subsidiary has significant business relations
as CGI deems reasonably necessary in order to preserve substantially intact its
business organization. By way of amplification and not limitation, except as set
forth in Section 6.02 of the CGI Disclosure Schedule or as expressly
contemplated by any other provision of this
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Agreement and the CGI Stock Option Agreement, neither CGI nor any CGI Subsidiary
shall, between the date of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following without the prior written
consent of STC, which consent shall not be unreasonably withheld or delayed:
(a) amend or otherwise change its certificate of incorporation or by-laws or
equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license or encumbrance of, (i) any shares of capital
stock of CGI or any CGI Subsidiary of any class, or securities convertible into
or exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of CGI or any CGI Subsidiary, except for (A) issuances of
CGI Common Stock pursuant to options and warrants thereon outstanding on the
date hereof and described in Section 5.03, (B) issuances of options to new hires
of CGI and (C) issuances of options to employees, officers and directors of CGI
consistent with past practice, or (ii) any property or assets of CGI or any CGI
Subsidiary, except in the ordinary course of business consistent with past
practice and pursuant to any existing CGI Material Contract or in an aggregate
amount not in excess of $10,000,000;
(c) (i) acquire (including, without limitation, by merger, consolidation or
acquisition of stock or assets) any interest in any corporation, partnership,
other business organization or person or any division thereof or any assets,
other than acquisitions of assets (excluding the acquisition of a business or
substantially all of the stock or assets thereof) in the ordinary course of
business consistent with past practice, and any acquisitions for consideration,
calculated as of the date of execution of the definitive agreement for any such
acquisition, that is not, in the aggregate for all such acquisitions, in excess
of 10 percent of the market value of CGI of the date of the execution of any
contract related thereto; (ii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person for borrowed
money; (iii) terminate, cancel or request any material change in, or agree to
any material change in, any CGI Material Contract or enter into any contract or
agreement material to the business, results of operations or financial condition
of CGI and the CGI Subsidiaries taken as a whole, in either case other than in
the ordinary course of business consistent with past practice; (iv) make or
authorize any capital expenditure, other than capital expenditures in the
ordinary course of business consistent with past practice; or (v) enter into or
amend any contract, agreement, commitment or arrangement that, if fully
performed, would not be permitted under this Section 6.02(c);
(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, except that any CGI Subsidiary may pay dividends or make other
distributions to CGI or any other CGI Subsidiary;
(e) reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
(f) increase the compensation payable or to become payable to its officers or
employees, except for increases in accordance with past practices in salaries or
wages of employees or officers of CGI or any CGI Subsidiary (including, without
limitation, annual merit increases and bonuses), or grant any rights to
severance or termination pay to, or enter into any employment or severance
agreement which provides benefits upon a change in control of CGI that would be
triggered by the Merger with, any director, officer or other employee of CGI or
any CGI Subsidiary who is not currently entitled to such benefits upon the
Merger, or establish, adopt, enter into or amend any collective bargaining,
bonus, profit-sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee of CGI or any CGI Subsidiary, except to the
extent required by applicable Law or the terms of a collective bargaining
agreement;
(g) take any action with respect to accounting policies or procedures, other
than actions in the ordinary course of business consistent with past practice or
as required by U.S. GAAP;
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(h) make any tax election or settle or compromise any material federal, state
or local United States income tax liability, or any income tax liability of any
other jurisdiction, other than those made in the ordinary course of business
consistent with past practice and those for which specific reserves have been
recorded on the consolidated balance sheet of CGI and the consolidated CGI
Subsidiaries dated as of December 31, 1995 included in the 1995 CGI 10-K and
only to the extent of such reserves; or
(i) authorize or enter into any formal or informal agreement or otherwise make
any commitment to do any of the foregoing.
SECTION 6.03. Cooperation; Steering Committee. Upon the execution and delivery
of this Agreement, CGI and STC shall establish a committee (the "Steering
Committee") for the purpose of, to the extent permitted by applicable Laws,
facilitating the efficient transition and combination of the respective
businesses of CGI and STC as promptly as practicable following the Effective
Time. The Steering Committee shall consist of up to 10 individuals to be
designated from time to time by the Chairman of CGI in consultation with the
Chairman of STC, and shall be chaired by CGI. The Steering Committee shall be
dissolved as of the Effective Time.
SECTION 6.04. Notices of Certain Events. Each of CGI and STC shall give prompt
notice to the other of (i) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the Merger; (ii) any notice or other communication from any Governmental
Entity in connection with the Merger; (iii) any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting CGI, STC, the CGI
Subsidiaries or the STC Subsidiaries that relate to the consummation of the
Merger; (iv) the occurrence of a default or event that, with the giving of
notice or lapse of time or both, will become a default under any STC Material
Contract or CGI Material Contract; and (v) any change that could reasonably be
expected to have an STC Material Adverse Effect or a CGI Material Adverse Effect
or to delay or impede the ability of either STC or CGI to perform its
obligations pursuant to this Agreement, the STC Stock Option Agreement or the
CGI Stock Option Agreement and to effect the consummation of the Merger.
SECTION 6.05. Access to Information; Confidentiality. (a) Except as required
pursuant to any confidentiality agreement or similar agreement or arrangement to
which CGI or STC or any of the CGI Subsidiaries or the STC Subsidiaries is a
party or pursuant to applicable Law or the regulations or requirements of any
stock exchange or other regulatory organization with whose rules a party hereto
is required to comply, from the date of this Agreement to the Effective Time,
CGI and STC shall (and shall cause the CGI Subsidiaries and the STC
Subsidiaries, respectively, to) (i) provide to the other (and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, "Representatives")) access at reasonable times
upon prior notice to its and its subsidiaries' officers, employees, agents,
properties, offices and other facilities and to the books and records thereof,
and (ii) furnish promptly such information concerning its and its subsidiaries'
business, properties, contracts, assets, liabilities and personnel as the other
party or its Representatives may reasonably request. No investigation conducted
pursuant to this Section 6.05 shall affect or be deemed to modify any
representation or warranty made in this Agreement.
(b) The parties hereto shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement with respect to the information disclosed pursuant to
this Section 6.05.
SECTION 6.06. No Solicitation of Transactions. Each party to this Agreement
shall not, directly or indirectly, and shall instruct its officers, directors,
employees, subsidiaries, agents or advisors or other representatives (including,
without limitation, any investment banker, attorney or accountant retained by
it), not to, directly or indirectly, solicit, initiate or knowingly encourage
(including by way of furnishing nonpublic information), or take any other action
knowingly to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain or continue discussions or negotiate with
any person in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse
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any Competing Transaction, or authorize or permit any of the officers, directors
or employees of such party or any of its subsidiaries, or any investment banker,
financial advisor, attorney, accountant or other representative retained by such
party or any of such party's subsidiaries, to take any such action; provided,
however, that nothing contained in this Section 6.06 shall prohibit the board of
directors of CGI or STC from (i) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer or (ii) after receiving
the advice of outside counsel to the effect that the board of directors of STC
or CGI, as the case may be, is required to do so in order to discharge properly
its fiduciary duties, considering, negotiating and approving and recommending to
the shareholders of STC or CGI, as the case may be, an unsolicited bona fide
written acquisition proposal which (A) was not received in violation of this
Section 6.06, (B) if executed or consummated would be a Competing Transaction,
(C) is not subject to financing and (D) the board of directors of STC or CGI, as
the case may be, determines in good faith, after consultation with its financial
advisors, would result in a transaction more favorable to STC's or CGI's
stockholders, as the case may be, than the transaction contemplated by this
Agreement (any such acquisition proposal, a "Superior Proposal"). Each party
hereto shall notify the other parties hereto promptly if any proposal or offer,
or any inquiry or contact with any person with respect thereto, regarding such
an acquisition proposal or a Competing Transaction is made. Each party hereto
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to a Competing
Transaction. None of the parties hereto shall release any third party from, or
waive any provision of, any confidentiality or standstill agreement to which it
is a party. Each party hereto shall use its best efforts to ensure that its
officers, directors, employees and subsidiaries and any investment banker or
other advisor or representative retained by such party are aware of the
restrictions described in this Section 6.06.
SECTION 6.07. Plan of Reorganization. This Agreement is intended to constitute
a "plan of reorganization" within the meaning of Section 1.368-2(g) of the
income tax regulations promulgated under the Code. From and after the date of
this Agreement, each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not, without the prior written consent of the other
parties hereto, knowingly take any actions or cause any actions to be taken
which could reasonably be expected to prevent the Merger from qualifying, as a
reorganization under the provisions of Section 368 of the Code. In the event
that the Merger shall fail to qualify as a reorganization under the provisions
of Section 368 of the Code, then the parties hereto agree to negotiate in good
faith to restructure the Merger in order that shall qualify as tax-free
transaction under the Code. Following the Effective Time, and consistent with
any such consent, neither the Surviving Corporation nor CGI nor any of their
respective affiliates knowingly and voluntarily shall take any action or cause
any action to be taken which could reasonably be expected to cause the Merger to
fail to qualify as a reorganization under Section 368 of the Code.
SECTION 6.08. Subsequent Financial Statements. Prior to the Effective Time,
each of STC and CGI (i) shall consult with the other prior to making publicly
available its financial results for any period and (ii) shall consult with the
other prior to the filing of, and shall timely file with the SEC, each Annual
Report on Form 10-K, Quarterly Report on Form 10-Q and Current Report on Form
8-K required to be filed by such party under the Exchange Act and shall promptly
deliver to the other copies of each such report filed with the SEC.
SECTION 6.09. Control of Operations. Nothing contained in this Agreement shall
give CGI, directly or indirectly, the right to control or direct the operations
of STC and the STC Subsidiaries prior to the Effective Time. Prior to the
Effective Time, each of CGI and STC shall exercise, consistent with the terms
and conditions of this Agreement, complete control and supervision over its
respective operations.
SECTION 6.10. Further Action; Consents; Filings. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use all reasonable
efforts to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under applicable Law
or otherwise to consummate and make effective the Merger, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by CGI, Merger Sub, STC
or the Surviving Corporation or any of their respective subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Merger and (iii) make all necessary
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filings, and thereafter make any other required or appropriate submissions,
with respect to this Agreement and the Merger required under (A) the rules and
regulations of the NASD, (B) the Securities Act, the Exchange Act and any
other applicable federal or state securities Laws, (C) the HSR Act, if any,
and (D) any other applicable Law. The parties hereto shall cooperate and
consult with each other in connection with the making of all such filings,
including by providing copies of all such documents to the nonfiling parties
and their advisors prior to filing, and none of the parties shall file any
such document if any of the other parties shall have reasonably objected to
the filing of such document. No party shall consent to any voluntary extension
of any statutory deadline or waiting period or to any voluntary delay of the
consummation of the Merger at the behest of any Governmental Entity without
the consent and agreement of the other parties hereto, which consent shall not
be unreasonably withheld or delayed.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. Registration Statement; Joint Proxy Statement. (a) As promptly
as practicable after the execution of this Agreement, CGI and STC shall jointly
prepare and STC and CGI shall file with the SEC a document or documents that
will constitute (i) the prospectus forming part of the registration statement on
Form S-4 of CGI (together with all amendments thereto, the "Registration
Statement"), in connection with the registration under the Securities Act of the
CGI Common Stock to be issued to STC's stockholders pursuant to the Merger and
(ii) the Joint Proxy Statement with respect to the Merger relating to the
special meeting of each of STC's stockholders (the "STC Stockholders' Meeting")
and CGI's stockholders (the "CGI Stockholders' Meeting") to be held to consider
approval of this Agreement and the Merger contemplated hereby (together with any
amendments thereto, the "Joint Proxy Statement"). Copies of the Joint Proxy
Statement shall be provided to the NASD in accordance with its rules with
respect to the NMS. Each of the parties hereto shall use all reasonable efforts
to cause the Registration Statement to become effective as promptly as
practicable after this date hereof, and, prior to the effective date of the
Registration Statement, the parties hereto shall take all action required under
any applicable Laws in connection with the issuance of shares of CGI Common
Stock pursuant to the Merger. CGI or STC, as the case may be, shall furnish all
information concerning itself as the other party may reasonably request in
connection with such actions and the preparation of the Registration Statement
and Joint Proxy Statement. As promptly as practicable after the effective date
of the Registration Statement, the Joint Proxy Statement shall be mailed to the
stockholders of CGI and STC. Each of the parties hereto shall cause the Joint
Proxy Statement to comply as to form and substance in all material respects with
the applicable requirements of (i) the Exchange Act, (ii) the Securities Act,
(iii) the rules and regulations of the NASD and (iv) the General Corporation
Law.
(b) The Joint Proxy Statement shall include (i)(A) subject to the provisos
contained in the first sentence of Section 6.06, the approval of the Merger and
the STC Amendment and recommendation of the board of directors of STC to the
stockholders of STC that they vote in favor of approval of this Agreement and
the Merger contemplated hereby and the STC Amendment, and (B) the opinion of DLJ
referred to in Section 4.18, and (ii)(A) subject to the provisos contained in
the first sentence of Section 6.06, the approval of the Merger and the CGI
Amendment and recommendation of the board of directors of CGI to the
stockholders of CGI that they vote in favor of approval of this Agreement and
the Merger contemplated hereby and the CGI Amendment, and (B) the opinion of
Lehman Brothers referred to in Section 5.18.
(c) No amendment or supplement to the Joint Proxy Statement or the
Registration Statement shall be made without the approval of CGI and STC, which
approval shall not be unreasonably withheld or delayed. Each of the parties
hereto shall advise the other parties hereto, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order, of
the suspension of the qualification of the CGI Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of any
request by the SEC or the NASD for amendment of the Joint Proxy Statement or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
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(d) The information supplied by STC for inclusion in the Registration
Statement and the Joint Proxy Statement shall not, at (i) the time the
Registration Statement is filed with the SEC, (ii) if different, the time the
Registration Statement is declared effective, (iii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of STC and CGI, (iv) the time of the STC Stockholders' Meeting,
(v) the time of the CGI Stockholders' Meeting and (vi) 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 at any time prior to the Effective Time any event or circumstance
relating to STC or any STC Subsidiary, or their respective officers or
directors, should be discovered by STC that should be set forth in an amendment
or a supplement to the Registration Statement or Joint Proxy Statement, STC
shall promptly inform CGI. All documents that STC is responsible for filing with
the SEC in connection with the Merger will comply as to form in all material
respects with the applicable requirements of the rules and regulations of the
NASD, the General Corporation Law, the Securities Act and the Exchange Act.
(e) The information supplied by CGI for inclusion in the Registration
Statement and the Joint Proxy Statement shall not, at (i) the time the
Registration Statement is filed with the SEC, (ii) if different, the time the
Registration Statement is declared effective, (iii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of CGI and STC, (iv) the time of the STC Stockholders' Meeting,
(v) the time of the CGI Stockholders' Meeting and (vi) 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, at any time prior to the Effective Time, any event or
circumstance relating to CGI or any CGI Subsidiary, or their respective officers
or directors, should be discovered by CGI that should be set forth in an
amendment or a supplement to the Registration Statement or Joint Proxy
Statement, CGI shall promptly inform STC. All documents that CGI is responsible
for filing with the SEC in connection with the Merger will comply as to form in
all material respects with the applicable requirements of the rules and
regulations of the NASD, the General Corporation Law, the Securities Act and the
Exchange Act.
SECTION 7.02. Stockholders' Meetings. STC shall call and hold the STC
Stockholders' Meeting and CGI shall call and hold the CGI Stockholders' Meeting
as promptly as practicable after the date hereof for the purpose of voting upon
the approval of this Agreement pursuant to the Joint Proxy Statement and the
Merger contemplated hereby, and each of CGI and STC shall use all reasonable
efforts to hold the CGI Stockholders' Meeting and the STC Stockholders' Meeting
on the same day and as soon as practicable after the date on which the
Registration Statement becomes effective. STC shall use all reasonable efforts
to solicit from its stockholders proxies in favor of the approval of this
Agreement and the Merger contemplated hereby and the Amendment pursuant to the
Joint Proxy Statement and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required by the General Corporation
Law or applicable stock exchange requirements to obtain such approval. CGI shall
use all reasonable efforts to solicit from its stockholders proxies in favor of
the approval of this Agreement and the Merger contemplated hereby pursuant to
the Joint Proxy Statement, and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required by the General
Corporation Law or applicable stock exchange requirements to obtain such
approval. Each of the parties hereto shall take all other action necessary or,
in the opinion of the other parties hereto, advisable to promptly and
expeditiously secure any vote or consent of stockholders required by applicable
Law and such party's certificate of incorporation and by-laws to effect the
Merger.
SECTION 7.03. Affiliates. (a) Not fewer than 45 days prior to the Effective
Time, STC shall deliver to CGI a list of names and addresses of each person who
was, in STC's reasonable judgment, at the record date for the STC Stockholders'
Meeting, an affiliate of STC. STC shall provide CGI such information and
documents as CGI shall reasonably request for purposes of reviewing such list.
STC shall use all reasonable efforts to deliver or cause to be delivered to CGI,
prior to the Effective Time, an affiliate agreement in the form attached hereto
as Exhibit 7.03(a) (each, an "STC Affiliate Agreement"), executed by each of the
affiliates of STC identified in the above-referenced list. The foregoing
notwithstanding, CGI shall be entitled to place legends as specified in the form
of STC Affiliate Agreement on the certificates evidencing any of the CGI Common
Stock to be received by
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(i) any affiliate of STC or (ii) any person CGI reasonably identifies (by
written notice to STC) as being a person who may be deemed an "affiliate"
within the meaning of Rule 145 promulgated under the Securities Act, and to
issue appropriate stop transfer instructions to the transfer agent for such
CGI Common Stock, consistent with the terms of the form of STC Affiliate
Agreement, regardless of whether such person has executed an STC Affiliate
Agreement and regardless of whether such person's name and address appear on
Section 4.16 of the STC Disclosure Schedule.
(b) CGI shall use all reasonable efforts to obtain or cause to be obtained,
prior to the Effective Time, an affiliate agreement in the form attached hereto
as Exhibit 7.03(b) (each, a "CGI Affiliate Agreement"), executed by each person
who was, in CGI's reasonable judgment, at the record date for the CGI
Stockholders' Meeting, an affiliate of CGI.
SECTION 7.04. Directors' and Officers' Indemnification and Insurance. (a) The
certificate of incorporation and by-laws of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification than are
set forth in the certificate of incorporation and by- laws of STC on the date
hereof, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
affect adversely the rights thereunder of individuals who at the Effective Time
were directors, officers, employees, fiduciaries or agents of STC, unless such
modification shall be required by law.
(b) STC shall, to the fullest extent permitted under applicable law and
regardless of whether the Merger shall become effective, indemnify and hold
harmless, and, after the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless, each
present and former director, officer, employee, fiduciary and agent of STC and
each STC Subsidiary (collectively, the "Indemnified Parties") against all costs
and expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer, director, employee, fiduciary or agent, whether occurring before or
after the Effective Time, for a period of six years after the date hereof. In
the event of any such claim, action, suit, proceeding or investigation, (i) STC
or the Surviving Corporation, as the case may be, shall pay the reasonable fees
and expenses of counsel selected by the Indemnified Parties, which counsel shall
be reasonably satisfactory to STC or the Surviving Corporation, promptly after
statements therefor are received and (ii) STC and the Surviving Corporation
shall cooperate in the defense of any such matter; provided, however, that
neither STC nor the Surviving Corporation shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld); provided further that neither STC nor the Surviving Corporation shall
be obligated pursuant to this Section 7.04(b) to pay the fees and expenses of
more than one counsel for all Indemnified Parties in any single action; provided
further that, in the event that any claim for indemnification is asserted or
made within such six-year period, all rights to indemnification in respect of
such claim shall continue until the disposition of such claim.
(c) The Surviving Corporation shall use all reasonable efforts to maintain in
effect for three years from the Effective Time, if available, the current
directors' and officers' liability insurance policies maintained by STC
(provided that the Surviving Corporation may substitute therefor policies of at
least the same coverage containing terms and conditions which are not materially
less favorable) with respect to matters occurring prior to the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend pursuant to this Section 7.04(c) more than an amount per year equal to
125% of current annual premiums paid by STC for such insurance.
(d) In the event STC or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of STC or the
Surviving Corporation, as the case may be, or at CGI's option, CGI, shall assume
the obligations set forth in this Section 7.04.
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SECTION 7.05. No Shelf Registration. CGI shall not be required to amend or
maintain the effectiveness of the Registration Statement for the purpose of
permitting resale of the shares of CGI Common Stock received pursuant hereto by
the persons who may be deemed to be "affiliates" of STC or CGI within the
meaning of Rule 145 promulgated under the Securities Act.
SECTION 7.06. Public Announcements. The initial press release concerning the
Merger shall be a joint press release and, thereafter, CGI and STC shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger and shall not issue any
such press release or make any such public statement without the prior written
approval of the other, except to the extent required by applicable Law or the
requirements of the rules and regulations of the NASD, in which case the issuing
party shall use all reasonable efforts to consult with the other party before
issuing any such release or making any such public statement.
SECTION 7.07. Officers and Directors of CGI. (a) At the Effective Time,
subject to the certificate of incorporation and by-laws of CGI, Stephen A.
Sherwin, M.D. shall continue to hold the offices of Chairman, President and
Chief Executive Officer of CGI.
(b) Immediately after the Effective Time, the total number of persons serving
on the board of directors of CGI shall be nine (unless otherwise agreed in
writing by STC and CGI prior to the Effective Time), and shall consist of the
following individuals:
David W. Carter
James M. Gower
Raju S. Kucherlapati, Ph.D.
Joseph E. Maroun
John T. Potts, Jr., M.D.
Thomas E. Shenk, Ph.D.
Stephen A. Sherwin, M.D.
Eugene L. Step
Inder M. Verma, Ph.D.
In the event that, prior to the Effective Time, any person so selected to serve
on the board of directors of CGI is unable or unwilling to serve in such
position, the party with which such person was affiliated prior to the date
hereof shall designate another person to serve in such person's stead in
accordance with the provisions of the immediately preceding sentence; provided
that any such designee shall be reasonably satisfactory to each of CGI and STC.
From and after the Effective Time, the composition of the board of directors
shall be determined in accordance with the certificate of incorporation and
by-laws of CGI.
SECTION 7.08. NMS Listing. Each of the parties hereto shall use all reasonable
efforts to obtain, prior to the Effective Time, the approval for listing on the
NMS, effective upon official notice of issuance, of the shares of CGI Common
Stock into which the shares of STC Capital Stock will be converted pursuant to
Article III.
SECTION 7.09. Blue Sky. Each of the parties hereto shall use all reasonable
efforts to obtain, prior to the Effective Time, all necessary blue sky permits
and approvals required under Blue Sky Laws to permit the distribution of the
shares of CGI Common Stock to be issued in accordance with the provisions of
this Agreement.
SECTION 7.10. STC Stock Options. At the Effective Time, CGI shall assume, by
virtue of this Agreement and without any further action on the part of STC, all
of STC's obligations with respect to each outstanding STC Stock Option, whether
vested or unvested. STC shall take all corporate action necessary to ensure
that, unless otherwise elected by CGI prior to the Effective Time, CGI shall
make such assumption in such manner that CGI (i) is a corporation "assuming a
stock option in a transaction to which Section 424(a) applies" within the
meaning of Section 424 of the Code or (ii) to the extent that Section 424 of the
Code does not apply to such STC Stock Option, would be such a corporation were
Section 424 of the Code applicable to such STC Stock Option; and, if not so
otherwise elected, after the Effective Time, all references to STC in the STC
Stock Plans
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and the applicable STC Stock Option agreements shall be deemed to refer to CGI,
which shall have assumed the STC Stock Plans as of the Effective Time by virtue
of this Agreement and without any further action on the part of STC or CGI. Each
STC Stock Option so assumed by CGI under this Agreement shall continue to have,
and be subject to, the same terms and conditions set forth in the applicable STC
Stock Plan and the applicable STC Stock Option as in effect immediately prior to
the Effective Time, except as otherwise provided in Section 3.05. CGI shall use
all reasonable efforts to ensure that the STC Stock Options intended to qualify
as incentive stock options under Section 422 of the Code prior to the Effective
Time continue to so qualify after the Effective Time. As soon as practicable
after the Effective Time, CGI shall file with the SEC and use its best efforts
to have declared effective a registration statement on Form S-8 with respect to
the shares of CGI Common Stock issuable under the assumed STC Stock Plans.
SECTION 7.11. [INTENTIONALLY LEFT BLANK]
SECTION 7.12. Bridge Facility. (a) Pursuant to Section 6.01(b), STC is
prohibited from, among other things, exercising the Fletcher Put Options.
(b) During the term of this Agreement, STC shall promptly notify CGI if the
Projected Cash Balances are (i) then forecast by senior management of STC to
fall below $5,000,000 within 30 days or (ii) then below $5,000,000. Such notice
(a "Liquidity Notice") shall include, without limitation, the date on which the
Projected Cash Balances are forecast to fall below $5,000,000. STC shall use all
reasonable efforts to prevent the Actual Balances from falling below $5,000,000.
STC shall borrow under the Bridge Facility to prevent the Actual Balances from
falling below $5,000,000.
(c) Upon receipt of a Liquidity Notice from STC and so long as a Commitment
Termination Event shall not have occurred which reduces the then available
Bridge Facility amount to $0.00, if so requested by STC, CGI shall lend STC
funds under the Bridge Facility as provided in subsection (d) of this Section
7.12 in increments of $50,000. All funds provided to STC under the Bridge
Facility shall be used solely to fund ordinary and necessary operating expenses
in accordance with the then current Operating Budget.
(d) In the event that STC elects or is required to borrow funds pursuant to
subsection (c) of this Section 7.12 and provided that no Commitment Termination
Event shall have occurred which reduces the then available Bridge Facility
amount to $0.00, CGI shall, upon the terms and subject to the conditions set
forth herein and in the Bridge Facility Promissory Note, make advances (the
"Advances") to STC at such times as are reasonably requested until the earlier
to occur of (i) the date on which the then available Bridge Facility amount
equals $0.00 and (ii) June 30, 1997 in an aggregate principal amount not to
exceed at any time outstanding $5,000,000. Each Advance shall be in an amount of
$50,000 or an integral multiple of $50,000 in excess thereof. Each Advance shall
be made upon notice (which notice may be included in a Liquidity Notice) given
by STC to CGI not later than 11:00 a.m. San Francisco time on the second
business day prior to the date of the proposed Advance. Such notice shall
specify the date and amount of the proposed Advance and identify its intended
usage. Not later than 2:00 p.m. San Francisco time on the date of such Advance
and upon fulfillment of the applicable conditions set forth in subsection (e) of
this Section 7.12, CGI shall make such Advance available to STC in same day
funds at STC's address specified above.
(e) (i) The obligation of CGI to make its initial Advance under the Bridge
Facility shall be subject to the conditions precedent that CGI shall have
received, on or before the day of such initial Advance, (A) a certificate of the
Secretary or an Assistant Secretary of STC dated the day of such initial
Advance, in form and substance satisfactory to CGI, certifying (1) copies of the
resolutions of the board of directors of STC approving the Bridge Facility
Promissory Note, and of all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to the Bridge Facility
Promissory Note, and (2) the names and true signatures of the officers of STC
authorized to sign the Bridge Facility Promissory Note and the other documents
to be delivered hereunder; and (B) a counterpart executed by Somatix of the
security agreement in the form previously agreed between the parties, pursuant
to which Somatix shall grant Cell Genesys a security interest in certain
intellectual property to secure the indebtedness at any time outstanding under
the Bridge Facility.
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(ii) The obligation of CGI to make each Advance (including the initial
Advance) shall be subject to the further conditions precedent that (A) this
Agreement shall have been executed and delivered by the parties hereto and
shall be in full force and effect; (B) the representations and warranties
contained in the Bridge Facility Promissory Note shall be, and CGI shall have
received a certificate signed by a duly authorized officer of STC, dated the
date of such Advance, certifying that such representations and warranties are,
true, complete and correct in all material respects on and as of the date of
such Advance, before and after giving effect to such Advance and to the
application of the proceeds therefrom, as though made on and as of such date;
(C) no event shall have occurred and be continuing, or be reasonably likely to
result from such Advance or from the application of the proceeds therefrom,
which constitutes an Event of Default or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both; and (D)
CGI shall have received a certificate signed by a duly authorized officer of
STC, dated the date of such Advance, certifying the then Projected Cash
Balances and Actual Cash Balances.
(f) STC shall, in consultation with the Steering Committee, revise the
Projected Cash Balances and the Operating Budget from time to time, but in no
event less frequently than monthly; provided, however, that in the event STC
delivers to CGI a revised Operating Budget materially adversely different than
the Operating Budget delivered on the date hereof without the prior written
consent of CGI, CGI's obligations under the Bridge Facility shall be suspended
until such time as the parties hereto agree to a revised Operating Budget.
SECTION 7.13. Audited Financial Statements. As soon as practicable after the
date hereof or, in the case of the fiscal quarter of STC ending March 31, 1997,
as soon as practicable after March 31, 1997 if CGI does not then reasonably
expect the Effective Time to occur within 45 days of such date, STC shall cause
its independent certified public accountants to prepare and audit balance sheets
of STC at and as of December 31, 1996 and March 31, 1997, respectively, and
related statements of income, retained earnings, shareholders' equity and
changes in financial position of STC for the six- month period ended December
31, 1996 and the nine-month period ending March 31, 1997, respectively, and to
render its unqualified report thereon. Within one business day of receipt of the
above described audited consolidated financial statements of STC, STC shall
deliver to CGI true, complete and correct copies of such financial statements,
together with the auditor's reports thereon.
SECTION 7.14. Additional Debt. (a) Notwithstanding the restrictions contained
in Section 6.01 and the provisions of the Bridge Facility referred to in Section
7.12, STC may incur indebtedness in addition to that in effect on the date
hereof in a principal amount not in excess of $2,000,000 if, and only if, the
following conditions shall have been satisfied to the reasonable satisfaction of
CGI on or prior to the date of incurrence of such additional indebtedness (a
transaction meeting all of the following conditions being referred to as a
"Permitted Financing"):
(i) STC shall have given CGI not fewer than two business days' notice of
its intention to enter into an agreement to incur any additional indebtedness;
(ii) such additional indebtedness shall be unsecured;
(iii) any shares of STC Capital Stock (or warrants, options or similar
securities convertible into or exchangeable for STC Capital Stock) issued in
connection with such additional indebtedness will, by their terms, be
converted into shares of CGI Common Stock pursuant to the Merger; and
(iv) the other terms and conditions thereof shall be reasonably
satisfactory to CGI; provided that any term that creates any right whatsoever
in any asset or property of STC, or any ongoing obligation or liability on STC
or CGI after repayment in full of such additional indebtedness, shall be
conclusively not satisfactory.
(b) All funds provided to STC under any Permitted Financing shall be used
solely to fund ordinary and necessary operating expenses in accordance with the
then current Operating Budget.
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ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to the Obligations of Each Party to Consummate the
Merger. The obligations of the parties hereto to consummate the Merger, or to
permit the consummation of the Merger, are subject to the satisfaction or, if
permitted by applicable Law, waiver of the following conditions:
(a) the Registration Statement shall have been declared effective by the SEC
under the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceeding for
that purpose shall have been initiated by the SEC and not concluded or
withdrawn;
(b) (i) this Agreement and the Merger shall have been duly approved by the
requisite vote of the stockholders of each of STC and CGI and (ii) the CGI
Amendment shall have been duly approved by the requisite vote of the
stockholders of CGI, in each case in accordance with the General Corporation
Law;
(c) no court of competent jurisdiction shall have issued or entered any order,
writ, injunction or decree, and no other Governmental Entity shall have issued
any order, which is then in effect and has the effect of making the Merger
illegal or otherwise prohibiting its consummation;
(d) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act or any other applicable
competition, merger control or similar Law shall have expired or been
terminated;
(e) all consents, approvals and authorizations legally required to be obtained
to consummate the Merger shall have been obtained from all Governmental
Entities, except where the failure to obtain any such consent, approval or
authorization could not reasonably be expected to result in a change in or have
an effect on the business of STC or CGI that is materially adverse to the
business, assets (including intangible assets), liabilities (contingent or
otherwise), condition (financial or otherwise) or results of operations of CGI
and its subsidiaries, taken as a whole; and
(f) the shares of CGI Common Stock into which the shares of STC Capital Stock
will be converted pursuant to Article III and the shares of CGI Common Stock
issuable upon the exercise of options pursuant to Section 3.05 shall have been
authorized for listing on the NMS, subject to official notice of issuance.
SECTION 8.02. Conditions to the Obligations of STC. The obligations of STC to
consummate the Merger, or to permit the consummation of the Merger, are subject
to the satisfaction or, if permitted by applicable Law, waiver of the following
further conditions:
(a) each of the representations and warranties of CGI contained in this
Agreement that is qualified by materiality shall be true, complete and correct
at and as of the Effective Time as if made at and as of such time (other than
representations and warranties which address matters only as of a certain date
which shall be true, complete and correct as of such certain date) and each of
the representations and warranties that is not so qualified shall be true,
complete and correct in all material respects at and as of the Effective Time as
if made at and as of such time (other than representations and warranties which
address matters only as of a certain date which shall be true, complete and
correct in all material respects as of such certain date), in each case except
as contemplated or permitted by this Agreement, and STC shall have received a
certificate of the Chairman or President and Chief Financial Officer of CGI to
such effect;
(b) CGI shall have performed or complied in all material respects with all
material agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time and STC shall have
received a certificate of the Chairman or President and Chief Financial Officer
of CGI to that effect; and
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(c) Brobeck, Phleger & Harrison, special counsel to STC, shall have issued its
opinion, such opinion dated on or about the date of the Closing, addressed to
STC, and reasonably satisfactory to it, based upon customary representations of
STC and customary assumptions (including delivery and non-withdrawal of the
opinion referred to in subsection (c) of Section 8.03), to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368 of the Code and that each of STC,
Merger Sub and CGI will be a party to the reorganization within the meaning of
Section 368(b) of the Code, which opinions shall not have been withdrawn or
modified in any material respect.
SECTION 8.03. Conditions to the Obligations of CGI. The obligations of CGI to
consummate the Merger, or to permit the consummation of the Merger, are subject
to the satisfaction or, if permitted by applicable Law, waiver of the following
further conditions:
(a) each of the representations and warranties of STC contained in this
Agreement that is qualified by materiality shall be true, complete and correct
at and as of the Effective Time as if made at and as of such time (other than
representations and warranties which address matters only as of a certain date
which shall be true, complete and correct as of such certain date) and each of
the representations and warranties that is not so qualified shall be true,
complete and correct in all material respects at and as of the Effective Time as
if made at and as of such time (other than representations and warranties which
address matters only as of a certain date which shall be true, complete and
correct in all material respects as of such certain date), in each case except
as contemplated or permitted by this Agreement, and CGI shall have received a
certificate of the Chairman or President and Chief Financial Officer of STC to
such effect;
(b) STC shall have performed or complied in all material respects with all
material agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time and CGI shall have
received a certificate of the Chairman or President and Chief Financial Officer
of STC to that effect;
(c) Shearman & Sterling, special counsel to CGI, shall have issued its
opinion, such opinion dated on or about the date of the Closing, addressed to
CGI, and reasonably satisfactory to it, based upon customary representations of
CGI and customary assumptions (including delivery and non-withdrawal of the
opinion referred to in subsection (c) of Section 8.02), to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of Section 368 of the Code and that each of CGI,
Merger Sub and STC will be a party to the reorganization within the meaning of
Section 368(b) of the Code, which opinions shall not have been withdrawn or
modified in any material respect;
(d) the STC Amendment shall have been duly approved by the requisite vote of
the stockholders of STC in accordance with the General Corporation Law;
(e) STC shall have executed and delivered the Bridge Facility Promissory Note;
and
(f) the holder(s) of the Fletcher Warrant shall have elected pursuant to the
Fletcher Notice and in accordance with Section 10 of the Fletcher Warrant either
(i) to resell the Fletcher Warrant to STC for cash or (ii) to permit CGI to
assume the Fletcher Warrant pursuant to Section 3.05; provided, however, that
any disagreement between STC and Fletcher as to the cash amount so required to
be paid shall not constitute a failure of this condition.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01. Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the boards of directors of
each of CGI and STC;
(b) by either CGI or STC, if the Effective Time shall not have occurred on or
before August 31, 1997; provided, however, that the right to terminate this
Agreement under this Section 9.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement shall have caused, or
resulted in, the failure of the Effective Time to occur on or before such date;
(c) by either CGI or STC, if any Governmental Order, writ, injunction or
decree preventing the consummation of the Merger shall have been entered by any
court of competent jurisdiction and shall have become final and nonappealable;
(d) by CGI, if (i) the board of directors of STC withdraws, modifies or
changes its recommendation of this Agreement, the Merger or the Amendment in a
manner adverse to CGI or its stockholders or shall have resolved to do so, (ii)
the board of directors of STC shall have recommended to the stockholders of STC
a Competing Transaction or shall have resolved to do so or (iii) a tender offer
or exchange offer for 15 percent or more of the outstanding shares of capital
stock of STC shall have been commenced and the board of directors of STC shall
have failed to recommend against acceptance of such tender offer or exchange
offer by its stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders);
(e) by STC, if (i) the board of directors of CGI withdraws, modifies or
changes its recommendation of this Agreement or the Merger in a manner adverse
to STC or its stockholders or shall have resolved to do so, (ii) the board of
directors of CGI shall have recommended to the stockholders of CGI a Competing
Transaction or shall have resolved to do so or (iii) a tender offer or exchange
offer for 15 percent or more of the outstanding shares of capital stock of CGI
shall have been commenced and the board of directors of CGI shall have failed to
recommend against acceptance of such tender offer or exchange offer by its
stockholders (including by taking no position with respect to the acceptance of
such tender offer or exchange offer by its stockholders);
(f) by CGI or STC, if (i) this Agreement and the Merger shall fail to receive
the requisite votes for approval at the STC Stockholders' Meeting or any
adjournment or postponement thereof or (ii) if this Agreement and the Merger
shall fail to receive the requisite votes for approval at the CGI Stockholders'
Meeting or any adjournment or postponement thereof;
(g) by CGI, upon a breach of any representation, warranty, covenant or
agreement on the part of STC set forth in this Agreement, or if any
representation or warranty of STC shall have become untrue, incomplete or
incorrect, in either case such that the conditions set forth in Section 8.03
would not be satisfied (a "Terminating STC Breach"); provided, however, that, if
such Terminating STC Breach is curable by STC through the exercise of its
reasonable efforts within 60 days and for so long as STC continues to exercise
such reasonable efforts, CGI may not terminate this Agreement under this Section
9.01(g); and provided further that the preceding proviso shall not in any event
be deemed to extend any date set forth in paragraph (b) of this Section 9.01;
(h) by STC, upon breach of any representation, warranty, covenant or agreement
on the part of CGI set forth in this Agreement, or if any representation or
warranty of CGI shall have become untrue, incomplete or incorrect, in either
case such that the conditions set forth in Section 8.02 would not be
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satisfied (a "Terminating CGI Breach"); provided, however, that, if such
Terminating CGI Breach is curable by CGI through the exercise of its reasonable
efforts within 60 days and for so long as CGI continues to exercise such
reasonable efforts, STC may not terminate this Agreement under this Section
9.01(h); and provided further that the preceding proviso shall not in any event
be deemed to extend any date set forth in paragraph (b) of this Section 9.01;
(i) by STC, if (A) the board of directors of STC shall have resolved to
accept, accepted or recommended to the shareholders of STC, a Superior Proposal,
and (B) in the case of the termination of this Agreement under this Section
9.01(i) by STC, STC shall have paid to CGI all amounts owing by STC to CGI under
Section 9.05(b); and
(j) by CGI, if (A) the board of directors of CGI shall have resolved to
accept, accepted or recommended to the shareholders of CGI, a Superior Proposal,
and (B) in the case of the termination of this Agreement under this Section
9.01(j) by CGI, CGI shall have paid to STC all amounts owing by CGI to STC under
Section 9.05(c).
SECTION 9.02. Effect of Termination. Except as provided in Section 9.05, in
the event of termination of this Agreement pursuant to Section 9.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of CGI or STC or any of their respective officers or
directors, and all rights and obligations of each party hereto shall cease,
subject to the remedies of the parties hereto set forth in Section 9.05(b), (c),
(d) and (e); provided, however, that nothing herein shall relieve any party
hereto from liability for the willful or intentional breach of any of its
representations and warranties or the willful or intentional breach of any of
its covenants or agreements set forth in this Agreement.
SECTION 9.03. Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective boards of directors at any
time prior to the Effective Time; provided, however, that, after the approval of
this Agreement by the stockholders of STC or CGI, as the case may be, no
amendment may be made, except such amendments as have received the requisite
stockholder approval and such amendments as are permitted to be made without
stockholder approval under the General Corporation Law. This Agreement may not
be amended except by an instrument in writing signed by the parties hereto.
SECTION 9.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for or waive compliance with the performance of
any obligation or other act of any other party hereto or (b) waive any
inaccuracy in the representations and warranties contained herein or in any
document delivered pursuant hereto. Any such extension or waiver shall be valid
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 9.05. Expenses. (a) Except as set forth in this Section 9.05, all
Expenses incurred in connection with this Agreement, the STC Stock Option
Agreement, the CGI Stock Option Agreement and the Merger shall be paid by the
party incurring such Expenses, whether or not the Merger is consummated, except
that CGI and STC each shall pay one-half of all Expenses incurred solely for
printing, filing and mailing the Registration Statement and the Joint Proxy
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Joint Proxy Statement and any fees
required to be paid under the HSR Act.
(b) In the event that CGI shall terminate this Agreement pursuant to Section
9.01(d), (f)(i) or (g), or STC shall terminate this Agreement pursuant to
Section 9.01(f)(i) or (i), then STC shall pay to CGI an amount equal to
$3,000,000 plus all of CGI's Expenses.
(c) In the event that STC shall terminate this Agreement pursuant to Section
9.01(e), (f)(ii) or (h) or CGI shall terminate this Agreement pursuant to
Section 9.01(f)(ii) or (j), CGI shall pay to STC an amount equal to $3,000,000
plus all of STC's Expenses.
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(d) Any payment required to be made pursuant to Section 9.05(b) or (c) shall
be made to the party entitled to receive such payment not later than two
business days after delivery to the other party of notice of demand for payment
and shall be made by wire transfer of immediately available funds to an account
designated by the party entitled to receive payment in the notice of demand for
payment delivered pursuant to this Section 9.05(d); provided, however, that, in
the event both CGI and STC would otherwise be entitled to payments under this
Section 9.05 in connection with the termination of this Agreement pursuant to
both Sections 9.01(f)(i) and (f)(ii), neither party shall be required to make
any payment under this Section 9.05.
(e) In the event that CGI or STC, as the case may be, shall fail timely to
make any payment on Expense reimbursement required to be made pursuant to
Section 9.05(b) or (c), the amount of any such required payment on Expense
reimbursement shall be increased to include the costs and expenses actually
incurred or accrued by the other (including, without limitation, fees and
expenses of counsel) in connection with the collection under and enforcement of
this Section 9.05, together with interest on such unpaid Expense reimbursement,
commencing on the date that such Expense reimbursement became due, at a rate
equal to the rate of interest publicly announced by Citibank, N.A., from time to
time, in The City of New York, from time to time, as such bank's base rate plus
3.00 percent per annum.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
9.01, as the case may be. Each party agrees that, except for the representations
and warranties contained in this Agreement and the CGI Disclosure Schedule and
the STC Disclosure Schedule, no party hereto has made any other representations
and warranties, and each party hereby disclaims any other representations and
warranties made by itself or any of its officers, directors, employees, agents,
financial and legal advisors or other representatives, with respect to the
execution and delivery of this Agreement or the Merger contemplated herein,
notwithstanding the delivery or disclosure to any other party or any party's
representatives of any documentation or other information with respect to any
one or more of the foregoing.
SECTION 10.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at their addresses set forth on the signature pages to this Agreement
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 10.02).
SECTION 10.03. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable Law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
SECTION 10.04. Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Notwithstanding anything contained in this Agreement to the contrary, other than
Section 7.06, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
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SECTION 10.05. Incorporation of Exhibits. The CGI Disclosure Schedule, the STC
Disclosure Schedule and all Exhibits attached hereto and referred to herein are
hereby incorporated herein and made a part of this Agreement for all purposes as
if fully set forth herein.
SECTION 10.06. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 10.07. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 10.08. Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
TRANSACTION OR AGREEMENT CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY HERETO
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
SECTION 10.09. Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 10.10. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 10.11. Entire Agreement. This Agreement (including the Exhibits, the
CGI Disclosure Schedule and the STC Disclosure Schedule), the STC Stock Option
Agreement and the CGI Stock Option Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
CELL GENESYS, INC.
By: /s/ Stephen A. Sherwin
--------------------------------
Stephen A. Sherwin, M.D.
Chairman of the Board, President
and Chief Executive Officer
342 Lakeside Drive
Foster City, California 94404
Telephone: (415) 358-9600
Telecopy: (415) 358-0230
Attention: Kathleen Sereda Glaub
with a copy to:
Shearman & Sterling
555 California Street
San Francisco, California 94104-1522
Telephone: (415) 616-1100
Telecopy: (415) 616-1199
Attention: Michael J. Kennedy
S MERGER CORP.
By: /s/ Kathleen Sereda Glaub
--------------------------------
Kathleen Sereda Glaub
Chairman of the Board and
President
c/o Cell Genesys, Inc.
342 Lakeside Drive
Foster City, California 94404
Telephone: (415) 358-9600
Telecopy: (415) 358-0230
Attention: Kathleen Sereda Glaub
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