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EXHIBIT (a)(1)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF CLASS A COMMON STOCK
OF
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
AT $4.60 NET PER SHARE
BY
AC ACQUISITION SUBSIDIARY, INC.
A WHOLLY OWNED SUBSIDIARY OF
CANGENE CORPORATION
OUR OFFER TO PURCHASE YOUR CHESAPEAKE CLASS A COMMON STOCK AND YOUR
WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON JANUARY
3, 2001 UNLESS WE EXTEND THE OFFER.
AC ACQUISITION SUBSIDIARY, INC. IS OFFERING TO PURCHASE ALL OF THE ISSUED
AND OUTSTANDING SHARES OF CLASS A COMMON STOCK, SERIES A-1 CONVERTIBLE
PREFERRED STOCK AND WARRANTS TO PURCHASE COMMON STOCK OF CHESAPEAKE BIOLOGICAL
LABORATORIES, INC. WE REFER TO THE OFFER TO PURCHASE YOUR SHARES AND WARRANTS
AND THE ATTACHED LETTERS OF TRANSMITTAL, TOGETHER WITH ANY AMENDMENTS OR
SUPPLEMENTS THERETO, AS THE OFFER DOCUMENTS. OUR OFFER IS CONDITIONED UPON
SATISFACTION OF THE TERMS AND CONDITIONS DESCRIBED IN THE SECTION OF THIS OFFER
WITH THE CAPTION "THE TENDER OFFER--TERMS OF THE OFFER."
THE BOARD OF DIRECTORS OF CHESAPEAKE BIOLOGICAL LABORATORIES, INC. (I) HAS
DETERMINED THAT OUR OFFER AND THE SUBSEQUENT MERGER BETWEEN US AND AC
ACQUISITION SUBSIDIARY, INC. IS ADVISABLE AND IS FAIR TO THE STOCKHOLDERS OF
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS, (II) HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AMONG
CHESAPEAKE BIOLOGICAL LABORATORIES, INC., CANGENE CORPORATION AND AC
ACQUISITION SUBSIDIARY, INC., AND (III) RECOMMENDED ACCEPTANCE OF OUR OFFER
AND, IF NECESSARY, APPROVAL AND ADOPTION BY THE STOCKHOLDERS OF CHESAPEAKE
BIOLOGICAL LABORATORIES, INC. OF THE MERGER AGREEMENT.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
IMPORTANT
Any stockholder wishing to tender shares or warrants in the Offer must (i)
complete and sign the letter of transmittal attached to this document (or a
facsimile thereof) in accordance with the instructions in the letter of
transmittal and mail or deliver the letter of transmittal and all other
required documents to The Bank of New York, together with certificates
representing the shares or warrants tendered, or follow the procedure for
book-entry transfer described in Section 3 -- "Procedures for Accepting the
Offer and Tendering Shares;" or (ii) request your broker, dealer, commercial
bank, trust company or other nominee to effect the transaction for you. If you
have shares registered in the name of a broker, dealer, commercial bank, trust
company, or other nominee, you must contact that person if you wish to tender
any of your shares.
Any stockholder who wishes to tender shares and cannot deliver
certificates representing the shares and all other required documents to The
Bank of New York on or before the date on which the offer expires or who cannot
comply with the procedures for book-entry transfer on a timely basis may tender
shares by using the guaranteed delivery procedure described in Section 3 --
"Procedures for Accepting the Offer and Tendering Shares."
Any stockholder with questions and requests for assistance should contact
the Information Agent at the address and telephone number set forth below.
Additional copies of this offer to purchase, the letter of transmittal, the
notice of guaranteed delivery and other related materials may also be obtained
from the Information Agent. Stockholders may also contact their broker, dealer,
commercial bank and trust company or other nominee.
The Information Agent for the Offer is:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL FREE (800) 322-2855
The date of this Offer to Purchase is November 17, 2000.
A summary term sheet describing the principal terms of the offer appears
on pages 1 through 5. You should read this entire document carefully before
deciding whether to tender your shares.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET
INTRODUCTION .................................................................. 6
THE TENDER OFFER .............................................................. 8
1. Terms of the Offer ....................................................... 8
2. Acceptance for Payment and Payment for Shares ............................ 10
3. Procedures for Accepting the Offer and Tendering Shares .................. 11
4. Withdrawal Rights ........................................................ 14
5. Material U.S. Federal Income Tax Considerations .......................... 15
6. Price Range of Shares; Dividends ......................................... 15
7. Information Concerning the Company ....................................... 16
8. Selected Financial Information ........................................... 17
9. Information Concerning Parent and Purchaser .............................. 17
10. Source and Amount of Funds ............................................... 18
11. Background of the Offer; Past Contacts and Negotiations with the Company . 19
12. The Merger Agreement; Other Arrangements ................................. 20
13. Purpose of the Offer; Plans for the Company .............................. 31
14. Certain Effects of the Offer ............................................. 32
15. Dividends and Distributions .............................................. 33
16. Certain Conditions of the Offer .......................................... 33
17. Certain Legal Matters; Regulatory Approvals .............................. 34
18. Approval of the Merger ................................................... 36
19. Appraisal Rights ......................................................... 37
20. Fees and Expenses ........................................................ 37
21. Miscellaneous ............................................................ 37
SCHEDULE I Directors and Executive Officers of Parent and
Purchaser .................................................................... S-1
</TABLE>
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SUMMARY TERM SHEET
AC Acquisition Subsidiary, Inc. is offering to purchase all of the
outstanding shares of class A common stock of Chesapeake Biological
Laboratories, Inc. for $4.60 per share in cash. AC Acquisition Subsidiary, Inc.
is also offering to purchase all of the outstanding shares of series A-1
convertible preferred stock and warrants of Chesapeake Biological Laboratories,
Inc. The following are some of the questions you may have, as a stockholder of
Chesapeake Biological Laboratories, Inc., followed by our answers to those
questions. We urge you to read carefully all of this offer to purchase and the
accompanying letter of transmittal because the information in this summary term
sheet is not complete. Additional important information is contained in the
remainder of this offer to purchase and the letter of transmittal.
o WHO IS OFFERING TO BUY MY SECURITIES?
Our name is AC Acquisition Subsidiary, Inc. We are a Maryland corporation
formed for the purpose of making a tender offer for all of the outstanding
shares of common stock of Chesapeake Biological Laboratories, Inc. We are a
wholly owned subsidiary of Cangene Corporation, a Canadian corporation. See the
section entitled "Introduction."
o WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES YOU SEEK IN THE OFFER?
We are seeking to purchase all of the outstanding shares of class A common
stock, series A-1 convertible preferred stock and warrants to purchase common
stock of Chesapeake Biological Laboratories, Inc. See the "Introduction."
o HOW MUCH ARE YOU OFFERING TO PAY, WHAT IS THE FORM OF PAYMENT AND WILL I
HAVE TO PAY ANY FEES OR COMMISSIONS?
We are offering to pay $4.60 per share in cash, net to you, less any
required withholding of taxes and without the payment of interest for each
share of common stock. For each share of convertible preferred stock, we are
offering to pay $4.60 multiplied by the number of shares of common stock into
which a share of convertible preferred stock is then convertible. For warrants,
we are offering to pay the difference between the exercise price of the warrant
and $4.60, multiplied by the number of shares of common stock for which the
warrants are then exercisable. If you are the record owner of your shares and
you tender your shares to us in the offer, you will not have to pay brokerage
fees or similar expenses. If you own your shares through a broker or other
nominee, and your broker tenders your shares on your behalf, your broker or
nominee may charge you a fee for doing so. You should consult your broker or
nominee to determine whether any charges will apply. We will not be obligated
to pay for or reimburse you for any broker or nominee charges. See the
"Introduction" to this offer to purchase. Also, if you do not complete and sign
the Substitute Form W-9 included in the letter of transmittal, you may be
subject to required backup federal income tax withholding. See Instruction 9 to
the letter of transmittal.
o DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Our parent company Cangene Corporation, will provide us with approximately
$35 million. We will use those funds to purchase all shares validly tendered
and not withdrawn in the offer and to provide funding for the merger which is
expected to follow the successful completion of the offer. We anticipate that
all of these funds will be obtained by Cangene Corporation from its existing
financial resources and from a line of credit with The Bank of Nova Scotia.
However, the loan has not yet been finalized and the bank is permitted to
withdraw its commitment to our parent company under certain circumstances. See
Section 10 -- "Source and Amount of Funds" of this Offer to Purchase. Cangene
Corporation is a biopharmaceutical company that develops, manufactures and
markets specialty plasma products (hyperimmunes) and recombinant therapeutic
products for international markets and a growing contract manufacturing
business capitalizing on the company's proven manufacturing expertise. Cangene
Corporation is based in Winnipeg, Manitoba, Canada, and in 1999 was listed in
several publications as one of the fastest growing profitable companies in
Canada. As of July 31, 2000,
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its fiscal year-end, Cangene Corporation had total consolidated assets of
CAN$ 76 million and net income of CAN$ 10 million. The exchange rate of the
Canadian Dollar to the U.S. Dollar on such date was 1.4773. See Section 9 --
"Certain Information Concerning Parent and Purchaser" of this Offer to
Purchase.
o IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
The payment for your shares consists solely of cash. We have arranged for
all of our funding to come from Cangene Corporation, through its existing
resources and the bank loan described in the preceding answer. Therefore, other
than the occurrence of a material adverse effect on our parent company, which
would cause the bank to withdraw its loan commitment, we do not think our
financial condition is relevant to your decision whether to tender your shares
in the offer. See Section 10 -- "Source and Amount of Funds" of this Offer to
Purchase.
o HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have until 12:00 midnight, New York City time, on January 3,
2001, to decide whether to tender your shares in the offer. If you cannot
deliver everything that is required in order to make a valid tender by that
time, you may be able to use a guaranteed delivery procedure, which is
described later in this offer to purchase. See Section 1 -- "Terms of the
Offer" and Section 3 -- "Procedures for Accepting the Offer and Tendering
Shares" of this Offer to Purchase.
o CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
Subject to the terms of the merger agreement, we can extend the offer.
Under the merger agreement, we can extend the offer without the approval of
Chesapeake Biological Laboratories, Inc., if on January 3, 2001 a majority of
the outstanding shares of Chesapeake Biological Laboratories, Inc. (including
shares into which the convertible preferred stock is convertible and the shares
for which Chesapeake Biological Laboratories, Inc.'s warrants are exercisable)
have been tendered until the conditions to the offer have been satisfied or
waived. Also, if on January 3, 2001, any of the conditions to the offer (other
than the condition that at least a majority of the issued and outstanding
shares be validly tendered) have not been satisfied or waived, we have agreed
to extend the offer upon Chesapeake Biological Laboratories, Inc.'s request
until February 28, 2001. We also have reserved the right to complete this offer
on or after January 3, 2001, and then begin a subsequent offer. A Subsequent
Offering Period, if we decide to have one, will be an additional opportunity
for stockholders to tender their shares and receive the offer consideration. We
may elect to begin a subsequent offer if the conditions to the offer are
satisfied or waived and the number of shares validly tendered and not withdrawn
is more than 50% but less than 90% of all outstanding shares. The Subsequent
Offering Period would extend for not longer than 20 business days. See Section
1 -- "Terms of the Offer" of this Offer to Purchase.
o HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the offer, we will inform The Bank of New York (which is the
depositary for the offer) of that fact and will make a public announcement of
the extension, by 9:00 a.m., New York City time, on the next business day after
the day on which the offer was scheduled to expire. See Section 1 -- "Terms of
the Offer" of this Offer to Purchase.
o WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
The offer is subject to the condition that at least a majority of the
outstanding shares of Chesapeake Biological Laboratories, Inc. (including
shares into which the convertible preferred stock is convertible and the shares
for which Chesapeake Biological Laboratories, Inc.'s warrants are exercisable)
be validly tendered. We are not obligated to purchase any shares which are
validly tendered unless at least a majority of the outstanding shares are
validly tendered and not withdrawn. We have entered into a stockholders'
agreement with eleven stockholders of Chesapeake Biological Laboratories, Inc.,
who own about 26% of the outstanding shares (treating the convertible preferred
stock as if converted). Under this agreement, these stockholders have agreed to
tender their shares.
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We are also not obligated to purchase shares which are validly tendered
if, among other things the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 has not expired or been
terminated or if our bank withdraws its commitment to finance our purchase of
the shares.
See Section 1 -- "Terms of the Offer" and Section 16 -- "Certain
Conditions of the Offer" of this Offer to Purchase.
o HOW DO I TENDER MY SHARES?
To tender shares, you must deliver the certificates representing your
shares, together with a completed letter of transmittal, to The Bank of New
York, the depositary for the offer, not later than the time the tender offer
expires. If your shares are held by a nominee (such as a broker or bank), your
nominee can tender your shares through the depositary. If you cannot get any
document or instrument that is required to be delivered to the depositary by
the expiration of the offer, you may get a little extra time to do so by having
a broker, a bank or other fiduciary that is a member of the Securities Transfer
Agents Medallion Program or other eligible institution guarantee that the
missing items will be received by the depositary within three Nasdaq National
Market trading days. For the tender to be valid, however, the depositary must
receive the missing items within that three trading day period. See Section 3
-- "Procedures for Accepting the Offer and Tendering Shares" of this Offer to
Purchase.
o UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
You can withdraw all or any portion of your shares at any time until the
offer has expired and, if we have not agreed to accept your shares for payment
by January 3, 2001, you can withdraw them at any time after then until we
accept shares for payment. This right to withdraw will not apply to any
Subsequent Offering Period discussed in Section 1, if one is established. See
Section 4 -- "Withdrawal Rights" of this Offer to Purchase.
o HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares, you must deliver a written notice of withdrawal, or a
facsimile of one, with the required information to the depositary while you
still have the right to withdraw the shares. See Section 4 -- "Withdrawal
Rights" of this Offer to Purchase.
o WHAT DOES THE BOARD OF DIRECTORS OF CHESAPEAKE THINK OF THE OFFER?
We are making the offer pursuant to a merger agreement among Chesapeake
Biological Laboratories, Inc., Cangene Corporation and us. The Board of
Directors of Chesapeake Biological Laboratories, Inc. has:
o determined that each of the offer and the merger is advisable and is fair to
the stockholders of Chesapeake Biological Laboratories, Inc. and in the
best interests of such stockholders;
o approved and adopted the merger agreement and all the transactions described
by the merger agreement; and
o recommended acceptance of the offer and, if necessary, approval and adoption
by the stockholders of Chesapeake Biological Laboratories, Inc. of the
merger agreement.
See the "Introduction" to this Offer to Purchase.
o HAVE ANY STOCKHOLDERS AGREED TO TENDER THEIR SHARES?
Yes. The directors, executive officers and several other stockholders who
own shares have agreed to tender their shares in the offer. These stockholders
hold shares representing about 26% of the total number of outstanding shares
(treating the convertible preferred stock as if converted). See Section 12 --
"The Merger Agreement; Other Arrangements" of this Offer to Purchase.
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o IF A MAJORITY OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. CONTINUE AS A PUBLIC COMPANY?
We do not expect Chesapeake Biological Laboratories, Inc. to continue as a
public company after the offer. If we purchase all of the tendered shares and
the merger takes place, Chesapeake Biological Laboratories, Inc. no longer will
be publicly owned. Even if the merger does not take place, if we purchase all
the tendered shares:
o there may be so few remaining stockholders and publicly held shares that the
common stock of Chesapeake Biological Laboratories, Inc. no longer will be
eligible to be traded through the Nasdaq National Market or on a securities
exchange,
o there may not be a public trading market for Chesapeake Biological
Laboratories, Inc. stock, and
o Chesapeake Biological Laboratories, Inc. may cease making filings with the
SEC and no longer be required to comply with the SEC rules relating to
public companies.
See Section 14 -- "Certain Effects of the Offer" of this Offer to Purchase.
o WHAT ARE THE TERMS AND CONDITIONS OF THE MERGER?
If we buy at least a majority of the issued and outstanding shares of
Chesapeake Biological Laboratories, Inc. in the offer (treating the convertible
preferred stock as if converted) and all other conditions are met, we will be
merged into Chesapeake Biological Laboratories, Inc. If that merger takes
place, Cangene Corporation will own all of the shares of Chesapeake Biological
Laboratories, Inc. and all remaining stockholders of Chesapeake Biological
Laboratories, Inc. (other than Cangene Corporation) will receive $4.60 per
share in cash for each share of class A common stock they held. See the
"Introduction" to and Section 18 -- "Appraisal Rights" of this Offer to
Purchase.
o HOW LIKELY IS IT THAT THE MERGER WILL OCCUR AND WILL I BE ASKED TO VOTE ON
THE MERGER?
If we buy at least a majority of the outstanding shares of Chesapeake
Biological Laboratories, Inc., we intend to cause the merger to occur. Once we
buy at least a majority of the outstanding shares of Chesapeake Biological
Laboratories, Inc. (treating the convertible preferred stock as if converted),
we will have enough votes to approve the merger, even if other Chesapeake
Biological Laboratories, Inc. stockholders oppose it. Also, we have been
granted an option by Chesapeake Biological Laboratories, Inc. to purchase a new
series of preferred stock of Chesapeake Biological Laboratories, Inc. that
would cause us to have at least 90% of the votes of Chesapeake Biological
Laboratories, Inc. once we exercise this option. We may only exercise this
option if we purchase at least a majority of the outstanding shares of
Chesapeake Biological Laboratories, Inc. in this offer. Assuming we do so, we
intend to immediately exercise this option so that we would then own shares
entitled to cast 90% of all votes of Chesapeake Biological Laboratories, Inc.
Under Maryland law, once Chesapeake Biological Laboratories, Inc. is our 90%
subsidiary, we can cause the merger to occur without any vote by the other
Chesapeake Biological Laboratories, Inc. stockholders, after giving other
stockholders 30 days' notice of the merger. Therefore, we do not expect
Chesapeake Biological Laboratories, Inc. to hold a stockholders' meeting about
the merger or to otherwise have stockholders vote on the merger.
o WILL I HAVE APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER?
No. Under Maryland law, stockholders do not have appraisal rights as a
result of a merger if their shares are publicly traded on either the record date
for the stockholders' meeting on the merger or, if a corporation is at least 90%
owned by another corporation, on the date notice of the merger is given to the
stockholders. We expect to satisfy at least one of these two requirements, which
means that no stockholders of Chesapeake Biological Laboratories, Inc. will have
appraisal rights in connection with the merger.
o IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If we buy at least a majority of the outstanding shares of Chesapeake
Biological Laboratories, Inc., we will own enough shares to approve the merger
under Maryland law. Stockholders not
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tendering in the offer will receive the same amount of cash per share in the
merger that they would have received had they tendered their shares in the
offer. Therefore, if the merger takes place, the only difference to you between
tendering your shares and not tendering your shares is that you will be paid
earlier if you tender your shares. If the merger does not take place, the
number of stockholders and shares of Chesapeake Biological Laboratories, Inc.
that are still in the hands of the public may be so small that we do not expect
any public trading market for the common stock of Chesapeake Biological
Laboratories, Inc. Also, as described above, Chesapeake Biological
Laboratories, Inc. may no longer be required to comply with the SEC rules
relating to public companies. See the "Introduction" to and Section 14 --
"Certain Effects of the Offer" of this Offer to Purchase.
o WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On October 30, 2000, the last trading day before we announced the tender
offer and the proposed subsequent merger, the last sale price of Chesapeake
Biological Laboratories, Inc. common stock reported on the Nasdaq National
Market was $4.125 per share. Between January 1, 2000 and October 30, 2000, the
sale price of a share of Chesapeake common stock ranged between $2.375 and
$6.50. We suggest you obtain a recent quotation for your shares before deciding
whether to tender your shares. See Section 6 -- "Price Range of Shares;
Dividends" of this Offer to Purchase.
o WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You can call MacKenzie Partners, Inc. at (800) 322-2885 (toll free).
MacKenzie Partners is acting as the information agent for our tender offer. See
the back cover of this Offer to Purchase.
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To the Holders of Shares of Class A Common Stock, Series A-1 Convertible
Preferred Stock and Warrants to Purchase Class A Common Stock of Chesapeake
Biological Laboratories, Inc.:
INTRODUCTION
AC Acquisition Subsidiary, Inc. ("Purchaser"), a Maryland corporation and
a wholly owned subsidiary of Cangene Corporation, a Canadian corporation
("Parent"), hereby offers (the "Offer") to purchase all of the issued and
outstanding shares of class A common stock, par value $.01 per share (the
"Common Stock"), of Chesapeake Biological Laboratories, Inc., a Maryland
corporation (the "Company"), at a price of $4.60 per share (the "Per Share
Amount") net to the seller in cash, less any required withholding of taxes,
upon the terms and subject to the conditions of the Offer, as set forth in this
Offer to Purchase and in the related Letter of Transmittal. Purchaser also
hereby offers to purchase all of the issued and outstanding shares of Series
A-1 convertible preferred stock of the Company, par value $.01 per share (the
"Convertible Preferred Stock"), at a price per share equal to the Per Share
Amount multiplied by the number of shares into which a share of Convertible
Preferred Stock is then convertible, and to purchase all of the outstanding
warrants of the Company (the "Warrants") at a price equal to the difference
between the Per Share Amount and the exercise price of the Warrants multiplied
by the number of shares of Common Stock for which the Warrants are exercisable.
The Offer is being made pursuant to the Merger Agreement, dated as of
October 30, 2000 among Parent, Company and Purchaser (the "Merger Agreement").
The Merger Agreement provides that Purchaser will be merged with and into the
Company (the "Merger") as soon as practicable following the purchase by
Purchaser of at least a majority of the issued and outstanding shares of Common
Stock of the Company (including conversion of the Convertible Preferred Stock
and exercise of the Warrants) in the Offer and any required stockholder
meeting. Following the Merger, the Company will continue as the surviving
corporation and will be a wholly-owned subsidiary of Parent, and the separate
corporate existence of Purchaser will cease. Pursuant to the Merger Agreement,
each outstanding share of Common Stock of the Company immediately prior to the
effective time of the Merger (other than shares held by any of the Company's
subsidiaries and shares held by Parent, Purchaser or any other subsidiary of
Parent), will be converted into and shall become the right to receive $4.60 per
share in cash, without interest (the "Cash Merger Consideration"). The Merger
Agreement is more fully described in Section 12 -- "The Merger Agreement; Other
Arrangements," which also contains a discussion of the treatment of stock
options.
Tendering stockholders who are record owners of their shares and tender
directly to the depositary will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of shares by
Purchaser pursuant to the Offer. Stockholders who hold their shares through a
broker, bank or other nominee should consult such institution as to whether it
charges any service fees. Any such service fees will not be paid by Purchaser.
Parent or Purchaser will pay all charges and expenses of The Bank of New York,
as depositary (the "Depositary"), and MacKenzie Partners, Inc., as information
agent (the "Information Agent"), incurred in connection with the Offer. See
Section 19 -- "Fees and Expenses."
On October 12, 2000, the Board of Directors of the Company (the "Company
Board") (i) determined that each of the Offer and the Merger is advisable and
is fair to the stockholders of the Company and in the best interests of the
stockholders of the Company, (ii) approved and adopted the Merger Agreement and
the transactions contemplated thereby, and (iii) recommended acceptance of the
Offer and approval and adoption of the Merger, if necessary, by the
stockholders of the Company.
Arnhold and S. Bleichroeder, Inc., financial advisor to the Company
("ASB"), delivered to the Company Board a written opinion dated October 12,
2000, to the effect that, as of that date and based on and subject to the
matters stated in such opinion, the $4.60 per share to be received in the Offer
and the Merger by the holders of Common Stock of the Company is fair from a
financial point of view to such holders. The full text of ASB's written
opinion, which describes the assumptions made, procedures followed, matters
considered and limitations on the review undertaken, is included as an
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annex to the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") under the Securities Exchange Act of 1934 (the "Exchange
Act"), which is being mailed to stockholders at the same time as this document.
Stockholders are urged to read all of ASB's opinion carefully.
The Offer is subject to certain conditions, including (i) there being
validly tendered at least a majority of the issued and outstanding shares (the
"Minimum Condition"), (ii) expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") and (iii) the loan commitment to Parent not having been withdrawn. See
Section 16 -- "Certain Conditions of the Offer."
Pursuant to the Merger Agreement, the Company has represented that, as of
September 30, 2000, 5,681,156 shares of Common Stock were issued and
outstanding, 967,448 shares were issuable upon conversion of the outstanding
shares of the Convertible Preferred Stock and 123,370 shares were issuable upon
exercise of the Warrants. Except as a result of the Stockholders' Agreement
described below, neither Parent, Purchaser nor any person listed on Schedule I
hereto beneficially owns any shares.
Certain stockholders of the Company (consisting of three holders of the
Convertible Preferred Stock and all of the current executive officers and
directors of the Company) (the "Stockholders") have entered into a
Stockholders' Agreement, dated as of October 30, 2000, with the Parent and
Purchaser (the "Stockholders' Agreement") relating to an aggregate of 1,811,998
shares as well as shares which may be later acquired by the Stockholders
(approximately 26% of the shares (treating the Convertible Preferred Stock as
if converted) expected to be outstanding as of the effective time of the Merger
(the "Effective Time")). The Stockholders have represented to Parent that they
have sole voting and dispositive power. Pursuant to the Stockholders'
Agreement, among other things, the Stockholders have agreed to tender all such
shares pursuant to the Offer and not to withdraw such shares as long as the
Stockholders' Agreement remains in effect. The Stockholders also have granted
to Parent (i) the right to vote their shares and (ii) an option to purchase
their shares, which option is exercisable in certain limited circumstances. See
Section 12 -- "The Merger Agreement; Other Arrangements."
The Company has entered into an Option Agreement, also dated as of October
30, 2000 with Purchaser (the "Option Agreement"). Under the Option Agreement,
Purchaser has been granted an option (the "Option") by the Company to purchase
that number of shares of a newly designated series of preferred stock that will
cause Purchaser to own shares of the Company's capital stock representing at
least ninety percent (90%) of the total number of votes entitled to vote on the
Merger immediately following the exercise of the Option. Each share of this
newly designated series of preferred stock will entitle each holder thereof to
1,000 votes for each share of preferred stock held. The Option will be
exercisable only when and if Purchaser has, pursuant to the Offer, purchased
and paid for a sufficient number of shares to satisfy the Minimum Condition.
The Option will terminate and expire, if not previously exercised,
simultaneously with the earlier of (i) Purchaser's termination of the Offer
without having purchased and paid for at least a majority of the then issued
and outstanding shares (giving effect to the conversion of all outstanding
shares of Convertible Preferred Stock and the exercise of all then outstanding
Warrants) (the "Minimum Condition") or (ii) termination of Merger Agreement in
accordance with its terms. As a result, if Purchaser satisfies the Minimum
Condition in the Offer and then exercises the Option, Purchaser will own at
least 90% of the shares, which means that, under Maryland law, the Merger may
be effected without a meeting or vote of the holders of the shares. Purchaser
currently intends to exercise the Option immediately after it purchases and
pays for a sufficient number of shares to satisfy the Minimum Condition under
the Offer in order to avoid the necessity of calling and holding a meeting of
the holders of the shares. The aggregate exercise price of the Option is
$2,500,000.
The Merger Agreement provides that after the purchase by Purchaser of
shares following the expiration of the Offer (the "Tender Offer Purchase Time")
Purchaser will be entitled to designate that number (but no more than that
number) of directors of the Company constituting a majority of
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the Company Board. To accomplish this, the Company has agreed upon request by
Purchaser, to promptly either increase the size of the Company Board (subject
to the provisions of the Company's Articles of Incorporation) or secure the
resignation of that number of directors as is necessary to enable Purchaser's
designees (the "Designees") to be elected to the Company Board and to
constitute at all times after the Tender Offer Purchase Time a majority of the
Company Board. The Company also will use its best efforts to cause the
Designees to constitute the same percentage as they constitute on the Company
Board of (i) each committee of the Company Board (other than any committee of
the Company Board established to take action under this Agreement), (ii) the
board of directors of each subsidiary of the Company and (iii) each committee
of each such board. Notwithstanding the foregoing, until the Effective Time,
the Company Board must include at least three directors who are directors of
the Company on the date of the Merger Agreement (the "Continuing Directors").
See Section 12 -- "The Merger Agreement; Other Arrangements."
The Merger is subject to the satisfaction or waiver of certain conditions,
including, if required, the approval and adoption of the Merger Agreement by a
majority of the stockholders of the Company. Pursuant to the Stockholders'
Agreement, officers of the Purchaser now hold an irrevocable proxy to vote
shares owned by the Stockholders, comprising approximately 26% of the shares
expected to be outstanding at the Tender Offer Purchase Time (treating the
Convertible Preferred Stock as if converted). Additionally, if the Minimum
Condition is satisfied, once Purchaser purchases the shares tendered in the
Offer, Purchaser would have sufficient voting power to approve the Merger
regardless of how any other stockholder of the Company were to vote. If
Purchaser also exercises the Option, Purchaser would own enough shares so that,
under Maryland law, though notice will be required, no meeting or vote of the
holders of the shares would be required to effect the Merger. Nevertheless, the
Company has agreed, if required, to duly call, give notice of, convene and hold
a meeting of its stockholders, to be held as soon as practicable after the
Tender Offer Purchase Time for the purpose of considering and taking action
upon the Merger Agreement. See Section 12 -- "The Merger Agreement; Other
Arrangements."
This Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is made
with respect to the Offer.
THE TENDER OFFER
1. TERMS OF THE OFFER
On the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of the extension or
amendment), Purchaser will accept for payment and pay the Per Share Amount for
all shares validly tendered prior to 12:00 midnight, New York City time, on
January 3, 2001 (the "Expiration Date") and not properly withdrawn as described
under Section 4 -- "Withdrawal Rights." The term "Initial Expiration Date"
means January 3, 2001. If Purchaser, in accordance with the Merger Agreement,
extends the deadline for tendering shares, the term "Expiration Date" means the
latest time and date on which the Offer, as so extended, expires.
The Offer is subject to the Minimum Condition. Consummation of the Offer
is also conditioned upon (i) expiration or termination of any applicable
waiting period under the HSR Act; (ii) the line of credit relating to the loan
to Parent remaining in full force and effect; and (iii) the other conditions
described in Section 16 -- "Certain Conditions of the Offer."
Extension of the Offer. Parent expressly reserves the right, in its sole
discretion (but subject to the terms and conditions of the Merger Agreement and
the applicable rules and regulations of the Securities and Exchange Commission
("SEC")), at any time and from time to time, to cause Purchaser to extend the
period of time during which the Offer is open by giving oral or written notice
of such extension to the Depositary. During any such extension, all shares
previously tendered and not withdrawn will remain subject to the Offer,
including the rights of a tendering stockholder to withdraw such stockholder's
shares. See Section 4 -- "Withdrawal Rights."
Without the consent of the Company Board, Parent may cause Purchaser to
(i) from time to time extend the Offer, if at the Initial Expiration Date of
the Offer any of the conditions to the Offer have
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not been satisfied or waived (other than the Minimum Condition, to which this
clause does not apply), until such time as such conditions are satisfied or
waived, or (ii) extend the Offer for any period required by any rule,
regulation, interpretation or position of the SEC applicable to the Offer; and
(iii) if the Minimum Condition is not satisfied, extend the Offer; provided
that all extensions described herein shall not exceed twenty (20) business
days, and (iv) if the Minimum Condition is satisfied but the number of shares
validly tendered and not withdrawn represents less than ninety percent (90%) of
the then outstanding shares (giving effect to the conversion of all then
outstanding shares of Convertible Preferred Stock and the exercise of all then
outstanding Warrants) commence one subsequent offer (the "Subsequent Offering
Period") for the shares provided however, that in no event shall any such
Subsequent Offering Period exceed twenty (20) business days. In the event that
Purchaser decides to provide a Subsequent Offering Period, Purchaser must
accept and promptly pay for all securities tendered prior to the date the
Subsequent Offering Period commences and must otherwise meet the requirements
of Rule 14d-11 under the Exchange Act. In addition, Parent and Purchaser agree
that Purchaser shall from time to time extend the Offer if requested by the
Company, if, at the Initial Expiration Date (or any extended expiration date of
the Offer, if applicable), any of the conditions to the Offer including the
Minimum Condition shall not have been waived or satisfied, until (taking into
account all such extensions) February 28, 2001, provided, however, that if the
Minimum Condition is the only condition to the Offer not then satisfied,
Purchaser shall not be required to extend the Offer for more than twenty (20)
business days.
Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, to waive, in whole or in part, any conditions of
the Offer (other than the Minimum Condition), to increase the price per share
payable in the Offer or to make any other changes in the terms and conditions
of the Offer, provided that, unless approved by the Company in writing, no
change may be made which (i) decreases the Per Share Amount, (ii) reduces the
number of shares to be purchased in the Offer, (iii) changes the form of
consideration to be paid in the Offer, (iv) imposes additional conditions on
the Offer, or (iv) amends or changes any term or condition of the Offer in a
manner adverse to the holders of shares.
The rights reserved in the foregoing paragraphs are in addition to the
rights set forth in Section 16 -- "Certain Conditions of the Offer." Any
extension, delay, termination, waiver or amendment of the Offer will be
followed as promptly as practicable by public announcement. An announcement, in
the case of an extension, will be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date,
in accordance with the public announcement requirements of SEC Rule 14e-1(d).
Except as required by applicable law (including SEC Rules 14d-4(d), and
14d-6(c), which require that material changes be promptly disseminated to
stockholders in a manner reasonably designed to inform them of such changes)
and without limiting the manner in which Purchaser may choose to make any
public announcement, Purchaser has no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
press release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
to the extent required by SEC Rules 14d-4(d) and 14e-1, Purchaser will
disseminate additional tender offer materials and extend the Offer. These rules
generally provide that, following any material change in the terms of an offer
or information concerning the offer (other than a change in price or a change
in the percentage of securities sought), the minimum period during which a
tender offer must then remain open will depend upon the relative materiality of
the changed terms or information and other facts and circumstances then
existing. In the SEC's view, an offer should remain open for a minimum of five
business days from the date the material change is first published, sent or
given to stockholders. However, if material changes are made to the information
provided that impacts the evaluation of price or percentage of securities
sought, a minimum of ten business days may be required to allow for adequate
dissemination and investor response. With respect to a change in price or
percentage of securities sought, a minimum of ten business days from the date
of the change is generally required to allow for adequate dissemination to
stockholders. Accordingly, Purchaser will extend the Offer if Purchaser
increases the
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Per Share Amount within ten days of the scheduled expiration date of the Offer,
the Offer will remain open for at least ten business days from the date of
publication of the increase. For purposes of the Offer, a "business day" means
any day other than a Saturday, Sunday or a federal holiday and consists of the
time period from 12:01 a.m. through 12:00 midnight, New York City time.
Purchaser has agreed in the Merger Agreement that, subject to satisfaction
of the conditions to the Offer, Purchaser must accept for payment and purchase
and pay for all shares that have been validly tendered and not withdrawn
pursuant to the Offer at the earliest time following expiration of the Offer
that all conditions to the Offer have been satisfied or waived by Purchaser.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of Purchaser's disseminating the
Offer to holders of shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of shares whose names appear on
the Company's stockholder list and will be furnished, for subsequent
transmittal to beneficial owners of shares, to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing.
Subsequent Offering Period. Pursuant to SEC Rule 14d-11, Purchaser may,
subject to certain conditions, provide a Subsequent Offering Period following
expiration of the Offer on the Expiration Date. Rule 14d-11 provides that
Purchaser may provide for a Subsequent Offering Period so long as (i) the Offer
has remained open for a minimum of 20 business days and has expired, (ii) the
Offer is for all outstanding shares, (iii) Purchaser accepts and promptly pays
for all shares tendered during the Offer, (iv) Purchaser announces the results
of the Offer, including the approximate number and percentage of shares
deposited, no later than 9:00 a.m. on the next business day after the
Expiration Date and immediately begins the Subsequent Offering Period, (v)
Purchaser immediately accepts and promptly pays for shares as they are tendered
during the Subsequent Offering Period, and (vi) Purchaser pays the Per Share
Amount for all shares tendered in the Subsequent Offering Period. In the event
Purchaser elects to include a Subsequent Offering Period, it will notify
stockholders of the Company in accordance with the requirements of the SEC.
A Subsequent Offering Period, if one is provided, is not an extension of
the Offer. Instead, a Subsequent Offering Period is an additional period of
time following expiration of the Offer, during which stockholders may tender
shares not previously tendered into the Offer. The Merger Agreement provides
that, if all of the conditions to the Offer are satisfied or waived but the
number of shares validly tendered and not withdrawn is less than 90% of the
then outstanding number of shares, Purchaser may include a Subsequent Offering
Period of three business days to twenty business days, beginning only after
Purchaser purchases all of the shares tendered in the Offer. Purchaser must
also meet all the requirements of SEC Rule 14d-11 in connection with any
Subsequent Offering Period.
Purchaser currently intends to include one Subsequent Offering Period if
on the Expiration Date, all of the conditions to the Offer have been satisfied
or waived but less than 90% of the outstanding shares have been validly
tendered and not properly withdrawn. As permitted by SEC Rule 14d-7, no
withdrawal rights will apply to shares tendered in a Subsequent Offering Period
or to shares previously tendered in the Offer and accepted for payment. The
same Per Share Amount will be paid to stockholders tendering shares in both the
Offer and in any Subsequent Offering Period.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including the
terms and conditions of any extension or amendment of the Offer), Purchaser
will accept for payment, purchase and pay for all shares which have been
validly tendered and not withdrawn pursuant to the Offer at the earliest time
following expiration of the Offer that all conditions to the Offer described in
Section 16 -- "Certain Conditions of the Offer" have been satisfied or waived
by Purchaser. Subject to the Merger Agreement and any applicable SEC rules and
regulations, including Rule 14e-1(c) (which requires
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<PAGE>
Purchaser to pay for or return tendered shares promptly after termination or
withdrawal of the Offer), Purchaser expressly reserves the right to delay
acceptance for payment of or payment for any tendered shares in order to comply
with any applicable laws, including the HSR Act. See Section 17 -- "Certain
Legal Matters; Regulatory Approvals."
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) shares validly tendered and not properly
withdrawn at such time as Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of all shares tendered in the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price for the shares with the Depositary, which is acting as agent
for tendering stockholders for the purpose of receiving payments from Purchaser
and transmitting payments to tendering stockholders whose shares have been
accepted for payment.
Under no circumstances will Purchaser pay interest on the purchase price
for the shares.
In all cases, Purchaser will pay for shares purchased in the Offer only
after timely receipt by the Depositary of (i) either certificates representing
the shares (the "Share Certificates") or confirmation (a "Book-Entry
Confirmation") of a book-entry transfer of such shares into the Depositary's
account at The Depositary Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in Section 3 -- "Procedures for Accepting
the Offer and Tendering Shares"; (ii) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees or, in the case of a book-entry transfer, an Agent's Message (as
defined below) in lieu of the Letter of Transmittal; together with (iii) any
other documents required under the Letter of Transmittal. The procedures for
tendering shares and guaranteed delivery set forth in Section 3 will apply
during any extension of the Offer and any Subsequent Offering Period.
"Agent's Message" means a message transmitted by a Book-Entry Transfer
Facility to, and received by, the Depositary and forming a part of a Book-Entry
Confirmation. This message must state that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the shares which are the subject of the Book-Entry
Confirmation that the participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce that
agreement against the participant.
If Purchaser does not purchase any tendered shares pursuant to the Offer
for any reason, or if a holder of shares submits share certificates
representing more shares than are tendered, share certificates representing
unpurchased or untendered shares will be returned, without expense to the
tendering stockholder, as promptly as practicable following expiration or
termination of the Offer. In the case of shares tendered by book-entry transfer
into the Depositary's account at the Book-Entry Transfer Facility pursuant to
the procedure set forth in Section 3 -- "Procedures for Accepting the Offer and
Tendering Shares," such shares will be credited to an account maintained at the
Book-Entry Transfer Facility.
If, prior to the Expiration Date, Purchaser increases the Per Share
Amount, Purchaser will pay the Per Share Amount, as increased, on all shares
purchased in the Offer, whether or not the shares were tendered before the
increase in the Per Share Amount, and on all shares purchased during any
Subsequent Offer Period.
Purchaser reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates, the right to purchase all or
any portion of the shares tendered pursuant to the Offer, but any such transfer
or assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive
payment for shares validly tendered and accepted for payment pursuant to the
Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
Valid Tenders. In order for a stockholder validly to tender shares
pursuant to the Offer, either (i)(A) the Letter of Transmittal (or a facsimile
thereof), properly completed and executed, together
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with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message in lieu of the Letter of Transmittal) and any
other documents required by the Letter of Transmittal must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase, and (B) either the share certificates evidencing tendered shares must
be received by the Depositary at such address or such shares must be tendered
pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, in each case on or
prior to the Expiration Date, or the expiration of the Subsequent Offering
Period, as the case may be; or (ii) the tendering stockholder must comply with
the guaranteed delivery procedures described below. No alternative, conditional
or contingent tenders will be accepted.
Book-Entry Transfer. The Depositary will establish accounts for the shares
at the Book-Entry Transfer Facility for purposes of the Offer within two
business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make a book-entry delivery of shares by causing the Book-Entry
Transfer Facility to transfer those shares into the Depositary's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. Although delivery of shares may be
effected through book-entry transfer at the Book-Entry Transfer Facility,
either the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's
Message in lieu of the Letter of Transmittal, and any other required documents,
must be received by the Depositary at one of its addresses set forth on the
back cover of this Offer to Purchase on or prior to the Expiration Date (or the
expiration of the Subsequent Offering Period, if applicable) or the tendering
stockholder must comply with the guaranteed delivery procedure described below.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE
BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING
STOCKHOLDER. DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER A BOOK-ENTRY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal where shares are tendered (i) by a registered holder of shares who
has not completed either the box labeled "Special Delivery Instructions" or the
box labeled "Special Payment Instructions" on the Letter of Transmittal, or
(ii) for the account of a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of a recognized
Medallion Program approved by the Securities Transfer Association Inc.,
including the Securities Transfer Agents Medallion Program (STAMP), the Stock
Exchange Medallion Program (SEMP) and the New York Stock Exchange Medallion
Signature Program (MSP) or any other "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing, an
"Eligible Institution"). In all other cases, all signatures on a Letter of
Transmittal must be guaranteed by an Eligible Institution. See Instruction 1 of
the Letter of Transmittal.
If a share certificate is registered in the name of a person or persons
other than the signer of the Letter of Transmittal, or if payment is to be made
or delivered to, or a share certificate for unpurchased shares is to be issued
or returned to, a person other than the registered holder, the share
certificate must be endorsed or accompanied by an appropriate duly executed
stock power, in either case signed exactly as the name of the registered holder
appears on the share certificate, with the signature on the share certificate
or stock power guaranteed by an Eligible Institution as provided in the Letter
of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender shares pursuant to
the Offer and the share certificates evidencing such stockholder's shares are
not immediately available or such
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<PAGE>
stockholder cannot deliver the share certificates and all other required
documents to the Depositary prior to the Expiration Date, or such stockholder
cannot complete the procedure for delivery by book-entry transfer on a timely
basis, the stockholder's shares may nevertheless be tendered; provided that all
of the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) the Depositary receives, as described below, a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form
made available by Purchaser, on or prior to the Expiration Date; and
(iii) the Depositary receives the Share Certificates (or a Book-Entry
Confirmation) evidencing all tendered shares, in proper form for
transfer, in each case together with the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any
required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message), and any other documents required by the
Letter of Transmittal, within three Nasdaq National Market trading
days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
form of Notice of Guaranteed Delivery made available by Purchaser. Guaranteed
delivery procedures will not be available in the Subsequent Offering Period.
Notwithstanding any other provision of the Offer, Purchaser will pay for
shares only after timely receipt by the Depositary of Share Certificates
representing, or Book-Entry Confirmation with respect to, the shares; a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof), together with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message); and any other documents required by
the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of shares will be determined by Purchaser in its sole discretion, which
determination will be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Subject to the terms of the Merger Agreement, Purchaser
also reserves the absolute right to waive any condition of the Offer or any
defect or irregularity in the tender of any shares of any particular
stockholder of the Company, whether or not similar defects or irregularities
are waived in the case of other holders of shares.
Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of shares will be deemed to have been validly made
until all defects and irregularities have been cured or waived. None of Parent,
Purchaser or any of their respective affiliates or assigns, the Company, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of Purchaser as such stockholder's
agents, attorneys-in-fact and proxies, with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
stockholder's rights with respect to the shares tendered by such stockholder
and accepted for payment by Purchaser and with respect to any and all other
shares or other securities or rights issued or issuable in respect of those
shares on or after the date of this Offer to Purchase. All such powers of
attorney and proxies will be considered irrevocable and coupled with an
interest in the tendered shares. This appointment will be effective when, and
only to the extent that, Purchaser accepts such shares for payment. Upon such
acceptance for payment, all other powers of attorney and proxies given by such
stockholder with respect to such shares and such other securities or rights
prior to such payment will be revoked without further action, and no subsequent
powers of attorney or proxies may
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be given, nor may any subsequent written consent be executed by such
stockholder, (and, if given or executed, will not be deemed to be effective)
with respect thereto. The designees of Purchaser will, with respect to the
shares and such other securities and rights for which the appointment is
effective, be empowered to exercise all voting and other rights of such
stockholder as they, in their sole discretion, may deem proper at any annual or
special meeting of the Company's stockholders or any adjournment or
postponement thereof, or by written consent in lieu of any such meeting or
otherwise. In order for shares to be deemed validly tendered, immediately upon
the acceptance for payment of such shares, Purchaser or its designee must be
able to exercise full voting rights with respect to such shares and other
securities, including voting at any meeting of the Company's stockholders.
Backup U.S. Federal Income Tax Withholding. Under U.S. federal income tax
law, the amount of any payments made by the Depositary to stockholders of the
Company (other than certain exempt stockholders, including, among others, all
corporations and certain foreign individuals), pursuant to the Offer or the
Merger may be subject to backup withholding tax at a rate of 31%. To avoid
backup withholding tax with respect to payments made pursuant to the Offer or
the Merger, each stockholder must provide the Depositary with such
stockholder's correct taxpayer identification number or social security number
and certify under penalties of perjury that such stockholder is not subject to
backup federal income tax withholding by completing the Substitute Form W-9 in
the Letter of Transmittal. If backup withholding applies with respect to a
stockholder or if a stockholder fails to deliver a completed Substitute Form
W-9 to the Depositary or otherwise establish an exemption, the Depositary is
required to withhold 31% of any payments made to such stockholder. See
Instruction 8 of the Letter of Transmittal.
Tender Constitutes Agreement. Purchaser's acceptance for payment of shares
tendered pursuant to any of the procedures described above will constitute a
binding agreement between Purchaser and the tendering stockholder upon the
terms and subject to the conditions of the Offer.
4. WITHDRAWAL RIGHTS
Tenders of shares made pursuant to the Offer are irrevocable, except that
such shares may be withdrawn (i) at any time prior to the Expiration Date and
(ii) unless theretofore accepted for payment by Purchaser pursuant to the
Offer, at any time after January 3, 2001 (or such later date as may apply if
the Offer is extended). Shares may not be withdrawn during any Subsequent
Offering Period. See Section 1 -- "Terms of the Offer."
If Purchaser amends the Offer by extending the deadline for tendering
shares, is delayed in its acceptance for payment of or the payment for any
tendered shares, or is unable to accept shares for payment pursuant to the
Offer for any reason, then, without prejudice to Purchaser's rights under the
Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain
tendered shares, and such shares may not be withdrawn except to the extent that
tendering stockholders are entitled to and duly exercise withdrawal rights as
described in this Section 4. Any such delay will be by an extension of the
Offer to the extent required by law.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover page of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the
shares to be withdrawn, the number of shares to be withdrawn and (if Share
Certificates have been tendered) the name of the registered holder of such
shares, if different from that of the person who tendered such shares. If Share
Certificates representing shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such Share Certificates, the serial numbers shown on such Share Certificates
must be submitted to the Depositary and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
shares tendered for the account of an Eligible Institution. If shares have been
tendered pursuant to the procedure for book-entry transfer as set forth in
Section 3 -- "Procedures for Accepting the Offer and Tendering Shares," the
notice of withdrawal must specify the name and
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number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn shares, in which case a notice of withdrawal will be effective if
delivered to the Depositary by any method of delivery described in the first
sentence of this paragraph.
Withdrawals of shares may not be rescinded. Any shares properly withdrawn
will be considered not validly tendered for purposes of the Offer. However,
withdrawn shares may be tendered again at any time prior to the Expiration Date
by following one of the procedures described in Section 3 -- "Procedures for
Accepting the Offer and Tendering Shares."
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Purchaser, in its sole
discretion, which determination will be final and binding. None of Parent,
Purchaser, or their respective affiliates or assigns, the Company, the
Depositary, the Information Agent or any other person will be under duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification.
5. MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The receipt of cash pursuant to the Offer or the Merger will constitute a
taxable transaction for U.S. federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), and may also constitute a
taxable transaction under applicable state, local, foreign and other tax laws.
For U.S. federal income tax purposes, a tendering stockholder would generally
recognize gain or loss in an amount equal to the difference between the amount
of cash received by the stockholder pursuant to the Offer or the Merger and the
stockholder's tax basis for the shares tendered and purchased pursuant to the
Offer or the Merger. If tendered shares are held by a tendering stockholder as
capital assets, that gain or loss will be capital gain or loss. Any such
capital gain or loss will be long term if, as of the date of the disposition of
its shares, the tendering stockholder held such shares for more than one year
or will be short term if, as of such date, the stockholder held such shares for
one year or less.
The foregoing discussion may not be applicable to certain types of
stockholders of the Company, including stockholders who acquired shares through
the exercise of employee stock options that do not qualify for incentive stock
option treatment for any reason or otherwise as compensation, individuals who
are not citizens or residents of the United States, foreign corporations, or
entities that are otherwise subject to special tax treatment under the Code
(such as insurance companies, tax-exempt entities and regulated investment
companies).
The summary of material U.S. federal income tax considerations set forth
above is included for general information only, is based on the law as
currently in effect and does not purport to be complete. All stockholders
should consult their own tax advisors to determine the particular tax
consequences to them (including the application and effect of any state, local
or foreign income and other tax laws) of the Offer and the Merger.
6. PRICE RANGE OF SHARES; DIVIDENDS
The Common Stock began trading on the Nasdaq National Market under the
symbol "CBLI" on May 27, 1997. The Convertible Preferred Stock and Warrants are
not listed or admitted for trading on any securities exchange. The following
table sets forth, for the periods indicated, the high and low sale prices per
share. Share prices are as reported on the Nasdaq National Market based on
published financial sources.
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
<TABLE>
<CAPTION>
1999 HIGH LOW
------------------------------------------------------- ---------- ----------
<S> <C> <C>
First Quarter ................................. 4.500 1.750
Second Quarter ................................ 3.500 1.750
Third Quarter ................................. 3.875 2.375
Fourth Quarter ................................ 3.563 2.250
2000
First Quarter ................................. 6.500 2.625
Second Quarter ................................ 4.750 2.375
Third Quarter ................................. 5.844 3.563
Fourth Quarter (through November 13) .......... 4.625 4.031
</TABLE>
Pursuant to the Merger Agreement, the Company has represented that, as of
September 30, 2000, 5,681,156 shares of Common Stock were issued and
outstanding, 967,448 shares were issuable upon conversion of the outstanding
shares of the Convertible Preferred Stock and 123,370 shares were issuable upon
exercise of the Warrants. On October 30, 2000, the last full day of trading
before the public announcement of execution of the Merger Agreement, the
closing price of the shares on the Nasdaq National Market was $4.125 per share.
On November 16, 2000, the last full day of trading before the commencement of
the Offer, the closing price of the shares on the Nasdaq National Market was
$4.375 per share.
Stockholders are urged to obtain a current market quotation for the
shares.
The Company has never paid dividends on its Common Stock, and the Merger
Agreement prohibits the Company from declaring or paying any dividends before
the Tender Offer Purchase Time (as defined below) without Parent's approval.
The Company Board has approved a dividend on the Convertible Preferred Stock
payable on November 12, 2000, in the amount of $2.8068 per share, or $43,533 in
the aggregate.
7. INFORMATION CONCERNING THE COMPANY
The Company is a Maryland corporation with its principal offices located
at 1111 South Paca Street, Baltimore, Maryland 21230. The telephone number of
the Company is (410) 843-5000.
The following description of the Company and its business has been taken
from the Company's Form 10-K for the year ended March 31, 2000 and is qualified
in its entirety by reference to that Form 10-K.
The Company is an established contract service provider of pharmaceutical
and biopharmaceutical product development and production services for
parenteral (injectable) and other sterile products. The Company serves a broad
range of customers, from major international pharmaceutical firms to emerging
biotechnology companies. Since 1990, the Company has provided services on a
contract basis to more than 100 pharmaceutical and biotechnology companies and
has contributed to the development and production of more than 125 therapeutic
products. Customers contract with the Company to produce development stage
products for use in U.S. Food and Drug Administration ("FDA") required
toxicology studies, clinical trials and to provide manufacturing services for
FDA approved products for commercial sale. In fiscal year 2000, the Company
provided services to over 60 customers.
The Company has particular experience and expertise in providing product
development services and producing sterile, process-sensitive biopharmaceutical
parenteral products. Biopharmaceutical products are derived from biological
materials and typically involve larger, more complex molecules than traditional
pharmaceutical products, which generally are based upon smaller, more stable,
synthetic organic molecules. The complexity, inherent instability and
process-sensitivity of biopharmaceutical products require the application of
specialized technology and expertise in their
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development, production and analysis. The specialized development services
provided by the Company include research and development on sterile product
formulations; test method development and validation; process design and
manufacturing validations; regulatory and compliance consulting; preparation of
clinical trial and toxicology materials; container-closure system design; and,
accelerated and ongoing stability studies.
8. SELECTED FINANCIAL INFORMATION
The shares are registered under the Exchange Act. The Company is subject
to the information and reporting requirements of the Exchange Act and is
required to file periodic reports, proxy statements and other information with
the SEC relating to its business, financial and other matters. You may read and
copy any reports, statements, or other information filed at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
SEC's public reference rooms in New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0030 for further information on the public
reference rooms. The Company's filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at http://www.sec.gov.
9. INFORMATION CONCERNING PARENT AND PURCHASER
Parent is a Canadian corporation with its principal offices located at
3403 American Drive, Units 3/4, Mississauga, Ontario L4V 1T4, Canada. The
telephone number of Parent is (416) 749-9300. Parent is a biopharmaceutical
company that develops, manufactures and markets specialty plasma products
(hyperimmunes) and recombinant therapeutic products for international markets
and a growing contract manufacturing business capitalizing on the company's
proven manufacturing expertise. Parent is based in Winnipeg, Manitoba, Canada,
and in 1999 was listed in several publications as one of the fastest growing
profitable companies in Canada.
Purchaser is a Maryland corporation with its principal offices located at
201 East Baltimore Street, Baltimore, Maryland 21202. Purchaser is a wholly
owned subsidiary of Parent. Purchaser was organized on October 4, 2000 and has
not carried on any activities other than in connection with the Offer and
Merger.
The name, citizenship, business address, principal occupation or
employment and five-year employment history for each of the directors and
executive officers of Parent and Purchaser and certain other information are
set forth in Schedule I to this Offer to Purchase.
Except as described elsewhere in this Offer to Purchase or in Schedule I
hereto, (i) none of Parent, Purchaser nor, to the best knowledge of Parent and
Purchaser, any of the persons listed in Schedule I to this Offer to Purchase or
any associate or majority-owned subsidiary of Parent or Purchaser or any of the
persons so listed beneficially owns or has any right to acquire, directly or
indirectly, any shares; and (ii) none of Parent, Purchaser nor, to the best
knowledge of Parent and Purchaser, any of the persons or entities referred to
above nor any director, executive officer or subsidiary of any of the foregoing
has effected any transaction in the shares during the past 60 days.
Except as provided in the Merger Agreement, the Option Agreement, the
Stockholders' Agreement or as otherwise described in this Offer to Purchase,
none of Parent, Purchaser nor, to the best knowledge of Parent and Purchaser,
any of the persons listed in Schedule I to this Offer to Purchase, has any
contract, arrangement, understanding or relationship with any other person with
respect to any securities of the Company, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
voting of such securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against loss,
guarantees of profits, division of profits or loss or the giving or withholding
of proxies.
Except as set forth in this Offer to Purchase, (i) none of Parent,
Purchaser nor, to the best knowledge of Parent and Purchaser, any of the
persons listed on Schedule I hereto, has had any business relationship or
transaction with the Company or any of its executive officers, directors or
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<PAGE>
affiliates that is required to be reported under the rules and regulations of
the SEC applicable to the Offer; and (ii) there have been no contracts,
negotiations or transactions between Parent or any of its subsidiaries or, to
the best knowledge of Parent, any of the persons listed in Schedule I to this
Offer to Purchase, on the one hand, and the Company or its affiliates, on the
other hand, concerning a merger, consolidation or acquisition, a tender offer
or other acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets.
None of the persons listed in Schedule I has, during the past five years,
been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors). None of the persons listed in Schedule I has, during the
past five years, been a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanction of settlement) that
resulted in a judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to federal or state
securities, laws, or a finding of any violation of federal or state securities
laws.
10. SOURCE AND AMOUNT OF FUNDS
The Offer is subject to the condition that the Loan Commitment (as defined
below) shall not have been withdrawn by The Bank of Nova Scotia ("ScotiaBank").
Parent estimates the total amount of funds required by Purchaser to purchase
all of the outstanding securities in the Offer and the Merger and to pay for
the cancellation of employee stock options will be approximately $33,575,000.
The total amount of funds required to consummate the Offer and the Merger, to
pay for the cancellation of employee stock options and to pay related fees and
expenses is estimated to be approximately $36,138,000.
Purchaser expects to obtain (i) approximately $32,200,000 of such funds
through a loan facility (the "Loan Commitment") provided by ScotiaBank, bearing
a market interest rate (the "Debt Financing"), and (ii) approximately
$3,938,000 from cash on hand.
On October 29, 2000, Parent and Purchaser received the Loan Commitment
from ScotiaBank confirming ScotiaBank's commitment, subject to the fulfillment
of the conditions set forth in such letter, to providing the Debt Financing.
The commitment letter provides that Parent will borrow up to CAN $50,000,000
(approximately U.S. $32,200,000 based on the exchange rate quoted on November
15, 2000) under a term loan facility (the "Term Facility"). The Loan Commitment
provides that the full amount of the Term Facility must be drawn down by March
31, 2001. Advances are repayable by periodic payments of principal, with a
minimum repayment of $25 million to occur within 12 months after the loan has
been fully drawn. Subject to satisfactory review of Purchaser's fiscal year
2001 financial statements, and continued compliance with all conditions of the
Term Facility, ScotiaBank, at its sole option, may renew the Term Facility at
the maturity date for a term between 1 to 5 years. Interest on the Term
Facility will be charged at (i) ScotiaBank's Prime Lending Rate from time to
time, plus 0.250% per annum with interest payable monthly; (ii) ScotiaBank's
U.S. Dollar Base Rate in Canada from time to time, plus 0.250% per annum with
interest payable monthly; or (iii) ScotiaBank's London Interbank Offer Rate
(LIBOR), plus 1.625% per annum, for periods of 1, 2, 3, 6 or 12 months, the
rate to be established two (2) business days prior to each drawdown or rollover
with interest payable at the end of the LIBOR period or if the period is for
more than 3 months, payable quarterly in arrears.
The obligations of Purchaser under the Term Facility will be fully secured
by a (i) general security agreement over all of the Purchaser's present and
future personal property with appropriate insurance coverage, loss if any,
payable to ScotiaBank; (ii) such priority or subordination agreements with
other secured creditors of the Purchaser as may be required to give
ScotiaBank's security priority over the secured property; (iii) hypothecation
of all the shares of Cangene U.S. Incorporated beneficially owned by the
Purchaser; (iv) hypothecation of all the shares of the Company beneficially
owned by the Purchaser; and (v) a letter of undertaking not to pledge, assign
or permit any encumbrances against the Purchaser's assets (excluding existing
encumbrances on the Company's assets), including intellectual assets, without
ScotiaBank's prior written consent.
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<PAGE>
ScotiaBank's commitment under the Loan Commitment is subject to the
condition that there shall not have been any material adverse changes in the
financial condition or the environmental condition of the Purchaser and/or the
Company.
The Debt Financing will be subject to the satisfaction of the following
conditions prior to March 31, 2001: (i) a copy of the executed Merger Agreement
being furnished to ScotiaBank; (ii) a minimum 51% of the Common Stock of the
Company is to be tendered, and advances are not to exceed the redemption amount
of the tendered shares; and (iii) evidence that regulatory approvals have been
obtained customary for the type of transaction proposed.
The making of each extension of credit will be conditioned upon the
accuracy of all representations and warranties in the credit documentation and
there being no default or event of default in existence at the time of, or
after giving effect to the making of, such extension of credit.
Neither Parent nor Purchaser is aware of any development that will make
obtaining the proceeds less likely than it was at the time of such commitment.
Except as described in this Offer to Purchaser, Parent and Purchaser have no
alternative financing plans with respect to the Offer.
The foregoing summary of the Loan Commitment and Term Facility is
qualified in its entirety by reference to the commitment letter which is
incorporated herein by reference, and a copy of which has been filed as an
Exhibit to the Schedule TO filed by Parent and Purchaser with the SEC in
connection with the Offer. The commitment letter may be examined and copies may
be obtained at the places described in Section 8.
11. BACKGROUND OF THE OFFER, PAST CONTACTS AND NEGOTIATIONS WITH THE COMPANY
In the mid-1990's, the Company made the strategic decision to relocate its
production facility to a new location in Baltimore, Maryland. The larger size
of the new facility would allow the Company to provide contract manufacturing
of commercial quantities of pharmaceuticals and biopharmaceuticals in addition
to its traditional business of producing pharmaceuticals and biopharmaceuticals
in limited quantities for customers' clinical trials and testing. However,
given the Company's relative lack of capital resources, the new facility could
only be equipped for commercial production of limited quantities of products.
In July 1998, the Company received FDA approval to operate the new facility and
began the process of moving its production from its old facility to the new
one. During the fiscal years ended March 31, 1998 and 1999, the Company
incurred significant operating losses, largely because of the decision to move
to the new facility and to seek contracts to produce commercial quantities of
biopharmaceutical products.
In January 1999, Thomas P. Rice became the Company's President and Chief
Executive Officer. Mr. Rice had been a member of the Company's Board of
Directors since March 1997. In April 1999, John T. Botek was named the
Company's Executive Vice President and Chief Operating Officer. Messrs. Rice
and Botek had significant management experience in the pharmaceutical industry.
The immediate goal of this new management team was to return the Company to
profitability, primarily by obtaining additional contracts to produce both
clinical and commercial products and to reduce the Company's costs and
expenses. Early in the fiscal year ended March 31, 2000, the Company raised
about $1.9 million of capital, which was necessary to meet working capital
requirements and support its expanded operations, and returned to
profitability.
At the beginning of calendar year 2000, the Company's Board of Directors
began to evaluate the Company's competitive position and its ability to meet
growth objectives. The Board decided that the Company would need to expand its
production capacity so that it could meet the needs of customers with products
entering full commercial production in quantities greater than the Company
could then process. To do so, the Company would require significantly greater
capital resources for larger scale production equipment and to satisfy
regulatory requirements. The Board concluded, however, that the Company's
existing capital was insufficient to fund the capital expenditures necessary to
quickly increase the Company's production capacity. The Board of Directors
determined that a debt financing on acceptable terms was also not feasible. A
gradual increase in capacity could be funded from existing capital and expected
operating cash flow, but would take a number of years to complete.
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<PAGE>
During the first three months of 2000, the market price of the Common
Stock ranged from $2.375 to $6.50. The Board of Directors concluded that
raising sufficient equity capital, if possible, at that time would cause
substantial dilution to existing stockholders and, therefore, would not be in
the best interests of the stockholders. Therefore, the Board decided to seek a
strategic or merger partner that could provide the capital resources necessary
to expand the Company's production capacity and thereby enhance the Company's
prospects for growth.
In January and February 2000, management and the Board of Directors met
with ASB. On March 22, 2000 the Company engaged ASB as its financial advisor to
assist in evaluating and exploring the Company's strategic alternatives and
seeking a strategic alliance or merger partner.
Beginning in April 2000, ASB contacted more than 80 companies to ascertain
their possible interest in a strategic alliance or an acquisition of the
Company. Of these contacted companies, 21 signed confidentiality agreements and
reviewed information about the Company. The Company's management made oral
presentations to six of these companies about the Company's business, financial
condition and prospects.
On May 5, 2000, Parent signed a confidentiality agreement with the Company
and received the preliminary information. From July through August, Parent
conducted a due diligence review of the Company's financial condition,
operations and prospects. On September 8, 2000, Parent discussed with ASB a
verbal, non-binding offer to purchase all outstanding shares of the Common
Stock for $4.60 per share. Soon thereafter, Parent and the Company began
negotiating a definitive agreement and discussing the procedures by which
Parent would acquire the Company.
On October 30, 2000, Parent, Purchaser and the Company signed the Merger
Agreement. Although ASB provided information to more than 20 companies and
management made presentations to six of them, only Parent made an offer to
acquire or partner with the Company.
12. THE MERGER AGREEMENT; OTHER ARRANGEMENTS
The Merger Agreement
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is filed as an exhibit to the Tender Offer Statement
on Schedule TO filed by Parent and Purchaser with the SEC in connection with
the Offer (the "Schedule TO"). The summary is qualified in its entirety by
reference to the Merger Agreement, which we incorporate by reference herein.
The following summary may not contain all of the information important to you.
You may examine and obtain copies of the Merger Agreement from the SEC in the
same manner as set forth in Section 8.
The Offer. Under the Merger Agreement, Purchaser has agreed to make the
Offer. The Merger Agreement provides that Purchaser will commence the Offer and
that, upon the terms and subject to prior satisfaction or waiver of the Minimum
Condition and the other conditions of the Offer, as set forth in Section 16 --
"Certain Conditions of the Offer," Purchaser will purchase all shares validly
tendered and not withdrawn pursuant to the Offer. The Merger Agreement provides
that, unless previously approved by the Company in writing, Purchaser will not
make any change in the terms and conditions of the Offer that (i) decreases the
Per Share Amount, (ii) reduces the number of shares to be purchased in the
Offer, (iii) changes the form of consideration to be paid in the Offer, (iv)
imposes additional conditions on the Offer, or (iv) amends or changes any term
or condition of the Offer in a manner adverse to the holders of shares.
Without the consent of the Company Board, Parent may cause Purchaser to
(i) from time to time extend the Offer, if at the Initial Expiration Date of
the Offer any of the conditions to the Offer have not been satisfied or waived
(other than the Minimum Condition, to which this clause does not apply), until
such time as such conditions are satisfied or waived, or (ii) extend the Offer
for any period required by any rule, regulation, interpretation or position of
the SEC applicable to the Offer; and (iii) if the Minimum Condition is not
satisfied, extend the Offer; provided that all extensions described herein
shall not exceed twenty (20) business days, and (iv) if the Minimum Condition
is satisfied but the number of shares validly tendered and not withdrawn
represents less than ninety percent (90%) of
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the then outstanding shares (giving effect to the conversion of all then
outstanding shares of Convertible Preferred Stock and the exercise of all then
outstanding Warrants) commence one subsequent offer (the "Subsequent Offering
Period") for the shares provided however, that in no event shall any such
Subsequent Offering Period exceed twenty (20) business days. In the event that
Purchaser decides to provide a Subsequent Offering Period, Purchaser must
accept and promptly pay for all securities tendered prior to the date the
Subsequent Offering Period commences and must otherwise meet the requirements
of Rule 14d-11 under the Exchange Act. In addition, Parent and Purchaser agree
that Purchaser shall from time to time extend the Offer if requested by the
Company, if, at the Initial Expiration Date (or any extended expiration date of
the Offer, if applicable), any of the conditions to the Offer including the
Minimum Condition shall not have been waived or satisfied, until (taking into
account all such extensions) February 28, 2001, provided, however, that if the
Minimum Condition is the only condition to the Offer not then satisfied,
Purchaser shall not be required to extend the Offer for more than twenty (20)
business days.
The Company has entered into an Option Agreement, also dated as of October
30, 2000 with Purchaser. Under the Option Agreement, Purchaser has been granted
an option by the Company to purchase up to that number of shares of Series B
preferred stock that would cause Purchaser to be entitled to cast at least 90%
of the number of votes that would be entitled to vote on the Merger. The Option
is only exercisable if Purchaser purchases and pays for at least that number of
shares in the Offer that would satisfy the Minimum Condition. As a result, if
Purchaser satisfies the Minimum Condition in the Offer and then exercises the
Option, Purchaser will be entitled to cast at least 90% of the votes that would
be entitled to vote on the Merger, which means that, under Maryland law, the
Merger may be effected without a meeting or vote of the then holders of the
shares. Purchaser currently intends to exercise the Option immediately after it
purchases and pays for a sufficient number of shares to satisfy the Minimum
Condition under the Offer in order to avoid the necessity of calling and
holding a meeting of the holders of the shares. The aggregate exercise price of
the Option is $2,500,000.
Directors. The Merger Agreement provides that after the Tender Offer
Purchase Time, Purchaser will be entitled to designate that number (but no more
than that number) of directors of the Company constituting a majority of the
Company Board, and the Company will use its best efforts to either, at the
Company's election increase the size of the Company Board or secure the
resignation of that number of directors as is necessary to enable Purchaser's
designees to be elected to the Company Board and to constitute at all times
after the Tender Offer Purchase Time a majority of the Company Board. At such
times, the Company will use its best efforts to cause persons designated by
Purchaser to constitute the same percentage as is on the Company Board of (i)
each committee of the Company Board (other than any committee of the Company
Board established to take action under this Agreement), (ii) each board of
directors of each subsidiary of the Company and (iii) each committee of each
such board. Notwithstanding the foregoing, until the Effective Time, the
Company shall retain at least three directors who are directors of the Company
on the date of the Merger Agreement (the "Continuing Directors"). The Company's
obligation to appoint designees to the Board is subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. From and after the time
that Parent's designees constitute a majority of the Company Board until the
Effective Time, any amendment, modification or waiver of any term or condition
of the Merger Agreement, any amendment or modification to the Articles of
Incorporation or By-Laws of the Company, any termination of the Merger
Agreement by the Company, any extension of time of performance of any of the
obligations of Parent or Purchaser under the Merger Agreement, any waiver of
any condition or any of the Company's rights under the Merger Agreement or
other action by the Company in connection with the rights of the Company under
the Merger Agreement may be effected only with the concurrence of a majority of
the Continuing Directors.
The Merger. The Merger Agreement provides that Purchaser will be merged
with and into the Company as soon as practicable following the satisfaction or
waiver of each of the conditions to the Merger in the Merger Agreement.
Following the Merger, the Company will continue as the surviving corporation
(the "Surviving Corporation") and a wholly owned, indirect subsidiary of
Parent, and the separate corporate existence of Purchaser will cease.
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<PAGE>
The Company has agreed pursuant to the Merger Agreement that, if required
for the Merger under the Maryland General Corporation Law ("MGCL"), the
Company, acting through the Company Board, will (i) duly call, give notice of,
convene and hold a meeting of its stockholders, to be held as soon as
practicable after the Tender Offer Purchase Time, for the purpose of
considering and taking action upon the Merger Agreement, using a record date,
to the extent possible, that is a day on which the shares are listed on the
Nasdaq National Market; (ii) except as otherwise permitted by the Merger
Agreement, include in the proxy statement or information statement relating to
any meeting of the Company's stockholders to be held in connection the Merger
(the "Proxy Statement") (A) the recommendation of the Company Board that
stockholders of the Company vote in favor of the approval and adoption of the
Merger Agreement, the Merger and the other transactions contemplated thereby,
and (B) a statement that the Company Board believes that the consideration to
be received by the stockholders of the Company pursuant to the Merger is fair
to the stockholders; and (iii) except as otherwise permitted by the Merger
Agreement, use reasonable efforts (A) to obtain and furnish the information
required to be included by it in the Proxy Statement, if any, and, after
consultation with Parent and Purchaser, cause the Proxy Statement to be mailed
to its stockholders at the earliest practicable time following the Tender Offer
Purchase Time, and (B) to obtain the necessary approvals by its stockholders of
the Merger Agreement and the transactions contemplated thereby. At such
meeting, Parent and Purchaser will, and will cause their affiliates to, vote
all shares owned by them in favor of approval and adoption of the Merger
Agreement, the Merger and the transactions contemplated thereby.
The Merger Agreement further provides that, notwithstanding the foregoing,
if Purchaser acquires shares and shares of Series B Preferred Stock together
representing at least 90% of the votes entitled to be cast on the Merger, the
parties to the Merger Agreement will take all necessary and appropriate action
to cause the Merger to become effective as soon as practicable after the
purchase of the shares pursuant to the Offer without a meeting of the
stockholders of the Company in accordance with Section 3-106 of the MGCL,
including giving the notice required by Section 3-106.
Charter, Bylaws, Directors and Officers. The Articles of Incorporation of
Purchaser in effect at the Effective Time will be the Articles of Incorporation
of the Surviving Corporation until amended in accordance with applicable law.
The Bylaws of Purchaser in effect at the Effective Time will be the Bylaws of
the Surviving Corporation until amended in accordance with applicable law. The
directors of Purchaser at the Effective Time will be the initial directors of
the Surviving Corporation and will hold office in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation until the next annual
meeting of stockholders and until their respective successors are duly elected
or appointed and qualified. The officers of the Company at the Effective Time
will be the initial officers of the Surviving Corporation and will hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
Conversion of Shares and Convertible Preferred Stock. At the Effective
Time, each share issued and outstanding immediately prior to the Effective Time
(excluding (i) shares held by any of the Company's subsidiaries and (ii) shares
held by Parent, Purchaser or any other subsidiary of Parent), will, by virtue
of the Merger and without any action on the part of Purchaser, the Company or
the holder thereof, be converted into and become the right to receive the Per
Share Amount in cash, without interest (the "Cash Merger Consideration"). Each
share of Convertible Preferred Stock issued and outstanding prior to the
Effective Time will be entitled to receive the Cash Merger Consideration
multiplied by the number of shares into which such share of Convertible
Preferred Stock is then convertible. Notwithstanding the foregoing, if between
the date of the Merger Agreement and the Effective Time, the shares are changed
into a different number of shares or a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares, then the Cash Merger Consideration contemplated by the
Merger will be correspondingly adjusted to reflect any such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. At the Effective Time, each share held by Parent, Purchaser or any
subsidiary of Parent, Purchaser or the Company immediately prior to the
Effective Time will, by
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virtue of the Merger and without any action on the part of Purchaser, the
Company or the holder thereof, be canceled and retired and will cease to exist
and no payment shall be made with respect thereto. At the Effective Time, each
share of common stock of Purchaser issued and outstanding immediately prior to
the Effective Time will be converted into and become one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
Warrants. At the Effective Time, each outstanding Warrant will be canceled
and extinguished and will be converted into the right to receive the product of
(i) the difference between the exercise price of the Warrant and $4.60,
multiplied by (ii) the number of shares of Common Stock for which the Warrant
is then exercisable.
Company Stock Options. At the Effective Time, each outstanding option to
purchase shares (a "Company Stock Option" or collectively "Company Stock
Options"), whether vested or unvested, the exercise price of which is greater
than the Cash Merger Consideration, will be canceled and extinguished without
consideration and the Option Plans will terminate as of the Effective Date.
At the Effective Time, each outstanding Company Stock Option that is
vested as of the Effective Time will be canceled and extinguished and will
become the right to receive an amount, without interest, in cash equal to the
excess, if any, of the Cash Merger Consideration over the exercise price per
share of such Company Stock Option, less the amount of taxes required to be
withheld under federal, state or local laws and regulations, multiplied by the
number of shares subject to such Company Stock Option.
At the Effective Time, each outstanding Company Stock Option that is not
vested as of the Effective Time, the exercise price of which is less than the
Cash Merger Consideration will be canceled and extinguished in consideration
for a compensatory payment to be paid to the holder of such Company Stock
Option at the time the Company Stock Option would otherwise have vested
(provided that the holder is employed with the Company at such time and has not
breached any of its obligations under any applicable employment agreement with
the Company or any subsidiary) equal to an amount, without interest, in cash
equal to the excess, if any, of the Cash Merger Consideration over the exercise
price per share of such Company Stock Options that would otherwise have vested
at such time.
Pursuant to the Merger Agreement, the Company has agreed, if and to the
extent required by the terms of any option plans or agreement under which such
option was granted, to cooperate with Parent and Purchaser in obtaining the
consent of each holder of outstanding Company Stock Options to the foregoing
treatment of such Company Stock Options and to take any other action necessary
to effectuate the foregoing provisions.
Representations and Warranties. The Merger Agreement contains
representations and warranties of the parties. These include representations
and warranties of the Company with respect to its organization, capitalization,
authority, SEC filings, financial statements, accounting procedures, licenses
and permits, employee benefit plans, employment and labor matters, and the
absence of certain changes or effects that would have a Material Adverse Effect
on the Company. When used in the Merger Agreement in connection with the
Company or its subsidiaries, the term "Material Adverse Effect" means any
change or effect (i) that is materially adverse to the business, properties,
financial condition, or results of operations of the Company and its
subsidiaries, taken as whole, or (ii) that would materially impair the ability
of the Company to perform its obligations under the Merger Agreement. None of
the following will be deemed, either alone or in combination, to constitute a
Material Adverse Effect: (i) changes or effects resulting from general changes
in economic, market, regulatory or political conditions or changes in
conditions or business practices generally applicable to the industries in
which the Company and its subsidiaries operate; (ii) changes in the market
price or trading volume of the shares on the Nasdaq National Market; or (iii)
changes or effects resulting from the announcement or approval of the Offer and
the Merger Agreement or relating to the identity of or facts pertaining to
Parent or Purchaser. Parent and Purchaser also have made certain
representations and warranties with respect to corporate existence and power,
corporate authorization relative to the Merger Agreement, documents relating to
the Offer, the availability of funds to finance the Offer and other matters.
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Conduct of Company Business Pending the Merger. The Company has agreed
that, prior to the Tender Offer Purchase Time, unless Parent agrees in writing
or as otherwise contemplated in the Merger Agreement, each of the Company and
its subsidiaries will (i) conduct their businesses and operations only in the
ordinary course of business consistent with past practice; (ii) use reasonable
efforts to preserve intact their business, organization, goodwill, rights,
licenses, permits and franchises of the Company and its subsidiaries and
maintain their existing relationships with customers, suppliers and other
persons having business dealings with them; (iii) use reasonable efforts to
keep in full force and effect adequate insurance coverage and maintain and keep
material assets in good repair, working order and condition; (iv) not amend or
modify its organizational documents except to create the Series B Preferred
Stock; (v) not authorize for issuance, issue, sell, grant, deliver, pledge or
encumber any shares of any class or series of capital stock of the Company or
any subsidiaries or any other equity or voting security or equity or voting
interest in the Company or any of its subsidiaries, any securities convertible
into or exercisable or exchangeable for any such shares, securities or
interests, or any options, warrants, calls, commitments, subscriptions or
rights to purchase or acquire any such shares, securities or interests (other
than (A) issuances of shares (x) upon exercise of stock options granted and
warrants issued prior to the date of the Merger Agreement, (y) upon conversion
of shares of convertible preferred stock issued prior to the date of the Merger
Agreement and (B) issuance of shares of Series B Preferred Stock on exercise by
Purchaser of the Option); (vi) not (A) split, combine or reclassify any shares
of its stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for its shares of
stock, (B) in the case of the Company, declare, set aside or pay any dividends
on, or make other distributions in respect of any of the Company's stock other
than an aggregate dividend of $43,533 on the Convertible Preferred Stock, or
(C) repurchase, redeem or otherwise acquire, or agree or commit to repurchase,
redeem or otherwise acquire, any shares of stock or other equity or debt
securities or equity interests of the Company or any of its subsidiaries; (vii)
except as otherwise contemplated by the Merger Agreement, not amend or
otherwise modify the terms of Company Stock Options or Company Option Plans;
(viii) other than normal salary increases in the ordinary course of business
consistent with past practice, not (A) materially increase compensation payable
or to become payable to any directors, officers or employees of the Company or
any subsidiary except arrangements in connection with employee transfers and
agreements with new employees having a salary of greater than $85,000, (B)
grant any severance or termination pay to, or enter into any employment or
severance agreement with any director or officer or employee (other than in the
ordinary course of business of the Company or any of its subsidiaries, except
that the Company may enter into new employment agreements with each of Messrs.
Thomas P. Rice and John T. Botek, or (C) establish, adopt, enter into or amend
in any material respect or take action to accelerate any material rights or
benefits under 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, other than in the ordinary course of business, of the Company or any
subsidiary; (ix) not acquire or agree to acquire any corporation, partnership,
joint venture, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets outside the ordinary course
of business consistent with past practice or any interest in any real
properties (other than in the ordinary course of business); (x) not incur,
assume or guarantee any indebtedness for borrowed money, (including draw-downs
on letters or lines of credit) or issue any notes, bonds, debentures, debt
instruments, evidences of indebtedness or other debt securities of the Company
or any of its subsidiaries or any options, warrants or rights to purchase or
acquire any of the same, except for (A) renewals of existing bonds and letters
of credit in the ordinary course of business not to exceed $1,000,000 in the
aggregate, (B) indebtedness for borrowed money in the ordinary course of
business consistent with past practice in an aggregate amount not to exceed
$1,000,000, and (C) advances in the ordinary course pursuant to (A) working
capital lines of credit in an amount not to exceed $1,000,000 and (B) certain
warehouse lines of credit; (xi) not sell, lease, license, encumber or otherwise
dispose of any material properties or assets of the Company other than in the
ordinary course of business; (xii) not authorize or make any capital
expenditures in excess of $100,000 in the aggregate for the Company and all of
its subsidiaries other than in the ordinary course of business; (xiii) not make
any
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material change in any of its accounting or financial reporting except as may
be required by a change in law or in GAAP; (xiv) not make any material tax
election or settle or compromise any material tax liability; (xv) except in the
ordinary course of business, not amend, modify or terminate any material
contract; (xvi) other than in the ordinary course of business, not enter into
contracts that reasonably would involve financial obligations by the Company
exceeding $100,000; (xvii) not adopt a plan of liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization;
(xviii) fail to report any facts that have resulted in insurance claims that
would have a material adverse effect; and (xix) except as to clauses (i), (ii)
and (iii) of this paragraph, not agree or commit in writing or otherwise to do
any of the foregoing.
Other Potential Acquirers. The Merger Agreement provides that the Company
and its subsidiaries will use their reasonable best efforts to cause the
Company's affiliates and the respective officers, directors, employees,
representatives and agents of each to immediately cease any discussions or
negotiations with any parties with respect to (i) the acquisition of the
Company by merger or otherwise by anyone other than Parent, Purchaser or any
affiliate thereof (a "Third Party") or by an officer or director of the
Company; (ii) the acquisition by a Third Party of more than 20% of the total
assets of the Company and its subsidiaries taken as a whole; (iii) the
acquisition by a Third Party of shares which, together with all other shares
owned by such Third Party and its affiliates, equal 20% or more of the issued
and outstanding shares; (iv) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend; (v) the
repurchase by the Company or any of its subsidiaries of more than 20% of the
issued and outstanding shares; or (vi) the acquisition by the Company or any
subsidiary by merger, purchase of stock or assets, joint venture or otherwise
of a direct or indirect ownership interest or investment in any business whose
annual revenues, net income or assets attributable to such ownership interest
or investment is equal or greater than 20% of the annual revenues, net income
or assets of the Company (each of the foregoing, a "Third Party Acquisition").
The Merger Agreement further provides that the Company and its
subsidiaries will, and will use their reasonable best efforts to cause their
respective officers, directors, employees, representatives or agents to,
refrain from directly or indirectly, encouraging, soliciting, participating in
or initiating discussions or negotiations with or providing any non-public
information to anyone (other than Parent, Purchaser or any designees of either)
concerning any Third Party Acquisition. However, following written notice to
Parent and Purchaser, the Company may provide non-public information to,
consider a proposal from, and negotiate a proposal with, anyone who, prior to
the Tender Offer Purchase Time, submits to the Company (i) a potential Superior
Proposal or (ii) an unsolicited proposal, offer or indication that the Company
in good faith believes may lead to a Superior Proposal. Prior to furnishing
such non-public information, the Company must enter into a non-disclosure
agreement having terms regarding the protection of confidential information
that are at least as restrictive as the confidentiality provisions of the
Letter Agreement between Parent and the Company dated as of May 5, 2000, a copy
of which is attached hereto as Exhibit (d)(2). A "Superior Proposal" is defined
in the Merger Agreement to mean any bona fide proposal to acquire directly or
indirectly for consideration consisting of cash and/or securities all of the
shares then issued and outstanding or all or substantially all the assets of
the Company and otherwise on terms which the Company Board by a majority vote
determines in its good faith judgment (consistent with the advice of a
financial adviser of nationally recognized reputation) to be more favorable to
the Company's stockholders than the Merger and the Offer.
The Merger Agreement also requires the Company to notify Parent promptly,
and in any event before furnishing non-public information, in the event the
Company receives any proposal or inquiry concerning a Third Party Acquisition,
including the material terms and conditions thereof and the identity of the
party submitting such proposal.
The Company Board may not withdraw its recommendation of the transactions
contemplated by the Merger Agreement, or approve or recommend, or cause the
Company to enter into, any agreement with respect to any Third Party
Acquisition, unless, prior to the Tender Offer Purchase Time, the Company Board
by a majority vote determines in its good faith judgment, after consultation
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with its legal counsel, failure to do so would be inconsistent with their
fiduciary duties under applicable law. The Company may not enter into any
agreement with respect to a Superior Proposal unless and until the Merger
Agreement is terminated by its terms. At and after the Tender Offer Purchase
Time, the Company Board may not under any circumstances withdraw its
recommendation of the transactions contemplated by the Merger Agreement or
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Third Party Acquisition.
Access to Information. The Merger Agreement provides that until the
Closing Time, upon reasonable prior notice, the Company will (and will cause
each of its subsidiaries to) give Parent and its representatives full access,
during normal business hours and at other reasonable times without disruption
to the Company's normal business affairs, to the books, records, contracts,
commitments, properties, offices and other facilities of the Company and its
subsidiaries; arrange for Parent and its representatives to have reasonable
access, during normal business hours, to the officers, employees, and agents of
the Company and its subsidiaries; and furnish promptly to Parent and its
representatives such financial and operating data and other information
concerning the business, operations, properties, contracts, records and
personnel of the Company and its subsidiaries as Parent may from time to time
reasonably request. All information obtained by the Parent and its
representatives will be kept confidential in accordance with the
confidentiality provisions of the Letter Agreement between Parent and the
Company dated as of May 5, 2000.
Further Actions. Pursuant to the Merger Agreement, each of Parent,
Purchaser and the Company has agreed to use commercially reasonable efforts to
take all actions and to do all things necessary, proper or advisable under
applicable laws and regulations, and to consult and fully cooperate with and
provide reasonable assistance to each other in order to consummate and make
effective the transactions contemplated by the Merger Agreement, including (i)
using commercially reasonable efforts to make all filings, applications,
notifications, reports, submissions and registrations, and to obtain all
consents, approvals, authorizations or permits necessary for the consummation
of the Merger and the other transactions contemplated thereby, and (ii) taking
those actions that any other party to the Merger Agreement may reasonably
request in order to cause any of the conditions to such party's obligation to
consummate the Merger to be fully satisfied.
Subject to the terms and conditions of the Merger Agreement, each of
Parent and the Company has also agreed to cooperate and use reasonable efforts
to vigorously contest and resist any action, suit, proceeding or claim, and to
have vacated, lifted, reversed or overturned any injunction, order, judgment or
decree, (whether temporary, preliminary or permanent) that delays, prevents or
otherwise restricts the consummation of the Merger or any other transaction
contemplated by the Merger Agreement, and to take any and all actions (but not
including the disposition of material assets, divestiture of businesses, or the
withdrawal from doing business in particular jurisdictions, if material) as may
be required as a condition to the granting of any approvals or as may be
required to avoid, vacate, lift, reverse or overturn any injunction, order,
judgment, decree or regulatory action.
Public Announcements. The Merger Agreement provides that Parent, Purchaser
and the Company, as the case may be, will consult with one another and mutually
agree upon the content and timing of any press releases or public statements
with respect to the transactions contemplated by the Merger Agreement,
including the Offer and the Merger, and will not issue any press release or
make any public statement with respect to the Offer or the Merger prior to such
consultation and agreement except to the extent that such disclosure may be
required by applicable law or by obligations pursuant to any listing agreement
with the Toronto Stock Exchange or the Nasdaq National Market as determined by
Parent, Purchaser or the Company, as the case may be.
Employee Benefit Matters. With respect to employee benefit matters, the
Merger Agreement provides that as of the Effective Time and for a period of one
year thereafter, Parent will provide, or cause Purchaser and its subsidiaries
and successors to provide, to those persons who were employees of the Company
and its subsidiaries prior to the Effective Time and who continue as employees
thereafter, with benefits and compensation no less favorable in the aggregate
to the benefits and compensation provided to such employees as of the date of
the Merger Agreement.
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The Merger Agreement also provides that, except with respect to accruals
under any defined benefit pension plan, Parent will, or will cause Purchaser
and its subsidiaries to, give such employees full credit for purposes of
eligibility and vesting under any employee benefit plans or arrangements
maintained by Parent, Purchaser or any subsidiary of either for such employees'
service with the Company or any subsidiary of the Company to the same extent
recognized by the Company immediately prior to the Effective Time. Parent will,
or will cause Purchaser and its subsidiaries to waive limitations as to
preexisting conditions (except to the extent that such limitations were not
waived under the Company's then-existing welfare plans), exclusions and waiting
periods with respect to participation and coverage requirements applicable
under any welfare plan that such employees may be eligible to participate in
after the Effective Time, and provide credit for co-payments and deductibles
paid prior to the Effective Time in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time.
Expenses. Except as described in the following sentence, each party will
bear its own expenses in connection with the Offer and the Merger. Upon
termination of the Merger Agreement under certain circumstances, the Company
has agreed to pay Purchaser a break-up fee as described below under the heading
"Termination."
Notification of Certain Matters. Each of the Company, Parent and Purchaser
has agreed to give prompt notice to the others of (i) the occurrence or
nonoccurrence of any event that would be likely to cause any covenant,
condition or agreement contained in the Merger Agreement not to be complied
with or satisfied in all material respects, (ii) any material failure of the
Company, Parent or Purchaser, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
the Merger Agreement and (iii) the Company's receipt of any notice or request
from the FDA or the Drug Enforcement Agency, other than routine notices that
require no response or action.
Guarantee of Performance. Parent has guaranteed the performance by
Purchaser and, after the Effective Time, the Surviving Corporation of its
obligations under the Merger Agreement.
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
provides that the Surviving Corporation shall cause its Articles of
Incorporation and Bylaws to contain the indemnification provisions set forth in
the Articles of Incorporation and Bylaws of the Company on the date of the
Merger Agreement. These provisions may not be amended, repealed or otherwise
modified after the Effective Time in any manner that would adversely affect the
rights of individuals who at any time prior to the Effective Time were
directors or officers of the Company in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement). Parent shall cause the
Surviving Corporation to comply with the terms of and maintain in existence the
indemnification agreements in effect on the date of the Merger Agreement. In
the event the Surviving Corporation or any of its successors or assigns
consolidates with or merges into another person or transfers all or
substantially all of its properties and assets to another person, proper
provision will be made so that the successors and assigns of the Surviving
Corporation assume these obligations.
In addition, the Merger Agreement requires the Surviving Corporation to
obtain and maintain in effect for not less than five years after the Effective
Time, the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by the Company and the Company's
subsidiaries with respect to matters occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement). Parent may, with no lapse in coverage, substitute policies of
substantially the same coverage containing terms and conditions which are no
less advantageous, in any material respect, to the Company's present or former
directors, officers, employees, agents or other individuals otherwise covered
by such insurance policies prior to the Effective Time.
Conditions to Consummation of the Merger. The respective obligations of
each of Parent, Purchaser and the Company to effect the Merger are subject to
the satisfaction or waiver at or prior
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to the Closing Time of the following conditions: (i) that the Merger Agreement,
the Merger, and the other transactions contemplated thereby shall have been
approved by all necessary corporate action of the Company, including if
necessary, by vote of the stockholders of the Company, provided that in voting,
Parent and Purchaser shall have voted and caused their affiliates to vote, all
shares owned by them, in favor of the Merger Agreement, the Merger, and the
other transactions contemplated thereby; (ii) that no governmental entity or
court shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, executive order, decree, injunction or other order that makes
payment of the Cash Merger Consideration illegal or otherwise prohibits the
Merger; (iii) Purchaser shall have purchased shares pursuant to the Offer in
accordance with the terms of the Merger Agreement and the Offer, provided that
neither Parent nor Purchaser may invoke this condition if Purchaser has failed
to purchase, in violation of the terms of the Merger Agreement or the Offer,
shares validly tendered and not withdrawn pursuant to the Offer.
Termination. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Closing Time, whether before or after
approval and adoption of the Merger Agreement by the Company's stockholders:
(i) by mutual written consent of Parent, Purchaser and the Company;
(ii) by Parent or the Company if (A) any governmental entity or court shall
have enacted, issued, promulgated, enforced or entered, any statute,
rule, regulation, executive order, decree, injunction or other order
that is in effect and makes payment of the Per Share Amount illegal or
otherwise prohibits the Offer or the Merger, or (B) Purchaser shall
not have purchased shares pursuant to the Offer or the Merger shall
not have occurred on or prior to February 28, 2001, provided that the
right to terminate the Merger Agreement pursuant to this paragraph
(ii) will not be available to any party whose failure to fulfill its
obligations under the Merger Agreement results in Purchaser's failure
to purchase shares;
(iii) by Parent and Purchaser before the Tender Offer Purchase Time, if
there shall have been a breach of any covenant or agreement on the
part of the Company resulting in a Material Adverse Effect or any
change or effect that would materially impair the ability of Parent
and/or Purchaser to consummate the transactions contemplated by the
Merger Agreement and the breach has not been cured prior to the
earlier of ten days following notice of the breach or two business
days prior to the date on which the Offer expires (as such date may be
extended);
(iv) by the Company prior to the Tender Offer Purchase Time if (A) the
Company shall have received a Superior Proposal, shall have furnished
Parent a reasonable written notice of receipt of the Superior
Proposal, specifying the material terms and conditions of the Superior
Proposal and identifying the person making the proposal, and Parent
shall not, within three business days of Parent's receipt of the
notice from Company, have made an offer which the Company Board, by a
majority vote, determines in its good faith judgment (consistent with
the advice of a financial advisor of nationally recognized reputation)
to be as favorable to the Company's stockholders as the Superior
Proposal; provided that termination of the Merger Agreement under this
clause (A) will not be effective until Company pays to Purchaser the
Breakup Fee discussed below; (B) there shall have been a breach of any
representation or warranty on the part of Parent or Purchaser that
materially adversely affects or delays the consummation of the Offer;
or (C) there shall have been a material breach of any covenant or
agreement on the part of Parent or Purchaser which materially
adversely affects or delays the consummation of the Offer, if the
breach has not been cured prior to the earlier of ten days following
notice of the breach or two business days prior to the date on which
the Offer expires.
When used in the Merger Agreement, the term "Parent Material Adverse
Effect" means any change or effect that would materially impair the ability of
Parent and/or Purchaser to consummate the transactions contemplated by the
Merger Agreement.
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If the Merger Agreement is terminated and (i) the Company Board has
withdrawn or modified in a manner adverse to Parent its approval or
recommendation of the Offer, shall have recommended a Third Party Acquisition
or adopted any resolution to effect the foregoing, and (ii) within one year
after such termination (A) the Company enters into an agreement involving the
acquisition of 50% or more of the issued and outstanding shares by another
person or entity (other than a merger pursuant to which the stockholders of the
Company will acquire more than 50% of the voting securities of such surviving
corporation) or (B) another person or entity acquires more than 50% of the
issued and outstanding shares, the Company shall pay to Purchaser a Breakup Fee
of $2,150,000. A Breakup Fee also will be payable if the Company terminates the
Merger Agreement before the Tender Offer Purchase Time if the Company has
received a Superior Proposal and Parent does not, in the good faith judgment of
the Company Board (consistent with the advice of a financial advisor of
nationally recognized reputation), make an offer as favorable to the Company's
stockholders as the Superior Proposal. Purchaser may, in its discretion, waive
payment of the Breakup Fee in order to exercise the option described below
under the heading "Stockholder Agreements." Other than the circumstances listed
above in which the Breakup Fee is payable, the Merger Agreement makes no
provision for payments in the event of termination.
Amendment. The Merger Agreement may be amended by action taken by the
Company Board and by the parties to the Merger Agreement. If the Merger is
approved by the stockholders of the Company, no amendment that requires the
approval of the stockholders under applicable law may be made without such
further approval.
Extension; Waiver. At any time prior to the Closing Time, each party to
the Merger Agreement may (i) extend the time for the performance of any of the
obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party contained therein or in
any document, certificate or writing delivered pursuant thereto, or (iii) waive
compliance by any other party with any of the agreements or conditions
contained therein.
Stockholders' Agreement. Concurrently with the execution of the Merger
Agreement, Parent, Purchaser and the Stockholders entered into the
Stockholders' Agreement (the "Stockholders' Agreement"). The following is a
summary of the material provisions of the Stockholders' Agreement, which is
filed as an exhibit to the Schedule TO. The summary is qualified in its
entirety by reference to the form of Stockholders' Agreement, which is
incorporated by reference in this Offer to Purchase.
Tender of Shares. Pursuant to the Stockholders' Agreement, each
Stockholder has agreed to tender the shares, Convertible Preferred Stock or
Warrants owned by such Stockholder or cause such securities to be tendered,
into the Offer promptly after Parent causes Purchaser to commence the Offer,
but in no event later than five business days after the date on which the
Stockholder receives the Offer Documents for tendering such securities. With
respect to the shares tendered by the Stockholders pursuant to the
Stockholders' Agreement, the Stockholders will receive the same price per share
with respect to the Offer (but in any event no less than $4.60 per share)
received by the other stockholders of the Company pursuant to the Offer.
Stockholders will also receive the same consideration for Convertible Preferred
Stock or Warrants tendered pursuant to the Stockholders' Agreement received by
other holders of Convertible Preferred Stock and Warrants, as the case may be,
pursuant to the Offer. Each Stockholder has further agreed not to withdraw any
shares, Convertible Preferred Stock or Warrants so tendered unless and until
after the Termination Date, which is the first to occur of the date that
Purchaser terminates the Offer, the Offer expires, or the Merger Agreement is
terminated, in each case in accordance with the terms of the Merger Agreement
and without such securities being purchased by Purchaser pursuant to the Offer.
Voting of Shares. Each Stockholder has further agreed that, during the
period commencing on the date of the Stockholders' Agreement and continuing
until the first to occur of the Effective Time or the Termination Date, the
Stockholder will vote (or cause to be voted) its shares (i) in favor of
approval of the Merger Agreement, all transactions contemplated thereby, and
any actions required in furtherance thereof; (ii) against any action or
agreement that is intended to or could impede, interfere with, or prevent the
Offer or the Merger or result in a breach in any respect of any covenant,
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representation or warranty or any other obligation or agreement of the Company
or any of its subsidiaries under the Merger Agreement or the Stockholders'
Agreement; and (iii) except as specifically requested in writing in advance by
Parent, against certain actions specified in the Stockholders' Agreement,
including extraordinary corporate transactions, dispositions of assets outside
the ordinary course of business, any reorganization, recapitalization,
dissolution or liquidation of the Company or any of its subsidiaries or
affiliates, and amendments of the Company's Articles of Incorporation or
Bylaws.
Irrevocable Proxy. In order to secure their respective obligations under
the Stockholders' Agreement, each Stockholder has granted to each of Alex
Glasenberg and John Langstaff in their respective capacities as officers of
Parent, and any individual who shall hereafter succeed to any such office of
Parent, and any other designee of Parent, an irrevocable proxy to vote the
Stockholder's shares, or grant a consent or approval in respect of the
Stockholder's shares, with respect to the matters described above on which the
shares are entitled to vote from the date that all waiting periods under the
HSR Act applicable to the acquisition of the shares have been terminated or
have expired and until the Tender Offer Purchase Time.
Grant of Options. Each Stockholder has also granted to Purchaser or its
designee, effective on the date of the Stockholders' Agreement, an irrevocable
option to purchase all shares owned by the Stockholder at a purchase price per
share equal to the Per Share Amount. Purchaser may exercise the option in whole
but not in part at any time, following the occurrence of a Purchase Event (as
defined below); provided that the option will expire and be of no further force
and effect upon the earliest to occur of (i) the Tender Offer Purchase Time or
(ii) at the close of business on the third business day after the receipt by
Parent of notice of a Superior Proposal or (iii) the 60th day after the
exercise of the option, if the purchase of the shares pursuant to the option
has not occurred. Purchaser, at its option, may elect either to exercise the
option or to accept payment of the Breakup Fee, but will not be entitled to
exercise the option and retain the Breakup Fee. A "Purchase Event" means the
receipt by Parent of notice of a Superior Proposal. The purchase of shares
pursuant to the option is subject to the satisfaction of the following
conditions: (i) to the extent necessary, all waiting periods under the HSR Act
applicable to the acquisition of the shares shall have been terminated or have
expired and any other required approvals, notices, authorizations or consents
have been filed or obtained and (ii) no preliminary or permanent injunction
prohibiting the exercise of the options or delivery of the shares shall be in
effect.
Representations and Warranties. Each Stockholder has made in the
Stockholders' Agreement representations and warranties, including
representations and warranties as to ownership of shares, power and authority
and consents and approvals.
Other Potential Acquirors. Each Stockholder is prohibited from
encouraging, soliciting, participating in or initiating discussions or
negotiations with or providing non-public information to any party concerning
any Third Party Acquisition.
Restriction on Transfer, Proxies and Non-Interference. Each Stockholder
has agreed not to (a) tender its shares in any tender offer or exchange offer
for the shares other than the Offer; (b) sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract for the
sale, transfer, tender, pledge, encumbrance, assignment or other disposition
of, any or all of its shares; (c) except as contemplated by the Stockholders'
Agreement, grant any proxies or powers of attorney, deposit any of its shares
into a voting trust or enter into a voting agreement with respect to any
shares, or (d) take any action that would make any representation or warranty
of the Stockholder untrue or incorrect or have the effect of preventing or
impairing such Stockholder from performing its obligations under the
Stockholders' Agreement.
Indemnification. Each Stockholder has agreed, subject to certain
limitations, to indemnify Parent and its affiliates for all damages, losses,
costs, expenses, liabilities, judgements, penalties, claims, charges and
amounts paid in settlement as a result of any inaccuracy or misrepresentation
in, or breach of, any representation, warranty or covenant of such Stockholder
in the Stockholders' Agreement. For purposes of indemnification under the
Stockholders' Agreement, the Stockholders' representations and warranties
survive for one year after the Tender Offer Purchase Time.
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Management Employment Agreements
Concurrently with execution of the Merger Agreement the Company entered
into new employment agreements with Messrs. Rice and Botek (each, an
"Executive") in order to provide the Company, as the Surviving Corporation,
with continuity of management. The following is a summary of the material
provisions of the employment agreements, each of which is filed as an exhibit
to the Schedule TO. The summary is qualified in its entirety by reference to
the employment agreements, each of which is incorporated by reference in this
Offer to Purchase.
Each employment agreement provides that the Company will continue to
employ the Executive, and the Executive will continue in the employ of the
Company, subject to the terms and conditions of the employment agreement, for
two years after the Effective Time. The employment agreements will
automatically renew for one year periods unless either the Executive or the
Company gives 120 days prior written notice. Under the employment agreements,
each of Messrs. Rice and Botek is entitled to receive (i) an annual base salary
equal to $200,00 and $160,000, respectively, a discretionary annual bonus
(which may include grants of stock options under Parent's incentive stock
option plan) consistent with bonus compensation for senior executives of
Parent, and (iii) benefits comparable to those provided to other executive
officers of the Company.
In addition to the foregoing, Mr. Rice will be entitled to a performance
bonus of $681,152 and Mr. Botek will be entitled to a performance bonus of
$507,500 after the Tender Offer Purchase Time. Mr. Rice's and Mr. Botek's
unvested stock options will vest and the restrictions on their restricted stock
will lapse on December 15, 2000. The loans made to Mr. Rice and Mr. Botek to
purchase each's restricted stock will be forgiven on December 15, 2000.
The Executives' employment with the Company may be terminated, among other
things, (i) by the Company for cause or without cause; (ii) by the Company if
the Company determines in good faith that the Executive has become disabled; or
(iii) by the Executive if, without the Executive's written consent, (A)
Executive's duties are substantially diminished or duties or responsibilities
materially inconsistent with the Executive's position and duties described in
his employment agreement are assigned to the Executive, (B) the Executive's
annual base salary is reduced, (C) the Executive is relocated outside of the
Baltimore metropolitan area, (D), in the case of Mr. Rice, the Company fails to
elect the Executive to the Board of Directors, (E) if the Company breaches the
Employment Agreement, or (F) the occurrence of a change of control of the
Company.
The employment agreements also provide that during their terms and for a
period of one year after the expiration or termination of the employment period
the Executive will not, directly or indirectly, (i) engage in any activity
competitive with the business of the Company, Parent or any of their
affiliates, (ii) solicit customers of the Company or Parent, or (iii) solicit
employees of the Company.
Each Executive has further agreed to keep confidential all trade secrets
and confidential or proprietary information of the Company, Parent and their
affiliates.
13. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY
Purpose of the Offer. The purpose of the Offer is to enable Purchaser to
acquire control of, and the entire equity interest in, the Company. The purpose
of the Merger is to acquire all outstanding shares not tendered and purchased
pursuant to the Offer. If the Offer is successful, Purchaser intends to
consummate the Merger as soon as practicable following the satisfaction or
waiver of each of the conditions to the Merger set forth in the Merger
Agreement. The purpose of the Option is to enable Purchaser to complete the
Merger (once the Offer is successful) without having to hold a meeting of the
Company's stockholders.
Plans for the Company. Except as otherwise set forth in this Offer to
Purchase, Purchaser expects that, initially following the Merger, the business
operations of the Company will be continued by the Surviving Corporation
substantially as they are currently being conducted. The directors of Purchaser
will be the initial directors of the Surviving Corporation, and the officers of
the Company
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will be the initial officers of the Surviving Corporation. Upon completion of
the Offer and the Merger, Parent intends to conduct a detailed review of the
Company and its assets, corporate structure, capitalization, business
operations and prospects, policies, management and personnel. After such
review, Parent will determine what actions or changes, if any, would be
desirable in light of the circumstances which then exist.
Except as described in this Offer to Purchase, neither Parent nor
Purchaser has any present plans or proposals that would relate to or result in
(i) any extraordinary corporate transaction, such as a merger, reorganization
or liquidation involving the Company or any of its subsidiaries, (ii) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (iii) any change in the Company Board or management, (iv) any
material change in the Company's capitalization or dividend policy, (v) any
other material change in the Company's corporate structure or business, (vi) a
class of securities being delisted from a national securities exchange or
ceasing to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association or (vii) a class of equity
securities of the Company becoming eligible for termination of registration
pursuant to Section 12(g) of the Exchange Act.
14. CERTAIN EFFECTS OF THE OFFER
Market for the Shares. The purchase of shares pursuant to the Offer will
reduce the number of holders of shares and the number of shares that might
otherwise trade publicly and is likely to adversely affect the liquidity and
market price of the remaining shares held by stockholders other than Purchaser.
Purchaser cannot predict the extent that the reduction in the number of shares
that might otherwise trade publicly will affect the market price for, or
marketability of, the shares or whether such reduction will cause future market
prices to be greater or less than the Per Share Amount.
Stock Quotation. Parent intends to cause the Company to terminate the
inclusion of the shares on the Nasdaq National Market following the Tender
Offer Purchase Time and the Record Date. Inclusion of the shares on the Nasdaq
National Market is voluntary, which means the Company may terminate that
inclusion at any time. In addition, depending upon the number of shares
purchased pursuant to the Offer, the shares may no longer meet the standards
for continued inclusion in the Nasdaq National Market. If, as a result of the
purchase of shares pursuant to the Offer, the shares no longer meet the
criteria for continuing inclusion in the Nasdaq National Market, the market for
the shares could be adversely affected. According to the Nasdaq National
Market's published guidelines, the shares would not be eligible for continued
listing if, among other things, the number of shares publicly held falls below
750,000, the number of beneficial holders of shares falls below 400 (round lot
holders) or the aggregate market value of such publicly-held shares does not
exceed $5 million. If the shares were no longer eligible for inclusion in the
Nasdaq National Market, they might be eligible to be included in the Nasdaq
SmallCap Market unless, among other things, the public float is less than
500,000 shares, or there are fewer than 300 stockholders (round lot holders) in
total, or the market value of public float is less than $1 million.
Exchange Act Registration. The shares are currently registered under the
Exchange Act. The purchase of the shares pursuant to the Offer may result in
the shares becoming eligible for deregistration under the Exchange Act.
Registration of the shares may be terminated upon application of the Company to
the SEC if the shares are not listed on a national securities exchange and
there are fewer than 300 holders of record of the shares. Pursuant to the
Merger Agreement, the Company has agreed, at the earliest practicable time
following the Tender Offer Purchase Time, if the number of holders of the
shares at such time is smaller than 300, to take all steps necessary or
appropriate to terminate registration of the shares under the Exchange Act,
including without limitation the filing of Exchange Act Form 15 with the SEC
and of a notice to the Nasdaq National Market to delist the shares. Termination
of registration of the shares under the Exchange Act would substantially reduce
the information required to be furnished by the Company to its stockholders and
to the SEC and would make certain provisions of the Exchange Act no longer
applicable to the Company, such as the short-swing profit recovery provisions
of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy
statement pursuant to Section 14(a) of the Exchange Act in connection with
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stockholders' meetings and the related requirement of furnishing an annual
report to stockholders, and the requirements of Rule 13e-3 under the Exchange
Act with respect to "going private" transactions. Furthermore, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rule 144 promulgated under
the Securities Act of 1933 may be impaired or eliminated. If registration of
the shares under the Exchange Act were terminated, the shares would no longer
be "margin securities" or be eligible for inclusion on the Nasdaq National
Market.
Margin Regulations. The shares are currently "margin securities" under the
Regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the shares. Depending upon
factors similar to those described above regarding the market for the shares
and stock quotations, it is possible that, following the Offer, the shares
would no longer constitute "margin securities" for the purposes of the margin
regulations of the Federal Reserve Board and therefore could no longer be used
as collateral for loans made by brokers.
15. DIVIDENDS AND DISTRIBUTIONS
The Merger Agreement provides that from the date of the Merger Agreement
until the Closing Time, unless the Parent has consented in writing, the Company
may not declare, set aside or pay any dividends on, or make other distributions
in respect of, any of the Company's stock, repurchase, redeem or otherwise
acquire, or agree or commit to repurchase, redeem or otherwise acquire, any
shares of stock or other equity or debt securities or equity interests of the
Company or any of its subsidiaries.
16. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the Offer, Purchaser will not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC including Rule 14e-l(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restrictions set forth in the Merger
Agreement, the payment for, any tendered shares, if (w) any waiting periods
applicable to the Offer under the HSR Act have not been terminated or have not
expired, (x) any of the consents or approvals of anyone other than a
governmental entity, in connection with the execution, delivery and performance
of the Merger Agreement, have not been obtained or made, except where the
failure to have obtained or made any such consent or approval would not have a
Material Adverse Effect, (y) the Minimum Condition shall not have been
satisfied, or (z) at any time on or after the date of the Merger Agreement and
before the time of acceptance of tendered shares pursuant to the Offer, any of
the following events shall occur which, in the reasonable judgment of Parent
and Purchaser makes it inadvisable to proceed with the Offer or acceptance for
payment:
(i) the Company shall not have received the consents required by the
agreements between the Company and the Maryland Industrial Development
Financing Authority, First Union National Bank and the Mayor and City Council
of Baltimore;
(ii) from the date of the Merger Agreement until the Tender Offer
Purchase Time, any Governmental Entity or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order which is in
effect at the Tender Offer Purchase Time and which (A) makes the acceptance for
payment of, or the payment for, any or all of the shares illegal or otherwise
prohibits consummation of the Offer, the Merger or any of the other
transactions contemplated hereby, or (B) prohibits Purchaser from operating the
business of the Company in substantially the same manner as it is currently
conducted; provided, however, that the parties shall use commercially
reasonable efforts (subject to the proviso in Section 5.6(b)) to cause any such
decree, judgment or other order to be vacated or lifted prior to the Tender
Offer Purchase Time;
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(iii) the representations and warranties of the Company set forth in
the Merger Agreement are not true and correct on the date thereof or the
expiration time of the Offer, as it may be extended from time to time, or the
Company breaches or fails in any respect to perform or comply with any material
obligation, agreement or covenant required by the Merger Agreement to be
performed or complied with by it at or prior to such time except where the
failure of representations and warranties (without regard to materiality
qualifications therein contained) to be true and correct, or the performance or
compliance with such obligations, agreements or covenants, would not,
individually or in the aggregate, have a Material Adverse Effect;
(iv) the Merger Agreement shall have been terminated in accordance with
its terms;
(v) there shall have occurred an acceptance by the Company of a
Superior Proposal;
(vi) the Company Board shall have withdrawn or modified in a manner
adverse to Parent its approval or recommendation of the Offer, shall have
recommended to the Company's stockholders a Third Party Purchaser or shall have
adopted any resolution to effect any of the foregoing;
(vii) from the date of the Merger Agreement until the Tender Offer
Purchase Time, there shall have occurred the commencement of a war having a
Material Adverse Effect on the Company; which, in the reasonable judgment of
Parent and Purchaser, in any such case, and regardless of the circumstances
giving rise to any such condition, makes it inadvisable to proceed with the
Offer and/or with such acceptance for payment or payments.
(viii) the Loan Commitment shall have been withdrawn by ScotiaBank.
(ix) Parent shall not have received the favorable opinion of Piper
Marbury Rudnick & Wolfe LLP with respect to certain tax matters related to
compensation payable to the Company's executive officers.
The conditions set forth in the Merger Agreement (other than the Minimum
Condition) are for the sole benefit of Purchaser and may be asserted by
Purchaser regardless of any circumstances giving rise to any condition and may
be waived (other than the Minimum Condition) by Purchaser, in whole or in part,
at any time and from time to time, in the sole discretion of Purchaser. The
failure by Parent or Purchaser (or any affiliate of Purchaser) at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right
and each right will be deemed an ongoing right which may be asserted at any
time and from time to time.
17. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
General. Purchaser is not aware of any material pending legal proceeding
relating to the Offer. Based on its examination of publicly available
information filed by the Company with the SEC and other publicly available
information concerning the Company, Purchaser is not aware of any governmental
license or regulatory permit that appears to be material to the Company's
business that might be adversely affected by Purchaser's purchase of the shares
as contemplated herein or, except as set forth in this Section 17, of any
approval or other action by any government or governmental administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the Purchase or ownership of shares by Purchaser or Parent as contemplated
herein. Should any such approval or other action be required, Purchaser
currently contemplates that, except as described below under "State Takeover
Statutes", such approval or other action will be sought. There can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that if such approval
were not obtained or such other action were not taken, adverse consequences
might not result to the Company's business, or certain parts of the Company's
business might not have to be disposed of, any of which could cause Purchaser
to elect to terminate the Offer without the purchase of shares thereunder under
certain conditions. See Section 16 -- "Certain Conditions of the Offer."
State Takeover Statutes. A number of states (including Maryland, where the
Company is incorporated), have adopted laws which purport, to varying degrees,
to apply to attempts to acquire corporations that are incorporated in, or which
have substantial assets, stockholders, principal
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executive offices or principal places of business or whose business operations
otherwise have substantial economic effects in, such states. Except for the
provisions of the MGCL described herein, Purchaser does not know whether any of
these laws will, by their terms, apply to the Offer or the Merger or any other
business combination between Purchaser or any of its affiliates and the
Company.
Section 3-702 of the MGCL provides that when a person acquires shares of a
corporation which would result in that person beneficially owning more than 20%
of the voting power of the corporation, those shares have no voting rights
except to the extent approved by the other stockholders of the corporation by a
two-thirds vote. This provision is also triggered when a person acquires more
than one third of the voting power and more than a majority of the voting
power. As permitted by Section 3-702 of the MGCL, the Company Board has taken
all necessary action so that the Purchaser's shares will not be governed by
this statute.
Section 3-602 of the MGCL prevents, under certain circumstances, an
"interested stockholder" (including a person who owns or has the right to
acquire 10% or more of the corporation's outstanding voting stock) from
engaging in a "business combination" (defined to include mergers and certain
other actions) with a Maryland corporation for a period of five years following
the date such person became an interested stockholder. As permitted by Section
3-602 of the MGCL, the Company Board has taken all necessary action so that
neither Parent nor Purchaser is or will be considered an "interested
stockholder" under Section 3-602 of the MGCL.
Neither Parent nor Purchaser has determined whether any takeover laws or
regulations of any state other than Maryland will by their terms apply to the
Offer or the Merger. The Company has informed Purchaser that it does not have
substantial assets or business operations outside of Maryland. Therefore,
neither Purchaser nor Parent have attempted to comply with any state takeover
statutes other than Maryland in connection with the Offer or the Merger. To the
extent that certain provisions of these laws purport to apply to the Offer or
the Merger or other business combination, Purchaser believes that there are
reasonable bases for contesting such laws. In 1982, in Edgar v. MITE Corp., the
Supreme Court of the United States invalidated on constitutional grounds the
Illinois Business Takeover Statute which, as a matter of state securities law,
made takeovers of corporations meeting certain requirements more difficult.
However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court
held that the State of Indiana could, as a matter of corporate law,
constitutionally disqualify a potential acquiror from voting shares of a target
corporation without the prior approval of the remaining stockholders where,
among other things, the corporation is incorporated in, and has a substantial
number of stockholders in, the state. Subsequently, in TLX Purchaser Corp. v.
Telex Corp., a Federal District Court in Oklahoma ruled that the Oklahoma
statutes were unconstitutional insofar as they apply to corporations
incorporated outside Oklahoma in that they would subject such corporations to
inconsistent regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a
Federal District Court in Tennessee ruled that four Tennessee takeover statutes
were unconstitutional as applied to corporations incorporated outside
Tennessee. This decision was affirmed by the United States Court of Appeals for
the Sixth Circuit. Purchaser and Parent reserve the right to challenge the
validity of applicability of any state law allegedly applicable to the Offer or
the Merger, and nothing in this Offer to Purchase nor any action taken by
Parent or Purchaser in connection with the Offer is intended as a waiver of
that right. In the event it is asserted that one or more state takeover
statutes is applicable to the Offer or the Merger and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer or the
Merger, Purchaser might be required to file certain information with, or to
receive approvals from, the relevant state authorities or holders of shares,
and Purchaser might be unable to accept for payment or pay for shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer or
the Merger. In such case, Purchaser may not be obligated to accept for payment
or pay for any tendered shares. See Section 16 -- "Certain Conditions of the
Offer."
Antitrust in the United States. Under the HSR Act and the rules
promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied. The purchase of shares pursuant to the Offer is subject to
these requirements.
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In order to meet the requirements of the HSR Act, Purchaser expects to
file a Notification and Report Form with respect to the Offer and Merger with
the Antitrust Division and the FTC on or about November 17, 2000. The waiting
period applicable to the purchase of shares pursuant to the Offer is scheduled
to expire at 11:59 p.m., New York City time, 15 days after the filing. However,
prior to that time, the Antitrust Division or the FTC may extend the waiting
period by requesting additional information or documentary material relevant to
the Offer from Purchaser. If such a request is made, the waiting period will be
extended until 11:59 p.m., New York City time, on the tenth day after
substantial compliance by Purchaser with such request. Thereafter, such waiting
period can be extended only by court order.
Purchaser may request early termination of the HSR Act's waiting period
applicable to the Offer. There can be no assurance, however, that the
applicable 15-day HSR Act waiting period will be terminated early. Shares will
not be accepted for payment or paid for pursuant to the Offer until the
expiration or early termination of the applicable waiting period under the HSR
Act. See Section 16 -- "Certain Conditions of the Offer." Any extension of the
waiting period will not give rise to any withdrawal rights not otherwise
provided for by applicable law. See Section 4 -- "Withdrawal Rights." If
Purchaser's purchase of shares is delayed because of a request by the Antitrust
Division or the FTC for additional information or documentary material, the
Offer will be extended in certain circumstances. See Section 16 -- "Certain
Conditions of the Offer." The Antitrust Division and the FTC scrutinize the
legality under the antitrust laws of transactions such as the purchase of
shares by Purchaser pursuant to the Offer. At any time before or after the
consummation of the Offer or the Merger, the Antitrust Division or the FTC
could take whatever action under the antitrust laws of the United States it
deems necessary or desirable in the public interest, including seeking to
enjoin the purchase of shares pursuant to the Offer or seeking divestiture of
the shares so acquired or divestiture of substantial assets of Parent or the
Company. Private parties (including individual states) may also bring legal
actions under the antitrust laws of the United States. Purchaser does not
believe that consummation of the Offer and the Merger will result in a
violation of any applicable antitrust laws. However, there can be no assurance
that a challenge to the Offer and the Merger on antitrust grounds will not be
made, or if such a challenge is made, what the result will be. See Section 16
-- "Certain Conditions of the Offer", including conditions with respect to
litigation and certain governmental actions and Section 12 -- "The Merger
Agreement; Other Arrangements" for certain termination rights.
18. APPROVAL OF THE MERGER
The Company Board has approved the Merger and adopted the Merger
Agreement. Depending upon the number of shares purchased by Purchaser pursuant
to the Offer and whether Purchaser exercises the option to purchase Series B
Preferred Stock, the Company Board may be required to submit the Merger
Agreement to the Company's stockholders for approval at a stockholder's meeting
convened for that purpose in accordance with Maryland Law. If stockholder
approval is required, the Merger Agreement must be approved by the affirmative
vote of at least a majority of all votes entitled to be cast at such meeting.
If the Minimum Condition is satisfied and, therefore, Purchaser consummates the
Offer, Purchaser will have sufficient voting power to approve the Merger
Agreement at a stockholders' meeting without the affirmative vote of any other
stockholder. If Purchaser acquires shares entitled to at least 90% of the votes
entitled to be cast on the Merger, the MGCL provides that the Merger may be
consummated without a stockholders' meeting or the approval of the Company's
stockholders after giving 30 days' notice to the minority stockholders.
Assuming enough shares are tendered to satisfy the Minimum Condition,
Purchaser will be able to control the outcome of any vote by the Company's
stockholders at a meeting. For this reason and to facilitate completion of the
Merger as soon as practicable after consummation of the Offer, the Company and
Purchaser entered into the Option so that the expense and time necessary to
hold a meeting of the Company's stockholders could be avoided. Therefore,
Purchaser intends to exercise the Option immediately following consummation of
the Offer, thereby enabling Purchaser to hold shares entitled to at least 90%
of the votes entitled to be cast on the Merger and eliminating the need for a
meeting or vote of the Company's stockholders on the Merger.
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19. APPRAISAL RIGHTS
Holders of shares are not expected to have the right to dissent from the
Merger and seek appraisal of the fair value of their shares. Under the MGCL,
such dissent and appraisal rights are not available if (i) in the case of a
merger to be voted on by stockholders, the shares are listed on the Nasdaq
National Market as of the record date for a meeting of the Company's
stockholders regarding the Merger or (ii) in the case of a merger which does
not require a stockholder vote, the Company and Purchaser are merged after
Purchaser holds shares entitled to at least 90% of votes, on the record date
for notice of the Merger. Purchaser believes the Merger will satisfy one of
these two conditions, which means that, under the MGCL no dissent and appraisal
rights will apply to the Merger.
20. FEES AND EXPENSES
Parent and Purchaser have retained MacKenzie Partners, Inc. to be the
Information Agent and The Bank of New York to be the Depositary in connection
with the Offer. The Information Agent may contact holders of shares by mail,
telephone, telecopy, telegraph or personal interview and may request banks,
brokers, dealers and other nominees to forward materials relating to the Offer
to beneficial owners of shares. The Information Agent and the Depositary each
will receive customary compensation for their respective services in connection
with the Offer, will be reimbursed for reasonable out-of-pocket expenses, and
will be indemnified by Purchaser and Parent against certain liabilities and
expenses in connection therewith, including certain liabilities under federal
securities laws. Neither Parent nor Purchaser will pay any fees or commissions
to any broker or dealer or to any other person (other than to the Depositary
and the Information Agent) in connection with the solicitation of tenders of
shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies will, upon request, be reimbursed by Purchaser for customary mailing
and handling expenses incurred by them in forwarding offering materials to
their customers.
21. MISCELLANEOUS
Neither Purchaser nor Parent is aware of any jurisdiction where the making
of the Offer is prohibited by any administrative or judicial action pursuant to
any valid state statute. If either Purchaser or Parent becomes aware of any
valid state statute prohibiting the making of the Offer or the acceptance of
the shares, Parent and Purchaser will make a good faith effort to comply with
that state statute. If, after a good faith effort, Purchaser and Parent cannot
comply with the state statute, the Offer will not be made to, nor will tenders
be accepted from or on behalf of, the holders of shares in that state.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR PURCHASER OR THE COMPANY NOT CONTAINED
HEREIN OR ELSEWHERE IN THE OFFER DOCUMENTS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Purchaser has filed with the SEC a Tender Offer Statement on Schedule TO
pursuant to SEC Rule 14d-3, together with exhibits furnishing certain
additional information with respect to the Offer, and may file one or more
amendments thereto. In addition, the Company has filed with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9, together with certain
exhibits, pursuant to SEC Rule 14d-9, setting forth the recommendations of the
Company Board with respect to the Offer, the reasons for such recommendations
and furnishing certain additional related information. A copy of such
documents, any amendments and any exhibits thereto, may be examined at, and
copies may be obtained from, the SEC (but not the regional offices of the SEC)
in the manner set forth under Section 7 -- "Certain Information Concerning the
Company" above.
AC ACQUISITION SUBSIDIARY, INC.
November 17, 2000
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
The following table sets forth the name and present principal occupation
or employment, and the name, principal business and address of any corporation
or other organization in which such occupation or employment is conducted of
each director and executive officer of Parent. Unless otherwise indicated, the
business address of each such person is c/o Parent at 3403 American Drive,
Units 3/4, Mississauga, Ontario, Canada, L4V 1T4 and each such person is a
citizen of Canada.
<TABLE>
<S> <C>
DIRECTORS PRESENT PRINCIPAL OCCUPATION
--------- ----------------------------
R. Craig Baxter President, Apotex International, Inc.
Executive Vice President, Apotex Inc.
150 Signet Drive
Weston, Ontario
M9L 1T9
Canada
Alex Glasenberg Vice President-Finance, Apotex Inc.
150 Signet Drive
Weston, Ontario
M9L 1T9
Canada
Jack M. Kay President and Chief Operating Officer, Apotex Inc.
150 Signet Drive
Weston, Ontario
M9L 1T9
Canada
John Langstaff President and Chief Executive Officer, Cangene Corporation
104 Chancellor-Matheson Road
Winnipeg, Manitoba
R3T 2N2
Canada
John Nystrom Vice President and Chief Technical Officer, The Medicines
Company
One Cambridge Center
Cambridge Massachusetts 02142
USA
Bernard C. Sherman Chairman and Chief Executive Officer, Apotex Inc.
150 Signet Drive
Weston, Ontario
M9L 1T9
Canada
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C>
DIRECTORS PRESENT PRINCIPAL OCCUPATION
--------- ----------------------------
Michael Spino Senior Vice President-Scientific Affairs,
Apotex Inc.
150 Signet Drive
Weston, Ontario
M9L 1T9
Canada
Richard W. Taylor Consultant, The Lesley Company Inc.
Health Sector Consulting
31 Felbrigg Avenue
Toronto, Ontario
M5M 2L8
</TABLE>
<TABLE>
<S> <C>
EXECUTIVE OFFICERS PRESENT EMPLOYMENT
------------------ ------------------
William Labossiere Bees Vice President, Operations
Alex Glasenberg Chief Financial Officer
Wendy Johnson Vice President, Research & Development
John Langstaff President and Chief Executive Officer
John W. McMillan General Manager
Andrew D. Storey Vice President, Quality Assurance/Clinical &
Regulatory Affairs
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
The following table sets forth the name and present principal occupation
or employment, and the name, principal business and address of any corporation
or other organization in which such occupation or employment is conducted of
each director and executive officer of Purchaser. Unless otherwise indicated
below, each occupation set forth opposite each person refers to employment with
Purchaser. The business address of each such person is c/o Parent at 3403
American Drive, Units 3/4, Mississauga, Ontario, Canada, L4V 1T4 and each such
person is a citizen of Canada.
<TABLE>
<S> <C>
DIRECTORS AND
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
------------------ --------------------
Alex Glasenberg Vice President-Finance, Apotex Inc.
John Langstaff President and Chief Executive Officer, Cangene Corporation
John W. McMillan General Manager, Cangene Corporation
</TABLE>
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<PAGE>
THE INFORMATION AGENT FOR THE OFFER IS:
[GRAPHIC OMITTED]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL FREE (800) 322-2885
